This is the first in a series of articles that suggests a better future than past for the continent. Appropriately, the series is published in African Trader magazine, with this article appearing in the September/October 2010 issue.

Be warned, it’s quite long but I believe that it presents the business case  for a new, internally focused (at least initially) textiles industry in Africa. This one deals with the part of the production chain that produces finished and dyed fabric from spun cotton. I’ll post the others articles in the series in the coming weeks. As always, comments are welcome.

A case for African textiles

A current perception is that Africa simply cannot compete on price with Asia when it comes to manufacturing textiles. But perception doesn’t necessarily equal reality, Brian Bakker discovered.

The Asian economic boom, just like growth in Europe during the industrial revolution, began with textiles. Roll the clock back a hundred years or so and there is a familiar ring to the reasons that were cited for why Asia couldn’t compete with Europe. If Asia could use textiles as the foundation for massive growth in other related and unrelated industries, why can’t Africa do the same? Indeed, much of the raw material that fuels Asian and European industries comes from Africa, is processed, then returns in the form of manufactured products.

By contrast, if Africa were to create industries closer to the source of the raw material, that could reduce both the costs and the lead times and make the resulting products competitive in Africa, if not on the global stage. It’s compelling logic.

African textiles But first, some background. At present, Africa accounts for 12% of cotton production in the world, 90% of which is exported and made into knitted, dyed and finished fabric. That fabric is then brought back to Africa – sometimes as finished fabric but more often in the form of finished garments – at a hugely increased price.

The other side of the coin is that Africa also has become the dumping ground for textiles that do not meet other markets’ quality standards. All of this bolsters the impression that Africa cannot compete with Asian countries on price, something that is exacerbated by the effect dumping has had on the local textile industries.

Reports have been cited showing that In South Africa, for example, the import of Chinese textiles grew from 40% to 80% of the total textile imports in 2004 alone. The full effect has been realised this year with hundreds of jobs in clothing factories on the line over pressure to pay the minimum weekly wage of R324 to employees. Employment data from the Nigerian textile industry makes for equally depressing reading: The Nigeria Textile Manufacturing Association (NTMA) has reported that its figures of employees in the textile sector showed a decrease in number from 250 000 in 1996 to a mere 30 000 in 2006. And in Ghana, there is now only one fully operational textile factory – the others have had to be closed down.

Mauritius is probably the best-known example of textile manufacture in Africa. Indeed, the industry helped to transform the island economy from being mono-crop based in the 1980s to a middle-income, industrialised one today. This was achieved by means of establishing duty-free export processing zones. The result of this policy was massive foreign direct investment by China and India in the 1990s.

Unfortunately, an unintended consequence has been that the textile industry of the island nation is forced to import labour from China and India because young Mauritians consider the job of operating textile machinery menial. This pushed up the costs associated with finding and retaining skilled labour, negatively affecting the industry’s ability to compete. To add insult to injury, Mauritius had been one of the beneficiaries of the Multi-Fibre Arrangement (MFA, also known as the Agreement on Textiles and Clothing or ATC) that governed the world trade in textiles and garments from 1974 to 2004, imposing quotas on the amount developing countries could export to developed countries. That expired at the beginning of January 2005 and investment in the textile industry started to dry up as companies – even of the home-grown variety – relocated facilities to Madagascar in an attempt to lower the costs of labour. The result has been a complete re-sizing of the Mauritian textile industry.

Andrew McLachlan happens to have designed and built textile plants in the Far East. He also understands business, having completed an MBA at Manchester Business School. Lessons McLachlan asserts that Africa didn’t do it right the first time, and now has a unique opportunity to try again. And this time Africans are in a position to draw lessons – in no particular order – from textile industry development all over the planet.

1. The first lesson is humility. At present, the global textile and garment market is worth in the region of US$400 billion per annum; the African share of that is a paltry US$200 million – or 0.05%. But therein lies the opportunity: Demand for textiles continues to increase and the global population approaches seven billion people.

2. The second lesson is trade agreements. However, as was seen with Mauritius, these are usually not open-ended and should be viewed merely as a device for use in gaining a foothold. Currently, the Southern African Development Community (SADC) has favourable trade agreements, most notably the African Growth and Opportunity Act (AGOA), with the United States of America and Europe. It would be remiss of any business not to take advantage of these wherever and whenever possible.

3. Lesson three concerns expertise and financing. In Africa today, there is a possibly unhealthy reliance on Asian investment and skills – on the twin assumptions that the continent is short of capital and Africans lack those skills. The reality is that over many years, people have been leaving their countries of origin to make their way in the wider world. Luring those Africans – and perhaps the capital to which they have access – back home should be high on the agenda of every African country. Failing that, or in the event that the specific skills required are in particularly short supply, expatriate contracts with reasonable and measurable skills transfer clauses have worked elsewhere in the world.

4. Lesson four is probably important enough to be the first lesson: Target market. Again, the SADC region is presently the only African trading bloc capable of sustaining – on local demand alone – a reasonably-sized, high technology-focused textile plant to focus on high value weft knitting, dyeing and finishing of fabrics along with an associated garment industry. The aforementioned SADC trade agreements should provide further inducement.

5. Lesson five involves the site chosen for beginning the new African textile industry. That should be somewhere in SADC. Other locale-influencing considerations involve the raw material needed to process the textiles – not the cotton so much as the water, energy and salt. The finger is beginning to zero in on a region near the Limpopo (for reliable hydroelectric power and water) and not too far from the Botswana salt supply.

6. The sixth lesson deals with perception – or, more accurately, shatters the perception that this continent cannot compete with the textiles, fabrics, and clothing that are developed and produced in Asia. The primary assertion in this regard is that labour costs are too high in Africa, but that’s wrong because operational costs on this continent compare favourably with

those of the Far East. In fact, the principal source of the problem is that African factories are simply not big enough and lack the economies of scale to compete effectively. A lesson from history is instructive: The primary reason that Asia replaced Europe as textile supplier to the world was technology: Asian countries invested in newer technology that improved economies of scale to such an extent that the cost of shipping back to Europe (and America) became insignificant.

7. Africa can do the same. Lesson seven informs that textile processing technology has moved on and if governments on the continent could move away from trying to impose unrealistic capital and labour demands, a new African textile industry can and will succeed. If the continent invests in the very pinnacle of textile manufacturing machinery, it could significantly dilute the cost of producing one metre of fabric against one hour of operator labour.

Business case

McLachlan’s business case for textile manufacture in Africa illustrates this point. Specifically, he proposes constructing a fabric knitting, dyeing and finishing factory for an investment of around US$75 million. He envisages that such a plant would employ some 350 people and have the process capability of producing high volumes of complex fabrics and a wide range of colours.

Notably, such a factory within SADC would dramatically reduce the lead time for African customers seeking to stock the latest fashions. Presently, it takes about 150 days from order to delivery; an SADC factory – supported by ancillary garment producing industry such as that developing in Madagascar – could cut this to a third, with the commensurate positive effect on cash flow.

This information was gleaned from during an interview with Mano Moodley, chief sourcing officer at one of SADC’s largest clothing retailers, Edcon (Edgars Consolidated Stores Limited). Moodley intimated that the company could be very interested in procuring garments manufactured in Africa from African fabrics.

In order to access a sustainable portion of the available market share, the proposed factory would be required to produce 50 to 100 tons of dyed and finished weft knit fabric per week. This volume would vary according to the number of passes each batch must make through the dye house and should comprise not only cotton but also blends of Lycra, nylon and polyester. The dyeing and finishing process should be controlled through the application of Lean Six Sigma techniques and best practice automated processes.

At the same time, the factory could employ the latest green technologies in order to emit less carbon into the atmosphere and maximise the re-use of water and energy. Location near an existing hydroelectric facility should secure a preferential rate for electricity, and water, which can be taken from the natural source once and treated for reuse over and over. The use of solar technology for the non-critical processes would minimise the consumption of electricity. Eco-friendly dye machines could be commissioned in the factory to maximise productivity and minimise waste. All of these aspects would add to the marketability of African fabrics in a world consumed with environmental issues.

The global textile market is expected to grow by 25% by 2020, with the lion’s share of this production expected to be undertaken in Asia. There is no reason why Africa should be excluded from this massive opportunity. However, in order to be part of the growth in the textile market, this continent must create an environment that is conducive to investment in significant manufacturing capacity, not only in the production of raw materials, but also in knitting, dyeing and finishing factories as well as garment factories to add the final stage of value before the products are sent to market.

McLachlan believes that all the stars are perfectly aligned for Africa to get a slice of the action now, and a bigger slice in the future. The Chinese philosopher, Lao-tzu, once said that a journey of a thousand miles begins with a single step. Will Africa take that step to revitalise its textile industry, first, and its economies, second? 

Article republished courtesy of African Trader magazine

Go to Part two