Textile machine
When AGOA came into effect, many African countries saw a window of foreign exchange earning in the textile and garment section of the act and keyed into it. Many of such African countries now earn millions of dollars from garment and textile exports to the US annually.
Studies by the United Nations Industrial Development Organisation (UNIDO), indicated that the five best performing countries under AGOA exports in 2002 in Africa were: Lesotho with AGOA exports of US$ 322m; Mauritius - US$ 252m; South Africa - US$ 188m; Kenya - US$ 121; and Madagascar - US$ 90.
The UNIDO study of textile industries in Africa, Nigeria inclusive, further showed that AGOA has been the key driver for the development of garment industries in Africa in recent years through DPI. But the report stated that as at the time other African countries were reaping the benefit, Nigeria had not passed the AGOA Legislation and has not benefitted from the opportunity the act provided. More importantly, the report said that the textile industry was on the decline. The total export market size in the opportunity provided by AGOA is estimated at US$31 bn/year for which the country has so far failed to tap into.
Nigeria’s textile industry, according to studies, is almost a mono-product industry which can easily be attacked with the import of one product only (African prints). No participation in world production even after AGOA. There is practically no garment industry in the country as is the case in Egypt, South Africa and Kenya. As a result, there is no demand for fabrics from Nigerian textile industry other than African prints.
Findings from other African countries show that the garment industry in the AGOA countries has been mainly the creation of Asian foreign investors. Foreign investors by Asians brought not only the capital, but provided the training, the know-how and the knowledge of the marketing mechanism to the countries.
Nigerian textile industry in the immediate past, had so much capital from Asians until in the early 90s when the sector witnessed capital flight with a good number of these Asians divesting and exporting back their machinery and equipment to India and other African countries. Nigeria at the moment needs to attract a few foreign investors which would have a pull effect for other investors to follow.
Sadly, the textile sector of the Nigerian economy that would have championed the move to earn foreign exchange for the country and possibly attract more direct foreign investment to the sector, is virtually dead and cannot in the immediate future, rise to the challenge of integrating a garment industry that could compete for space in the US market.
A report by the Nigerian Textile Workers Union at the recently concluded delegates’ meeting in Kaduna painted a frightening picture of the position of the sector. The report states: “The parlous state of the Nigerian Textile industry is once again graphically reflected in the reports from the zones since the last Delegates’ Conference in 2004. At the peak of its production in the 80s, the textile industry provided about 500,000 direct jobs with well over 250 functional factories at the same time. Union membership was over 120,000 with great potential for more membership.
“Operational zones of the union were then 16 with area offices across the country. Meanwhile, following the crises of the 80s, the union was adjusted to eight zones with a steady membership of between 60,000 and 70,000. The current crisis which began more emphatically in 1997 when Nigeria became signatory to the World Trade Organisation (WTO) and fully liberalised textile trade under General Sani Abacha, had devastated the sector.
“Since the last conference in 2004, the problems of the industry remain unabated. The union witnessed some tough times with the continued collapse of the industry, redundancies and the attendant loss of members. The unending crisis in the industry had been further accelerated by policy inconsistency, half-hearted commitment to policy implementation, smuggling, high interest rate, high rate of exchange, high cost and scarcity of black oil, including the issue of multiple taxation.
“The reversal of Export Expansion Grant (EEG) did incalculable damage to the spinning sector leading to premature closure of factories like United Spinners, and decline in capacity utilisation in spinning mills like Alkem, First Spinners, Unitex, among others. In spite of the subsisting ban on textile materials within the period, smuggling remains a big challenge largely ineffectively addressed by the government. The many seizures and open burning of seized textile materials notwithstanding, the market is still flooded with imported textile materials.
“A recent survey showed that local textile has a market share of about 20 per cent, with the balance of 80 per cent being controlled by assorted imported fabrics. The recent spate of closures in the industry was driven largely by smuggling, high operating cost arising from prohibitive raw materials and energy cost as was the case in UNT PLC Kaduna and ATM Lagos, and sheer lack of political commitment to industrialisation by Nigerian politicians. The union has been consistent with campaigns and advocacy on the plight of the industry, pushing for structured, consistent and sustained policy framework for accelerating growth in the manufacturing sector.
“One useful outcome of the mass pressures was the ban on textile imports by the Federal Government under the leadership of President Olusegun Obasanjo in 2003 and the government’s step in commissioning the United Nations Industrial Development Organisation (UNIDO) to do a sector-wide assessment study of the textile industry.
The much debated N70 billion funds is another outcome of series of advocacy efforts put up by union and other stakeholders. Even though the union has raised the observation that the amount is a token, it believed also that if well disbursed at the proposed 9 per cent interest rate to genuine manufacturers, it could ignite some measure of stability in the sector. Beyond this, the union insisted that for sustainable revival, there is need for an infrastructural base that is much improved, noting that stable power is a key requirement for industrial revival as well as national resolve to invest in non-oil manufacturing sector.”
According to the Union, it lost about 20,000 members due to factory closures, redundancy, dismissal, termination and resignations. The losses were highest in 2007 with a total number of 5,515 with the closure of two major factories, UNT PLC Kaduna and Atlantic Textiles, Lagos. In 2004, 2,644 jobs were lost. It rose to 4,990 in 2005. In 2006, 3,496 workers were further thrown into the unemployment market. A further breakdown on the job losses within the period showed that most of the job losses were from closure of some of the established giants in the industry like Specomill, UNT Plc, Atlantic Textile, Elite Textile, Afprint PLC, Enpee Industries, among others.
Closures and redundancies have been driven by operational difficulties, faking of company labels and massive smuggling which led to the loss of 80 per cent of local market to imported textile fabrics, high cost
and scarcity of black oil and general high cost of production.
Table 3: Closed Factories Between 2004 and 2008
S/No. Company Number of workers affected
1. Afprint 2,500
2. Elite 500
3. Betty Pride 100
4. King Carpet 100
5. Daltex 430
6. NTM 2,500
7. Hong Kong 400
8. Specomill 1,500
9. Carpet Royal 50
10. Prestige 100
11. Enpee 1,000
12. United Spinner 1,500
13. Globespin 500
14. Steep 67
15. Nitol 77
16. Atlantic Textile Mfg 1,000
17. Century Polyester 188
TOTAL 12,512
Source: Report by the National Executive Council of NUTGTWN to its 9th National Delegates’ Conference in Abuja, March 2008.
According to Financial Vanguard investigation, the closed factories have their plants exported to either other African countries or India. While other countries are attracting more investments in the textile industry and developing their garment industries, Nigeria is losing existing companies to closure and low capacity utilisation and importing clothing from China, India Pakistan etc.
UNIDO’s report stated that by making investments in Nigeria, Nigerian or foreign companies would be making a contribution to the upgrading and expansion of the local industry while, at the same time, serving the long-term interests of Western countries by opening up new sources of low cost garments.
The expectation is that Nigeria would attract enough investment to the textile sector to be in a position to benefit from the export opportunities AGOA offered African countries. So far, this is not the case. If the AGOA agreement is not renewed this year as scheduled, tariff-free access to US markets by Nigerian products will cease unless other legislation is introduced.
Nigeria, according to experts, has very strong potential in textile and garment production. They argue that there exists within the country, an economically sized, integrated textile mills, from spinning to processing, which would be AGOA yarn and fabric supply sources. It is believed that the country also has an indigenous cotton crop of 80,000 tons a year of medium staple length that is suited to the bulk production of woven and knitted garments except that the avoidable contamination problem with extraneous polypropylene fibre precludes this end-use at present.
Nigeria, UNIDO’s report said, has many of the prerequisites for developing a successful textile and clothing industry which include among others; a huge growing domestic demand, availability of well priced raw materials, abundance of a young and relatively cheap labour force and a well established tradition in textiles. The evidence of this, experts said, is provided by the existence, in every textile sub-sector, of companies that meet the highest world standards. Unfortunately, these companies are constrained by a number of factors.
Experts believe that Nigeria can revive the sector if the positive energies of the whole country, entrepreneurs, workers, and the Federal Government, are channelled and converted into action now and in the next few years. This, they say, would ensure the protection of 57,000 jobs; secured captive market of 250,000 tons of raw cotton for growers.
Labour leaders say that for a country like Nigeria whose economic agenda is poverty reduction through job creation, the government will do well by committing resources to the revival of the sector. Experts estimate that a 20 per cent increase in the textile industry output would mean additional 100m metres production, 60,000 tons of raw cotton consumption, 100,000 jobs created in cotton farming and in the textile industry, $50m foreign exchange savings, $30 million exports, N200m in tax revenue to government.
Similarly, the creation of a garment sector in five years, UNIDO estimated, would result in 75,000 new jobs, $500m of exports per annum and in five years, attract $250m worth of foreign direct investment, FDI. According to industry stakeholders, there are at present 250,000 cotton farmers in Nigeria employing 500,000 labourers.
Stakeholders insist that the textile and garment sector in Nigeria, is not only a strategic non-oil industry but also a basic industry that almost all countries have as their first industrial activity and in which most developing economies show a high degree of self-sufficiency.
Textile experts argue that it is an industry which is raw material-driven and Nigeria has a cotton and polyester base,
an employer of 57,000 people, the second largest textile industry in Africa (after Egypt). On a replacement basis, the sector has at the moment installed textile manufacturing capacity of US$3 billion investment. UNIDO in its study of Africa's textile industry said that Nigerian textile industry is unique in the sense that it is using a high percentage of locally produced raw materials, such as cotton and polyester, unlike other sectors in Nigeria.
Spinning : Ringspinning : 810,000; OE rotors : 26,000; Weaving : Shuttleless looms: 16,840; Shuttle looms : 2,640
Mills in operation: 50
Another advantage the sector has is that almost all the Nigerian companies which are in operation have a size which offers economy of scale. There are only a few stand-alone spinning operations. Most of the companies are integrated with spinning-weaving-processing.
Nigerian cotton, they say, has a medium staple of length which is not only suited for printed fabrics but also for many fabrics which could be made into garments if the cotton is rot- contaminated. Given the above advantages the Nigerian textile sector has over many other countries', UNIDO experts argue that in the ordinary run of business, the sector should be in a very strong position to produce for export especially to satisfy the markets in which it has entered some bilateral or multilateral agreements.
Fortunately, Nigeria has three such important trade agreements with the EU 15, the USA and West Africa, on which it could leverage its exports and thereby penetrate important trading blocks, which otherwise tend to resist imports.
One of such is the Cotonou Agreement, signed in June 2000, which replaced the EU-ACP, (African, Carribean and Pacific) Lome Convention. The agreement provides textile and garment companies in Sub-Saharan Africa and other ACP countries with preferential quota-free and tariff-free access to the European Union for textiles and garments. Secondly, there is AGOA for which exporters need to ensure that exported garments comply with rules of origin.
AGOA provides for garments made in accredited Sub-Saharan African countries with preferential (duty-free and quota-free) access to US markets. The agreement gives preferences to Sub-Saharan African countries classified as Lesser Developed Beneficiary Countries (LDBCs) which may export garments made from yarns and fabrics from anywhere in the world without losing AGOA benefits. This concession ended in September 2004 with the country benefitting nothing from it.
The third of such agreement Nigeria could exploit is the ECOWAS Agreement under the Trade Liberalisation Scheme (ETLS) which gives privileged access to West African countries to intra-regional free trade. In a world which is characterised by trade pacts, it is important that Nigeria is a member of the regional trading block, ECOWAS, which it actually dominates.
Sadly, however, despite the fact that Nigeria has these favourable trade agreements, its exports declined while imports increased dramatically leading to a situation that the Nigerian textile industry has a market share of only about 27 per cent in the home market with a core of performing companies struggling against unfair competition.
The textile sector of the economy is bedevilled by perennial problems such as a distorted policy framework leading to divestment from the sector; high cost of inputs viz power, fuel and wages, high tariffs on reactive dyes, high cost of contaminated Nigerian cotton, non-availability of long-term funds and high interest rates, obsolete machinery; non-implementation of AGOA.
Others are lack of enforcement of the import ban on African prints by the relevant agencies in 2003 leading to: a further reduction in the home market share; unemployment, a blow to cotton growers. If the industry shrinks further opportunities to regain increased home market share, Nigeria could become an engine for cotton textile production in ECOWAS, to supply a US$30 billion cotton textiles world exports market, be a textile supplier to AGOA countries, and build a garment sector under AGOA.
The uncertainty in the home markets of the Nigerian textile industry can also be illustrated by the fact that the industry has not participated in the recent global trends which all successful textile countries follow.
Many of the least invested textile companies have now closed down or severely scaled back production. The Nigerian textile industry with its obsolete equipment, will need considerable funds to upgrade its production base and to reduce costs. UNIDO has estimated that if 30 per cent of the existing installed capacity in spinning, weaving and processing is to be replaced, funds in the order of US$ 250 million would be required. Exports from Nigeria apart from oil, have generally declined considerably over the years.
The recently introduced Export Expansion Grant (EEG) should dramatically reverse the situation since the EEG is the most significant among the export incentives introduced by the FGN to encourage non-oil exports. Under the EEG, financial assistance is provided to exporters of semi-manufactured and manufactured products to enable them increase exports. The EEG is made available only to those exporters who produce evidence of exports with proceeds repatriated into their domiciliary.
Nigeria could leverage the 40 per cent EEG for export-led new capacity building in the textile and garment sector. The EEG would also be a major attraction for new foreign investment. However, to build confidence in investors, the EEG should be available for the next 10 years and “set in stone” by means of legislation, i.e. so that it cannot be changed by short-term policy changes, by whichever regime is in power.
Export credit agencies all over the world enjoy support by way of interest subsidies so that they can pass it on to exporters to promote national exports. The objective of subsidised interest rates is to neutralise competition between the home country of the exporter and the FGN-sponsored competitor from another country, whose FGN is capable of offering an export credit at better than global market conditions.
As part of its efforts to revamp industrialisation and promote export in the country, the Federal Government recently approved N80 billion as cotton/textile revival fund. The Permanent Secretary, Federal Ministry of Commerce and Industry, Mrs. Elisabeth Emuren, disclosed this at the meeting of the National Council on Commerce and Industry hosted by the Lagos State Government in Ikeja. She said the money was approved to reposition the country’s industrial base and to address the problems of the sector, which had been on the decline over the years.
According to her, the ministry had put in place measures that would strengthen industry related institution base, adding that the concept of industrial clusters had been developed to grow, particularly the small and medium scale enterprises.
She stated that the clusters strategy was designed to operate through incubator, enterprise zones, industrial parks, industrial clusters and free trade zones. Emuren explained that the future of the clusters strategy was to provide some basic infrastructure that would be commonly shared by all within the cluster. On the achievements of the ministry in the last 10 months, the permanent secretary said the ministry had focused mainly on agriculture with the aim of exporting 11 farm produce to some designated countries.
According to her, the ministry, in its export drive, has put in place 44 strategies aimed at developing and promoting the export of 11 agricultural commodities; 11 manufactured products and 11 solid mineral products with high export potentials.
“The idea is to focus on 11 countries and regions of the world where there are potentials of market access and take advantage of the opportunities offered by the subsisting bilateral and multilateral agreements that will facilitate the smooth export of Nigerian products into the global market,” she said.
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