VZCZCXRO7896
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0911/01 2781225
ZNR UUUUU ZZH
P 051225Z OCT 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 1985
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000911 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE/EEB/TPP/ABT GARY A. CLEMENTS, 
COMMERCE/ITA/OTEXA MARIA D'ANDREA 
USTR CAROYL MILLER 
AF/S S.HILL 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX ZI
SUBJECT: TEXTILE AND APPAREL PRODUCTION AND EMPLOYMENT IN 
ZIMBABWE 
 
REF: SECSTATE 114799 
 
------ 
Summary 
------- 
 
¶1. (U) The competitiveness of Zimbabwe's textile and apparel 
sector has been highly compromised by an unstable 
macroeconomic environment characterized by persistent foreign 
currency shortages, obsolete equipment, power outages, fuel 
shortages and hyperinflation. While production and employment 
are in decline across the sector, there are several extremely 
well-managed major manufacturers, especially in the apparel 
sub-sector, that are making major inroads into the South 
African market, in particular.  The sector has not 
eperienced capital flight and the leading companies ppear 
ready to plow investment into their operatons when the 
economy stabilizes.  End Summary. 
-------------------------------------- 
A Dearthof Official Quantitative Data 
------------------------------------- 
 
¶2. (SBU) Despite repeated inquiries, post was unable to 
obtain any data on textile and apparel production or trade 
from the relevant office of the Ministry of Industry and 
International Trade.  Consequently, the information we 
gathered in response to reftel is based solely on interviews 
with the two trade associations that represent the industry 
) the Zimbabwe Textile Manufacturers Association (ZITMA), 
and the Clothing Manufacturers Association (CMA) - and with 
leading companies in each sub-sector. 
 
---------------------------- 
Overall Declining Production 
---------------------------- 
 
¶3. (U) Zimbabwe's prolonged economic contraction has taken 
its toll on the textiles and apparel sector.  The textile 
sub-sector, in particular, has scaled down operations in the 
past years, while apparel appears to be internationally, or 
at least regionally, competitive.  Indications are that most 
apparel firms are operating well below capacity but above the 
manufacturing sector average of 33.8 percent capacity.  One 
major manufacturer told us his plant was working at 40 
percent capacity. Low capacity utilization is a consequence 
of worsening foreign currency shortages, inadequate raw 
material supply, pervasive power outages, and fuel shortages 
in Zimbabwe. Interlocutors agreed that the number of players 
in the two sub-sectors has declined since the 1990s, although 
they could not provide quantitative data. 
 
--------------------------------------------- ------ 
Textile Sub-Sector Subsidizes Exports To Earn Forex 
--------------------------------------------- ------ 
 
¶4. (U) The textile sub-sector appears to sell the bulk of its 
output on the domestic market, as exports are, by and large, 
not especially competitive. Export prices are lower than 
domestic prices and domestic sales heavily subsidize exports 
to South Africa. Despite low prices, Zimbabwean textile 
manufacturers continue to export as a means of earning 
foreign exchange, at any cost, to import the spare parts and 
chemicals that are unavailable locally.  (Note: Regulations 
require exporters to relinquish 35 percent of their foreign 
exchange earnings to the Reserve Bank of Zimbabwe at the 
official exchange rate ) an effective steep export tax. 
Prior to the Monetary Policy Statement of October 1, 2007, 
they had to give up 40 percent of their foreign currency 
earnings.) 
 
--------------------------------------------- ---------- 
Apparel - Export Driven, But Up Against Commercial Risk 
--------------------------------------------- ---------- 
 
¶5. (SBU) The Clothing Manufacturers Association (CMA), on the 
other hand, explained that Zimbabwean manufacturers largely 
depend on the export market to make money even though they 
receive lower prices than their competitors. Foreign buyers, 
unsure whether Zimbabwean manufacturers will deliver the 
goods, impose a heavy discount to compensate for the 
perceived commercial risk. As a result, orders have been 
declining on a year-on-year basis at the aggregate level.  At 
the individual level, however, two major firms that we 
interviewed, and that have a strong record of exporting to 
 
HARARE 00000911  002 OF 003 
 
 
the U.S., told us that their export orders to South Africa 
have increased in the past year. The two firms ) one in 
Bulawayo and one in Harare ) are known to be exceptionally 
well managed, with strong capital bases, particularly good 
labor relations, and a strong social commitment 
 
--------------------------------------------- 
U.S. Restrictions Benefit Zimbabwe Indirectly 
--------------------------------------------- 
 
¶6. (SBU) Were Zimbabwe eligible for the trade benefits of 
AGOA, it undoubtedly would have the capacity and expertise to 
increase its apparel exports to the U.S.  Interestingly, 
Zimbabwe has benefited indirectly from the introduction of 
restrictions by the U.S. and EU on the importation of 
textiles and apparel from China. As South Africa, under AGOA, 
supplants China and exports an increasingly large proportion 
of its textiles and clothing output to the U.S., Zimbabwean 
manufacturers have filled the gap in the South African 
domestic market, albeit against stiff competition from 
Chinese suppliers.  According to ZITMA and CMA, Zimbabwe's 
close proximity to South Africa balances out to some extent 
the sub-economic (i.e. subsidized) pricing of Chinese 
products on the South African market. One of the most 
competitive apparel manufacturers interviewed told us that 
export quotas on Chinese products in the Southern African 
Customs Union (SACU) in general, and South Africa in 
particular, had helped the firm achieve an export-to-output 
ratio of 95 percent. In fact, the company expected to double 
its exports to South Africa in 2008.  On the other hand, the 
company managing director told us that his firm had lost a 
major contract with a leading U.S. apparel chain when the 
buyer decided to disassociate itself from Zimbabwe for 
political reasons. 
 
------------------------------------------- 
The Struggle to Maintain Competitiveness... 
------------------------------------------- 
 
¶7. (SBU) Both associations maintained that, aside from the 
recent introduction of duty payable in foreign exchange, the 
GOZ had done nothing to improve the competitiveness of the 
sector. In fact, CMA said that the government continued to 
issue export licenses to lint producers instead of promoting 
the processing of lint into higher-value products by local 
textile manufacturers.  Both associations and all companies 
visited called for more protection of domestic manufacturers 
against cheap imports.  Moreover, both associations 
underlined the negative effect of the country's deteriorating 
electric-power and water infrastructure on their members' 
international competitiveness. 
 
¶8. (SBU) In the meantime, CMA explained that, to cope, its 
manufacturers tapped into the foreign exchange black market 
to import essential inputs.  In addition, about half of 
ZITMA's members had reorganized production to reduce waste, 
and re-capitalized to improve product quality. 
 
---------------------------------- 
... And the Battle to Retain Labor 
---------------------------------- 
 
¶9. (U) Most firms interviewed had laid off workers but 
maintained capacity to be able to re-hire quickly in a 
recovery. According to CMA, employment in the clothing sector 
had fallen from 24,000 in 2000 to 14,000 in 2007, against a 
capacity to employ 35,000 workers. ZITMA was unable to 
provide comparable data for the textile sector. 
 
¶10. (U) There are no programs in place to deal with 
dislocated workers aside from the standard retrenchment 
package.  However, the most successful firms in the apparel 
sub-sector have introduced training programs to address the 
problem of skill loss as skilled labor was leaving the 
country en masse.  Executives told us they could train a 
worker to a high level of competency in three weeks. 
 
¶11. (SBU) Addressing the effect of globalization on labor 
market flexibility, textile industry executives pointed out 
that the labor market was already very flexible, particularly 
in terms of the black market exchange rate; real wages have 
fallen substantially. To stem the tide of emigration, CMA has 
taken the proactive stance of paying wages that are well 
above the agreed minimum for the sector (though still far 
below the Poverty Datum Line).  Wages are also generally 
 
HARARE 00000911  003 OF 003 
 
 
supplemented by the provision of staple food, water (in 
drought-stricken Bulawayo), and transportation and housing 
allowances. The Association maintained that the industry was 
always the first to settle in collective bargaining 
agreements. In fact, it proposed linking wage increases to 
changes in the consumer price index (CPI) as early as 
February 2007. Most CMA members also pay bonuses for higher 
productivity, which has improved output. 
 
------------------------------ 
Yet No Signs of Capital Flight 
------------------------------ 
 
¶12. (SBU) Notwithstanding all the challenges, capital, 
including that of Asian and Jewish investors (most of whom 
are Zimbabwean citizens) does not appear to be fleeing the 
sector. While the managing director of one of the major 
apparel firms visited told us he was emigrating to the U.S. 
at the end of 2007, he was not contemplating divestment. On 
the contrary, he will act as marketing director for the 
company in the U.S. and expects exports to the U.S. to rise 
from the current 40 percent to 70 percent within a year. In 
the meantime, he has put in place a management structure in 
Zimbabwe that will maintain local operations going forward. 
 
¶13. (SBU) Overall, the apparel manufacturers believe that the 
local textiles sub-sector should improve its product range in 
order to cut down on imports of "technical" fabrics, 
especially those that are water- and blood-proof and used for 
safari clothing. One of the textile manufacturers called his 
own industry "a joke" because of its dependence on obsolete 
equipment and its narrow expertise in manufacturing heavy 
cotton fabrics for the production of worker clothing.  The 
sub-sector needs to re-equip to improve its competitiveness. 
Statistics show that in 2006, Africa's share of new knitting 
machinery purchases was just over 1 percent, with Asia 
accounting for over 88 percent. Of the 1 percent attributable 
to Africa, Egypt and South Africa accounted for more than 75 
percent, implying that Zimbabwe has a long way to go before 
achieving the quality of fabrics demanded by the clothing 
manufacturers. Both associations see a need to liaise more 
closely going forward given the strategic nature of the 
textile and apparel industry in Zimbabwe as the 
second-largest contributor to the manufacturing sector. 
 
DHANANI