This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 ABUJA 001972 
 
SIPDIS 
 
 
SENSITIVE 
 
 
TREASURY PLEASE PASS TO OFFICE OF AFRICAN NATIONS (A. 
SEVERENS) 
STATE PLEASE PASS TO OPIC (J. WILLIAMS AND C. DUFFY) 
STATE PLEASE PASS TO USTR (P. COLEMAN) 
 
 
E.O. 12958: N/A 
TAGS: EINV ECON EFIN NI
SUBJECT: TEXTILE MANUFACTURERS: AGOA WILL NOT SAVE US 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR PUBLICATION ON THE 
INTERNET OR INTRANET. 
 
 
¶1. (SBU) Summary: Nigerian textile manufacturers are 
uniformly bleak about the prospects that AGOA alone will 
bring about a substantial increase in their apparel or 
textile trade.  Nigeria's industry is not competitive, and it 
is in decline.  Various industry representatives told Lagos 
and Abuja Econoffs in late October and early November that 
additional major investments are unlikely.  They said the GON 
has failed to provide the infrastructure necessary for the 
industry to succeed and has no realistic plans for taking 
advantage of AGOA.  According to these representatives, AGOA 
itself was flawed in that (a) it failed to provide certainty 
that benefits will be extended long enough for investors to 
recoup their investments and (b) it omitted from AGOA 
benefits the direct export to the U.S. of cotton yarn and 
gray cloth, Nigeria's principal textile products.  The 
representatives were generally skeptical about the 
possibilities of developing a domestic apparel industry 
capable of taking advantage of AGOA.  All the textile 
representatives we interviewed showed a fair to sophisticated 
understanding of existing AGOA legislation, and several were 
familiar with AGOA proposals under consideration in 
Washington.  End summary. 
 
 
Textile industry not competitive 
-------------------------------- 
 
 
¶2. (SBU) Over the last few years, according to J. P. 
Olarewaju, Executive Director of the Nigerian Textile 
Manufacturers Association (NTMA), many of Nigeria's textile 
plants have permanently shut down.  Since 1994, the year 
Olarewaju took office, NTMA membership has declined from 124 
members to 60.  The industry has shed over 60,000 of its 
140,000 jobs in Nigeria (comment: not as a result of improved 
efficiency).  Olarewaju sees no prospects on the horizon for 
an improvement of the industry's future. 
 
 
¶3. (SBU) At Nigerian Textile Mills' textile plant in Ikeja 
Industrial Estate outside Lagos, the machinery sits idle. 
Olatunde Atanda, Assistant General Manager of Operations for 
NTM, explained that in Nigeria today, most textile plants 
operate with equipment that is at least 20 years old.  This 
is true even in the case of "modern" plants, such as that run 
by NTM competitor Churchgate.  In NTM's case, the equipment 
is 38 years old.  Replacement is expensive, and investors are 
reluctant to put money into an industry that most believe is 
faltering.  Atanda said the high volume of illegal imports 
had forced NTM to suspend operations, but he hopes to resume 
production at the Ikeja plant by the end of the year. 
 
 
¶4. (SBU) Atanda told us that these factors -- combined with 
30  percent commercial interest rates (compared to 5-7 
percent in ASEAN countries), frequent GON tariff policy 
changes, and social and political instability -- produced 
gloomy prospects for the Nigerian textile industry.  High 
wages relative to ASEAN and other competing nations and the 
lack of attention in Nigeria to workers' quality of life have 
added to these problems. 
 
 
¶5. (SBU) N. K. Janardhanan, a plant manager at 
part-Indian-owned Afprint, echoed Atanda's complaints. 
Afprint's production of printed fabrics has declined 
significantly, owing largely to rising manufacturing costs 
and an influx of cheaper goods from ASEAN countries.  The 
plant today produces only 1.8 million meters of cloth per 
month, down from 3 million a few years ago; it is producing 
at only 60 percent capacity.  Afprint exports some of its 
cotton yarn and gray cloth to Europe (primarily Italy, Spain 
and Portugal), but entering the U.S. market is virtually 
impossible.  AGOA, he said, makes no provision for export of 
these goods directly to the U.S.  Janardhanan believes that, 
without such provision, Nigerian goods are simply not 
competitive, even when subject to relatively low U.S. tariffs. 
 
 
Smuggled imports crushing Nigerian textiles 
------------------------------------------- 
 
 
¶6. (SBU)  P. K. Kakaraddi, Executive Director of Indian-owned 
Churchgate's textile division, explained that the Nigerian 
textile industry is being crushed by smuggled imports (the 
GON re-introduced a ban on imports of printed fabric in 
September 2002, but textile imports cross Nigeria's porous 
borders in large quantities).  Nationwide, he said, Nigerian 
textile plants, including Churchgate, are operating at 60 to 
70 percent capacity; most need to operate at about 95 percent 
utilization to realize a profit. 
 
 
¶7. (SBU) Kakaraddi said 65 percent of Nigerian textile 
production is sold domestically, while about 35 percent is 
exported, most of it to neighboring countries.  He went on to 
say that with an estimated 16,000 containers of textiles 
entering Nigeria illegally each year, Nigerian companies' 
share of the domestic market is shrinking fast.  The Nigerian 
industry is not competitive - a fact all our interlocutors 
acknowledged - and cannot compete with imports from abroad, 
absent existing protective tariffs.  Even African print 
fabrics can be produced more cheaply abroad, and imports 
continue to undercut Nigerian manufacturers of what was once 
a niche product. 
 
 
¶8. (SBU) NTM's Atanda and his colleagues from other companies 
were particularly pessimistic about new investment saving the 
industry, saying that neither Nigerian nor international 
investors are likely to sink money into Nigerian-owned 
textile plants.  Atanda, a former member of the Ministry of 
Commerce's AGOA Advisory Board, explained that the GON has 
ignored the textile industry since the discovery of oil. 
Nigeria's electric utility, NEPA, was incapable of providing 
the needed power for textiles production, and NEPA's plans to 
build additional generating capacity are at this stage viewed 
skeptically.  Other textile manufacturers have complained to 
us that fuel oil for their factories' own electricity 
generators  - a less than satisfactory alternative to the 
power grid - is often in short supply, so even this option is 
stymied.  (Comment: Fuel oil availability may improve with 
petroleum products downstream deregulation, but electricity 
will almost undoubtedly remain an uncertain and high-cost 
factor for Nigeria's textile industry.  End comment.) 
 
 
¶9. (SBU) Moreover, the GON, Atanda complained, has no grading 
system for Nigerian cotton, and most Nigerian farmers 
therefore produce low quality, short fiber varieties.  NTM 
and Afprint operate their own in-country cotton farms and 
ginneries, but most textile mills import most of their cotton 
from neighboring countries. 
 
 
Textile manufacturers agree: AGOA not likely to help 
--------------------------------------------- ------- 
 
 
¶10. (SBU) Atanda and the Manufacturers' Association's 
Olarewaju complained that the GON has provided no 
infrastructure and has no effective program in place for 
taking advantage of AGOA.  Atanda added that GON presidential 
AGOA advisor Gladys Sasore, while clearly a capable woman in 
other fields, had no understanding of the textile industry. 
(Comment: We agree with this assessment.  End comment.) 
 
 
¶11. (SBU) All our interlocutors agreed that AGOA was far from 
certain to produce benefits for the Nigerian textile 
industry.  Kakaraddi explained that, at least in the case of 
Churchgate, potential investors (most of whom would likely be 
from India) would want to know that AGOA benefits would be 
extended long enough for their investments to be recouped. 
Kakaraddi explained that major retooling would be necessary 
for Nigerian textiles to compete effectively in the U.S.  He 
pointed out that Nigerian textiles, which are exported 
duty-free and without quota to the EU, are only just able to 
compete with products from more distant ASEAN countries. 
Under these conditions, potential investors would want AGOA 
to give them a relative advantage for at least 5 years, 
preferably longer, before making significant capital 
investments. 
 
 
¶12. (SBU) Olarewaju echoed Janardhanan's complaint that AGOA 
excludes Nigerian exports of cotton yarn and gray cloth, the 
Nigerian textile industry's main products.  At the same time, 
Olarewaju was not at all sure Nigeria can produce acceptable 
quality yarn and fabric cheaply enough to compete in U.S. 
markets even if the items were permissible AGOA exports. 
Nigerian cotton is in many cases contaminated by tiny fibers 
from cotton pickers' polyethylene bags, and yarn made from 
this cotton must be sold abroad as discounted non-dying yarn. 
 
 
¶13. (SBU) Atanda and Kakaraddi both pointed out that Nigeria 
also has no organized apparel industry - most garments are 
produced by a cottage industry - and that developing one 
would take several years.  Such development would require 
investors confident of recouping their money. Kakaraddi 
suggested that Nigeria concentrate first and foremost on 
increasing spinning capacity in the textile industry and then 
think about apparel. 
 
 
¶14. (SBU) Olarewaju said AGOA was unlikely to benefit 
Nigeria.  He was aware of only two companies, United Nigeria 
Textiles and Afprint, that have expressed interest in 
expanding into apparel in order to take advantage of AGOA's 
apparel benefits.  Neither, though, seemed to him to have the 
know-how, and neither was likely to be able to compete 
without low-interest loans from a government bank. 
 
 
Conclusion: Not much hope for Nigerian textiles 
--------------------------------------------- -- 
 
 
¶15. (SBU) Comment: Based on our conversations, we conclude 
that (a) the exclusion of cotton yarn and fabric exports to 
the U.S. prevents most Nigerian textile manufacturers from 
taking advantage of AGOA, (b) current AGOA benefits are 
probably not sufficient to attract investors to Nigeria and 
(c) potential investors in any event are likely to remain 
wary of an industry whose owners believe is on a slippery 
slope to extinction.  The exception to (c) might be select 
foreign investors that already foreign-owned firms like 
Churchgate hope to attract.  We note in this connection that 
two Chinese-owned and operated textile plants in the northern 
state of Kaduna are reportedly operating at a profit.  End 
comment. 
MEECE