VZCZCXRO0004
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0333/01 1411254
ZNR UUUUU ZZH
R 211254Z MAY 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 8523
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHJB/AMEMBASSY BUJUMBURA 2883
RUEHKM/AMEMBASSY KAMPALA 3411
RUEHLGB/AMEMBASSY KIGALI 1339
RUEHNR/AMEMBASSY NAIROBI 1271
RUEHBJ/AMEMBASSY BEIJING 0356
RUEHDS/USMISSION USAU ADDIS ABABA
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 DAR ES SALAAM 000333 
 
SIPDIS 
 
DEPARTMENT FOR AF/E JLIDDLE; INR/RAA FOR FEHRENREICH; AF/EPS 
STATE PASS USAID/EA, USTDA, USTR, USITC 
 
E.O. 12958: N/A 
TAGS: EAID ECON ETRD PREL TZ
SUBJECT: TANZANIA TEXTILE AND APPAREL INDUSTRY STRUGGLING TO 
COMPETE 
 
REF: A) 2004 Dar es Salaam 407 B) 2006 Dar es Salaam 1638; C) Dar es 
Salaam 164 D)Dar es Salaam 154 
 
¶1. Summary and Comment.  Tanzania's once successful textile and 
apparel industry is floundering, unable to capitalize on advantages 
such as abundant supply of raw materials and preferential trading 
agreements, including AGOA.  Recent interviews with various sector 
stakeholders in Tanzania revealed that internal challenges deter 
investment and hinder competitiveness.  Development challenges in 
infrastructure, human resources, and access to finance prevent 
Tanzanian mills from being cost and quality competitive with other 
producers around the world.  Additionally, the mutually reinforcing 
problems of a capital intensive textiles sector and a small garment 
sector prevent the industry from expanding to reach economies of 
scale.  Although the GOT recognizes the obstacles to the sector's 
growth, it has taken few measures to address them.  End Summary and 
Comment. 
 
Note: This cable is based in part on interviews conducted during a 
visit by officials from the U.S. International Trade Commission 
(ITC) to review African textile and apparel industries.  The ITC 
report is available at 
http://www.usitc.gov/publications/332/pub4078 .pdf. 
 
Context 
------- 
¶2. At its peak in the late 1970s, Tanzania's textile industry was 
the largest manufacturing sector in the country in terms of 
employment and second largest by gross value of production.  It 
employed about 25 percent of the manufacturing labor force and 
contributed 25 percent of the manufacturing sector GDP.  Although 
the industry appeared successful, it was being kept alive only 
through government protection and subsidies.  In the mid-1990s, with 
the shift toward economic liberalization, the industry collapsed and 
all but two mills went out of business. 
 
¶3. Over the course of a decade, the textiles industry grew slowly 
and in 2004 had 12 significant textile producers employing 6,000 
workers(See ref A).  The sector was dealt another blow in 2005, 
however, when the expiration of the Multi-Fiber Agreement exposed 
it, along with all of Africa's textile producers, to competition 
from the strong and well-established Asian producers - especially 
China, Bangladesh and Cambodia.  As a result, one major producer 
closed its doors that year and another was forced to cease 
operations for several months and produce far below capacity upon 
reopening (See ref B).  The volume of textiles produced in Tanzania 
dropped 14 percent from 2004 to 2005.  Since 2005, the industry has 
seen increased investment and today, 20 local companies employ about 
13,000 workers (almost half of which are employed by one company, A 
to Z, which produces anti-malaria bednets).  The majority of 
companies focus on the local market, producing mainly traditional 
clothing and bedsheets.  Only half a dozen Tanzanian mills produce 
for export, and only two are vertically integrated operations. 
 
Despite Advantages, Sector Struggling 
------------------------------------- 
¶4. Tanzania produces sufficient high-quality cotton to support local 
textile manufacture.  Tanzania's second largest export crop, cotton 
contributes some USD90 million to export earnings annually and 
provides employment to about half a million rural households (though 
see ref C for troubles in the sector).  In addition to Tanzania's 
domestic market of 40 million people, Tanzania's international 
market access is bolstered by preferential trading agreements 
benefiting the sector.  Under the Everything But Arms agreement 
(EBA), Tanzania enjoys duty and quota-free access to the EU. Under 
the U.S. African Growth and Opportunity Act (AGOA), Tanzania is one 
of a small group of countries eligible for all benefits in the 
apparel and textiles sector: it is one of only 5 eligible for ethnic 
printed fabric provisions.  [Note: Regional trade in textiles is 
minimal because of East African Community tariffs that protect local 
producers.  End note.] 
 
¶5. Despite these advantages, the Tanzanian textile and apparel 
sector is floundering.  According to Dr. Joe Kabissa, Director 
General of the Tanzania Cotton Board, 80 percent of the country's 
cotton is exported raw - mostly to China, Bangladesh and other Asian 
nations. Additionally, Tanzania registers a large trade deficit in 
textiles and apparel.  In 2007, USD 131 million in imports of 
textile and apparel inputs far outpaced the USD 20 million in 
exports.  Tanzania has been unable to take advantage of trade 
preferences such as AGOA.  In 2007, U.S. imports of Tanzanian woven 
 
DAR ES SAL 00000333  002 OF 003 
 
 
and knit apparel were worth USD 2.8 million, compared to USD 1.3 
billion from Sub-Saharan Africa as a whole.  Nearly all U.S. imports 
came from a single company, Sunflag. 
 
Development Challenges 
---------------------- 
¶6. Access to finance - Representatives from the Ministry of 
Industry, Trade and Marketing indentified local access to finance as 
the most important hindrance to the sector. Loans are difficult to 
come by - particularly on the scale required to start up a capital 
intensive operation like a textile mill which generally requires an 
initial investment of more than USD100 million - and interest rates 
are high at about 15 percent.  Many mill and factory owners brought 
financing from family-owned businesses in countries like India and 
Pakistan rather than raising it domestically.  Many of the mills in 
Tanzania use outdated equipment, being unable to purchase newer and 
more efficient machines.  A 2007 report by the Tanzania Gatsby Trust 
notes that the majority of machines in Tanzanian factories were 30 
or more years old and poorly maintained.  Moreover, most factories 
suffer from a shortage of spares and opt to run down old equipment 
rather than reinvesting and upgrading it.  For example, less than 7 
percent of Tanzania's spinning machinery has been updated in the 
past 10 years. 
 
¶7. Infrastructure - Every company interviewed in connection with the 
ITC visit commented on the challenges posed by Tanzania's weak 
infrastructure.  Most cited congestion and delays at the port of Dar 
es Salaam as their primary concern, noting that it regularly 
prevented them from receiving and shipping goods on time (See ref 
D).  When asked about alternatives to sea routes, they complained 
that inadequate roads and railways provided them with a lack of 
other options.  New Tabora Textiles Managing Director Bharat Patel 
noted a 35 day minimum transport time from factory to customer - 
including 6 days to move goods 600 miles by road from factory to 
port. 
 
¶8. Another major infrastructure challenge is the lack of reliable 
power and water.  According to several of the mill workers 
interviewed, a cut in power means a broken thread, making it 
necessary for a worker to completely stop a machine to repair the 
thread or even to start all over again.  A water shortage at a 
textiles plant doing bleaching and dying means delayed production of 
all products.  Unreliable electricity and water supplies also force 
manufacturers to invest in expensive generation equipment. 
 
¶9. Human resources - In addition to financial and physical 
resources, most of the companies interviewed complained about 
challenges related to human resources.  As there are no formal 
training programs in Tanzania for textiles and apparel production, 
mills must fully train all workers. A to Z, an Arusha-based company 
which manufactures mostly mosquito nets and employs some 6,000 
people, spends 6 to 9 months training workers in stitching but has 
had problems with trained workers leaving to work elsewhere.  Most 
of the companies interviewed complained of low labor productivity in 
Tanzania - especially compared to that in Asian countries. 
 
¶10. Low levels of investment and the resultant outdated 
technologies, problems with power and water, and difficulties 
finding skilled labor all inhibit production of high quality goods. 
As a result, Tanzanian textiles are less competitive in export 
markets, particularly the U.S. and Europe.  The Director for 
Industrial Development at the Ministry of Industry, Trade and 
Marketing, the Deputy General Manager of the Urafiki Textile Mill, 
and the President of the Tanzanian Chamber of Commerce all cited 
poor quality as a barrier to entry into the American and European 
markets.  Even if Tanzanian factories wanted to export bed sheets 
and niche products made of traditional fabrics to such markets, 
their current products do not meet Western standards. 
 
Economies of Scale; A Chicken and Egg Problem 
--------------------------------------------- 
¶11. Textile production is capital intensive, requiring large output 
volume to bring down unit cost to competitive levels, and the 
existing garment industry in Tanzania is too small and fragmented to 
justify the large-scale investment required to build the textiles 
sector.  Simultaneously, lack of an adequate domestic supply of 
textiles prevents the growth of the garment industry.  This "chicken 
and egg" problem deters investment on both sides.  As most 
stakeholders agree, vertical integration of the industry is 
important in order to make use of locally available cotton and to 
benefit from adding value locally rather than exporting raw 
 
DAR ES SAL 00000333  003 OF 003 
 
 
materials only to re-import finished products.  However, the 
challenges noted above are clear disincentives for the significant 
investment required to build a vertically integrated operation. 
 
GOT Support Minimal 
------------------- 
¶12. The GOT is aware that the lack of value addition to Tanzanian 
raw materials deprives the economy of revenue.  The GOT attempted to 
promote processing and the manufacturing of products from locally 
available raw materials.  One important step toward this goal was 
the 2002 establishment of Export Processing Zones (EPZs).  Licensed 
EPZ projects are entitled to a number of incentives including an 
export credit guarantee scheme, remission of customs duty, VAT, and 
other taxes on certain items, inspection facilitation, and access to 
reliable services (such as water and power) within the EPZs, among 
other things.  By definition, however, EPZs only focus on 
enterprises producing for export and therefore do not assist the 
majority of companies in the sector.  Of 21 firms under EPZs, only 3 
are in the textiles and apparel sector. 
 
¶13. Although in numerous interviews GOT officials voiced their 
concerns about the lack of value addition in Tanzania generally, and 
the advent of EPZs certainly benefits the textiles and garments 
sector, GOT has taken no actions aimed specifically at reviving the 
failing industry.  There are no specific tax incentives to promote 
vertical integration or attract foreign investment, no 
industry-specific training programs (in engineering or design), and 
no official body or unit dedicated to guiding the growth of the 
sector. 
 
ANDRE