Apparel sector

Tax incentives with the EPZ status

During the last two decades, trade in apparel has grown significantly and developing countries have made a considerable contribution to this growth. In this period, apparel exports from developing countries increased sevenfold. According to UNCTAD, developing countries accounted for 76 percent of total world clothing exports in 2003, compared with a 1985 figure of only 8 percent. Total global apparel trade was USD 462 billion in 2003 and has grown at a compounded annual rate of 6.6 percent since 1990. Market leaders in apparel exports include China, EU, Turkey, Mexico, India, the US and Indonesia. The expiration of the MFA in December 2004 has greatly affected global trade and investment in the apparel sector.

The clothing industry is labor-intensive and offers entry-level jobs for unskilled labor in developed as well as developing countries. The majority of clothing is produced from textiles and fabrics across a very wide range of products, materials, styles and usage. There are many stages in the production of apparel such as pattern making, cutting and sewing, trimming, garment dyeing, ticketing, folding and packaging. The variations are unlimited and as fashions change and materials develop, new garments are being developed all the time as well as being re-invented. Moreover, it is a sector where relatively modern technology can be adopted even in poor countries at low investment costs. This feature of the industry has made it attractive as the first step towards industrialization for many poor countries such as Bangladesh, Sri lanka, Viet Nam and Mauritius. Some of these countries have experienced a very high output growth rate in the sector.

With the disappearance of the global quota system, which is expected to further consolidate production in a few super competitive countries, increased competition for FDI is expected. Elimination of quotas has benefited China, though increased fear of dumping of cheap Chinese apparel products has raised caution in markets such as the EU and the US. From this perspective, Africa could still benefit from a number of preferential trade agreements such as AGOA and the EU’s lomé Accord. As pointed out by a Value Chain Study conducted by UNIDO, sub-Saharan Africa currently lags behind other developing regions mainly due to poor transportation and communications infrastructure. These factors are very important to the functioning of apparel firms. Apparel exporters require ready access to inputs and global markets, streamlined customs procedures and reliable transport infrastructure. A number of countries are making an effort to both improve their communications infrastructure and to develop EPZs, and firms have benefited by establishing in these zones in countries such as Mauritius and Madagascar. Apparel production in sub-Saharan African countries also suffers from a weak cotton-textile-apparel value chain.

Apparel Sector Survey Profiles

* 13 firms also produced textile

Apparel Brief

• There are typically two types of apparel companies operating in Madagascar - SMEs serving both regional and foreign markets and EPZ firms that are generally foreign owned and exclusively export focused.
• Apparel products produced in Madagascar include men’s, women’s and children’s apparel, underwear, blankets, bed linens, tablecloths and knitwear.
• Madagascar offers lucrative incentives for investors establishing export-oriented apparel companies in the EPZs, such as tax-breaks.
• Apparel exporters in Madagascar serve the US and European markets.
• Apparel manufacturers utilize locally sourced packaging materials and some locally-sourced fabric in production; other inputs are sourced from Asia, Africa, and Europe.
• Firms report an increase in fabric sourcing from Asia due to declines in African fabric quality.
• The average surveyed apparel firm interviewed in Madagascar employs about 1,100 workers.
• Opportunities in the sector exist and despite the end of MFA, the Ministry of Industry reported that 10 new foreign apparel companies registered in 2005 to benefit from tax incentives and the low-cost but well-trained labor force available in the country.

Comparative SWOT Analysis for Apparel Madagascar vs. Snapshot Africa

Breakdown of cost motivations reported by apparel firms

Breakdown of quality motivations reported by apparel firms

Total annual cost to employer per function in USD (millions)

Warehouse construction costs in USD per square meter