Nathan-MSI Group
MADAGASCAR AGOA JUMPSTART PROJECT
Competitiveness Audit of Madagascar’s
Cotton, Textiles, and Garments Sector
prepared for
USAID/Madagascar
by Lynn Salinger
Nathan Associates Inc.
Arlington, Virginia
September 28, 2003
The opinions expressed herein are those of the author and do not necessarily reflect the views of the United
States Agency for International Development.
ii
Competitiveness Audit of Madagascar’s Cotton, Textiles, and Garments Sector
LIST OF ACRONYMS .......................................................................................................................................... vi
EXECUTIVE SUMMARY..................................................................................................................................... vii
1. INTRODUCTION .............................................................................................................................................. 1
Background....................................................................................................................................................... 1
Madagascar Textile Competitiveness Audit Team ............................................................................................ 2
Audit Scope of Work ......................................................................................................................................... 2
Field Methodology ............................................................................................................................................ 3
Guiding Questions ............................................................................................................................................ 3
2. BRIEF RECAP OF AGOA BENEFITS FOR TEXTILES-GARMENTS............................................................. 5
AGOA I & II Textile and Apparel Benefits ......................................................................................................... 5
Implementation Record to Date ........................................................................................................................ 6
Preparing for AGOA III.................................................................................................................................... 10
Preparing for a Global Market After Quotas .................................................................................................... 12
3. COMPETITIVENESS AUDIT APPROACH .................................................................................................... 13
Vertical vs. Pipeline integration ....................................................................................................................... 13
Competitiveness Variables Examined by This Audit ....................................................................................... 17
Global Textile Sector Competitiveness Examples .......................................................................................... 19
4. COMPETITIVENESS OF MADAGASCAR’S COTTON-TEXTILES-GARMENTS VALUE-CHAIN ............... 24
Outline of Madagascar’s Cotton, Textiles, and Garments Sector ................................................................... 24
Raw Materials: Seed Cotton Production, Ginning, and Fiber Production ........................................................ 24
Intermediate Textile Inputs: Fabric Production................................................................................................ 35
Final Garments: Clothing Assembly and Export ............................................................................................. 40
5. CONCLUSIONS AND RECOMMENDATIONS .............................................................................................. 53
Diversity of Competitiveness Strategies ......................................................................................................... 53
Priorities for Madagascar ................................................................................................................................ 53
Appendices ........................................................................................................................................................ 57
A. What is “Competitiveness?”........................................................................................................................ 57
B. Cotton Production Costs, Profitability, and Reference Prices ..................................................................... 59
C. Survey of Developing Country Electricity Markets ...................................................................................... 67
D. List of Contacts .......................................................................................................................................... 79
E. Literature References ................................................................................................................................. 83
iii
ILLUSTRATIONS
Tables
Table 1: Cotton-Textiles-Clothing Sector Competitiveness Strategy : Priority Actions ....................... ix
Table 2: Cotton-Textiles-Clothing Sector Competitiveness Strategy : Complementary Actions ......... x
Table 3: Economic Activity of Free Zone Companies, Antananarivo & Antsirabe, 2000 ....................... 1
Table 4: U.S. Imports Under AGOA ............................................................................................................ 6
Table 5: Total Textiles & Apparel Shipments to U.S. ................................................................................ 7
Table 6: Madagascar Apparel Exports to U.S............................................................................................ 8
Table 7: Selected U.S. Clothing Category Import Duties.......................................................................... 9
Table 8: U.S. Clothing Imports from Selected FTA Partners and Partners-to-be, 1999-2002 .............. 10
Table 9: AGOA-Related Upstream Textile Investments .......................................................................... 20
Table 10: Madagascar Seed Cotton Production, 1971-2002................................................................... 28
Table 11: Madagascar Cotton Lint Sales ................................................................................................. 30
Table 12: Estimates of Farm-Level Financial Productivity ..................................................................... 31
Table 13: Estimates of Ginnery-Level Economic Profitability ............................................................... 32
Table 14: Madagascar Seed Cotton Producer Prices (1st Quality) ........................................................ 34
Table 15: Madagascar Imports of Silk, Wool, Cotton, and MMF Products, 2001 .................................. 36
Table 16: Suppliers of Imported Cotton Fabrics to Madagascar, 2001 ................................................. 37
Table 17: Global Sources of U.S. Clothing Imports ................................................................................ 41
Table 18: Madagascar Garment Exports, 2001........................................................................................ 43
Table 19: Labor Cost in Men’s Shirt Production ..................................................................................... 48
Table 20: Cost of Seed Cotton Production, Toliara 2002/03 .................................................................. 59
Table 21: Cost of Seed Cotton Production, Mahajanga 2003 (HASYMA) .............................................. 61
Table 22: Cost of Seed Cotton Production, Mahajanga 2003 (Northwest Producers’ Union) ............. 63
Table 23: Reference Price for Cotton Fiber (Import-Substitution) ......................................................... 65
Table 24: Electricity Prices for Industrial Consumers ............................................................................ 70
iv
Figures
Figure 1: Evolution of Cotton Production................................................................................................ 25
Figure 2: Evolution of Cotton Yields ........................................................................................................ 25
Figure 3: World Cotton Lint Prices........................................................................................................... 33
Figure 4: Comparison of HASYMA & World Prices ................................................................................ 34
Figure 5: Porter Competitiveness Diamond ............................................................................................ 49
Figure 6: Real Income and Electricity Consumption (2000) ................................................................... 68
Figure 7: World Industry Electricity Rates, 2000..................................................................................... 69
Figure 8: Industry Electricity Rates, Newly Industrializing Countries................................................... 69
*****
About the author: Lynn Salinger is a Senior Economist with Associates for International Resources
and Development (AIRD), Cambridge, Massachusetts (lsalinger@aird.com). Sylvia Ciesluk, a
research associate with AIRD, prepared the appendix on developing country electricity market
trends.
AIRD (www.aird.com) is a member of the Nathan-MSI Group under the SEGIR/General Business,
Trade, and Investment IQC with USAID.
*****
v
LIST OF ACRONYMS
AGOA
Africa Growth and Opportunity Act
ATRIP
Africa Trade and Investment Program
CAPE
Comité d’Appui et de Pilotage pour la Relance des Entreprises
(Committee for Support and Guidance of Private Sector Renewal)
CBP
U.S. Bureau of Customs and Border Patrol
CBTPA
Caribbean Basin Trade Partnership Act
CFDT
Compagnie française pour le développement des fibres textiles
EPZ
Export processing zone
FDI
Foreign direct investment
FMG
Malagasy franc
FTA
Free trade agreement
GEM
Groupement des Entreprises de Madagascar (Madagascar’s
Enterprise Association)
GEFP
Groupement des Entreprises Franches et Partenaires (Association of
Duty-Free Enterprises and Partners)
GSP
Generalized System of Preferences
IPP
Independent Power Producers
kwH
Kilowatt hour
MMF
Man-made fiber
MWh
Megawatt hours
QIZ
Qualifying industrial zone
R&D
Research and development
SAPP
Southern African Power Pool
SGS
Société Générale de Surveillance
SME
Square-meters equivalent
TPP
Taxe sur les produits pétroliers
USTR
U.S. Trade Representative’s Office
VAT
Value-added tax
WCO
World Customs Organization
WFD
Workforce development
vi
EXECUTIVE SUMMARY
A broad view is taken here of Madagascar’s cotton, textiles, and clothing sectors to consider the
impact that the Africa Growth and Opportunity Act has had to date and the potential impact of
pending changes in the U.S. and international trade regimes for textiles and clothing on the Malagasy
economy through exports and job creation.
The momentum first created by AGOA in Madagascar – which quickly became the third largest
exporter (after Lesotho and Kenya) to the U.S. market, measured in volume – ebbed in 2002. This
competitiveness audit was charged with assessing the country’s prospects for re-stimulating clothing
manufacture and export.
The analysis takes as given two market access rule changes that will fundamentally change the
competitive position of Madagascar in the world apparel market. Whether Madagascar can compete
under present conditions is of less interest than whether Madagascar can continue to compete when
AGOA and the multilateral Agreement on Textiles and Clothing are amended or expire.
The analysis points to some actions that need to be undertaken at the individual company level,
as each firm pursues its own combination of supplier and marketing relationships, product niches,
and production models to advance its particular competitiveness strategy.
The analysis also highlights policy issues whose resolution by government is critical in order to
maintain a commercial environment that continues to welcome foreign investment and contractor
relationships, promote exports, and create new employment opportunities for the Malagasy people.
UNDERSTANDING THE DETERMINANTS OF COMPETITIVENESS
Global competitiveness in the textile and clothing business is an ever-shifting bar. It used to be
enough to be a lower cost supplier to the U.S. market, relative to U.S. costs of production. Once
some measure of export success was achieved, exporters had to pay attention to quotas, those
bilateral quantitative restrictions in specific product categories that were applied by protectionist
importers to regulate imports. Now, with a far larger share of total apparel consumption in industrial
countries supplied by foreign producers, the political pressure for protection has ebbed somewhat. In
addition, quotas are due to be dismantled, meaning that future trade will be regulated largely by
import tariffs.
This may suggest that countries with preferential access to the U.S. market will be more
competitive than countries whose exporters must still bear full duties. However, the eagerness with
which preferential trade agreements are being negotiated by the U.S. with its trade partners around
the world suggests that this status may convey decreasing relative benefits over time.
In addition, the most competitive suppliers now offer “full-package” services to U.S. buyers.
Such services include mastery at all stages of the pipeline in order to meet buyers’ needs for speed
and flexibility. It may also include the ability to source raw materials without direct assistance from
buyers, the ability to introduce the necessary fabric and garment finishes required to achieve a
product’s final look and feel that is key to consumers, the preparation of shipments of goods that are
marked for domestic distribution among retail outlets and “ready-to-hang” on shop floors, and
possibly even the ability to manage point-of-sale data in order to track sales and inventory
information and manage replenishments for retailers.
vii
Being a low-cost supplier is still important, but it is only the first criterion that “gets you in the
door.” Exporter firms need to understand how to manage the qualitative as well as quantitative
aspects of competing in the market.
MARKET ACCESS RULE CHANGES
Two important determinants of Madagascar’s access to apparel markets in the U.S. and in the global
arena will change in the next two years:
September 2004 Expiration of AGOA’s Special Rule for Lesser Developed Countries
The first is the scheduled expiration of the special rule that allows lesser developed African countries
to procure yarn and fabric inputs from third-country (i.e. non-U.S. and non-African) suppliers. This
rule is scheduled to expire September 30, 2004.
After that date, AGOA beneficiaries will have to source their yarn and fabric inputs either from
the U.S. or from other AGOA-eligible African suppliers. Although some stakeholders advocate an
extension of the special rule to give more time for industrial investments in upstream manufacture to
come on stream, it is unlikely that the third-country provision rule would be extended for more than a
year or two.
Malagasy companies must begin now to develop supplier relationships with African producers of
yarn and fabrics as soon as possible in order to be able to comply with AGOA once the special rule
on third-country sourcing expires.
January 2005 Expiration of World Textiles and Apparel Quotas
The second is the expiration as of January 1, 2005 of all bilateral trade quotas of textiles and
clothing, under the Agreement on Textiles and Clothing.
The system of product-specific quotas that regulates quantities of textiles and apparel imports
into the U.S., Canada, the European Community, and Norway, is being dismantled under the
auspices of the World Trade Organization. Beginning in 2005, all quotas will be gone. Firms based in
large manufacturing and exporting nations, such as China, will no longer have to worry about
diversifying their manufacturing bases outside of China to avoid importers’ quota restrictions. This
may bring about great consolidation in global sourcing patterns. In one recent survey, U.S. firms
indicated that they will source three-quarters of their product requirements from China and the
remaining one-quarter from elsewhere.
After January 1, 2005, Madagascar’s clothing exporters must be able to compete both in terms of
cost and in terms of responding to non-cost, more qualitative demands of the marketplace if they still
want to figure among the list of potential “non-China” suppliers to the U.S. market.
STRATEGIES FOR IMPROVING GLOBAL COMPETITIVENESS
This audit recommends that actions be considered for both the short- and long-term improvement of
competitiveness. Responsibilities are shared by both the public and private sector. The audit focuses
on actions to be undertaken by policy makers and through public-private collaboration forums.
Information on global market trends is also offered throughout this report so that private companies
will have deeper insights and can plan their individual company strategies accordingly.
viii
Short-term priorities are those that can be undertaken largely by virtue of government decision to
act. Complementary actions are those that require more substantial investment or more significant
partnering and consensus-building among stakeholders.
Table 1: Cotton-Textiles-Clothing Sector Competitiveness Strategy : Priority Actions
Goals
Priority Actions
Calendar
Responsible
Agencies
Underlying goal:
Improved strategy
for competitiveness
Develop a joint public/private strategic plan for achieving an integrated
Immediately
pipeline for the cotton/textile/clothing sector.
Increase representation on the Cellule de Réflexion to include trade
VPM, Ministries of Trade
& Industry, Finance,
Immediately
Energy; Cellule de
Réflexion
facilitation institutions, education & training providers, and others
as needed.
Basic goal:
Increased strategic
Engage firms in workshop to disseminate insights of this
November 2003
competitiveness audit.
USAID AGOA Jumpstart
project, VPM, Ministries;
planning by firms
MUSBC, Cellule de
Réflexion
Basic goal:
Commitment to resolve SGS/Customs Administration impasse.
Immediately
VPM, Ministries of Trade
Improved market
& Industry, Finance;
environment to allow
Cellule de Réflexion
firms to respond to
Modernize and render more transparent the Madagascar customs
2003-2004
VPM, Ministries of Trade
price signals and
administration in order to reduce transit times and unofficial fees
& Industry, Finance;
thus function
associated with inspections.
Cellule de Réflexion
efficiently
Make every effort to help the privatized rail line between Antananarivo
2003-2004
VPM, Ministries of Trade
and Toamasina become operational as quickly as possible, in
& Industry, Transport;
order to reduce the transport bottleneck faced by Antananarivo-
Cellule de Réflexion
based manufacturers.
Reduce the cost of electricity by allowing Jirama to purchase diesel
2003
and heavy fuel hors-taxes.
VPM, Ministries of Trade
& Industry, Energy;
Cellule de Réflexion
Basic goal:
Confirm whether VAT obligations will again be required of EPZ firms.
2003
Ministry of Finance
Resolve impasse regarding the future of HASYMA.
Immediately
VPM, Ministries of Trade
Consider various ownership options for increasing the role of private
2003-2004
Resumption of
domestic seed
cotton production
Basic goal:
Increased density,
& Industry, Agriculture;
HASYMA, FOFIFA,
World Bank
equity participation in the sector.
Work to attract new foreign direct investment into Madagascar,
especially in spinning, weaving/knitting, & wet processing.
2003-2004
VPM, Ministries of Trade
& Industry, Finance;
vibrancy, productivity
World Bank (especially
of the textiles sector
IFC), MUSBC
ix
Table 2: Cotton-Textiles-Clothing Sector Competitiveness Strategy : Complementary
Actions
Goals
Priority Actions
Calendar
Responsible
Agencies
Complementary
Promote commercial investigation and trade promotion inspection
2004-2005
Ministry of Trade &
goal: Encourage
tours by Malagasy cotton, textile, and clothing business leaders in
Industry, U.S.
increased interaction
other AGOA-eligible countries.
government
between Malagasy
cotton, textiles,
Encourage participation by Malagasy cotton, textile, and clothing
clothing firms and
business leaders in appropriate trade fairs taking place in Africa
those in other AGOA
and in the U.S.
2004-2005
countries
Complementary
goal: Improved
understanding of
agronomics &
economics of seed
cotton and lint
Reinvigorate cotton research to explore economics of long-staple
2004-2005
cotton production in Madagascar.
Ministry of Agriculture,
HASYMA, FOFIFA,
Comparative advantage analysis of seed cotton & technical +
2004-2005
World Bank
economic analysis of seed cotton & lint production.
Conduct farming systems research to understand relative incentives to 2004-2005
farmers to produce seed cotton versus other crops.
production
Complementary
Encourage participation by Malagasy customs administration
2004-2005
Ministry of Finance,
goal: Modernized
authorities in international forums, such as the World Customs
World Bank, World
and more
Organization.
Customs Organization
transparent customs
function
Encourage interaction by Malagasy customs administration authorities
2004-2005
with colleagues in successfully modernizing authorities, e.g.
Morocco.
Complementary
goal: Acquisition of
workforce skills,
training
Develop a plan to improve the technical productivity of the chain’s
workforce.
2004-2008
Ministries of Trade &
Industry, Education;
Expand Madagascar’s supply of mid-level managers in technical and
public & private
business areas, e.g. fiber and textiles engineering, technical
education and training
support personnel, skilled assembly operators, textile arts and
providers; Cellule de
fashion design, international branding, market analysts,
Réflexion
international sales and contracting, and logistics managers.
x
1. INTRODUCTION
BACKGROUND
Madagascar is an island nation of 16 million people, located off the southeast coast of sub-Saharan
Africa. In 1989, the country capped a decade of economic reform by creating an export processing
zone (EPZ). At first sited in physical EPZs, the country switched to a “virtual” EPZ system wherein
individual firms were allowed to be sited anywhere under EPZ status. Firms that export 95% of their
production may access imported inputs at world prices, i.e. without paying import duties. In addition,
EPZ firms enjoy capital depreciation and tax advantages.
By the end of 2001, about 150 EPZ firms employed an estimated 120,000 people. These firms are
concentrated in Madagascar’s two largest industrial zones, i.e. the capital city of Antananarivo and
Antsirabe, located about 100 miles to its south. They export most of their goods via the key port city
of Toamasina (Toamasina), 180 miles east of Antananarivo. Most EPZ firms are textile/clothing
companies (Table 3), although manufacturing in other sectors also exists.
Table 3: Economic Activity of Free Zone Companies, Antananarivo & Antsirabe, 2000
Sector
Production
Value-added
(billions FMG)
(billions FMG)
1236.8
335.9
Furniture & wood products
68.0
15.8
Precision medical instruments, optics, clocks
25.2
10.8
Leather, shoes
11.2
3.9
Others
32.4
12.3
1373.6
378.7
Clothing & textiles
Total
Source: Cadot and Nasir (2002)
The existence of an export processing institutional arrangement attracted investors from
Mauritius, as the price of labor began to rise following Mauritius’ successful industrialization in the
1970s and 80s,1 as well as other countries. It also enabled Madagascar-based firms to take quick
advantage of new market opportunities offered by the Africa Growth and Opportunity Act (AGOA),
passed in October 2000. In 2001, Madagascar was the third largest exporter of clothing to the U.S.
market in terms of volume and the fourth largest in terms of value. Strong growth of the EPZ sector,
whose value of exports rose by 8% in 2001, contributed to extremely favorable conditions in the
external sector in that year.
However, a six-month crisis of political transition, lasting from December 2001 to June 2002 and
involving general strikes and severe transport disruptions in and out of Antananarivo, cost the
1
Mauritius’ per capita income in 1976 was $779. By 2000, it had climbed to $3794. (Pun et al., 2003, p. 50)
1
economy 12% of its GDP in 2002.2 Much of the EPZ-based textile and apparel industry was brought
to its knees. An estimated 100,000 EPZ workers lost their jobs.
Over a year has passed since the administration of President Ravalomanana was recognized by
the international community as the legitimate government of Madagascar. The moment is now
opportune to evaluate how well textile/clothing firms are recovering from the effects of the crisis and
to propose measures that can be taken to jumpstart Madagascar’s clothing exports to the U.S. under
AGOA.
MADAGASCAR TEXTILE COMPETITIVENESS AUDIT TEAM
USAID/ Madagascar’s AGOA Jumpstart Project, led by Nathan Associates, runs from June 2003
through March 2004. One of its first activities is the implementation of a competitiveness audit of the
cotton/textiles/clothing cluster in Madagascar. The project will also provide business linkage and
development services to Malagasy firms in handicrafts and natural products sectors. The AGOA
Jumpstart textile sector competitiveness audit team consists of textile specialist Lynn Salinger and
trade policy specialist Alain Pierre-Bernard.
Ms. Salinger, new to Madagascar, brings previous textile industry experience to this study. She
has conducted AGOA-related textile sector competitiveness audits in South Africa (1997-1998), Mali
(1999, 2001), and Uganda (2001). Salinger also coached Vietnamese economists who undertook a
competitiveness audit of their textile and clothing industry prior to the normalization of trade
relations with the U.S. (1998, 2000). In 2002 she evaluated the potential for mutually profitable trade
and investment opportunities in Morocco (including in the clothing manufacturing sector) under a
bilateral free trade agreement with the United States, now under negotiation.
Mr. Pierre-Bernard has been professionally active in directing energy, trade, and financial policy
in Madagascar for twenty years. He is currently Trade Policy Coordinator for USAID’s Africa Trade
and Investment Program (ATRIP) project in Madagascar and a respected facilitator of publicprivate
sector cooperation to the benefit of the Malagasy business environment. With his deep knowledge
regarding Malagasy export competitiveness, the Malagasy financial sector, and the Malagasy tax
system, M. Pierre-Bernard provided invaluable guidance to this study.
AUDIT SCOPE OF WORK
The scope of work for this assignment called for an audit of the competitiveness, including an
assessment of the potential for increased vertical integration, of Madagascar’s cotton-textilesgarment value-chain. The audit identifies bottlenecks that constrain the competitiveness of
Madagascar’s clothing export sector. The audit also examines the potential for increased competitive
regional collaboration in East/Southern Africa and/or increased linkage to world markets for
competitively-priced, imported raw materials. The audit is meant to serve as the basis for a strategic
action plan of key investments and policy decisions that the government and private sector can make
to restore Madagascar’s position among AGOA beneficiaries.
There have been a number of other important competitiveness-related analyses undertaken in
Madagascar recently. This audit benefited from the analyses prepared by the Government of
2
IMF (2003) provides a detailed chronology and assessment of the economic and social impacts of the crisis.
2
Madagascar, the World Bank-led Integrated Framework for Trade-Related Technical Assistance, and
private analysts. A full list of references consulted is provided in an appendix.
FIELD METHODOLOGY
The AGOA Jumpstart project is overseen by a Partners’ Committee, comprising key Malagasy
stakeholders in all three sectors in which the project is active, i.e. textiles, natural products, and
handicrafts. Its membership includes representatives from the following organizations:

Comité d’Appui et de Pilotage pour la Relance des Entreprises (CAPE)

Office of the Vice-Prime Minister; Ministries of Industry, Agriculture,
Economy/Finance/Budget, Energy/Mines; Customs Service

Associations of private manufacturers, small/medium enterprises, handicrafts, natural
products, textile exporters

Madagascar-U.S. Business Council

USAID and the U.S. Embassy
The competitiveness audit team met with the AGOA Jumpstart Partners’ Committee at the
beginning of the audit to explain the planned study and develop stakeholder support for the strategic
plan to be produced by the audit. Interviews were subsequently held with xx representatives of
producers of seed cotton and ginned fiber; yarn, fabric, knitwear, and woven garments
manufacturers; freight forwarding, shipping, and inspection companies; energy providers; and the
government of Madagascar. A full list of contacts made by the textile competitiveness audit team is
included in Appendix D. The team is grateful to all who graciously shared insights and operational
data.
GUIDING QUESTIONS
A number of broad questions have been explored during the course of this audit:

What impact has AGOA had on Madagascar’s economy?

What competitiveness challenges face Madagascar? How are these affected by the
elimination of the AGOA special rule regarding lesser developed countries’ exemption from
yarn/fabric rules of origin requirements, scheduled for elimination in October 2004?

What are the prospects for vertical integration in this industry?

What factors affect the competitiveness of each stage in Madagascar’s cotton-textilesclothing value-chain?

How to prioritize among the possible recommendations for action?
3
2. BRIEF RECAP OF AGOA BENEFITS FOR TEXTILESGARMENTS
AGOA I & II TEXTILE AND APPAREL BENEFITS
The Africa Growth and Opportunity Act, enacted in October 2000 and valid until September 2008,
seeks to increase commercial trade relations between the U.S. and sub-Saharan Africa. It provides for
duty-free General System of Preferences (GSP) treatment for 1,800 exports from Africa. AGOA is
grounded in the recognition that development of labor-intensive manufacturing has helped to
industrialize and globalize economies around the world. This in turn has increased economic growth,
employment, and the welfare of people around the world. Section 112 of AGOA therefore offers
preferential access to the U.S. market for African garments exports, under the following conditions: 3

All existing quotas are lifted on eligible textile and apparel articles from eligible sub-Saharan
African countries.

Duty-free and quota-free access to the U.S. market is extended for sub-Saharan African
apparel made in eligible sub-Saharan African countries from yarns and fabrics not produced
in commercial quantities in the United States.

Duty-free and quota-free treatment is extended for apparel made in eligible sub-Saharan
countries from U.S. yarn and fabric. Under 2002 trade legislation known as “AGOA II,” knitto-shape apparel also qualifies for AGOA benefits.

Duty-free and quota-free U.S. market access is extended for apparel made in eligible subSaharan African countries from “regional” (i.e. African-sourced) yarn and fabric. Imports
based on regional inputs, however, are subject to an annual cap (limit). The original cap
increased incrementally from 1.5 to 3.5 percent of the multibillion dollar U.S. apparel import
market over AGOA’s 8-year period. The cap’s ceiling was increased to 7 percent under
AGOA II.

Within the regional fabric cap, a special rule allows beneficiary sub-Saharan African
countries with an annual GNP of under $1,500 (“lesser developed beneficiary countries”) to
use fabrics without regard for the country of origin until September 2004. AGOA II extended
this language to include yarn inputs as well, regardless of the country of origin. AGOA II
also designated Botswana and Namibia as lesser developed countries for the purposes of the
special rule.4
3
Taken from USTR (2003).
4
Gabon and Seychelles would also not qualify because of their per capita income levels. However, neither country
has applied for apparel provision eligibility.
5
IMPLEMENTATION RECORD TO DATE
Of the 38 sub-Saharan countries deemed eligible to receive for general AGOA benefits, the customs
visa systems of 19 countries are approved for AGOA’s apparel provisions (as of October 2003).
Madagascar was deemed eligible for AGOA from inception in October 2000. In March 2001, the
U.S. determined that Madagascar’s apparel visa system was effective to prevent unlawful
transshipments.
Table 4: U.S. Imports Under AGOA
Oct00
Oct01
(million SME)
-Sep01
-Sep02
-Sep03
versus 01/02
Lesotho
15.418
81.909
87.889
7.3%
Kenya
10.938
28.744
48.411
68.4%
19.130
39.130
104.5%
Swaziland
Oct02 % Change, 02/03
Madagascar*
9.094
24.269
31.383
29.3%
South Africa
2.918
13.573
25.016
84.3%
Mauritius
3.382
14.048
15.994
13.9%
Malawi
0.019
3.444
5.942
72.5%
Namibia
5.847
Botswana*
1.237
1.823
Ethiopia
1.227
0.931
Cape Verde
47.4%
0.858
Mozambique
0.005
Uganda*
0.592
Tanzania
0.006
0.216
Ghana*
0.151
0.006
Source: Office of Textiles and Apparel, Department of Commerce, Tariff Rate Quota
Utilization Tables
Note: Data in bold italics represent exports utilizing the special rule on thirdcountry yarns/fabrics origin; data not so highlighted represent exports utilizing
regional fabrics. *Madagascar, Ghana, and Uganda have exported minor quantities
of garments utilizing regional fabric; Botswana also exported minor quantities of
garments utilizing third-country fabrics under the lesser developed country special
rule in 2002-03.
Among these 19 countries, export success has varied widely (Table 4). In the most recent period
for which data are available (October 2002 – September 2003), six countries – Lesotho, Kenya,
Swaziland, Madagascar, South Africa, and Mauritius – have already exported in excess of 15 million
square meter equivalents (SME). At the other end of the spectrum, Namibia, Cape Verde, and
Uganda have just begun to export to the U.S. this year. Four other eligible countries, Cameroon,
Rwanda, Senegal, and Zambia, have yet to export apparel to the U.S. under AGOA.
6
Madagascar ranked third among suppliers in AGOA’s first two years (measured by SME export
volume in Table 4). It has now fallen to fourth place, demonstrating the dampening effect of last
year’s national political crisis. Yet when this table was first constituted using data available in July
2003, Madagascar was actually in fifth place, demonstrating that the clothing export pace from
Madagascar to the U.S. is apparently accelerating. Madagascar’s volume exports thus rose 29% over
the previous twelve-month period.
Between 2001 and 2002, the value of all U.S. textile and clothing imports rose 3% (Table 5)
Figures for the first eight months of 2003 suggest that the total value of imports will exceed 77
billion in 2003. Traditional Asian suppliers such as Hong Kong, Korea, and Taiwan, as well as
Mexico, Canada, and the Caribbean Basin have experienced decreases in their market share between
2002 and the first eight months of 2003, while China, Cambodia, Vietnam, India, Pakistan, Jordan,
and sub-Saharan Africa have increased their U.S. market participation.
Table 5: Total Textiles & Apparel Shipments to U.S.
(million $)
2001
2002
Through
August 2003
World, of which:
70,240
72,183
51,845
China, Hong Kong, Korea, Taiwan
16,346
17,865
13,015
Caribbean Basin
9,452
9,538
6,429
Mexico
8,945
8,619
5,438
Canada
3,162
3,199
2,051
Sub-Saharan Africa, of which:
975
1,120
991

Lesotho
215
321
244

Mauritius
238
255
196

South Africa
195
200
177

Kenya
65
126
127

Madagascar
178
89
103

Swaziland
48
89
90
Source: Office of Textiles and Apparel, U.S. Department of Commerce, Major Shippers Reports
A closer look at the composition of Madagascar’s exports to the U.S. market suggests differences
by product type (Table 6). Over 85% of these exports in the first eight months of 2003 consists of
cotton-based apparel. Although Madagascar does not yet appear to be on pace for regaining its 2001
value of exports overall, export patterns suggest increased specialization is taking place in cottonbased apparel categories, particularly with respect to women’s/girls’ slacks and men’s/boys’ knit
shirts.
7
Table 6: Madagascar Apparel Exports to U.S.
(million $)
2001
2002
2003
(through
Aug03)
Total, of which:
178
89
103
Cotton-based apparel
133
73
89
Wool-based apparel
36
9
5
9
8
9
Women’s/girls’ slacks
28
13
35
Men’s/boys’ knit shirts
15
16
16
Women’s/girls’ knit blouses
26
15
14
Men’s/boys’ trousers
30
15
13
Cotton sweaters
10
4
2
Men’s/boys’ woven shirts
12
2
1
Women’s/girls’ wool sweaters
12
3
3
Men’s/boys’ wool sweaters
13
5
2
Knit shirts, blouses
10
1
Negl.
Men’s/boys’ trousers etc
2
1
2
Men’s/boys’ knit shirts
1
2
2
Other MMF apparel
--
1
1
Women’s/girls’ knit blouses
3
1
Man-made fiber (MMF)-based apparel
Major cotton apparel categories
Major wool apparel categories
Major man-made fiber apparel categories
Source: Office of Textiles and Apparel, U.S. Department of Commerce
Selected tariffs into the U.S. market for Madagascar’s top ten clothing export categories are
presented in Table 7. For cotton and wool garments, AGOA currently gives eligible exports a 9-20%
price advantage into the U.S. market. Silk shawls only receive a 1.2% duty upon arrival into the U.S.,
whereas some sweaters of man-made fibers are dutied as much as 32.2%.
8
Table 7: Selected U.S. Clothing Category Import Duties
HS Code
Article Description
General
Duty (%)
610910
T-shirts, cotton
17.0
611011
Wool sweaters
16.1
611012
Cashmere (100%) sweaters
0.20
4.4
… blends
16.1
611020
Cotton sweaters
16.9
611030
Man-made fiber sweaters
0.10
… wool blend
17.0
0.20
… silk blend
6.3
0.30
… other
32.2
620342
Men’s/boys' cotton trousers, woven
16.7
620442
Women’s/girls' dresses, cotton, woven
8.8
620462
Women’s/girls' cotton trousers, woven
16.7
620520
Men's/boys' cotton shirts, woven
19.8
620920
Babies' garments, cotton
0.10
… Dresses
11.9
0.20
… Blouses
15.1
0.50
… Sunsuits
9.4
Silk shawls
1.2
621410
Source: U.S. International Trade Commission, Harmonized Tariff Schedule
The value of such duty preferences to AGOA partners will erode as new preferential trade
agreements with the United States are negotiated and more countries become eligible to export
garments duty-free to the U.S. As of July 2003, the U.S. has free trade agreements (FTA) in place
with Canada, Israel, Mexico, and Jordan. FTAs with Chile and Singapore have been negotiated and
are awaiting ratification by the U.S. Senate. Additional bilateral or multilateral free trade agreements
are currently in negotiation with Australia, Morocco, Central America (Costa Rica, El Salvador,
Guatemala, Honduras and Nicaragua), and the Southern African Customs Union countries
(Botswana, Lesotho, Namibia, South Africa, and Swaziland).
The current value of apparel imports from several of these countries is indicated below. As
observed in some AGOA countries, FTAs have provided a strong impulse to expansion of clothing
exports to the U.S. In Jordan, for example, garment exports were already promoted under an EPZlike arrangement, known as Qualifying Industrial Zones (QIZ). 5 When the FTA came into effect in
October 2000, however, the value of garment exports in 2002, compared with the average annual
value 1995-2000, has clearly grown significantly (Table 8). Mexico’s clothing exports to the U.S., on
5
Under the Qualifying Industrial Zones amendment to the U.S.-Israel FTA, 35% of Jordan’s QIZ content must
come from the QIZ directly, Israel, and/or the West Bank and Gaza. Of that, 11.7% must be from the Jordanian QIZ,
8% from Israel (7% for high technology content goods), and the remaining 15.3% may be fulfilled from the QIZ,
Israel, or the West Bank/Gaza.
9
the other hand, have actually fallen since 2000, after having surged ahead of those of China. The five
Central America FTA candidate countries have also witnessed a surge in their clothing exports to the
U.S., due to market access benefits already extended through the Caribbean Basin Trade Partnership
Act (CBTPA).6
In comparison, imports of garments from China have expanded 23% over the same period, while
those from Vietnam have soared 2331% (albeit from a much smaller base, with 2002 imports value
of $876 million).
Table 8: U.S. Clothing Imports from Selected FTA Partners and Partners-to-be, 1999-2002
Country
(millions $)
Canada
Mexico
NAFTA subtotal
1999
2000
2001
2002
1595.7
7738.9
9334.6
1744.4
8623.0
10367.5
1573.6
8028.1
9601.7
1586.8
7639.2
9226.0
% growth,
1999-2002
-1%
-1%
-1%
Israel
Jordan
419.8
2.2
476.3
42.7
443.6
183.8
411.6
384.3
-2%
17603%
Australia
134.6
176.0
214.7
237.4
76%
822.3
1329.0
1234.2
2195.7
277.2
5858.3
825.5
1601.9
1488.9
2416.2
338.0
6670.5
770.8
1632.0
1609.3
2437.7
378.4
6828.3
728.0
1675.2
1659.4
2501.3
433.2
6997.1
-11%
26%
34%
14%
56%
19%
52404.6
59205.5
58545.0
58712.3
12%
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Central America FTA subtotal
World Total
Source: U.S. Department of Commerce
Note: HS 61 & 62 combined, $ millions
PREPARING FOR AGOA III
At the June 2003 Corporate Council for Africa AGOA meetings held in Washington, D.C., vigorous
discussion addressed the issue of possible extension of the special rule for lesser developed African
countries that allows third-country provision of yarn and fabric inputs beyond September 30, 2004.
Proponents argue that the special rule should be maintained because current supplies of African
yarn and fabric are inadequate, of inferior quality, and more expensive than international sources.
Opponents, particularly those who have begun to make backward linkage investments in spinning
and weaving/dyeing capacity in anticipation of the expected rules of origin requirements after
September 30, 2004, argue that the rule should be allowed to expire (de Voest 2003). A compromise
6
CBTPA beneficiary countries include the five CAFTA candidates plus Antigua and Barbuda, Aruba, Bahamas,
Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Montserrat, Netherlands
Antilles, Panama, St. Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, and
British Virgin Islands.
10
position that seems to be emerging from the debate appears to be that a limited extension of an
additional 1-3 years is desirable, given the present inability of most African suppliers to provide yarn
and fabric inputs in the quantities and qualities and at the terms required by the world market.
At a June 25, 2003 hearing of the U.S. Senate Foreign Relations Committee to consider extension
of the AGOA legislation, Chairman Senator Richard Lugar observed (Lugar 2003):
An even more immediate issue is the extension of the third country fabric provision
for least developed countries, which is due to expire in 2004. The third country fabric
provision is a complex issue, and we must find creative approaches that will extend
the provision for those least developed countries that rely on it, while still
maintaining incentives for the development of textile manufacturing capabilities in
Africa. This issue has increasing urgency with the approach of the elimination of
worldwide quotas on textiles and apparel in 2005. While the current third country
fabric provision is not set to expire until September 30, 2004, we should not wait
until that expiration date to take action. U.S. retailers often place orders nearly six
months in advance, and they will want certainty before placing those orders. African
manufacturers will need time to build capacity in advance of 2005 so they can
compete with China and other Asian economies when the quotas are eliminated.
U.S. policy makers are at work on a revision of the AGOA legislation, dubbed “AGOA III.” A
preliminary list of AGOA III provisions has been drafted by the AGOA III Action Committee. The
AGOA III Action Committee will help to draft the new legislation and work to secure its passage
through the U.S. Congress. Possible textile-related provisions include (Whitaker Group 2003):

Extend, enhance and protect meaningful AGOA preferences well beyond 2008.

Simplify and clarify product and origin definitions currently subject to narrow and
exclusionary interpretation by U.S. Customs.

Encourage the provision of technical assistance to African and U.S. businesses interested in
trade.

Enhance textile and apparel benefits for least developed African countries by allowing some
use of non-African, non-US fabric in duty-free apparel beyond the current 2004 cut-off date.

Protect AGOA incentives for investment to promote a vertically integrated fiber, yarn, fabric,
and apparel industry in Africa.

Create a “short supply” standard for yarn and fabric not produced in the U.S. but which
would be allowed duty-free access if produced in Africa.

Exempt African textile and apparel production from economic impact criteria for Ex-Im
Bank and OPIC support.

Encourage World Bank Group and African Development Fund financing for textile and
apparel production.

Address transportation cost and scheduling issues that affect the competitiveness of African
goods in the US market.
11
PREPARING FOR A GLOBAL MARKET AFTER QUOTAS
The Agreement on Textiles and Clothing, negotiated by members of the World Trade Organization
during the Uruguay Round, allows for the phased re-integration of textiles and clothing trade into the
world trading system. All quantitative restrictions on imports from specific origins (i.e. quotas) will
be eliminated as of January 1, 2005.7
The internationalization of clothing manufacture has been attributed by many to the existence of
quotas (Cline 1990; Hamilton 1990; Minor 2002). As long as bilateral quotas are in force, exporting
countries are restricted in specific product categories to exceed certain quantitative thresholds.
Quotas give exporters incentives to diversify their manufacturing platforms in order to maintain
supply options across a panel of countries. As platform countries became increasingly popular places
to do business, exporters pushed into newly industrializing countries where the danger of triggering
quota responses from protectionist importers was lower. Restrictions on the volumes that could be
imported from leading Asian manufacturers contributed to the eventual displacement of clothing
assembly from more developed textile platforms such as Japan, South Korea, and Hong Kong into
less developed export processing platforms such as Bangladesh, Indonesia, Sri Lanka, and Mauritius.
As of 2005, general trade in textiles and clothing items will be regulated in the first instance by
tariffs. The use of non-tariff barriers (e.g., standards, quality testing procedures, product certification
and licensing procedures, technical barriers to trade, as well as by contingency measures such as antidumping actions and safeguards measures) will also likely increase. For instance, on July 24, 2003,
U.S. textile interest groups (including representatives of the American Manufacturing Trade Action
Coalition, (AMTAC), National Textile Association (NTA) and the American Textile Manufacturers
Institute (ATMI) ) – citing a 112 percent increase in textile and apparel imports into the U.S. from
China in 2002 – called upon the U.S. government to introduce emergency import quotas on several
categories of apparel from China (knit fabric, nightgowns and robes, gloves and bras).8
In the future, Madagascar can not rely on displaced manufacture from quota-bound countries to
boost Madagascar’s export capabilities. In order to attract buyer attention in the U.S. market,
Malagasy clothing exports must be both cost-competitive (within the 17% average margin offered
under AGOA, as long as AGOA duty preferences prevail) and prepared to meet qualitativecompetitiveness requirements as well.
7
8
With the exception of quotas on imports from non-WTO member countries, such as Vietnam.
Source: www.just-style.com, www.just-style.com/news_detail.asp?art=30700.
12
3. COMPETITIVENESS AUDIT APPROACH
VERTICAL VS. PIPELINE INTEGRATION
What is Vertical Integration?
Before proceeding to analysis of Madagascar’s industry, there are a number of strategic factors to
consider. What is “vertical integration”? Is it the solution to Madagascar’s quest for enhanced
clothing sector competitiveness? Do proponents in Madagascar seek vertical integration within one
firm, or can the notion apply more generally across the value-chain in Madagascar? Is improved
domestic vertical integration the only strategic option for Madagascar’s cotton, textiles, and clothing
companies, or would regional integration be an acceptable alternative?
For the textile and apparel industries, cost is no longer the sole determinant of competitiveness.
Low-cost manufacturing platforms are a given. They can be found all over the world today, from
Bangladesh to Vietnam to Guatemala to Lesotho. It is a given that Madagascar has to compete first
on cost, just to be considered by companies’ sourcing agents. 9
Beyond cost, companies that outperform their competitors in the clothing business are those that
have adopted new information systems and management practices, “participating in a well-integrated
channel” (Abernathy et al. 1999, p. 3) in addition to squeezing all excess out of their cost structures.
“The channel, rather than the firm, becomes the basis for competition,” notes Hammond (2001). In
the U.S., industry integration has occurred both backwards and forwards, through acquisitions,
partnerships, and strategic alliances (Dickerson 1999, pp. 275-278).
The traditional definition of vertical integration is the one given by competitiveness guru Michael
Porter: “the combination of technologically distinct production, distribution, selling, and/or other
economic processes within the confines of a single firm” (Porter 1980, p. 300). However, in today’s
globalized and integrated environment, vertical integration is not confined to the uniting of
operations within a single enterprise. The new basis for competition is seen to be the efficiency of
enhanced links among different stages of production and distribution in the retail-apparel-textile
channel (Abernathy et al. 1999). Hereafter, this report will refer to this as pipeline integration.
Yet at the same time that there is pressure to increase integration within or along the pipeline,
there is an almost contradictory pressure for firms to shed many of the operations that have
historically been managed in-house. Many firms sell off or subcontract operations that do not
represent their most competitive niches in order to specialize in areas of core competency.
9
Some observers contend that the days of global sourcing are over, to be replaced by regional sourcing preferences.
An American Apparel Producers’ Network survey of leading apparel brands, manufacturers, and retailers conducted
in early 2003 suggested that firms intended to source 70-80% from China and 20-30% from “not-China” (Todaro
2003). They also suggested that they will increasingly prefer to source from massive suppliers with full-package
capabilities.
13
Subcontractors are sought out for management of services operations for everything from personnel
to cleaning functions.
Why Pipeline Integration in Madagascar?
How should Madagascar’s industry balance these two equally compelling, yet diametrically opposed,
strategic arguments? There are three arguments in favor of a more integrated pipeline approach to
both policy making and commercial strategy in this industry in Madagascar.
First, what drives competitiveness in the clothing market today is the ability to bring products to
market in time, just in time. Lead times are being shortened at every stage in the manufacturing
process. Traditional retailing used to allow for the accumulation of large amounts of inventory, in
terms of both work-in-progress and finished products. Two factors have changed that. First, there has
been great concentration in the retail end of the industry. Second, changes in information technology
now permit the statistical analysis of inventory and sales by stockkeeping units (SKUs). 10 The result
of these shifts is that clothing retailers now have up-to-the minute information on which SKUs are
selling well and need replenishment. In turn, they require manufacturers to shoulder a far greater
portion of the inventory management burden in order to minimize retailers’ inventory costs and
streamline the flow-through process.
In some cases, even the analysis of this point-of-sale information can be outsourced directly to
suppliers. For instance, the large U.S. retailer J.C. Penney subcontracts with a Hong Kong-based
clothing manufacturer, TAL Apparel Ltd., to collect all dress shirts point-of-sale data from Penney’s
network of retail stores (Kahn 2003). TAL analyzes this sales data and decides on behalf of J.C.
Penney’s how many items to make, in what styles, colors, and sizes, manufactures them, and delivers
them directly to individual stores. J. C. Penney’s today now holds almost no extra inventory of dress
shirts, and is considering expanding this system to other apparel items.
Second, it is easier for companies in developed economies, with more reliable infrastructure and
production and logistics systems, to shed various aspects of their operations. However, in developing
economies such as Madagascar’s, where the availability of such subcontracting is still quite limited
and more importantly where infrastructure and production and logistics systems still endure
significant risk, vertical integration – “the combination of technologically distinct production,
distribution, selling, and/or other economic processes within the confines of a single firm” – is still
an important possible strategy for minimizing – or at least managing – those risks and the time delays
associated with them.
All cotton, textiles, and clothing production in Madagascar need not take place under one
commercial roof, nor even within national borders. Economic efficiency dictates one set of
considerations for optimal location of industry, while political and policy concerns define a separate
set of considerations. Moreover, each firm possesses its own resources in terms of factor
endowments, management strengths, commercial structure, linkages with other companies
domestically and abroad, etc. that will dictate a unique competitiveness strategy for that firm.
Normally – assuming that local agronomic conditions are favorable – it is in a processor’s
interests to locate within geographic proximity to the source of raw materials, in order to reduce the
10
A SKU is a numeric universal product code which is represented graphically on garment hang tags as a sequence
of light and dark bars of differing widths.
14
cost of transportation, storage, and potential spoilage associated with shipping them long distances.
However, many global seed cotton producers are not significant global manufacturers of yarn, fabric,
and garments. Bales of cotton can be shipped long distances and stored in warehouses for some time
without significant quality degradation. Cotton lint producers such as Mali and Uzbekistan do not
process a large proportion of their production, but rather export bales of lint. This reflects, in part, the
relative unattractiveness of these countries to investment capital for large-scale manufacturing
projects and also in part their lack of workforce capabilities to expand into factory production.
For instance, very different strategies are pursued by two of the leading exporters of cotton-based
fabric and garments, China and Mexico. China, on the one hand, is integrated from cotton through
textiles and to garments. China grows large quantities of seed cotton (over 5 million metric tons),
supplying 94% of its own lint requirements. A tariff-rate quota on cotton lint imports protects its
domestic farmers. Imports of cotton lint, yarn, and fabrics supplement own-production. Mexico, on
the other hand, is a much smaller domestic seed cotton producer (only 97 thousand metric tons), but
is the world’s second largest importer of cotton lint bales, importing four times its domestic
production level (over 400 thousand metric tons) as well as cotton yarns and fabrics. Not
surprisingly, these imports come largely from the U.S. Under the North America Free Trade
Agreement, agricultural and industrial markets have grown increasingly integrated between Mexico
and the U.S. This represents cross-border trade between two contiguous countries, with cotton
produced in the southern U.S. not all that distant from the industrial zone of northern Mexico.
Malian cotton, on the other hand, travels great distances to be bought by world importers in Asia,
North Africa and the Middle East, and even elsewhere in sub-Saharan Africa for processing into
intermediary and final products. Even the U.S., the world’s second largest seed cotton producer,
exports over 60% of its annual production to world markets. In 2002/03, 30.7 million bales were
shipped to China (3.1), Mexico (2.3), Indonesia (2.2), Turkey (2.1), and other world markets. The
lesson is that domestic seed cotton production is an important characteristic for some but not all of
the world’s largest cotton-based textiles and clothing exporters. Changing economics of labor and
goods markets can affect a country’s comparative advantage, as in the U.S. where it is no longer as
profitable to process cotton. In addition, trade policies can convey other locational advantages and
thus encourage investment in processing capacity in countries that do not grow significant quantities
of seed cotton.
Third, AGOA’s rules of origin will eventually require African apparel exporters to use U.S. or
African yarn and fabric. AGOA beneficiaries do not necessarily need to grow their own seed cotton.
However, spinning, weaving or knitting, dyeing, cutting, and assembly operations must take place in
AGOA beneficiary countries to qualify for duty-free access to the U.S. market under AGOA.
Pipeline integration – by which we do not mean the integration of commercial activities of raw
material production, raw material processing, and final good manufacture under one commercial
entity, but rather the adoption of a broad, pipeline view of all stages of the value-chain – both at the
national and regional levels – to improve productivity, cut costs, and increase efficiencies at every
stage – is the solution to meeting the competitiveness challenges in this industry. The advantages of a
pipeline integration approach in Madagascar are several. First, it should help to reduce costs, by
increasing market power, negotiating better purchase prices on raw materials and intermediate inputs,
and gaining control over logistics services costs. Second, it should help to reduce lead times, through
more coordinated planning of sourcing, production, and shipping deadlines.
15
If Malagasy firms are to reassert their position as a leading garment exporter in sub-Saharan
Africa, individual companies will have to strategize at every point in the pipeline. This may mean
domestic acquisition, alliance, or partnership, examples of which are popping up in Madagascar
already. It may also mean acquisition, alliance, or partnership across national borders, which is also
taking place. Companies from Mauritius, Sri Lanka, Hong Kong, Gulf states, and elsewhere have set
up operations in Madagascar, and companies from Madagascar have ventured into Mauritius, South
Africa, and elsewhere to seek acquisitions and alliances to further streamline their operations. One
company in Madagascar is hoping to establish a regular, interdependent commercial relationship with
a firm in South Africa whereby cotton yarn spun in Madagascar will be sent in exchange for cotton
fabric knit in South Africa.
Madagascar’s policy makers need to understand that this is the current inherent logic of all textile
and clothing industries around the world. After remaining trade quotas expire at the end of 2004,
companies in the U.S. will be forced to become internationally competitive just like companies in
China, India, Madagascar, Mexico, and elsewhere. Increasing competitiveness by reducing costs and
compressing lead times is not an option – the law of the market requires it.
Whose Job Is It?
Policy makers and private companies each have mutual areas of responsibility to consider in
preparing a pipeline integration approach to improved competitiveness. The first area of shared
responsibility is the development of a shared vision for improving the country’s competitiveness, or
the competitivenessof particular industries. That vision should embrace an integrated view of the
pipeline to understand the relative importance of issues at each stage of production, processing, and
trade, in order to prioritize needed actions and assign responsibilities.
The public sector’s role is to assure that public goods exist and operate efficiently to allow
markets to function, i.e. to allow prices to respond to demand and supply conditions, resulting in
allocation of resources to productive, rather than rent-seeking, activity. Public goods required in
Madagascar by the cotton, textiles, and clothing industries include trade facilitation institutions (e.g.,
customs and inspection services), infrastructure (e.g., transportation and energy supply), and
education (both basic and workforce development).
Governments also make decisions about market interventions – prices, taxes, and subsidies – that
affect cost competitiveness. Government pricing decisions relevant to this industry in Madagascar
include whether to tax or de-tax the price of key inputs (e.g., petroleum, electricity), and (as long as a
public enterprise is still in charge) to determine the price to producers of seed cotton. The
government also makes decisions about the foreign exchange market that affect the parity of the
Malagasy franc relative to international currencies, and thus the cost of Malagasy factors of
production and export products converted into dollar or euro terms.
Other areas of responsibility are less clearly demarcated between the public and private sector.
For example, the leasing or complete privatization of transport systems operations has been shown to
be a preferable alternative for delivering such services in a timely and cost-effective basis, especially
where some measure of competition exists (e.g., urban bus transportation supplied by several
companies or long-distance haulage services supplied by competing truck and rail options).
Agricultural research and education and workforce development are other areas, where private
companies are increasingly contributing to both primary and adaptive research and training.
16
On the other hand, experience around the world has shown that public enterprises are not the
most efficient means of organizing agricultural sectors. For instance, states have retreated from some
or all of cotton production, marketing, and ginning activities in certain West African (Benin, Burkina
Faso, Côte d’Ivoire, Senegal) and Central Asian (Tajikistan, Uzbekistan) countries.11 Agricultural
sector adjustment reforms have reduced or eliminated the role of the state in agricultural production,
marketing, processing, distribution, and trade in many countries around the world. An analysis of the
effect of direct (agricultural sector policies) and indirect (exchange rate, industrial sector policies)
interventions on agriculture in 18 developing countries from 1960-1985 suggested that indirect
policies introduced greater taxation than direct policies, the negative effect of which was not
compensated by public sector investment in agriculture (Schiff and Valdes 1992).
Private firms are normally responsible for developing strategic commercial relationships with
suppliers, clients, and overseas buyers. However, in situations where business-to-business linkages
are difficult to initiate, because of lack of language or cultural or commercial familiarity,
governments sometimes support trade missions to help broker such relationships. For instance, it may
be appropriate for the government of Madagascar to consider organizing/financing – or seeking
donor assistance in organizing/financing – a trade mission of Malagasy clothing firms to potential
yarn and fabric suppliers in sub-Saharan Africa. The purpose of such an outward mission would be to
identify AGOA-compatible supplier relationships among eligible countries. Private firms are also
responsible for management, worker training, investments, and strategic planning decisions that
enable them to reduce costs, innovate new products and services, and maintain close commercial
linkages with their business partners.
Specific recommendations on strategic actions to be undertaken by specific stakeholder groups is
outlined after assessing the structure and behavior of each stage of the value-chain, in the following
section of this report.
COMPETITIVENESS VARIABLES EXAMINED BY THIS AUDIT
In the context of Madagascar’s exports under AGOA, “competitiveness” means the ability to deliver
finished garments to U.S. markets at the lowest cost possible – or at least within the 17% margin
afforded by the AGOA duty preference – and in compliance with international norms with respect to
timing, quality, and expected volumes.12
This audit examines the competitiveness of a value-chain encompassing both homogeneous
commodities (cotton lint) and differentiated end-products (fabrics, garments). With regard to
homogeneous commodities, local costs of cotton lint production can be compared with international
reference prices to assess comparative advantage. Since there is no single reference price for
heterogeneous commodities, key margins and qualitative factors affecting competitiveness are
analyzed.
11
For individual country reports, see U.S. Department of Agriculture’s Foreign Agricultural Service for attaché
reports, http://www.fas.usda.gov/scriptsw/attacherep/default.asp.
12
Appendix A includes a fuller discussion of how the term competitiveness is treated in the literature.
17
Variables Affecting Cost Competitiveness
Comparative advantage, or cost competitiveness, is particularly important to producers and traders of
non-differentiated commodities and the more standardized end of the garment industry. Factors
affecting cost competitiveness include:

Technical productivity (e.g., tons/hectare of raw cotton, textile meters/labor hour, number of
garment pieces/labor hour), itself a function of:
o Given factor and resource endowment levels
o Extent of research and development (R&D), innovation, technology use
o Management skill in combining inputs and factors of production as efficiently as
possible to maximize technical productivity

Financial costs (i.e. inclusive of taxes and/or subsidies) at each stage of the value-chain:
o Domestic factors of production (land, developed industrial real estate, agricultural
labor, skilled labor, management labor, investment capital, working capital, trade
finance)
o Imported inputs (e.g., fiber, fabric, trims, packaging, labels)
o Intermediary inputs, such as transportation (domestic road and rail, international sea
freight, international air freight), electricity, port charges, customs services,
compliance with regulations, telecommunications
o Official exchange rate

Economic costs (excluding taxes and/or subsidies) at each stage of value-chain:
o Sum of the value of taxes and/or subsidies that drive a wedge between prices actually
paid by producers and prices that would obtain in the market in the absence of such
distortions
o Degree of overvaluation of the domestic currency relative to foreign currencies
Variables Affecting Qualitative Competitiveness
Factors affecting qualitative competitiveness that are surveyed in the Madagascar competitiveness
audit (more comparable to Porter’s definition of competitiveness) include:

Efficiency or delays with which inputs are sourced from international, regional, or domestic
markets

Efficiency or delays with which domestic factors of production are procured

Efficiency or delays with which raw materials are processed domestically into semi-finished
goods (e.g., raw cotton to ginned cotton, ginned cotton to thread, thread to fabric)

Agronomic potential for expansion and increased technical efficiency of cotton production

Industrial capacity and capacity utilization rates
18

Incentives offered to labor, availability of specialized training to labor and management,
presence of workforce development optic

Degree of innovation (both technical and managerial), research and development

Availability of capital for firm-level investments (for expanded capacity, specialized
equipment)

Level of physical infrastructure development, efficiency of operations

Degree of value-chain integration

Degree of value-chain collaboration

Extent to which Malagasy firms exhibit negotiating power in international sourcing, supply
GLOBAL TEXTILE SECTOR COMPETITIVENESS EXAMPLES
It is instructive for Madagascar to consider how have other countries prepared for AGOA or (in the
case of countries outside of sub-Saharan Africa) for their own preferential access to the U.S. market.
One of the lessons of such a review is that there is no one model for achieving competitiveness.
Rather, every country – and every company within that industry – seeks to develop its own sources
of competitive advantage.
A review of recent experiences from a diverse set of countries – including inexperienced clothing
manufacturers such as Mali and Uganda as well as more experienced producers such as Morocco,
South Africa, and Vietnam – suggests that Madagascar is potentially well-placed to succeed in the
post-AGOA, post-ATC global competition that will rule markets after 2004. Madagascar’s labor
force is disciplined yet inexpensive, and most importantly, EPZ firms based in Madagascar bring a
wealth of international market connections to buying agents in Gulf and Asian capitals as well as
directly with buyers in the U.S.
The U.S. Trade Representative’s Office tracks upstream investments being made in AGOA
countries to prepare for the manufacture of AGOA origin yarn and fabric in anticipation of
September 2004. Table 9 indicates those investments that have been tracked in the annual AGOA
reports to Congress.
19
Table 9: AGOA-Related Upstream Textile Investments
Country
2002
2003
(Source of capital in parentheses)
(Source of capital in parentheses)
Lesotho
$100 million denim rolling mill by end of 2003
$40 million cotton yarn spinning mill mid-2004
Mali
$7.5 million cotton yarn spinning mill (5,000 tons
cotton initial capacity, to 15,000 tons per year) (MaliMauritius)
Mauritius
$60 million cotton yarn spinning mill (Chinese)
New spinning mill (Indian)
New spinning mill (Mauritian)
Namibia
Cotton gin to produce fiber for local market and export
$130 million weaving and dyeing plant (South African)
(U.S.)
Tanzania
Cotton yarn exported to Mauritius
Uganda
“Foreign companies have established major
operations in response to AGOA incentives.”
Zambia
Expansion of existing spinning/weaving mill (Zambia)
$35-50 million under consideration to create
Expansion of cotton production (U.S.)
integrated operation (international consortium)
Sale of defunct textile mill (South African)
Source: USTR annual AGOA reports.
Cotton Sector Experiences Elsewhere
In 1999, the West African nation of Mali, Africa’s second largest seed cotton producer after Egypt,
exported 98% of its production as lint through the French cotton marketing agent COPACO13
(Salinger, Sylla, Crook and Perrings 1999). Only limited local transformation of lint into yarn and
fabric takes place. Of the two spinning/weaving/dyeing mills that used to operate in Mali, one has
been closed for several years and has not succeeded in attracting a private buyer. The only
operational company is a joint Chinese-Malian venture, COMATEX. All local processing is for
woven cloth, destined for sale in the local market. However, its production is not regionally, let alone
globally, competitive, and the Malian market is full of Nigerian and Ivorian fabric.
13
COPACO (Compagnie cotonnière) is a subsidiary of DAGRIS, the French public agribusiness firm involved in
cotton production around the world. COPACO’s area of competency is in the international trade of cotton lint.
COPACO is particularly involved in the trade of African fiber from the franc zone, which constitutes the world’s
third largest export zone. COPACO is also active in Europe, the Middle East, as well as in Central Asia.
20
Mali is land-locked in the center of West Africa. It can access two outlets to sea ports, one via
rail to Dakar, Senegal, and the other via road to Abidjan, Côte d’Ivoire. However, the rail line is not
up to international standards, and the road network to Abidjan is notorious for the high incidence of
unofficial fees charged along the way. Manufacturers of higher value artisanal textiles ship to Japan,
Europe, and the U.S. by air. However, like so many other African countries, competition in and out
of Mali’s air space is limited, resulting in high air freight fees.
The sad irony is that West African traditional textile arts (weaving, dyeing, embroidery,
tailoring), particularly those out of Mali, are world renowned. Most garments and household
furnishings are sold in local markets for local or tourist consumption. Some of this production
reaches foreign markets, although usually in semi-processed form. Several recent ventures have
explored opportunities for exporting final, textile-based goods to U.S. markets (outside of AGOA)
but have found that trade knowledge is extremely limited (Salinger and Carpenter 2001; Action for
Enterprise).
Only one small business in Mali is undertaking organized garment manufacture of any kind.
Challenges stemming from this lack of modern, large-scale, industrial garment manufacturing
experience include workforce, management, color/dyeing, product development, quality control,
trade logistics, sourcing, and pricing training needs. Trade finance was unavailable from local
financial institutions, and modern assembly equipment was lacking. Most local operators have only
limited understanding of global market chains, and are unsure how to make market connections to
the U.S., with the exception of a few world-class artisans.
Recently, the picture in Mali has begun to change. As mentioned above, a Malian/Mauritian joint
venture has finally negotiated favorable investments terms and have begun to spin cotton yarn for
export (USTR 2003). The $7.5 million yarn factory will initially process 5,000 tons of cotton;
capacity is expected to increase to 15,000 tons per year. Production is scheduled to begin by
September 2003. The yarn will be exported to Mauritius for use in manufacturing apparel that could
be exported to the United States under AGOA.
Textile/Clothing Sector Experiences Elsewhere
Despite its relatively higher capital endowment and the higher cost of domestic labor compared with
other labor costs in the southern African region, South Africa’s textile industry still includes a laborintensive manufacturing sector. Its textile end of the industry (spinning, weaving/dyeing, knitting) is
highly developed, compared with that of most other AGOA countries. However, years of inward
market orientation and under apartheid and high levels of tariff protection have left many segments
of the textile industry ill-prepared to identify competitive niches (Salinger, Bhorat, Flaherty, and
Keswell 1998).
South Africa’s industrial labor force is well organized. However, higher wage levels in South
Africa are not compensated by higher levels of productivity. The result of such regional wage
inequality is the beginning of the “NAFTA’ization” of southern Africa. Increasing numbers of South
African manufacturers are going “off-shore” to establish platforms in Lesotho, Swaziland,
Mozambique, and elsewhere. In response, South Africa has organized a vocational training program
to enhance the workforce skills of technical workers. Management skills also need upgrading. Some
of the more innovative South African clothing firms have introduced innovations such as new
product lines, information management systems, inventory control methods, overseas market
contacts to input suppliers and final clients, means of ordering work flow through the shop floor, and
21
forms of labour relations to improve worker productivity. In addition to attention to workforce
development, South Africa needed to pay greater attention to applied technology research and
development, through enhanced public-private partnerships.
In 2001, Uganda was focused on reviving existing industrial infrastructure in both knitting and
spinning/weaving (Salinger and Greenwood 2001). The country produced limited quantities of seed
cotton production. Most of its production was concentrated in drier land in the north, where civil
unrest has disrupted market linkages. The country has a very limited “industrial” clothing labor
workforce. However, as in Mali, an extensive informal tailoring industry exists in Uganda that could
potentially be molded into an organized workforce. The industry is working to revive a knitting
operation, originally founded with Japanese capital, and an integrated operation from spinning
through clothing production, that has African-South Asian backing. Because of its land-locked
position in East Africa, there was some consideration that the woven fabrics from Uganda could
develop fabric supply linkages with Kenyan or Tanzanian clothing firms.
Even prior to achieving “most favored nation” trade status with the U.S., Vietnam attracted
foreign investment (mostly Asian capital) in modern textile mill development. The more laborintensive clothing assembly was concentrated in enterprises that were often state-owned, but
becoming more market-oriented. Although Korean, Malaysian, and Hong Kong agents were actively
contracting for production in Vietnam, managers were frustrated that their workforces were being
accessed under simple assembly arrangements (known as “CMT,” or cut-make-trim, contracts). They
understood that their relative market position would be strengthened by developing direct market
linkages with buyers overseas. Several firms, especially those with diaspora connections in
California and elsewhere in the U.S., dreamed of selling directly into the North American market.
Currently in the process of negotiating a bilateral free trade agreement with the U.S., Morocco is
very conscious of AGOA, NAFTA, the U.S.-Jordan FTA and the various rules of origin included in
these preferential trade agreements (Belghazi, Plunkett, and Salinger 2002). Morocco’s clothing
industry has a long-established, CMT-based clothing assembly industry. Companies produce for the
EU and some U.S. clients. U.S. brands such as The Gap, Jordache, and Sara Lee/Hanes are already
present in Morocco. Morocco also has very limited upstream capacity, whether in seed cotton or yarn
and fabric production. Most inputs are imported duty-free for re-export. A Spanish textile firm
invested several years ago in a denim mill in Morocco. While importing most of its lint from world
markets, the plant is exploring vertical integration with Moroccan cotton farmers. Morocco’s
clothing industry has been active in strengthening its cluster organization and lobby the Government
for relief. In 2002, the Moroccan Government granted the industry an electricity subsidy in advance
of expected drops in official energy rates. In addition, a number of European and international donors
offer technical assistance to develop textiles-related workforce skills.
Common Themes in Other Experiences
Essential elements for success emerge from a comparison of these experiences elsewhere. First,
successful garment exporting countries allow their exporting firms to access raw material and
intermediate inputs at world market prices. This is accomplished either through general tariff reform,
reducing tariffs for all domestic consumers of these items. Or it may be accomplished through
preferential access agreements, such as export processing zones, duty drawback schemes, bonded
warehouses, etc. (Radelet 1999). Second, manufacturers are not only drawn to countries where labor
22
costs are low, they are also looking for skilled workforces, political stability, and modern and lowcost infrastructure (McMillan, Pandolfi, and Salinger 1999).
The typical textiles/garment sector development pattern observed around the globe is the entry
into labor-intensive clothing assembly first, where large capital investments are not required. This
entry is generally facilitated through commercial linkages with multinational producers or contractors
that provide the market linkage to buyers in OECD countries. Over time, perhaps enhanced through
preferential trade agreements, investments may expand into upstream, more capital-intensive, input
(fabrics, trims) supply (Gereffi et al. 2002).
Finally, as wages continue to climb, manufacturing industries evolve. Japan was once a producer
of low-skill, labor-intensive manufactures. Even the economies of South Korea, Taiwan, Malaysia,
and other industrializing countries – including Mauritius (Tejada 2003) – cannot sustain low-value
goods manufacture. Rather, over time, as local workforces acquire additional skills and the cost of
their labor rises, manufacturing industries transition into increasingly sophisticated products.
Clothing companies in the Philippines began to source instead out of Vietnam, for example, as
increasingly sophisticated electronics manufacturing claimed an increasing portion of the workforce.
Those electronics manufacturers, in turn, found opportunities in the Philippines after Malaysia and
Singapore became increasingly expensive platforms from which to do business. The same transitions
are witnessed today in Mauritius, with nearby Madagascar the immediate beneficiary. Such are the
rhythms of modern economic development.
23
4. COMPETITIVENESS OF MADAGASCAR’S COTTONTEXTILES-GARMENTS VALUE-CHAIN
OUTLINE OF MADAGASCAR’S COTTON, TEXTILES, AND GARMENTS SECTOR
To evaluate Madagascar’s prospects for vertical integration of the cotton-textiles-garments valuechain, it is important to understand the linkages among key actors in production, processing, and
export, as well as all points of intersection with the world market at each of these stages:





seed cotton production,
cotton fiber ginning,
cotton fiber spinning, weaving, and printing/dyeing, or cotton fiber spinning, knitting, and
printing/dyeing,
clothing assembly, and
exporting.
Madagascar’s industrial sector has been characterized by the World Bank, in its recently released
Integrated Framework study, as having a fragile base for growth (World Bank 2001, revised 2003).
However, the potential for expansion of an upstream cotton industry, given the downstream demand
for cotton-based final garments under AGOA, is underscored by the authors:
The cotton sector has the potential for growth in Madagascar. The explosion of the
textile sector in the EPZs promises a high demand for cotton fabric, and moving
backward through the supply chain, cotton yarn, cotton lint, and seed cotton. But the
current structure of the sector, with significant (although decreasing) market power
still exercised by the parastatal, the administered pricing policies, and the linking of
export volumes to domestic sales, threatens to hamper expansion of the sector.
(World Bank 2001, p. 47)
This chapter offers some more detailed parameters to more fully appreciate this potential and the
factors that hamper it.
RAW MATERIALS: SEED COTTON PRODUCTION, GINNING, AND FIBER PRODUCTION
Competitiveness issues in the raw materials end of the value-chain include falling levels of farm
yields and production, ginning capacity and sales of cotton fiber to domestic and foreign consumers,
and the connection between cotton prices on world markets and in Madagascar and the financial
difficulties that have plagued HASYMA for several years.
24
Falling Levels of Farm Yields and Production
Over the last twenty years, Madagascar has produced between 20,000 and 40,000 tons of seed cotton
per year (figures below and Table 10), with average production around 30,000 tons. However, seed
cotton production is now in crisis (see below) and production in 2002 was less than 9,000 tons of
seed cotton. Madagascar produces largely two main varieties, D388/8 (29-31 mm length staple) and
Guazuncho (28-30 mm length staple).
Yields at the national level average about one ton per hectare. However, this masks distinct
differences in yields between the two farming systems that are found in Madagascar. In the
northwest, around Mahajanga, flood recession agriculture predominates. Most of Madagascar’s
large-scale farms are concentrated in this region. Seed cotton in the northwest is planted in March on
alluvial soils after the rainy season, as the flood waters recede. Yields in the northwest are 1.6-2 tons
per hectare, or even higher. Costs of production are generally higher in the northwest, too, since
mechanization is relied on to a greater extent to work the heavy soils. In the southwest, around
Toliary, cotton production is rainfed, planted in November and harvested in June. Some
supplemental irrigation may be applied. Yields are lower, averaging 0.8 tons per hectare.
Figure 1: Evolution of Cotton Production
Figure 2: Evolution of Cotton Yields
50000
2.500
45000
40000
2.000
35000
30000
1.500
25000
20000
1.000
15000
10000
0.500
5000
0
Yield (T/ha)
Production (T)
25
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
1971
0.000
Ten years ago, as much as 70% of Madagascar’s cotton was grown in the northwest. More
recently, nearly 60% of the national crop has been grown in the south. Thus, over time average
national yields have declined substantially. This shift has been due, in part, to the inroads made into
the farming system by other cash crops. For instance, industrial tobacco production is said to
compete quite favorably. One observer noted that a farmer can earn as much from one-tenth of a
hectare planted to tobacco production as s/he can from an entire hectare under cotton. In addition,
cotton competes with farmers’ food production requirements. Farmers in the northwest have been
more active in seeking new crops. If lands previously seeded to cotton could be recuperated,
including along several of Madagascar’s west coast river systems, HASYMA officials estimate that
annual seed cotton production of 63,000 tons per year is feasible.
Cotona, the textile group located in Antsirabe, also promotes the production of extra long-staple
Pima cotton varieties in southwest Madagascar, with quite favorable results. Pima cotton is planted in
December, grown under irrigated conditions, and matured during the hot summer months. Yields are
about 2 tons per hectare, and fiber length is around 37 mm.14 Present production is only about 140
tons in Madagascar. Cotona currently imports an additional 360 tons from Israel.
14
The reference is Egypt with 40-42 mm. Pima staple length in the U.S. is 36-37 mm, while Israeli producers
achieve 30-35 mm.
27
Table 10: Madagascar Seed Cotton Production, 1971-2002
Season
1971
1972
1973
1974
1975
Area (ha)
10,851
10,101
13,361
16,089
16,341
Production (T)
21,695
23,882
30,628
33,290
30,728
Yield (T/ha)
1.999
2.364
2.292
2.069
1.880
1976
1977
1978
1979
1980
17,515
20,403
22,213
17,898
16,985
34,731
37,081
32,934
29,957
23,210
1.983
1.817
1.483
1.674
1.366
1981
1982
1983
1984
1985
18,724
17,431
19,929
23,595
32,954
27,962
25,981
26,381
33,813
42,871
1.493
1.491
1.324
1.433
1.301
1986
1987
1988
1989
1990
42,850
22,179
26,048
29,013
27,015
41,010
27,221
31,863
41,538
32,094
0.957
1.227
1.223
1.432
1.188
1991
1992
1993
1994
1995
22,085
19,757
20,333
21,434
22,673
26,629
20,082
25,434
27,310
24,233
1.206
1.016
1.251
1.274
1.069
1996
1997
1998
1999
2000
24,766
27,038
33,792
35,189
28,553
27,494
36,196
38,592
34,625
27,369
1.110
1.339
1.142
0.984
0.959
2001
2002
28,345
12,102
26,518
8,162
0.936
0.674
29,504
0.959
Average, 1999-2001
Source: HASYMA
Role of HASYMA
It is typical in agro-industry, where processing facilities are concentrated, that one or a limited
number of processing firms coordinates production, collection, and first-stage processing of seed
cotton in Madagascar.
28
Malagasy cotton farmers depend to a large extent on HASYMA (the Madagascar Cotton
Company) for supplies of seed and chemical inputs, as well as for marketing outlets for their harvest.
This system is common in other francophone African countries as well, where the French public
company Dagris (formerly, the Compagnie Française de Développement des Textiles or CFDT) has
managed similar systems.15
The role of production coordinator is played by large agro-industrial processors in other
industries as well. For example, in Mexico, the production of white maize for processing into tortillas
is coordinated by large, private agro-industrial groups such as MASECA and MINSA. They work
with large-scale contract farmers, distributing seed varieties, advising on seeding dates and
cultivation practices, and fixing market contracts. Similarly, HASYMA is responsible for varietal
research, undertaken in conjunction with the national agronomic research institute FOFIFA, and the
procurement of fertilizers, pesticides, and equipment on behalf of local farmers.
CFDT owned HASYMA until 1979. Dagris is currently a 38% shareholder in HASYMA.
Previously, two private Malagasy companies (DRAMCO and CCB) also ran their own production
operations in the northwest of the country, but contracted for ginning through HASYMA. Thus,
farmers enjoyed some degree of ex-field price competition in the market. However, faced with
declining profitability, the two private production/buying operations ceased several years ago.
Privatization of HASYMA, with conversion of a public monopsony into a private monopsony, is
not necessarily the optimal solution from an economic standpoint.16 Yet economies of scale and the
geographic diversity of Madagascar’s cotton-growing zones suggest that the domestic ginning sector
would not support more than one owner of ginning facilities in a given area. Models should be
explored that increase private agribusiness participation in seed cotton production, either by domestic
textile firms seeking backward integration or by international seed cotton marketing firms such as
Dagris seeking to diversify their sources of raw material for world markets.
Ginning Capacity and Fiber Sales
HASYMA owns all four of the country’s large-scale ginning facilities, with a total ginning capacity
of 40,000 tons of seed cotton. Average ginning ratios of about 40% compare favorably with world
norms. Currently installed capacity is well above actual requirements.
15
For further information on DAGRIS’ strategy, see the interview with Dagris Director-General Gilles Peltier in
“Coton: Dagris en quête de prises de participations majoritaires,” Marchés Tropicaux, 11 juillet 2003,
www.dagris.fr.
16
A monopsony is a market with a single buyer.
29
Table 11: Madagascar Cotton Lint Sales
(tons)
Season
1994
1995
1996
1997
1998
1999
2000
2001
……………………………………….Domestic Clients……………………………………
COTONA SOTEMA SOMACOU FANAVOTANA
SAMAF
Others
3120.6
3197.9
851.0
736.1
402.9
2941.6
151.4
922.5
598.7
509.6
1.1
3765.8
1088.3
449.2
499.3
4682.5
521.5
746.6
350.1
5119.8
807.1
515.6
102.3
2.0
5076.1
614.0
554.8
3144.5
480.3
507.0
2086.7
95.1
373.2
Exports
1501.3
3203.1
3592.3
6195.4
6322.5
5755.5
3966.1
3174.7
Total
9809.8
8328.0
9394.9
12496.1
12869.3
12000.4
8097.9
5729.7
Source: HASYMA
Between 1995 and 2001, HASYMA sold about half of its ginned fiber to local clients and half on
the world market (Table 11). About three-quarters of domestic sales have been to Cotona.
Madagascar’s average level of exports of 4600 tons is equivalent to 21,083 480-pound bales. By
comparison, world cotton lint trade in 2002/03 is expected to be about 30 million 480-pound bales,
according to the Economic Research Service of the U.S. Department of Agriculture.
Costs of Cotton Production in Madagascar
Madagascar’s farm-level costs of production vary significantly between irrigated production in
Toliara and flood recession production in Mahajanga (Table 12). The latter is about twice as
expensive per hectare as the former. However, yields are also about twice as high in the northwest
(Mahajanga), compared with the southwest (Toliara), so the per kilogram financial costs of seed
cotton production are about the same, around 1400-1500 FMG per kilogram.17
Since farm-level production costs were not received until the very end of the trip, this analysis is
admittedly rough. It can be improved with greater attention to the individual lines of the farm budget.
Ministry of Agriculture analysts may wish to explore some of these specific issues:




17
What is the opportunity cost of irrigated and rainfed land in Toliara and Mahajanga? The
rental costs of land should be reviewed more carefully, and compared with returns under
alternative crops.
What is the opportunity cost of capital to farmers in Madagascar? In the producers’ union
scenario in Mahajanga, explicit costing of financial borrowing is included. It should be
included in the other scenarios as well.
What are the financial and opportunity costs of irrigation water? None of the fiches
d’exploitation provided a cost (financial) of irrigation water.
To what extent are farm-level input prices taxed or subsidized? It is unknown whether taxes
or subsidies are involved in the prices paid by farmers for seed, fertilizer, or other chemical
inputs. Thus the economic prices for these inputs may be different than the financial prices
actually paid.
Farm- and ginnery-level production costs were provided by HASYMA and a union of producers in the northwest.
See Appendix E for details.
30



What are the economic costs of margins between farm-level and the border? A more careful
breakdown of transport and ginning costs is suggested. Conservative assumptions have been
made about the level of taxation involved, due to known distortions in energy pricing, but
these should be further detailed. These likely underestimate the degree of taxation involved,
and thus may overestimate the economic cost of ginning. Additional factors, such as possible
subsidies on investment and operating capital to HASYMA, should also be explored.
The world price equivalent of seed cotton should be estimated as a function of the world
prices for cotton lint and for cottonseed oil and cake. This analysis only considered the
economic price of lint; the economic valuation of cottonseed, a ginning by-product, was not
undertaken.
Farm-level simulation of returns under competing crops should be undertaken to assess how
the profitability of seed cotton production compares with that of other crops in the same
farming system, such as maize and tobacco. To the extent that these differences are
significant, are domestic policies responsible for this bias, or is the comparative advantage of
maize or tobacco production in Madagascar significantly higher than that of seed cotton
production?
Compared with a producer price of 2000 FMG/kg seed cotton, farmers earn about 500-600
FMG/kg under both systems (Table 12). The cash analysis of financial costs includes an estimate of
rental fees for land, but does not include the implicit cost of own-labor. Returns to labor range from
4900 FMG per day in Toliara (below the minimum agricultural sector wage of 6033 FMG) to nearly
6200 FMG per day in Mahajanga (HASYMA costs) to over 8000 FMG per day (producers’ union
costs). The number of labor-days in Mahajanga is said to be proportionally less relative to field
productivity than in Toliara.
Table 12: Estimates of Farm-Level Financial Productivity
Toliara
Mahajanga
Mahajanga
HASYMA
Prod. Union
Producer price
FMG/kg seed cotton
2000
2000
2000
Minus financial costs of
FMG/kg seed cotton
1,481
1,426
1,235
production
Financial profitability
FMG/kg seed cotton
Financial profitability
FMG/hectare
Number of labor-days
Financial profitability
FMG/labor-day
519
574
765
439,797
976,162
1,300,000
90
158
158?
4,887
6,178
8,228
Source: Mission estimates, based on HASYMA data (Appendix B)
The production of cotton fiber is also profitable from an economic perspective. The world price
for cotton fiber, adjusted to the ex-ginnery level in Madagascar, is 7,920 FMG/kg fiber, based on a
31
world lint price of 60 U.S. cents per pound and an exchange rate of 6000 FMG/$ (see Appendix B).18
The world price equivalent also assumes an import-substitution scenario, given that Madagascar is a
net importer of cotton fiber or cotton-based fabrics. Economic costs of production are estimated by
adjusting for taxes included in transport costs and by including the cost of labor (valued at 6,000
FMG/labor-day) (Table 13). Positive economic profitability translates into a coefficient of
comparative advantage that is less than 1.00, indicating that Madagascar uses scarce land and labor
profitably by producing cotton domestically rather than importing. It may be, however, that other
crops would yield a higher economic profitability (and thus lower domestic resource cost coefficient)
per hectare of land or per labor-day than seed cotton.
Table 13: Estimates of Ginnery-Level Economic Profitability
Toliara
Mahajanga
Mahajanga
HASYMA
Prod. Union
World price equivalent
FMG/kg cotton fiber
7,920
7,920
7,920
Minus economic costs of
FMG/kg cotton fiber
6,892
6,699
5,934
FMG/kg cotton fiber
1,028
1,221
1,986
production
Economic profitability
Source: Mission estimates, based on HASYMA data (Appendix B)
Cotton Prices on World Markets and in Madagascar and HASYMA’s Financial Difficulties
As evidenced from the plummeting level of seed cotton production in 2002 to just over 8,000 tons,
the raw material end of Madagascar’s cotton-textiles-clothing sector is in crisis. The roots of this
crisis can be found in financial difficulties that have threatened HASYMA’s sustainability for the last
two years. The crisis cannot be understood without reference to the international market for lint.
18
It is not the purpose of this audit to pronounce on whether the current parity level of the Malagasy Franc (FMG) is
appropriate or not, given underlying economic fundamentals. However, the exchange rate obviously represents the
crucial factor converting Malagasy costs into foreign exchange equivalents. Recent IMF literature was reviewed to
gauge informed analysts’ opinions. Additional information on domestic inflation and currency exchange restrictions
was also gathered. The IMF’s 2003 selected economic issues paper reports that three different approaches to the
measurement of Madagascar’s external competitiveness suggest that despite the recent appreciation of the Malagasy
Franc (FMG), “there is no evidence of a detrimental exchange rate misalignment” (IMF 2003, p. 18). In support of
that conclusion, the paper points to Madagascar’s success in expanding exports, thereby reducing the current
account deficit, and increasing private capital inflows through the attraction of foreign direct investment into the
EPZ sector. However, econometric analysis of the equilibrium real exchange rate appears to be limited to the
immediate past prior to the political crisis, i.e. between 1999 and 2001 (Cady 2003). Moreover, the analysis for 2001
anticipates an improvement in the net foreign assets position as a result of HIPC relief, which in retrospect seems
premature.
32
Figure 3: World Cotton Lint Prices
100
90
80
(cents/lb)
70
60
50
40
30
20
10
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
0
Source: U.S. Department of Agriculture, Cotton & Wool Situation & Outlook reports
Note: Prices depicted are A Index, CIF Northern Europe. 2003 price represents an average of
January through June 2003 prices.
Between 1975 and 1998, world cotton lint prices tended to fluctuate between 50 and 90 U.S.
cents per pound (Figure 3). The cotton “A” Index, measured CIF Northern Europe, is used by
HASYMA as the basis for negotiating export prices. However, in 1999, due to the build-up of global
stocks, lint prices plummeted to historic lows, grazing just below 40 cents per pound in the latter
months of 2001. As of July 2003, the world lint price recovered substantially and was above 60 cents
per pound.
In response to analyses suggesting that agricultural protection by certain WTO member countries
has caused world prices to be depressed (Oxfam 2002), cotton producers Benin, Burkina Faso, Chad,
and Mali have submitted a proposal to the WTO as part of the Doha Round agricultural negotiations
(WTO 2003). They call for recognition of the strategic nature of cotton for development and poverty
reduction in many developing countries and for the complete phase-out of support measures for the
production and export of cotton.
For companies like HASYMA that fix their buying contracts with local producers at the
beginning of production seasons, such precipitous world price drops can spell disaster for financial
accounts. HASYMA fixes its producer prices for the coming season in October as a function of
world market levels. In 2001, it raised its producer price, most likely in response to the previous
year’s increase in the A Index (Table 14). World prices continued to fall in 2001, yet HASYMA did
not lower the producer price until the 2002 season. When the producer price finally was lowered, the
disincentive led to the withdrawal of many producers from cotton production. Previously, a cotton
stabilization fund had provided some level of financial resources to smooth producer prices and
therefore protect against such fluctuations, but by 2001 these resources had dried up. Emergency
financing was provided in 2002 to HASYMA under a World Bank Emergency Economic Recovery
Credit (IMF 2002). The assistance was made conditional on the privatization of HASYMA and on an
increase in seed cotton production volumes. Dagris and at least one American company were said to
33
be interested in acquiring HASYMA. However, a formal competitive bid for the company has not yet
been organized. Resolving this impasse should be a key priority for the Malagasy authorities.
Figure 4 depicts the trends of both world and Madagascar prices. The HASYMA price curve is
the seed cotton producer price, converted into dollars at annual average exchange rates and converted
into fiber equivalent using a 40% ginning ratio. It is a farm-level price, i.e. ginning and marketing
costs have not been added to bring it to FOB equivalent.19 The world lint price is the cotton A Index,
CIF Northern Europe. Thus, normally there should be a margin between the two curves to cover
domestic processing, transport, and fobbing costs. The fact that the two price lines practically
converged in 2001 demonstrates the extent to which HASYMA had not lowered domestic prices
sufficiently to account for the plummeting world price. With world prices recovering somewhat in
2002, the margin between domestic and world prices is beginning to be observed once again.
Now, as world prices recover, HASYMA has raised its purchase price back to 2000 FMG/kg for
the 2003 season. However, because of HASYMA’s internal financial difficulties, farmers were not
paid on time last year. The budget available to HASYMA staff to oversee production has also been
reduced. As one official put it, “both the producers and HASYMA’s own staff have ‘lost faith’ in
HASYMA’s ability to supervise this year’s cotton campaign.”
Table 14: Madagascar Seed
Cotton Producer Prices (1st
Quality)
Figure 4: Comparison of HASYMA & World Prices
0.90
0.80
1995
1996
1997
1998
1999
2000
2001
2002
Source: HASYMA
Producer Prices
(FMG/kg
seed cotton)
1600
1925
1965
2125
1900
1925
2100
1650
0.70
0.60
0.50
($/kg)
Year
HASYMA
A Index
0.40
0.30
0.20
0.10
0.00
1995
1996
1997
1998
1999
Sources: HASYMA, USDA/Economic Research Service
19
Madagascar’s 2000/2001 ginning cost was 2,266 FMG/kg fiber.
34
2000
2001
2002
INTERMEDIATE TEXTILE INPUTS: FABRIC PRODUCTION
Three factors have a direct effect on the competitiveness of the textile milling sector:




The first is the ease with which raw material is acquired. Textile mills manufacturing cottonbased fabrics are integrated operations that introduce cotton lint into spinning, weaving or
knitting, and wet processing operations. Greige (unbleached, undyed, unprinted fabric) and
color fabrics are produced at the other end. Although textile mills around the world may
import some portion of their total cotton lint requirements, the extent to which sufficient and
efficiently priced locally grown and ginned cotton is domestically available enhances the
competitiveness of textile operations. Firms indicate that this is not just because of lower cost,
but particularly because of the reduction in risk and logistics (time, as well as cost) associated
with having cotton lint supplies available nearby.
The second factor is the regularity and cost of supply of other variable inputs, of which
electricity is the most important component.
A third important factor is the degree of depth in the local (and regional) textile market.
Other factors that typically affect textile mills, not addressed directly here because of the lack
of concern demonstrated by most interviewees in Madagascar during this audit, include the
cost of financial capital for investment and the availability of industrial real estate for
development.
Effective Cotton Fiber Demand
How important is cotton fiber to vertical integration strategies in Madagascar? What would the total
domestic demand for cotton fiber be in Madagascar, if all cotton-based exports from Madagascar
were manufactured from locally grown seed cotton?
Cotton is a key input into the textile industry, in Madagascar as elsewhere. However, other fiberbased products are obviously also a part of Madagascar’s garment production. Madagascar firms
produce cashmere and wool knit sweaters, as well as some MMF- and silk-based garments.
Madagascar’s imports of intermediate textile inputs is reported below (Table 15). However, these
other fibers are not the primary focus of this audit and will only be referred to sporadically in this
report.
Cotton-based garments represent 63% of all garments exported from Madagascar in 2001,
measured in value terms. When viewed across all AGOA countries and measured in square-meter
equivalents (SME), cotton-based exports represent closer to 85% of total volume.
35
Table 15: Madagascar Imports of Silk, Wool, Cotton, and MMF Products, 2001
(Thousand US$)
Silk
Wool
Cotton
Man-Made
Total
Fibers
Waste
12
154
166
15
1,246
262
1,523
439
242
681
38
48,297
6,453
2,483
57,271
Fabric
17,579
1,946
39,893
6,924
66,342
Total
17,617
50,258
48,043
10,065
125,983
Fiber
Thread
Yarn
Source: U.N. COMTRADE database
Madagascar’s total garment exports in 2001 to the U.S. and Europe combined totaled $429
million. Using figures from the U.S. Department of Commerce, this is estimated to represent about
99 million SME of fabric. Assuming 85% of this volume is represented by cotton-based garments,
Madagascar’s pre-crisis garments exports would require a supply of 84 million SME, or 17 thousand
tons of cotton fabric. The latter is equivalent to 25 thousand tons of cotton fiber. In addition, the
domestic market for cotton-based products, supplied by Cotona and SOMACOU, is estimated to
require another 2.5 thousand tons, for a total effective domestic demand of 27.5 thousand tons of
cotton fiber. The seed cotton equivalent, assuming a 40% ginning ratio, is 69 thousand tons of seed
cotton. This is the amount of seed cotton Madagascar would need to produce if all cotton-based
exports shipped from Madagascar (2001) were to be manufactured using cotton fabrics produced in
Madagascar. This is not to suggest that Madagascar should strive to be self-sufficient in cotton fiber
production. China, India, and Pakistan, all major textile-producing countries, import some lint to
complement their domestic seed cotton production. However, it does suggest that there is clearly a
domestic market for all the seed cotton that can be produced domestically in Madagascar, and then
some. Compared with a theoretical domestic demand of 27.5 thousand tons of cotton fiber, the
maximum sold by HASYMA during the last several years was 12.8 thousand tons of cotton fiber to
domestic and foreign markets in 1998. Madagascar clearly has a long way to go to reinvigorate
domestic fiber production to satisfy local processing demands. Lack of resolution of HASYMA’s
ownership status is confounding the preparation of any kind of strategy for increasing national cotton
fiber production.
In addition to constraints on domestically available raw material supply, there are also processing
constraints (capacity and technical). Two textile mills currently produce cotton yarn and woven
fabrics in Madagascar: Cotona, based in Antsirabe, and SOMACOU, located in Antananarivo. Two
other integrated operations, SAMAF and Festival, produce jersey knit fabric/garments under
integrated conditions. The latter also imports synthetic fiber for its chief product line, mixed blend
blankets. However, it does spin and dye some cotton yarn for knitting into cotton sweaters for export.
Companies for whom a significant portion of their manufacturing is of lower priced garments for the
local market are struggling to compete against imports, and are also having difficulty regaining their
foothold in export markets. As seen in Table 11, Cotona is HASYMA’s largest lint customer. Cotona
presently buys about 3500 tons of ordinary fiber right now from HASYMA, compared with over
36
5000 tons before the crisis. They also import some cotton yarn, which is relatively new for them.
Cotton yarn is also imported by Malagasy sweater and knitwear manufacturers.
Certain fabrics (e.g., denim, velour, corduroy, jersey knits) are only produced in limited
quantities in Madagascar for the export market. An Indonesia group is reported to be interested in
investing in upstream milling capacity, but has not moved into Madagascar yet. The two most
important categories of light- and heavyweight cotton fabric imports into Madagascar are shown in
Table 16. Mauritian textile mills are far and away the largest source of lighter weight cotton fabrics.
Heavier weight cotton fabrics, such as twills and denims, are imported from Mauritius, Hong Kong,
France, China, South Africa, and an assortment of other countries.
Table 16: Suppliers of Imported Cotton Fabrics to Madagascar, 2001
Country
(Thousand US$)
Light weights
Printed
China
44
France
30
Heavy weights
Yarn-dyed
23
Hong Kong
Twill
Denim
333
373
1,627
327
1,667
1,084
Indonesia
454
Japan
225
Mauritius
1,754
5,073
21
10,171
Philippines
499
South Africa
570
Spain
21
USA
Others
Total
409
13
182
98
112
37
26
97
1,961
5,133
4,265
13,911
Source: UN COMTRADE database
The Role of Electricity Costs
An important component of total cost in textile milling is energy. The textile sector is the largest
industrial consumer of electricity in Madagascar. Breweries are the second largest industrial
consumer, but they are able to co-generate a fair amount of their consumption through their
manufacturing process. Such options do not exist in textiles. Electricity typically accounts for about
15% of total costs for a textile manufacturer (yarns, fabrics) and 4-7% for a clothing manufacturer in
Madagascar.
Madagascar’s electricity costs are a function of a number of technical and policy variables in the
electricity market itself and in the petroleum products market on which much of electricity
generation is based. Of a total generation capacity of 240 megawatts, half is supplied by less
expensive hydro power and half by thermal (both heavy fuel and diesel) generation, the latter through
the importation of crude oil. These include:

private participation in electricity generation;
37





privatization of Madagascar’s petroleum refinery that included guaranteed margins to its new
owner/operator, Galana;
policy of taxation of diesel and heavy fuel that neither distinguishes between industrial or
household consumers nor distinguishes between sales to Madagascar’s national electricity
distribution company, JIRAMA, and sales to private consumers;
Madagascar’s exchange rate, which in turn affects the local price of imported petroleum;
electricity rate structure that includes both fixed and variable rate elements, borne differently
by different textiles producers, depending on their overall level of activity; and
electricity rate structure that provides for different rates depending on the level of power
(high-, medium-, and low-voltage consumption) and time of day of consumption (day time,
peak time, and off hours), but that does not distinguish between large-scale and small-scale
consumers.20
An assessment of whether Madagascar’s current pricing scheme covers the costs of electricity
generation, transmission, distribution, and supply is beyond the scope of this study. The Cellule de
Réflexion analysis undertaken to date has looked at the relative price of electricity in Madagascar,
compared with neighboring Mauritius and South Africa. The fixed subscription portion of total
electricity costs is 1.1 Euro cents per KW in South Africa, 2.9 Euro cents per KW in Mauritius, and
9.5-10.3 Euro cents per KW in Madagascar. Based on a simulation of industrial consumption of 4500
KWh, total KW rates are 3 Euro cents per KW in South Africa, 5.5 Euro cents per KW in Mauritius,
and 7.1 Euro cents per KW in Madagascar.
In November 2002, a roundtable was held in Antsirabe to launch a public-private sector study
group on energy pricing in Madagascar. The Cellule de Réflexion focused on the effect of energy
pricing on the costs of Madagascar’s textile industry, because of the latter’s importance to the
Malagasy economy. Its analysis referenced energy prices in Mauritius and South Africa as relevant
comparators for Madagascar. Madagascar’s electricity costs paid by the textile industry in 2001 were
somewhere between 6 and 8 US cents/kwH. The unit cost of electricity in Madagascar to industrial
consumers may seem on the high side when compared with Mauritius and South Africa, but it is
comparable to rates paid by industrial consumers in Taiwan, South Korea, Portugal, and Turkey (see
Table 24, Appendix C for cost comparisons). Russia, Kazakhstan, and South Africa enjoy among the
lowest rates in the world (less than 2 U.S. cents/kwH), whereas Caribbean and Central American
industries pay some of the highest rates (over 10 US cents/kwH). As described in Appendix C,21
South Africa is a significant and low-cost producer of coal, making its industrial sector one of the
most electricity-intensive in the world. This suggests that South Africa’s cost structure may not be
the most appropriate reference for Madagascar.
The work of the Cellule has also highlighted the fact that the national electricity company,
JIRAMA, must generate half of the country’s electricity by purchasing diesel fuel from the national
refinery, Galana, at a price that includes a number of taxes paid back to the state. JIRAMA’s
20
When JIRAMA restructured its rates in 2001, a specific decision was made not to provide subsidized rates to any
particular set of clients in order to diminish such lobbying efforts.
21
For a survey of electricity supply and demand situations in newly industrializing countries, many of which are
textile producers, see Appendix C.
38
purchase prices for petroleum products such as diesel and heavy fuel include the national valueadded tax of 20%, a road tax (Fonds d’Entretien Routier) of 5%, and the petroleum products tax
(TPP) of 6%. Galana imports crude oil, which it refines into diesel and gasoline, and re-exports some
products and by-products to Mauritius. Mauritius in turn uses the diesel fuel imported from
Madagascar to generate its own electricity, which it sells to industrial consumers without taxes at a
lower rate than that paid by Malagasy consumers.
In addition to concerns about the price of electricity, the quality of Madagascar’s electricity
service is of concern to the textile and clothing industry. Complaints of outages and power spikes
were commonly heard during this audit. Private generators and emergency power supply’s are
increasingly resorted to in order to counter the irregular service delivered by JIRAMA. Not only is
production lost during the time that machines are down, but flaws can be introduced into the quality
of thread or fabric under production at the time. These may not show up until later in the production
process, and then be costly to correct. Moreover, textile and clothing equipment itself is subject to
failure. One international clothing company based in Antananarivo said, “Sure, electricity is more
expensive in Madagascar than elsewhere, but for us it’s a smaller percentage of total cost than for the
textile mills. What really concerns us is the fluctuation of electric current.” This firm recently lost the
motherboard of a new patterning machine, costing several thousands of dollars. UPS (uninterruptible
power supply) equipment is not meant to protect against the worst surges.
Since electricity costs are 15% of the total cost of fabric, a 50% reduction in the cost of electricity
to the Malagasy textile industry would save 7.5% of fabric cost. At the next stage of production, the
cost of fabric represents 60% of the final cost of a garment, based on the cost breakdown of a typical
bottoms apparel item provided by one of the companies interviewed. Thus a 4.5% cost savings (7.5%
times 60%) would be realized on the fabric cost for this average garment. In addition, the cost of
electricity is also part of the CMT+ overhead cost quoted by local clothing factories, representing
about 4% of the total ex-factory price. The 50% reduction in the price of electricity thus would yield
an additional 2% savings at the level of the garment cost. In a market where international orders are
sometimes decided on margins of just a few U.S. cents per garment, 6.5% of an $8.00 ex-factory
garment price represents a significant cost savings of 52 U.S. cents.
A strategy of shared responsibilities between the government and the private sector has been
proposed to undertake policy reforms to lower the price of energy in Madagascar and increase the
cost-competitiveness of Madagascar’s leading manufacturing export industry. Pricing reform options
tentatively identified by the study group include:




Government should reimburse electricity producers for the road tax paid on petroleum
products, reduce the petroleum tax on diesel destined for electricity production, determine
economic priorities;
Petroleum companies should reduce the profit margin substantially charged to large
consumers, eliminate subsidies, and review privatization contracts for additional possible cost
savings;
JIRAMA should promote hydroelectric sources, with help from the state, restructure rates,
and improve its quality of service;
Industries should rearrange work in order to take advantage of lowest electricity rate periods
(at night), install independent generation to guarantee continuous operations, create jobs.
39
The group’s analysis was completed in early 2003, and its recommendations have been the
subject of lively debate in Malagasy public-private sector forums ever since. As of the
competitiveness audit team’s visit to Madagascar, no definitive conclusions had been reached.
Density of Local Textiles Market
The density of Madagascar’s local textiles market, i.e. an increased number of globally competitive
spinning, weaving/knitting, and wet processing operations is important for several reasons. First,
clothing firms in Madagascar benefit from a range of alternative textiles suppliers from which to
source their fabrics. This can be accessed at present to some extent at the regional level, e.g. in
Mauritius and South Africa.
However, the textile mills themselves benefit from having a denser market of mills in-country.
The more numerous are the number of competitive textile mills in Madagascar, the more capable
they are as a group to advocate for textiles-friendly policies. Also, the presence of more actors at the
same stage of the pipeline brings about a greater density of the supportive businesses that textile
firms require, e.g., textile equipment suppliers, parts providers, repair services, and the like.
Encouraging the presence of a denser network of textile mills also leads to increased workforce
specialization, providing more opportunities for skilled textile workers and thus more incentive for
workers to pursue specialized training.
Madagascar’s domestic textile milling market is thin. A number of plants that produce
intermediary and final goods largely for the domestic market are shutting down or suffering from
import competition. Knitwear production in Madagascar is under great duress. Only one industrial
group in Antsirabe is operating at high levels of capacity use and producing fabric for clothing
exporters. This group has indicated that it would welcome the presence of other textile companies
into Madagascar, for many of the reasons listed above.
Madagascar’s policy makers should consider how to make the investment environment friendlier
and seek support from international financial institutions to encourage new textile industry
investment in the country.
FINAL GARMENTS: CLOTHING ASSEMBLY AND EXPORT
Sourcing
Madagascar must compete against all other suppliers in the global clothing market for access to
buyers from the United States. The American Apparel and Footwear Association estimates that 89%
of U.S. clothing consumption is sourced from outside the U.S. today. Flanagan points out that the
reduction in importance of American clothing industry manufacturing means the political debate
around further liberalization of clothing imports in the U.S. is very different today than it was in 1994
when the Agreement on Textiles and Clothing was signed (2003, p. 5).
40
Table 17: Global Sources of U.S. Clothing Imports
2002
(million $)
World
% of
Total Imports
Through
July 2003
% of
Total Imports
(million $)
44,582
72,182
Caribbean Basin
Mexico
Canada
9,538
8,619
3,199
13.2%
11.9%
4.4%
5,618
4,759
1,794
12.6%
10.7%
4.0%
China
Hong Kong
Korea, South
Taiwan
8,744
4,032
2,881
2,207
12.1%
5.6%
4.0%
3.1%
6,423
1,974
1,369
1,150
14.4%
4.4%
3.1%
2.6%
Indonesia
Thailand
Philippines
Cambodia
Vietnam
2,329
2,203
2,042
1,061
952
3.2%
3.1%
2.8%
1.5%
1.3%
1,420
1,183
1,220
714
1,628
3.2%
2.7%
2.7%
1.6%
3.7%
India
Bangladesh
Pakistan
Sri Lanka
2,993
1,990
1,983
1,527
4.1%
2.8%
2.7%
2.1%
2,009
1,188
1,261
892
4.5%
2.7%
2.8%
2.0%
EU12
4,080
5.7%
4,081
9.2%
Turkey
Israel
Jordan
1,678
620
386
2.3%
0.9%
0.5%
1,047
374
288
2.3%
0.8%
0.6%
Sub-Saharan Africa
1,120
1.6%
853
1.9%
Others
7,998
11.1%
3,337
7.5%
Source: Office of Textiles and Apparel, U.S. Department of Commerce
It is difficult to predict how sourcing patterns will change after 2004. While some fear that China
will dominate world markets thereafter, international buyers also seek to diversify sources of supply
in order to manage their potential supply risks due to civil unrest, trade disputes, and the like. In
addition, Madagascar should bear in mind that while the U.S. market looms large because of AGOA,
patterns of international apparel trade will shift over time as growth in clothing consumption picks up
in newly industrializing countries around the world. Today’s international clothing market mostly
services consumers in the U.S., the EU, and Japan. But these three countries, Flanagan notes, only
represent 10% of the world’s population.
In 2002, major suppliers to the U.S. market were concentrated in East Asia and North/Central
America (Table 17). Thirty percent was imported from the Caribbean Basin, Mexico, and Canada,
41
combined, and another twenty-five percent from China, Hong Kong, Korea, and Taiwan. The
southeast Asian countries of Indonesia, Thailand, Philippines, Cambodia, and Vietnam provided
12%, as did the south Asian countries of India, Bangladesh, Pakistan, and Sri Lanka. Nearly six
percent of U.S. clothing imports were supplied by the European Union (EU12). That leaves another
16% sourced from other countries, among which were Turkey, Israel, Jordan, and sub-Saharan
Africa.
As of the first seven months of 2003, North and Central America’s contribution has eased
slightly (27%), while the percentage sourced from the “big four” East Asian countries remains 25%.
Among the latter, the importance of China has grown somewhat. Small increases are noted for the
other countries, such that the relative importance of non-specified, other suppliers has dropped from
11% in 2002 to just 7.% in the first part of 2003.
Manufacturing
Madagascar’s EPZ policy allows clothing companies to import yarns, fabric, and trims duty-free if at
least 95% of the imported inputs will be used to produce for export. However, all AGOA-related
imported inputs have to be used up within six months, or duty must be paid on the value of the
original shipment. Manufacturers note that buyers sometimes request delays in order fulfillment until
the following season, if something is not selling well. This can wreak havoc on companies’ planning
schedules.
Forty percent of Madagascar’s total exports in 2001 were knit or woven garments, of which, 47%
pullovers, 27% bottoms, 12% tops, 4% undergarments, and 10% others. Table 18 provides further
product detail.
Signs are favorable that Madagascar’s garment export industry is once again gearing up for
increased activity. A number of companies interviewed for this audit indicated that their employment
and production levels are up, after last year’s crisis. A few even indicated that they are operating at
levels that exceed pre-crisis levels. Marketing agents are said to be actively seeking product out of
Madagascar again. As a result, logistics firms such as freight forwarders, air cargo, and sea freight
companies are all making new investments in warehouse and air/sea port handling capacity to handle
expected increases in production after expatriate managers’ July-August vacations are over.
42
Table 18: Madagascar Garment Exports, 2001
HS Code
Product
Value
(thousand US$)
611010
611020
Pullovers, cardigans & similar articles of wool or fine animal hair, knitted
Pullovers, cardigans and similar articles of cotton, knitted
620342
620462
Men’s/boys trousers and shorts, of cotton, not knitted
Women’s/girls trousers and shorts, of cotton, not knitted
62,560
43,975
610910
621410
T-shirts, singlets and other vests, of cotton, knitted
Shawls, scarves, veils and the like, of silk or silk waste, not knitted
22,290
19,725
620520
611030
Men’s/boys shirts, of cotton, not knitted
Pullovers, cardigans and similar articles of man-made fibers, knitted
19,594
15,362
620442
620920
Women’s/girls dresses, of cotton, not knitted
Babies’ garments and clothing accessories of cotton, not knitted
8,004
7,553
621210
611090
Brassieres and parts thereof, of textile materials
Pullovers, cardigans & similar articles of other textile materials, knitted
6,336
5,173
610462
620821
Women’s/girls trousers and shorts, of cotton, knitted
Women’s/girls nightdresses and pajamas, of cotton, not knitted
4,656
4,160
621132
610891
Men’s/boys garments not elsewhere specified, of cotton, not knitted
Women’s/girls bathrobes, dressing gowns, etc, of cotton, knitted
4,027
3,819
611120
610610
Babies garments and clothing accessories of cotton, knitted
Women’s/girls blouses and shirts, of cotton, knitted
3,573
3,429
610342
610510
Men’s/boys trousers and shorts, of cotton, knitted
Men’s/boys shirts, of cotton, knitted
3,172
3,155
610821
620630
Women’s/girls briefs and panties, of cotton, knitted
Women’s/girls blouses and shirts, of cotton, not knitted
2,876
2,744
610343
Men’s/boys trousers and shorts, of synthetic fibers, knitted
2,528
TOTAL
TOTAL
HS codes 61 & 62
All exports
107,704
73,069
429,484
1,112,509
Textiles and apparel as a percent of total exports (approximate)
39%
Source: U.N. COMTRADE database
Interviews with representatives of the industry reveal the following competitiveness issues
predominate at the clothing end of Madagascar’s value-chain:


Firms that export under AGOA must comply with a host of regulation and inspection, some
of which is specific to the U.S. legislation and some of which derives from overzealousness
on the part of Malagasy customs officials. In addition, trade-related institutions in
Madagascar, such as customs, transportation, and taxation management, are fraught with the
potential for abuse. Bottlenecks in these areas may seriously impact clothing firms’ abilities
to ship reliably to U.S. and other overseas clients.
While Malagasy labor is less productive than labor in other garment-exporting countries, this
is compensated by lower wages. However, the supply of available labor is tight in the
highlands, where clothing manufacturing is located. Expansion to coastal areas appears to be
infeasible. Moreover, firms based in Antananarivo are unable to run more than one shift per
43


day. There is little available training for workers or more highly skilled textiles industry
positions outside of firms.
Madagascar’s cotton-textiles-garments value-chain is not a fully developed cluster. In order
to succeed in the competitive global environment after 2004 and the elimination of world
quotas, the industry in Madagascar will have to seek greater integration within the country
and with regional and U.S. market partners.
There is little sign that either the government or the “private sector” as a whole is preparing a
strategy for Madagascar’s textiles industry after the September 2004 expiration of AGOA’s
special rule permitting third-country sourcing of yarn and fabric for least developed countries
and after the 2005 expiry of global textile quotas.
Each of these is further elaborated below.
AGOA Paperwork and Customs Administration
The U.S. AGOA visa system presents particular record-keeping challenges for clothing exporters. In
order to become AGOA-eligible, the Malagasy customs service’s AGOA office must inspect the
firm’s plant. Training in document and logistics is provided in order to explain how to manage the
necessary paperwork. Stocks of fabric and trims imported for AGOA-specific production must be
kept physically separate from stocks destined for non-U.S. markets. Separate documentation must
also be kept on all U.S.-specific orders and their fulfillment. Similar to the buyers’ compliance
inspections done by private companies, the AGOA customs office also reviews payrolls and
facilities.
The U.S. Bureau of Customs and Border Patrol (CBP) regularly sends teams to a number of
AGOA-eligible African countries each year to review apparel visa and inspection procedures with
their counterpart customs service colleagues. This year, Madagascar was included in their Africa
tour. Following that visit, Malagasy officials indicated to this audit team that certain imported inputs,
such as pre-fabricated knit rib trims, were deemed ineligible by U.S. CBP officials for third-country
sourcing by AGOA exporters and thus goods manufactured using them would be denied visas for
entry into the U.S. under AGOA. It was not possible to confirm this finding with CBP officials.
In addition to AGOA-related regulation, the government of Madagascar changed its customs
inspection system in April 2003. Previously, all non-EPZ related imports were subject to customs
valuation inspections. In April, the Swiss firm Société Générale de Surveillance (SGS) was brought
in to replace the previous contractor. At the same time, imports by EPZ firms, previously exempt
from such inspection, also became subject to customs valuation verification. The introduction of SGS
into Madagascar has been strongly resisted, by both the Madagascar customs service and the private
sector. EPZ firms complain that should not be subject to such inspection, since they do not pay duties
and therefore ought not to have any incentive to falsify their import values. 22 The companies also say
that introduction of the new procedures was poorly managed by SGS. For instance, many did not
receive advance notice of electronic interfaces available to registered firms that allows them to
submit notification of their imports to SGS via the Internet. Firms are also concerned about a new
22
EPZ firms may have other incentives for falsifying import documentation, such as illegal transshipment and the
desire to import goods duty-free that are destined for the local market.
44
fee, equal to 0.25% of the CIF value of imports, to be paid to the SGS for its services. Independent
oversight by SGS threatens the authority of the local customs service.
For its part, SGS is determined to render trade facilitation services to importers and not simply be
perceived as a bottleneck. SGS also indicated it would soon transition to a system of ex-poste
customs valuation inspections in order to eliminate delays in physical access to imported inputs.
Malagasy customs officials are also upset about the presence of SGS. The latter is viewed by
them as providing unnecessary and unwanted competition. Further modernization and
computerization of customs service operations by SGS – sorely needed from the point of view of
enhanced efficiency of customs service operations and increased satisfaction from the private sector
– would limit the broad authority currently enjoyed by customs agents.
Experience from other countries suggests that customs administration reform is an essential
component of trade liberalization (WCO 2003). Reductions in tariffs should be accompanied by
increases in the efficiency of customs tariff revenue collection in order to avoid excessive revenue
losses. At the same time, such reforms greatly enhance the efficiency with which the private sector
can bring goods across borders. In Morocco, for example, the Customs Administration was able to
reduce the average processing time from 5.5 days in 1997 to 2.0 days in 1999. By 2002, 85% of
declarations filed with customs offices were processed in just under an hour and a half. Successful
customs reform in Morocco was aided by the introduction of a performance bonus scheme for
customs officials based on objective evaluations, the introduction of simplified procedures and
selective controls, increased use of information technology, improved management of the admission
temporaire scheme, and enhanced transparency and consultation with the private sector (World Bank
2002).
The following steps are involved to import inputs for AGOA-related exports destined for the U.S.
market:
1. When a production order is received by a Malagasy manufacturer from a U.S. client, the firm
must file the following paperwork regarding imported inputs with the Malagasy AGOA
customs office:23



Original commercial invoice for the imported goods;
Declaration of import values and quantities, with indication that these are required for
AGOA-related manufacture, usually taking 48 hours to file;
Request for an inspection by SGS, if the value of imports exceeds $3000 (if the value is
between $1000 and $3000, no SGS report is required). This last step is said to take up to
15-20 days to process, when submitted electronically, or even longer if presented by hand
to the SGS office.
2. With these in hand, an AGOA declaration is filed with a freight forwarder, taking 1 day to
process.
23
These officials are located only in Antananarivo. Although a customs office exists in Antsirabe, there is no AGOA
customs officer based there. This further prolongs the customs inspection process for the clothing firms located
there.
45
3. Upon arrival of the imported inputs, each shipment must be visually inspected by an AGOA
customs officer and by the SGS officer.
One company complained that a container that had arrived in Toamasina on June 22, 2003
did not arrive at the plant in Antananarivo until three weeks later, on July 14. Where
containers used to sit in port for two days, the introduction in Spring 2003 of the SGS
inspectors has resulted in containers lingering for as much as 15-20 days. Demurrage charges
and warehouse fees can run 30 Euros per day for a 20-foot container in Toamasina or 150
FMG per kilogram per day at the airport.24 A logjam of imported containers sitting in
Toamasina can lead to increased resort to alternative arrangements for goods to leave port
without settling with SGS.
In order to process an AGOA-related export:
1. Paperwork required for acquiring an AGOA visa includes:






Commercial invoice indicating the value and number of pieces being exported;
Actual packing list;
Certificate of origin, provided by the local Chamber of Commerce;
Bank documentation to attest to export value plus a Repatriation de devises form that
requires that all export earnings be repatriated within six months;
Raw material and accessory stock sheets that indicate how much has been used from each
of the imported inputs and the balance remaining;
Copy of the import customs declaration for the inputs.
2. Submit above-mentioned paperwork to freight forwarder, who seeks the AGOA visa from the
AGOA customs office. This usually takes one day.
3. Proceed to physical inspection by AGOA customs officer, carried out at the forwarder’s
office. This usually takes one day.
4. The AGOA visa paperwork must physically accompany all air freight. It can be sent to buyer/
importer via courier in the case of sea freight, often arriving before the freight actually does.
Given that the timeliness of delivery of orders to foreign clients is a key term in the
competitiveness equation, Madagascar’s garment exporters can ill afford to have to contend with
inefficient trade-related institutions such as customs and transportation. Delays, transaction costs, and
uncertainties make it increasingly expensive and time-consuming to do business in Madagascar. All
firms experience some level of interruption of service from these institutions on a regular basis and
end up paying additional fees to expedite service.
Value-Added Taxation Reimbursement
An additional cost commented on by many of the firms surveyed is that of tied-up capital involved in
delayed reimbursement of VAT. Although EPZ firms are “exempt” from VAT obligations, the 20%
24
The majority of fabric shipments arrive by sea, whereas most trims and special packaging accessories arrive in
Madagascar by air.
46
tax had been paid on the CIF value of imported capital equipment, and reimbursed ex-poste by the
government. Although the obligation of EPZ firms to pay the VAT has been suspended since the
2002 political crisis, a number of firms expressed concern that the policy might be reinstituted. In the
meantime, some firms have tens or thousands of dollars tied up in unreimbursed VAT payments.
Transportation Bottlenecks in Madagascar
Aside from customs costs and delays, the second largest concern of clothing companies is the cost
and delay associated with transportation logistics. Final goods normally are shipped from
Antananarivo to the seaport in Toamasina by truck, and by ship on to final destinations. Air freight is
usually a contingency option only, or used only by manufacturers of high-value garments such as
cashmere sweaters and hand-embroidered specialty garments.
The two cities are connected by a two-lane road, which drops almost 4,000 feet between
Antananarivo and sea level. Accidents and banditry are common. The road is already under severe
stress. Traffic in and out of the capital is limited to between 8 pm and 6 am, in order to limit traffic
bottlenecks in the city due to cargo. Truck depots exist outside of the capital along the major roads to
and from the air and sea ports. Before the political crisis, upon inquiry regarding the capacity of
Madagascar’s infrastructure to handle significant increases in export volumes, The Gap was told that
Malagasy roads could not handle a 50% expansion of exports.
The result of such limited infrastructure, combined with accident and security risks, is that it
reportedly costs as much to ship a container between Antananarivo and Toamasina as it does from
Toamasina to New York. Both cargo and exporting firms complained of uncertainties with regard to
shipping. Cargo firms bear the risk of a freight forwarder not delivering its container on time, while
exporters bear the risk of ships or cargo flights being cancelled. Maritime shipping lines do not go
directly between Toamasina and the U.S., but rather transit via Mauritius, South Africa, or even
Mombassa or the Arabian peninsula. Transit times are a minimum of four and as many as six or eight
weeks to New York or Los Angeles, longer if the ultimate destination is the interior U.S. The choice
of local freight forwarding agent and international shipper is usually determined by the U.S. client,
who negotiates bulk rates from the U.S.
The rail line that connects Antananarivo and Toamasina has fallen into severe disrepair and is not
presently an option for overland cargo shipments. The state-owned railway has recently been
privatized, bought by a South African firm. The sooner the Antananarivo-Toamasina line become
operative, the better for Madagascar’s clothing exporters. A competitive and efficient rail operation
would introduce sorely needed competition in the market for overland cargo haulage services. The
government should do all it can to facilitate the launching of an efficient, operational rail link as soon
as possible.
Malagasy Labor Productivity, Skills, and Supply
Malagasy clothing company workers are said to be only 70-75% as productive as workers in
Mauritius (interviews; see also Tait 2002). However, Malagasy textile sector wages are also
significantly lower than those found elsewhere. The current minimum wage is about200,000 FMG
per month for a 40-hour week, equivalent to $35. Comparable wages elsewhere, quoted in the World
Bank’s Integrated Framework paper (2001), are $50 (Sri Lanka), $65 (Botswana, Kenya, Lesotho),
$75 (India), $133 (Mauritius), $150 (China), and $255 (South Africa). Wage costs can be compared
with the number of shirts that are produced per worker on average per day in each country. As seen
47
in Table 19, Madagascar’s wage costs per shirt produced are low ($0.093/shirt), compared with those
elsewhere in sub-Saharan Africa and even compared with India and China.
Table 19: Labor Cost in Men’s Shirt Production
Madagascar
Ghana
Mozambique
Kenya
Lesotho
South
India
Africa
# Shirts per day
Monthly wage
Daily wage
14-15
12
10-11
12-15
18
EPZ
China
15
16
18-22
$35
$30-45
$40-50
$60-65
$82-95
$255
$70-75
$150
$1.35
$1.44
$1.73
$2.40
$3.40
$9.81
$2.79
$5.77
$0.093
$0.120
$0.165
$0.178
$0.189
$0.654
$0.174
$0.288
equivalent
Wage cost per
shirt
Source: Adapted from World Bank (2001), volume 2, p. 44
Despite this cost advantage, the supply of trained workers will become increasingly tight for the
garments sector, especially as it recovers from the crisis-induced slump (World Bank 2001). Most
firms use expatriate managers, quality control experts, supervisors, and technicians. All firms
interviewed for this audit train their workforces in-house, usually over a 3-4 week period. Only the
World Bank’s Integrated Framework paper makes reference to a textile sector training institution in
Madagascar, FORMACO, calling it ineffective. Eventually, a shortage of skilled workers will drive
up wage costs and limit the industry’s ability to move up the value chain. Madagascar needs to
expand its supply of mid-level managers in technical and business areas, e.g. fiber and textiles
engineering, technical support personnel, skilled assembly operators, textile arts and fashion design,
international branding, market analysts, international sales and contracting, and logistics managers.
The pre-crisis level of employment of around 120,000 workers in 2001 represents about one-fifth
of total employment in the urban centers of Antananarivo and Antsirabe (INSTAT 2000). The 2000
population of the two cities was 1.2 million and 145,700, respectively. Of this, the economically
active population in the two cities was 556,900 (Antananarivo) and 60,300 (Antsirabe) workers, of
whom between 5 and 7% were estimated to be unemployed. The available pool of workers is thus
fairly tight in these two urban areas. With average household sizes of 4.4-4.9 members each in these
two cities, each worker is thus presumed to be supporting 530-590,000 people, or nearly half of the
population of the two cities combined. Yet despite the potential for tight labor supplies as the textile
industry is re-launched, it appears infeasible – for climatic, infrastructure, and labor market reasons –
to expand manufacturing to coastal areas. A number of firms interviewed suggested that the
Malagasy workforce is far less industrialized and disciplined away from the highlands.
In addition to the sheer weight of numbers, employment in the textile industry is valued because
of the difference between wages in the textile industry and those in alternative sectors such as
agriculture and the informal sectors. Textile sector employment also offers healthcare, pensions, paid
leave benefits, and greater stability of employment. According to Nicita and Razzaz (2003), in 1999
three-quarters Madagascar’s textile/clothing employment was held by women. Yet the preponderance
of skilled workers is much higher among male workers (70%) than female workers (48%). Women
are also much more likely to be hired as temporary workers (17%) than are men (2%). The gender
48
wage gap in the textile industry is substantial, as male workers receive a 30% wage premium
compared to equally skilled female workers. This is most likely the result of the sharp division of
labor by gender, with men occupying more remunerative positions and women holding most of the
temporary jobs. Thus female workers benefit less from textile industry employment than male
workers, due mainly to different skills, employment position, and ultimately discrimination.
Nevertheless, Nicita and Razzaz conclude that the textile industry probably offers the best
opportunity for women to enter the labor market, to obtain economic independence, and to actively
contribute to economic development (p. 21).
Lack of Cluster Development Strategy in Madagascar
Madagascar currently supports three key elements of a vertical textiles chain, i.e. seed cotton
production and ginning, spinning and weaving/spinning and knitting, and garment assembly. These
are currently supported by suppliers of logistics and energy. Professional associations that actively
represent the interests of producers and logistics companies include both the GEM (Madagascar’s
Enterprise Association) and the GEFP (Association of Duty-Free Enterprises and Partners).
While the existence of these elements is important, Madagascar does not yet have a fully
developed textiles “cluster.” The classic model of competitive advantage holds that a country’s most
successful industries are those that are linked in clusters through vertical and/or horizontal
relationships (Porter 1990). The four determinants of national advantage are depicted as a mutually
reinforcing system, or “competitiveness diamond,” by Porter (Figure 5):
These four attributes – i.e. the availability of key factors such as skilled labor and infrastructure,
the degree to which clear signals are given about what consumers are looking for, the presence of
globally competitive supplier industries such as machinery and trims manufacturers, and the presence
of a corporate culture, style of management, and competitive market environment that promotes
innovation and global perspective – determine the extent to which a cluster will succeed
internationally or not.
Figure 5: Porter Competitiveness Diamond
Firm Strategy,
Structure, & Rivalry
Factor
Conditions
Demand
Conditions
Related & Supporting
Industries
Source: Porter (1990), p. 72.
49
In the longer run, Madagascar’s cotton-textiles-clothing value-chain will need the support of a
more fully developed cluster to succeed. Madagascar lacks the presence of equipment designers and
manufacturers, spare parts providers, repair companies, trims manufacturers,25 training institutes,
technical and market research firms, industry-specific marketing and advertising firms, and stronger
linkages to end-consumers and clients. Madagascar’s existing cluster density is quite thin, especially
upstream in both seed cotton production and in spinning, weaving, knitting, and wet processing. The
country needs to strengthen the density of the cluster by encouraging foreign direct investment to
come to Madagascar to set up competing cotton, textiles, and clothing processors. This will improve
the vitality and productivity of the existing firms by strengthening the competitive forces in-country
for technology and innovation and offering more market opportunities at each stage of the chain. It
will also obviously expand the employment base of the industry. If cluster organizations or
capabilities are not available locally, Malagasy firms will need to develop strategic alliances or
partnerships with regionally or globally based firms and organizations that can provide these
services. Without the development of such a cluster network over time, Madagascar’s cotton, textiles,
and clothing firms will remain dependent on international networks to determine their commercial
futures.
The industry-wide conversation which has developed between private businesses, the
government, and the national electricity distributor is indicative of a growing awareness of cluster
needs and a growing willingness on the part of government to dialogue for solutions to those needs.
On the other hand, some unrest within and among private sector organizations was observed in July
2003. The GEFP was unable to elect a new president at its July meeting. At the same time, a new
organization of Anglophone-managed clothing firms appears to be organizing. These suggest that
concerns about representation of interests may be rippling through the Malagasy private sector now.
Lack of Future Strategic Planning
Most firms with whom we spoke were aware of the possible expiration of the AGOA special rule
permitting third-country procurement of yarns and fabrics for clothing manufacture. However,
instead of being inspired to seek local or other African sources of supply of these inputs, most
clothing firms took the position that few local or regional sources of supply could deliver the
quantities, qualities, or terms that they need to satisfy U.S. customer requirements. Most informants
had heard that the rule would likely be extended. Some mistook President Bush’s proclaimed
intention at the June 2003 U.S.-Africa Business Summit in Washington to seek an extension of the
overall AGOA legislation beyond its current expiry date of 2008 as a promise to seek extension of
the special rule after September 2004. As reported on page 11, the U.S. Senate is exploring “creative
approaches” to extend the special provision before its expected expiration.
Of the dozen producers with whom we spoke, three are already collaborating closely among
themselves and in addition have sought additional sources of input supply from Mauritian and South
African firms. Some Madagascar-based managers of clothing operations whose headquarters are
located elsewhere seemed relatively ill-informed. However, since these operations specialize in
25
The reopening at the end of 2002 of Coats, the world’s largest supplier of industrial sewing thread and second
largest manufacturer of zip fasteners, is another auspicious sign for Madagascar.
50
assembly, they are not responsible for longer term investment and sourcing strategy, leaving that to
their headquarters abroad. Another firm indicated it was ready to expand operations in Madagascar
and was actively looking for new industrial space to increase employment by several thousand jobs.
However, if the third-country AGOA sourcing rule was not extended, this same firm would pack up
and move elsewhere. Vietnam, Pakistan, and Sri Lanka were all being considered as alternatives.
Even if September 2004 does not bring expiration of the sourcing provision, the general feeling is
that rules of origin requirements will eventually (i.e. in one to two years) prevail under AGOA. At
present, this will likely affect smaller Malagasy firms that are less well-integrated with international
buyers and sourcing agents more adversely than larger and better connected firms.
Beyond changes in AGOA’s rules of origin, the world textile and clothing market will undergo
significant change when global quotas expire according to the rules of the WTO Agreement on
Textiles and Clothing. Successful exporting countries will no longer have to fear the imposition of
import quotas, except under safeguard circumstances. This means that AGOA’s advantage will be
strictly one of duty exemption into the U.S. market. All producers will have to be competitive, in
terms of cost and in terms of reliability, if they are to continue to export successfully.
51
5. CONCLUSIONS AND RECOMMENDATIONS
DIVERSITY OF COMPETITIVENESS STRATEGIES
There is not one single competitiveness strategy that must be adopted in Madagascar. Every firm
seeks its own path, as a function of the talents and resources it can marshal. The choice of strategy is
a firm-level decision. It depends on a firm’s position within the value-chain, its links to the
international market, its size, and the type and value of product it supplies to the world market.
For a small firm with a unique product in the marketplace, the option may be to pursue branding
in order to capture greater rents from a product’s uniqueness. Another firm may choose a product
niche the demand for which does not vary significantly throughout the year, such as work wear,
thereby stabilizing orders and work-in-progress flow-through throughout the year. A company may
opt to specialize in manufacture of unique, labor-intensive design to take advantage of the low cost of
labor in combination with strong design and needle skills. For a large company with multiple layers
of operations, tighter vertical integration in-country or within southern Africa may be the best
strategy for controlling risks that can delay shipments and impede competitiveness.
The other business model observed in Madagascar, wherein a significant portion of total output is
destined for sale to local consumers, is not likely to be terribly successful. A range of household and
garment textile-based products is still manufactured in Madagascar for the domestic market.
Typically, these firms have been supported by heavy protection against foreign competition. Each of
the firms interviewed for this audit for which the local market represented an important final
destination complained of invasion by imports, usually from Asia. The local customer base is simply
not demanding enough in terms of quality to support the higher prices required by local
manufacturers. Foreign producers, who typically run their operations twenty-four hours per day, 362
days per year, and at significantly larger scale, are able to produce at far lower price points.
PRIORITIES FOR MADAGASCAR
Although there may not be one competitiveness strategy that fits all cotton, textile, and clothing firms
in Madagascar, there are a number of cross-cutting issues that affect the competitiveness
environment faced by all. These have been addressed in the preceding chapter.
In order to prioritize areas for action, this audit first recommends that the Cellule de Réflexion –
already constituted as a public-private forum for discussion of industry competitiveness – adopt a
broader vision of textile industry-related competitiveness issues. To date, the government and the
private sector have opened a dialogue on how to promote the industry, but the focus has been limited
on specific sectoral issues, such as the electricity pricing policy. A competitiveness task force for the
industry needs to look beyond the cost of electricity to consider the specific issues at each point in
the value-chain. This broader perspective will allow fuller appreciation of the relative importance of
issues at each stage of production, processing, and trade, in order to prioritize needed actions and
assign responsibilities. Participation in the taskforce should also be expanded to include
representatives of trade facilitation firms (e.g., Customs, SGS, freight forwarders, shippers, truck
53
transportation companies, the rail company), education and training service providers, and others as
needed.
Second, private companies should be encouraged to engage in long-term strategic planning to
position themselves for the global textiles and clothing market post-2004. The immediate action to be
undertaken in this regard should be dissemination of the insights of this competitiveness audit. A
workshop in this regard is tentatively scheduled for early November 2003, to be organized by
USAID’s AGOA Jumpstart project in collaboration with government and private sector partners.
The audit recommends that actions be considered for both the short- and long-term improvement
of competitiveness. Short-term priorities are those that can be undertaken largely by virtue of
government decision to act. Complementary actions are those that require more substantial
investment or more significant partnering and consensus-building among stakeholders.
In the short term, Madagascar’s priorities should be to reduce costs and improve efficiency in
several key areas:






Prioritize improvement in the efficiency of Madagascar’s customs administration and SGS
inspection system. Start with a commitment to resolve the impasse observed between the
customs authorities and SGS. Modernize and render more transparent the Madagascar
customs administration in order to reduce transit times and unofficial fees associated with
inspections. This action will have positive spillover effects far beyond that of the clothing
industry alone.
Make every effort to help the privatized rail line between Antananarivo and Toamasina
become operational as quickly as possible, in order to reduce the transport bottleneck faced
by Antananarivo-based manufacturers.
Reduce the cost of electricity by allowing Jirama to purchase diesel and heavy fuel horstaxes.
Confirm whether VAT obligations will once again be required of EPZ firms.
Resolve the impasse regarding the future of HASYMA in order to proceed with privatization,
recapitalize the organization, and restart domestic seed cotton production. Assess the pro’s
and con’s of alternative equity arrangements for increasing domestic and foreign private
sector participation in the seed cotton/cotton ginning sector.
Work to attract new FDI into the country (especially in spinning, weaving/knitting, and wet
processing) to strengthen the density, vibrancy, and productivity of the cotton-textilesclothing cluster.
Longer term, the following complementary actions are needed:


Encourage increased interaction (commercial investigation and trade promotion/inspection
tours, regional trade fairs) between Malagasy cotton, textiles, and clothing firms and those in
other AGOA-eligible countries to develop regional trade linkages and alternative sources of
input supply post-expiration of the special AGOA rule on third-country input provision.
Deepen understanding of the potential for and constraints to expanded seed cotton production
in Madagascar. Research the economics of long-staple cotton production. Undertake more
detailed comparative advantage analysis of seed cotton and lint production, to gain deeper
understanding of key technical parameters as well as economic or opportunity costs of key
54


tradable & non-tradable inputs, and competitiveness through ginning stage. Conduct farming
systems research to understand relative incentives to farmers to produce seed cotton versus
other crops.
To help improve customs operation in Madagascar, encourage participation by Malagasy
officials in international customs forums and encourage interaction with colleagues from
developing country customs administrations that have successfully modernized, such as in
Morocco.
Develop a plan to improve the technical productivity of the chain’s workforce, e.g.
Madagascar needs to expand its supply of mid-level managers in technical and business
areas, e.g. fiber and textiles engineering, technical support personnel, skilled assembly
operators, textile arts and fashion design, international branding, market analysts,
international sales and contracting, and logistics managers.
55
Appendices
A. WHAT IS “COMPETITIVENESS?”
Competitiveness is defined in various ways in the literature (Salinger 2001b; Kandiero, Salinger, and
Warner 2003). It is sometimes used interchangeably with the economic notion of comparative
advantage, referring to the economic cost of production of a good relative to an international
reference price (and may be referred to as “cost competitiveness”). It has also been defined in an
even narrower sense to evaluate the financial performance of firms (Cockburn et al. 1996; Siggel
2003). Researchers have used it to measure the economic performance of industries and firms within
countries (Wangwe 1995), localities (Kanter 1995), or whole countries (World Economic Forum
(WEF) various). In the management and business literature, the term competitiveness is a private
sector development concept, referring to the ability of firms to master a range of qualitative
management concepts (Porter 1990; Fairbanks and Lindsay 1997; Salinger 2003).
The term “competitiveness” evolved in the 1990s as an alternative conceptual framework to
“comparative advantage.” The roots of this paradigm shift echo the shift in patterns of trade from a
predominance of fairly standardized, homogeneous commodities to a predominance of more complex
and differentiated manufactured goods and services. With fairly standardized commodities,
competition is based on a firm’s efficiency relative to world reference prices. With increased product
differentiation, it is extremely difficult to establish “reference prices,” and thus a host of more
nuanced variables in addition to cost determines the extent to which firms compete in the
marketplace.
Porter focuses primarily on clusters that produce more complex and heterogeneous products and
services. He defines competitiveness as the productivity with which a nation, region, or cluster uses
its human, capital, and natural resources. His “competitiveness diamond” emphasizes the myriad of
qualitative factors that shape a firm’s or cluster’s competitiveness. Interactions are highlighted
between (1) the local institutional context that shapes firm strategy and rivalry, and encourages
investment and sustained upgrading; (2) local factor (input) conditions (i.e. human resources, capital
resources, physical infrastructure, administrative infrastructure, information infrastructure, scientific
and technological infrastructure, and natural resources); (3) local demand conditions; and (4) the
presence of related and supporting industries, such as locally-based suppliers and firms in related
fields, as well as the presence of “clusters” instead of isolated industries.
In deciding where to invest overseas and/or with whom to enter into commercial relationships,
American electronics and textile firms evaluate national factors to narrow down the number of
eligible country platforms, before pursuing individual firms with which they might do business
(McMillan, Pandolfi, and Salinger 1999). Firms report that cheap labor is no longer sufficient to
attract foreign direct investment. In addition to costs and taxes, other factors that determine their
selection of developing country partners are local labor and management skills, production and
marketing infrastructure, the regulatory and business environment, U.S. trade relations with the
country under consideration, and the labor and environmental conditions of the country and local
partner firms.
57
In addition, experience in successful economies suggests that effective workforce development
systems (WFD) are also needed to support competitive cluster growth (Aring 2002; Aring, Belghazi,
Bouzri, Salinger 2003). Only when a thriving workforce development system – connecting education
and training institutions, employers, government policy makers, and workers – is in place can
clusters hope to maximize their competitiveness. In recognition of this dynamic, Aring’s workforce
development diamond adapts Porter’s competitiveness diamond to include education and training
institutions as one of the four points, in addition to market conditions and the policy environment,
workforce supply, and employers. Workforce development strategies may include strengthening
linkages among these actors, working with employers to develop skills certification for specific
clusters, developing lifelong learning systems, encouraging productivity and quality through
industry-university R&D partnerships, extending competitiveness services through agricultural and
industrial extension outreach by technical colleges and training institutes, fostering cluster growth,
addressing youth employment challenges, or building entrepreneurship programs.26
26
For further information on workforce development-related activities, see USAID’s Global Workforce in
Transition (GWIT) project website, www.gwit.us/overview.asp.
58
B. COTTON PRODUCTION COSTS, PROFITABILITY, AND REFERENCE PRICES
Table 20: Cost of Seed Cotton Production, Toliara 2002/03
MADAGASCAR: AUDIT DE COMPETITIVITE DE LA CHAINE-VALEUR TEXTILES (2003)
Analyse de la compétitivité -coût de la production du fibre
Système de production:
Toliara, irriguée
Société:
HASYMA
Rendement (champ):
848 kg/ha
Rendement (égrenage):
40% kg fibre/kg coton graine
Coûts a la production (FMG/ha)
Facteurs de production (implicite)
Main d'oeuvre
Terre
Frais financiers
Coûts
financiers
90
1
h-jours
ha
6,000
75,000
FMG/h-j
FMG/ha
Taxes/
subventions
Coûts
économiques
75,000
-
75,000
-
Echangeables
Nonéchangeables
75,000
Intrants (avances par HASYMA)
Semences
Sac de semences
Engrais
Urée
Phosphate d'ammoniaque
Insecticides
Piles
Location aspirateur a dos
12,500
12,500
6,250
6,250
29,342
33,175
388,440
14,400
2,500
29,342
33,175
388,440
14,400
2,500
20,539
23,223
271,908
10,080
1,750
8,803
9,953
116,532
4,320
750
Travaux agricoles (autofinancement)
Défrichement
Labour
Hersage
Billonnage
Destruction
Nettoyage
125,000
10,000
14,774
41,140
-
125,000
10,000
14,774
41,140
-
25,000
2,000
2,955
100,000
8,000
11,819
41,140
-
59
Epandage phosphate
Semis/resemis
Herbicidage
Démariage
Sarclages/rasette
Epandage urée
Irrigation
Traitement insecticides
Récolte coton graine
Approvisionnement champ
Transport
Coûts totaux (coton-graine), champ
Rendement (champ):
Coûts totaux (coton-graine), champ
Rendement (égrenage):
Coûts totaux (equiv fibre), champ
Coûts de transformation en fibre
Coûts d'égrenage
Frais d'approche (Egren->COTONA)
Coûts totaux, fibre (CIF, COTONA)
5,000
32,058
10,000
25,000
236,678
5,000
30,000
156,674
848
40%
FMG/ha
kg/ha
FMG/kg coton-graine
kg fibre/kg coton-graine
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
Source: HASYMA
60
5,000
32,058
10,000
25,000
236,678
5,000
30,000
156,674
5,000
32,058
10,000
25,000
236,678
5,000
30,000
156,674
9,522
2,857
6,665
3,999
2,666
1,256,203
2,857
1,253,346
367,704
885,642
1,481
3
1,478
434
1,044
3,703
8
3,695
1,084
2,611
2,266
1,492
7,462
113
448
569
2,153
1,045
6,892
387
627
2,098
1,765
418
4,794
Table 21: Cost of Seed Cotton Production, Mahajanga 2003 (HASYMA)
MADAGASCAR: AUDIT DE COMPETITIVITE DE LA CHAINE-VALEUR TEXTILES (2003)
Analyse de la compétitivité -coût de la production du fibre
Système de production:
Mahajanga, décru
Société:
HASYMA
Rendement (champ):
1700 kg/ha
Rendement (égrenage):
40% kg fibre/kg coton- graine
Coûts a la production (FMG/ha)
Facteurs de production (implicite)
Main d'oeuvre
Terre
Frais financiers
Coûts
financiers
158
1
h-jours
ha
6,000
100,000
FMG/h-j
FMG/ha
Intrants (avances par HASYMA)
Semences
Sac de semences
Engrais
Urée
Phosphate d'ammoniaque
Insecticides
Piles
Location aspirateur a dos
Echangeables
Non
échangeables
100,000
100,000
-
20,000
20,000
10,000
10,000
255,000
255,000
571,070
140,000
178,500
399,749
98,000
76,500
171,321
42,000
278,378
111,486
94,595
-
55,676
-
222,702
111,486
94,595
-
140,000
278,378
111,486
94,595
61
Coûts
économiques
100,000
-
571,070
Travaux agricoles (autofinancement)
Défrichement
Labour
Hersage
Billonnage
Destruction
Nettoyage
Epandage phosphate
Semis/resemis
Herbicidage
Taxes/
subventions
Démariage
Sarclages/rasette
Epandage urée
Irrigation
Traitement insecticides
Récolte coton-graine
Approvisionnement champ
Transport
Coûts totaux (coton-graine), champ
Rendement (champ):
Coûts totaux (coton-graine), champ
Rendement (égrenage):
Coûts totaux (equiv fibre), champ
Coûts de transformation en fibre
Coûts d'égrenage
Frais d'approche (Egren->COTONA)
Coûts totaux, fibre (CIF, COTONA)
84,189
200,000
1700
40%
FMG/ha
kg/ha
FMG/kg coton-graine
kg fibre/kg coton-graine
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
Source: HASYMA
62
130,000
330,553
21,486
87,081
26,124
84,189
200,000
130,000
330,553
21,486
60,957
36,574
84,189
200,000
130,000
330,553
21,486
24,383
2,423,838
26,124
2,397,714
778,499
1,619,215
1,426
15
1,410
458
952
3,564
38
3,526
1,145
2,381
2,266
1,458
7,288
113
437
589
2,153
1,020
6,699
387
612
2,145
1,765
408
4,555
Table 22: Cost of Seed Cotton Production, Mahajanga 2003 (Northwest Producers’ Union)
MADAGASCAR: AUDIT DE COMPETITIVITE DE LA CHAINE-VALEUR TEXTILES (2003)
Analyse de la compétitivité- coût de la production du fibre
Système de production:
Mahajanga, décru
Société:
Northwest Producers' Union
Rendement (champ):
1700 kg/ha
Rendement (égrenage):
40% kg fibre/kg coton-graine
Coûts a la production (FMG/ha)
Facteurs de production (implicite)
Main d'oeuvre
Terre
Frais financiers (BOA)
Intrants (avances par HASYMA)
Semences
Sac de semences
Engrais
Urée
Potasse
Insecticides
Piles
Location aspirateur a dos
Coûts financiers
158
1
13%
70
2
150
50
h-jours
ha
interet
Taxes/
subventions
Coûts
économiques
Echangeables
Nonéchangeables
6,000
300,000
500,000
FMG/h-j
FMG/ha
FMG/ha
300,000
65,000
300,000
65,000
kg
sacs
250
8,000
FMG/kg
FMG/sac
17,500
16,000
17,500
8,750
8,750
kg
kg
1,750
2,000
FMG/kg
FMG/kg
262,500
100,000
309,000
262,500
100,000
309,000
-
183,750
70,000
216,300
-
78,750
30,000
92,700
-
125,000
75,000
50,000
-
25,000
15,000
-
100,000
60,000
50,000
-
Travaux agricoles (autofinancement)
Défrichement
Labour
Hersage
Billonnage
Destruction
Nettoyage
Epandage phosphate
Semis/resemis
Herbicidage
150,000
125,000
75,000
50,000
63
300,000
65,000
Démariage
Sarclages/rasette
Epandage urée
Irrigation
Traitement insecticides
Récolte coton-graine
Approvisionnement champ
Transport
Coûts totaux (coton-graine), champ
Rendement (champ):
Coûts totaux (coton-graine), champ
Rendement (égrenage):
Coûts totaux (équiv fibre), champ
Couts de transformation en fibre
Couts d'egrenage
Frais d'approche (Egren->COTONA)
Couts totaux, fibre (CIF, COTONA)
50,000
150,000
-
50,000
150,000
130,000
300,000
-
2,100,000
-
1,934,000
518,800
1,415,200
1,235
-
1,138
305
832
3,088
-
2,844
763
2,081
2,266
1,339
6,693
113
402
515
2,153
937
5,934
387
562
1,713
1,765
375
4,221
130,000
300,000
1700
40%
FMG/ha
kg/ha
FMG/kg coton-graine
kg fibre/kg coton-graine
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
FMG/kg fibre
Source: President, Union Tara-Bolamena
64
-
50,000
150,000
130,000
300,000
-
Table 23: Reference Price for Cotton Fiber (Import-Substitution)
MADAGASCAR: AUDIT DE COMPETITIVITE DE LA CHAINE-VALEUR TEXTILES
(2003)
Analyse de la compétitivité -coût de la production du fibre
Coûts
financiers
Prix mondial, coton-fibre
CIF, N Europe
cents/livre
60
Assurance, fret
cents/livre
Ajustement pour la qualité
cents/livre
Prix mondial, coton-fibre
CAF, Tamatave
cents/livre
60
* Taux de change
6000 FMG/$
Prix mondial, coton-fibre
CAF, Tamatave
FMG/livre
3,600
Prix mondial, coton-fibre
CAF, Tamatave
FMG/kg
7,920
Frais d'approche
Tamatave- usines de
FMG/kg
filature
1,980
Prix mondial, coton-fibre
CAF, Cotona
FMG/kg
9,900
Frais d'approche
Cotona- usines d'égrenage FMG/kg
1,980
Prix mondial, coton-fibre
FOB, HASYMA
FMG/kg
7,920
65
C. SURVEY OF DEVELOPING COUNTRY ELECTRICITY MARKETS
Summary
All countries must allocate limited resources to various policy goals. Around the world,
governments make a vast array of policy choices about how to promote industrialization of their
economies, believing that industrialization is an important element of a country’s development.
Trade, tax, exchange rate, interest rate, government expenditure, market regulation, state ownership,
pricing, transportation, infrastructure, and investment promotion decisions all enter into the mix.
The pricing of energy, both electricity and fuel, is a sensitive issue. It may be guided by a number
of policy objectives, often of conflicting purpose: to encourage the use of energy for industrial
development purposes, to encourage household consumption of energy, to encourage shifts within
demand to more environmentally acceptable forms of consumption, and so forth. Energy pricing is
thus frequently the object of intense lobbying by regional or sectoral interests seeking energy
subsidies. In addition, a country’s level of wealth and energy infrastructure development, and its
degree of reliance on market forces, all may influence its ability to afford the programs it seeks to
achieve its policy objectives. As noted by the World Energy Council,
The primary challenge in developed countries in terms of market reform is usually to
bring prices down to the competitive cost of service. However, in developing
countries the challenges are to set prices high enough to cover the full cost of
delivering the service and to ensure that payment is collected. Of course, this must be
coupled with appropriate measures to address specific problems of accessibility and
affordability. (World Energy Council 2001, p. 3)
A reliable supply of electricity is an essential element for economic development. This
relationship is demonstrated in a scatter plot of real per capita income and per capita electricity
consumption for 115 countries, in Figure 6 below.
67
Figure 6: Real Income and Electricity Consumption (2000)
30,000
25,000
KwH per capita
20,000
15,000
10,000
5,000
0
0
10000
20000
30000
40000
50000
60000
GDP per capita (1995 $)
Source: World Bank, World Development Indicators
A stable energy sector promotes macroeconomic stability and alleviates poverty. In fact, the
history of development proves that countries that do not use modern forms of energy efficiently
cannot realize their potential to create wealth and lift their populations out of poverty (World Bank
Energy Program 2001). In order to provide for the needs of growing industry and population levels,
electricity provision must be adequate and consistent. This appendix explores common electricity
demand and supply trends among a number of newly industrializing (and in many instances, textilesproducing) developing countries, as well as current initiatives to expand capacity to provide for the
nations’ development needs.
Industrial consumer electricity rates for 54 countries are presented in Table 24 (synthesized in
Figure 7). Taking a subset of the 54 country dataset, focusing on newly industrializing, developing
countries only, Madagascar’s rate is higher than the cost of electricity in textile producing countries
such as South Africa, the Czech Republic, Mexico, Taiwan, and South Korea, but somewhat lower
than the rate in a few other key producing countries such as Portugal, India, and Turkey (Figure 8).
68
Figure 7: World Industry Electricity Rates, 2000
0.200
0.180
0.160
0.140
$/kwh
0.120
0.100
0.080
0.060
0.040
0.020
Tr
in
id
a
d
an Ru
s
d
To sia
ba
Ec go
ua
do
Au r
s
C Ge tria
ze
ch rma
R ny
ep
ub
Be lic
lg
iu
m
M
e
C
x
hi
C
ne
o ico
se Ne lom
Ta th bi a
ip erla
ei
(T nds
ai
w
H an
on )
C dur
os as
ta
R
G
ua ica
te
m
al
Tu a
rk
ey
Su
Ita
rin El
ly
am S a
l
(S vad
ur
o
in r
am
e)
0.000
Source: U.S. Department of Energy, Energy Information Administration
Figure 8: Industry Electricity Rates, Newly Industrializing Countries
0.090
0.080
0.070
($/kwh)
0.060
0.050
0.040
0.030
0.020
0.010
Source: U.S. Department of Energy, Energy Information Administration
69
Tu
rk
ey
In
di
a
ex
ico
Th
ai
Ta
la
nd
ip
Ko
ei
re
(T
a
a
iw
(K
an
or
ea
)
,S
ou
th
M
)
ad
ag
as
ca
r
Po
rtu
ga
l
ne
se
M
Sp
ai
n
Hu
ng
ar
y
Ire
la
nd
Ch
i
Cz
ec
h
So
ut
h
Af
ri
ca
Re
pu
bl
ic
0.000
Table 24: Electricity Prices for Industrial Consumers
(US$ per kwH)
1994
1995
1996
1997
1998
1999
2000
Russia
0.022
0.031
0.044
0.047
0.028
0.012
0.011
Kazakhstan
n.a.
n.a.
0.021
0.023
0.030
0.018
0.013
South Africa
0.025
0.029
0.023
0.023
0.020
0.017
0.017
Trinidad and Tobago
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.023
New Zealand
0.036
0.038
0.044
0.040
0.035
0.030
0.030
Paraguay
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.032
Ecuador
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.036
France
0.053
0.060
0.057
0.049
0.047
0.044
0.036
Poland
0.035
0.040
0.040
0.036
0.037
0.037
0.037
Austria
0.072
0.081
0.081
0.081
0.078
0.057
0.038
Finland
0.050
0.060
0.062
0.052
0.050
0.046
0.039
United
0.047
0.047
0.046
0.045
0.045
0.039
0.040
Germany
0.089
0.100
0.086
0.072
0.067
0.057
0.041
Greece
0.055
0.062
0.059
0.054
0.050
0.050
0.042
Slovak Republic (Slovakia)
0.045
0.049
0.049
0.049
0.049
0.041
0.042
Czech Republic
0.056
0.061
0.059
0.052
0.052
0.048
0.043
Spain
0.078
0.076
0.074
0.061
0.057
0.049
0.043
OECD1
0.073
0.079
0.074
0.069
0.065
0.063
0.047
Belgium
0.067
0.077
0.073
0.062
0.061
0.056
0.048
Hungary
0.046
0.045
0.048
0.054
0.056
0.055
0.049
Ireland
0.061
0.065
0.066
0.063
0.059
0.057
0.049
Mexico
0.042
0.027
0.033
0.041
0.038
0.042
0.051
0.071
0.076
0.074
0.065
0.065
0.060
0.052
Chile
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.052
Colombia
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.052
United Kingdom
0.067
0.068
0.065
0.065
0.065
0.064
0.055
Peru
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.056
Netherlands
0.065
0.075
0.072
0.063
0.062
0.061
0.057
Thailand
0.066
0.066
0.071
0.059
0.052
0.054
0.057
Denmark
0.063
0.069
0.073
0.064
0.068
0.066
0.058
Chinese Taipei (Taiwan)
0.076
0.076
0.073
0.069
0.058
0.058
0.061
Bolivia
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.062
Korea (Korea, South)
0.069
0.074
0.074
0.070
0.048
0.056
0.062
Honduras
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.063
Uruguay
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.064
Portugal
0.112
0.118
0.108
0.094
0.090
0.078
0.067
Costa Rica
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.068
Switzerland
0.106
0.125
0.120
0.102
0.101
0.090
0.069
Argentina
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.075
Guatemala
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.076
Cuba
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.080
OECD
States3, 4
Europe2
70
India
0.070
0.068
0.073
0.089
0.082
0.081
0.080
Turkey
0.077
0.076
0.086
0.077
0.075
0.079
0.080
Guyana
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.082
Haiti
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.087
Italy
0.091
0.093
0.101
0.094
0.095
0.086
0.089
Panama
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.099
Dominican Rep.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.110
El Salvador
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.111
Nicaragua
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.117
Jamaica
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.119
Surinam (Suriname)
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.131
Grenada
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.189
Barbados
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.190
Source: U.S. Department of Energy, Energy Information Agency,
http://www.eia.doe.gov/emeu/international/elecprii.html
Notes: (1) Organization for Economic Cooperation and Development.
(2)
Organization for Economic Cooperation and Development.
(3)
Price excluding tax.
(4)
Note: Data for 1999-2002 do not agree with the most recent data from the U.S. Energy Information Administration
which are 0.044, 0.046, 0.050, and 0.048, respectively.
n.a. = Not Available.
Global Trends

Demand/ Consumption Trends. Worldwide, electricity consumption is expected to
increase 2.4 % annually from 2001 to 2025. Developing nations in particular are expected to
consume 5,648 billion more megawatt hours (MWh) of commercial electricity in 2025 than
in 2001. Projected growth in electricity use in Asia is greater than any other world region, at
3.7 % per year (International Energy Outlook 2003). These increasing demands are the result
of rapid population growth as well as rising living standards and economic growth. New
home appliances for refrigeration, air conditioning, heating, and cooking as well as expanded
networks in rural areas continues to drive up electricity demand. Additional determinants of
energy consumption that vary among nations include preferences, structure of the economy,
endogenous resources, state of technology, and price of energy (IEA 1999, p. 51).

Diversified Supply. The developing countries considered here obtain the majority of their
electricity from thermal sources. Hydroelectric facilities follow closely as the second major
source. Thermal sources use a variety of combinations of oil, natural gas and coal, depending
on their level of endowment of these natural resources. Hydropower is the major source of
supply in South America; in 2001 it represented 73% of the region’s electricity fuel market.
Nuclear power contributes a small and declining share of supply, except in Asia where
nuclear is expected to remain at a stable 9 %, and investments in nuclear plants continue.
71

State ownership. In these countries, most energy sectors are under primary control of the
state. In many cases these state-owned enterprises are inefficient and unprofitable. As a
result, a number of governments are moving towards privatization. Privatization of stateowned energy companies is currently underway in Pakistan, China, South Korea, Brazil,
South Africa, and Turkey.

Prices. Prices vary in all countries, quite considerably in the developing countries profiled in
this report. Price levels are determined by a combination of service costs and energy policy
pressures. Of the four main stages in the electricity value-chain, the first stage – generation –
represents the largest share of cost, compared with transmission, distribution, and supply.
Another important element of price determination is government-sponsored subsidies, which
are often used for social purposes (i.e. income redistribution, extending access to the poor,
etc.) as well as to encourage consumption of a particular source of energy. The current
worldwide trend is towards increased role of markets and reduction of subsidies and price
controls (IEA 1999, p.3). Prices are an important determinant of the efficiency of energy use.
Many observers, including the IEA, argue that subsidies – by keeping prices below cost –
encourage over-consumption. Artificially low prices can produce substantial economic
losses, strain tight budgets, increase harmful environmental impacts, and discourage
investment. Most developed nations have moved away from heavy subsidization of their
electricity sectors, yet the highest price-altering subsidies persist in the developing world.
These poorer countries are, however, beginning to realize the benefits of reducing price
subsidies on their state budget, environmental quality, and overall economic performance
(IEA 1999).

Investment. In order to respond to growing demand, many governments are planning to
increase capacity through investment in plants and easing rules that restrict foreign direct
investment (FDI) in the energy sector. Projected annual investment in developing country
power sectors required to keep up with growing demand exceeds $60 billion (IEA 1999,
p.35). Governments are becoming increasingly receptive to accepting foreign Independent
Power Producers (IPPs) which are contributing to the growth in power generation in India,
Pakistan, South Korea, Morocco, Mexico, Turkey, and South Asia. In recent years foreign
investment in energy has slowed. Investments in developing countries were at a peak in 1997
at $49 billion, and have fallen to one-fifth of peak levels in 2001 (Energy Information
Administration 2003b).
Electricity Market Highlights in Selected Countries
The following descriptions demonstrate that Madagascar is not alone in confronting the problems of
rising demand for electricity exceeding its generation capacity and the search for new forms of
ownership to promote badly needed private capital. Pricing policies in these countries are varied.
Some countries subsidize consumption to target consumers (sometimes industrial, sometimes rural
households), others keep prices low because they are surplus producers of energy generation inputs
(e.g., coal) or by refusing to tax the import of such inputs.
72
South Africa
South Africa generates two-thirds of Africa's electricity and is one of the four cheapest electricity
producers in the world, largely due to a relative abundance of coal and low production costs. This
abundance of low-cost electricity has made the South African economy one of the most electricityintensive economies of the world (IEA 1999, p.169). Rural electrification programs are resulting in
fast growth of residential consumption. Electricity generation is primarily coal-fired, although also
includes one nuclear plant, two gas turbine facilities, and several hydroelectric plants. Energy
subsidies are relatively low, concentrated on electricity sales which are subsidized through underpricing power sales and connections. The average rate of subsidization is higher for industry, around
24%, than for households at 10% (IEA 1999, p.176). South Africa’s electricity is almost entirely
provided by the parastatal company Eskom, although privatization of a large part of the electricity
sector is on the horizon (Fossil Energy International 2003). In addition, a number of plants have been
purchased recently by private local and foreign companies. In December 2001, U.S.-based AES
acquired a 600-MW coal plant from the City of Johannesburg Metropolitan Municipality, creating
the first independent power project in South Africa.
Eskom’s power stations have a combined generating capacity of 35,200 MW and can produce
electricity at 2 cents per kilowatt-hour. The government is trying to diversify away from its heavy
reliance on coal. In 2001, the South African Parliament passed a natural gas bill, which set up a
regulatory system and provided incentives to attract investment in the natural gas industry. Other
recent reforms regarding natural gas include price discounts to small businesses to improve the
competitiveness of natural gas. Denver-based Forest Oil is considering investing $1.2 billion into its
natural gas concession in South Africa, including $800 million for exploration and $400 million for a
pipeline. The government also recognizes potential in hydropower and other renewable energy
sources, and plans to support the development and demonstration of new technologies.
Eskom exports power to a number of neighboring African nations such as Botswana, Lesotho,
Mozambique, Namibia, Swaziland, and Zimbabwe. The Southern African Power Pool (SAPP),
created in 1995, aims to link member countries in a single electricity grid to provide increased
reliability at lower cost. SAPP membership includes 12 national utilities, and the organization is
considering increased participation of IPPs. The SAPP has proved successful in increasing power
trade among member nations, resulting in annual increases of 20% (SAPP, EIA 2002). Several
regional generation and transmission projects are underway which include developing hydroelectric
facilities, plants, and dams for the mutual benefit of countries involved as well as plans to connect
power grids among members.27
Mauritius
Demand for energy in Mauritius is increasing 8-10% annually. The nation, which currently uses
mostly diesel and coal- and bagasse-fired energy sources (in addition to a small percentage generated
with hydroelectric and gas), is planning on expanding energy capacity with specific attention on
renewable resources. As part of this government strategy to promote renewable energy, Mauritius
27
A study on the impact of the similar West Africa Power Pool determined that interconnection would bring greater
reliability and lower costs for business and households, resulting in a significant economic boost for the region
(Plunkett et al. 2001).
73
launched an $80,000 solar energy project in 2000. Also in 2000, a U.S.-constructed co-generation
plant burning bagasse and coal came into operation. The government plans to construct a 300 MW
thermal plant in upcoming years as well. Currently, 38% of the country’s energy needs are provided
by IPPs.
Mauritius imports its fuel from Madagascar’s petroleum refinery, Galana. Industrial consumers
of petroleum products in Mauritius are exempt from taxes and pay only half the distribution margin
paid by non-industrial consumers. The result is an industrial purchase price of heavy fuel in
Mauritius of 19.8 U.S. cents per liter (compared with 30.1 U.S. cents per liter in Madagascar, where
taxes and distribution margins apply to industrial consumption).
Morocco
Morocco currently imports 90% of its needs for energy, primarily oil and coal. Coal is imported into
Morocco without duty or value-added tax, only the payment of a consumption tax per ton imported.
To keep up with 7% annual increases in demand, the state is encouraging increased coal and
hydroelectricity production and is planning several new plants for construction. At present, Morocco
has 25 hydroelectric plants, 5 steam thermal facilities, 9 turbine stations, several diesel plants, and
has recently completed expansion of a high-capacity coal-fired Jorf Lasfar plant. The project’s major
investor, U.S.-based CMS Energy Corp., operates a thirty-year, fixed-price concession from the
National Electricity Office at Jorf-Lasfar, now Africa’s largest independent power plant. The coalfiring plants generate 60 percent of Morocco’s total electricity consumption. The government plans
to expand electricity access (which is currently only available to 15% of the rural population) and to
increase investments in renewable energy sources, e.g. hydroelectric, solar, and wind power, in the
coming years. The National Electricity Office is the initiating force behind new investments in these
other generation sectors, and seeks to involve foreign investors in future renewable energy projects.
A study by the U.S. Trade and Development Agency is underway to develop a plan to expand the
interconnected power transmission network between Algeria, Morocco, and Tunisia.
Morocco’s textile industry, which employs nearly 200,000, was granted an energy subsidy after
intense lobbying by its textile and clothing association, AMITH (Just-Style 2002).
Turkey
Turkey’s energy consumption had been on a fast upward trend due to growing population and
urbanization, until recent economic difficulties slowed the pace of the increase. Assuming a return to
economic growth, electricity consumption should begin to increase again at a fast pace, which would
require significant investment in supply. Net electricity generation in Turkey has more than doubled
over the past decade, but is not sufficient to keep up with expected demand. The country uses almost
equal amounts of thermal and hydropower. It abandoned plans for a nuclear plant, but is developing
more hydroelectric power resources and coal- and natural gas-fired plants. Turkey is heavily
dependent on imported oil and gas from Turkmenistan, Bulgaria, Russia, and Iran.
In 2001 in order to increase FDI in the energy sector, Turkey ratified the Energy Charter Treaty,
an international legal framework for energy investment, and also passed an energy liberalization law
aimed at ending government monopoly. In addition, the government plans to divide the Turkish
Electricity Generation and Transmission Company (TEAS) into three independent companies. The
government recently adopted a policy of encouraging foreign investment in power plants and natural
gas pipelines to meet the anticipated demand. Germany’s Siemens AG leads a project for the
74
construction of a 1,300 MW coal-fired plant in southern Turkey. Turkey is also considered to have
great potential for wind, geothermal, and solar power, in which it also plans to increase investment.
In February 1998, the U.S.-Turkey Joint Statement on Hydropower Projects was signed which listed
nine hydroelectric projects to be negotiated with consortia headed by American firms.
India
India is experiencing serious power supply problems. Economic development and population growth
are driving energy demand faster than India can produce it, and current generation falls about 30%
below demand. Power outages and blackouts are common. Although 80% of the population has
access to electricity, its reliability is so uncertain that it constitutes a significant constraint on
economic development in the country. Electricity is primarily generated from conventional thermal
as well as hydroelectric plants, and a small percentage from nuclear plants. India is attempting to
expand its electric power generation capacity, but efforts have been hampered by financial
difficulties.
India’s State Electricity Boards, which control generating capacity as well as power distribution,
are in such poor financial shape that many of them are technically insolvent. Their financial trouble
can be partially attributed to the sale of power at subsidized rates. Subsidies originated from social
and political policy, but unsustainably high rates are beginning to be phased out. Coal, the main
energy input, sells about 13% below the reference value for steam coal. Household electricity
subsidies are as high as 63.8% (IEA, 1999, p.140). Reduction of these high costs to government will
likely reduce consumption and free funds for needed infrastructure development and additional
investments in the industry.
The Indian government’s 2002-2007 plan calls for the addition of 41,000 MW of electricity
capacity. Some analysts believe the target is unrealistic unless significant amounts of foreign
investment can be attracted, since India’s state boards are financially ill-equipped to fund plant
construction by themselves. The government of India approved several “mega projects” for thermal
and hydroelectric plants of high capacity to be built in the late 1990s, but these were never
constructed. Several planned foreign investment projects were also cancelled as a result of financial
problems within India’s state boards, and no major foreign-owned projects have been launched in the
past year, despite increased liberalization and easing of FDI rules in the energy sector.
Pakistan
In Pakistan more than half of the population is not connected to the national power grid. Although in
the short term Pakistan has some excess generation capacity, demand growth is expected in increase
significantly in the longer term, as more of the population gains access. Two major problems
inhibiting growth in the industry include power theft and poor quality of infrastructure, which
together account for transmission losses of up to 30%. The power sector is primarily controlled by
the state, but efforts to privatize are underway. The main state-owned utility, the Water and Power
Development Authority, is being split up for privatization. The Authority currently has plans for
investment in hydropower. IPPs have fueled recent growth in power generation in recent years, and
are mainly invested in natural gas projects. The two biggest power plants are in private hands.
Foreign investment can also be accredited with the substantial increase in power-generating capacity
and reduction in power shortages in Pakistan.
75
Sri Lanka
Like the rest of South Asia, energy consumption is growing rapidly in Sri Lanka. So, too, is the risk
of energy shortfalls and electricity outages. Net electricity consumption doubled between 1991 and
2000. The current growth rate of electricity demand in Sri Lanka averages 8% annually and is
expected to continue at that rate into the future. Hydropower is the main power source in the country,
placing Sri Lankans at greater risk and vulnerability to weather conditions. To meet demands,
investment is necessary to increase capacity from the 2000 level of 6,800 GW to about 15,000 in
2013. Plans for investment include increasing the share of thermal power generation, primarily from
coal, to prevent major shortages. In addition to diversifying sources of supply, Sri Lanka and other
South Asian nations are promoting foreign investment in infrastructure development, privatizing
energy sectors, and expanding regional trade and energy investment.
China
China is the second largest energy consumer in the world, behind the United States, as well as the
world’s third largest producer (following the U.S. and Russia) (IEA 1999, p.93). Chinese electricity
consumption is expected to grow at an average of 4.3 % per year through 2025. China uses a
combination of energy sources, the majority of which is thermal, yet significant potential in
hydropower exists. The nation is currently initiating several large investments in energy capacity to
meet the growing needs of its population.
China’s electricity market is currently dominated by state-owned power plants. However, new
commitments to trade and investment liberalization should attract significant amounts of foreign
investment. Energy subsidies account for an average price distortion of 11% and current levels of
electricity subsidization are about 40%. As China increases global market integration, costs and
prices will begin to gravitate to international levels (International Energy Agency 1999, p.103).
Mexico
Mexico has not been able to meet demand for electricity. Although 95% of Mexican households are
electrified, thousands of rural towns have not yet received access. Many households experience
frequent power outages. In addition, electricity consumption increased by about 60% in the past
decade and demand is expected to grow at a rate of 6.7% annually.
The state-owned Federal Electricity Commission (CFE) enjoys a monopoly on the electricity
market, generating approximately 92% of electricity in Mexico. IPPs have limited involvement, and
are permitted to build generation facilities for power used by related industrial facilities or for sale to
public utilities. The Mexican government is beginning to promote IPP installation and co-generation
systems in order to relieve the CFE from the expense of constructing plants. The Fox Administration
is currently working on ways to attract foreign investment capital to finance hydrocarbons drilling,
production, and electricity infrastructure improvements. The administration has had less success in
its attempts to reform the electricity sector, as plans have stalled in the legislation process. Proposed
reforms include the privatization of PREMEX, Mexico’s state-owned oil and gas company. Despite
delays, CFE is making continued investments in energy capacity and transmission. It has recently
begun projects involving private companies to install hundreds of miles of new high voltage
transmission lines over the next few years. Mexico has not exhibited a policy promoting large-scale
expansion of hydroelectric power like many of its Latin American neighbors, nor is it planning on
76
constructing additional nuclear plants, but foreign investors have expressed interest in other forms of
renewable energy including wind and solar. Spain's electric company, Iberdrola, is interested in
building wind farms in Mexico as well as Brazil. The company plans to invest $4 million between
the two countries.
Brazil
In Brazil, the majority of installed electric capacity is hydropower, placing it at a top ranking of the
world’s hydropower producers. This heavy reliance on hydropower places Brazil at the mercy of
fluctuating rainfall levels, which increases the risk of energy shortages.
Below-average rainfall and underinvestment in the industry have kept supply far below growing
demand for electricity. Consumption in 2000 was 58% greater than in 1990, the result of a fastgrowing economy and standard of living. The government’s solution in 2001 to the problem of
excess demand was an energy rationing program, which effectively cut consumption by 20%. For the
long term, estimates of required investment to sustain growth in demand are as high as $4.8 billion.
State investment plans include pooling hydroelectricity with thermoelectric plants, construction of
new transmission lines, and the construction and expansion of nuclear plants. Currently, electricity
generation and transmission are government-controlled, while distribution is left to private firms. A
privatization program is underway on the generation side, as three of the major federal utilities have
been split into smaller generating and distributing utilities. In addition, import duties and excise taxes
have been lowered on power generation equipment, increasing opportunity for foreign business.
Recent efforts toward liberalization have also resulted in lower energy subsidies, which were only
1.6% in 1999 (IEA 1999 p.20).
77
D. LIST OF CONTACTS
Government of Madagascar
Vice Prime Minister in charge of Economic Programs, Ministry of Transport, Public Works, and
Infrastructure
Zaza Manitranja Ramandimbiarison
Freddie Mahazoasy, Director of Planning and Strategy
Ministry of Agriculture, Livestock, and Fisheries
Noël Raharijaona, Director of Cabinet
Eden Clermont Ratombozafy, Directeur du Développement du Partenariat
Micheline Raoelison, Chef de Service, Relations avec les Partenaires Techniques et Financiers
Rozanski Rakotonindrina, Chef de Service, International Relations
Yvonne Rabenantoandro, Scientific Director, FOFIFA (Centre National de la Recherche
Appliquée au Développement Rural)
Ministry of Economy, Finances, and Budget
Gérard Ramihone, Director General of Customs
Ministry of Energy and Mines
Rodolphe Ramanantsoa, Director of Energy
Ministry of Industrialization, Commerce, and Private Sector Development
Mejamirado Razafimihary, Minister
Olga Rasamimanana, Secretary General
Electricity
JIRAMA
Désiré Rasidy, Director General
Seed Cotton, Fiber, Spinning/Weaving Sector
COTONA (La Cotonnière d’Antsirabe)
Charles Giblain, Managing Director
Christopher Darguence, Attaché, Direction
Cotona cotton production expert
Fanavotana
Tassadouk Fidaly, Assistant Director General
Northwest Cotton Producers’ Association
Albert Rija, President & Member of HASYMA Board of Directors
79
HASYMA
Léon Razanamamonjy, Director General
Henri Rakotofiringa, Director of Production
Société Malgache de Couvertures (SOMACOU)
Christian Malsch, Director General
Garment Sector
Boda Voahangy
Voahangy Ramananarinoro, President & CEO
CCC (Columbia Clothing Company)
Indrajith Kumarasiri, General Manager
+ 2 Directors of Logistics
Cottonline S.A.
Nalaka Rambukpota, General Manager
Mika Rarivo, Senior Executive – Logistics
Epsilon
Olivier Cua, Technical Director
Patrice de Comarmond, Administrative and Financial Director
Floreal
John Hargreaves, Director General
Griffy S.A. (Division of Embee Group, UAE)
N. Sankar, General Manager
Sylvia Rajerisoto, Shipping/Logistics Director
Madagascar Sales S.A. (Division of Hong Kong Sales (Knitwear) Limited, Hong Kong)
Kwan-Lo Chow, Director General
S. T. Luk Tim, Director & Deputy General Manager, Hong Kong Sales (Knitwear) Limited,
Kowloon, Hong Kong
80
Nova Knits Madagascar S.A.
Deng Ling, General Manager
Managing Director
SAMAF
Nichad Djouma Lila, Manager
Logistics
Air France Cargo
Eric Virzi-Laccania, Director Fret-Madagascar
Air Mauritius Cargo
Raymond Ramamonjisoa, Cargo Sales Agent
Maersk
Geert Van Overloop, Senior Owners Representative
Maersk Sealand
Patrick Ravoaraharison, Sales Department
Maersk Logistics
David Ware, General Manager
Rogers International Distribution Services
André Baya, Director General
Lalaina Rasolomanana
Société Générale de Surveillances (SGS)
Guy Escarfail, Director General, Madagascar
Société Auxiliaire Maritime de Madagascar (Auximad)
Ratsimbazafy Manda, Assistant Marketing Director
Additional Private Sector Representatives
Femmes Entrepreneurs de Madagascar
Lucile Rasoaeninoro, Chair
FIVMPAMA (Association of Small & Medium Enterprises)
Herintsalama A. Rajaonarivelo, President
81
Groupe Société Trading de l’Océan Indien (STOI)
Tovonanahary A. Rabetsitonta, President/Director General
J-R.Boulle Mining
Earl V. Young, Senior Vice President and President, U.S.-Madagascar Business Council
Donors & Projects
U.S. Embassy to Madagascar
Ambassador Wanda L. Nesbitt
Robert Gianfranceschi, Political/Economic/Commercial Counselor
U.S. Agency for International Development
Steve Haykin, Mission Director
Fidèle Rabemananjara
World Bank
Josiane V. Raveloarison, Senior Private Sector Development Specialist
82
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83
Policy Research Report. Produced for the EAGER/Trade cooperative agreement.
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de Voest, Joop A. (2003) “Background Information on Effects of Extending and Not Extending the
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Fairbanks, Michael and Stace Lindsay. (1997) Plowing the Sea: Nurturing the Hidden Sources of
Growth in the Developing World. Cambridge, MA: Harvard Business School Press.
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www.just-style.com. Worcester, U.K.: Aroq Limited.
Fossil Energy International. (2003) “An Energy Overview of the Republic of Brazil.” U.S.
Department of Energy. http://fossil.energy.gov/international/brazil.html
Fossil Energy International. (2003) “An Energy Overview of the Republic of India.” U.S.
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