VZCZCXYZ0000
RR RUEHWEB

DE RUEHAN #0067/01 0391202
ZNR UUUUU ZZH
R 081202Z FEB 10
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 3288
RUCPDOC/USDOC WASHDC

UNCLAS ANTANANARIVO 000067 
 
SENSITIVE 
SIPDIS 
 
STATE FOR AF/E - JLIDDLE 
STATE FOR AF/EPS - GMALLORY 
DOC FOR ROBERT TELCHIN 
STATE PLEASE PASS TO USTR FOR CHAMILTON 
 
E.O. 12958: N/A 
TAGS: AGOA ECON EAID ETRD MA
SUBJECT: MADAGASCAR: STATE OF APPAREL COMPANIES AFTER AGOA 
TERMINATION 
 
¶1. (SBU) SUMMARY: Since Madagascar's suspension from AGOA on 
December 23, 2009, newspapers report daily demonstrations of workers 
protesting lay-offs from garment factories.  These demonstrations 
have been small, mainly peaceful, and not targeted against the U.S. 
Although only a few companies have officially closed, most focused 
on the U.S. market have already reduced their staff. Trade unions 
estimate that at least 40,000 people out of around 100,000 in the 
textile sector will lose their jobs by the end of April.  Mauritian 
businesses, approximately 15 established in Madagascar and many more 
that sub-contract with local factories, will be heavily impacted by 
the closures.  In a misguided attempt to force closing companies to 
meet all their obligations to laid-off employees, the HAT apparently 
is blocking the departure from Madagascar of expat businessmen in 
the textile arena.  END SUMMARY 
 
Company Closures since AGOA Suspension 
-------------------------------------- 
¶2. (SBU) The closure of Prime View (2,000 workers) in the beginning 
of January 2010 was the first sign of disarray among the 43 
companies exporting under the African Growth and Opportunity Act 
(AGOA).  Companies such as Kuk Rim, BM, and Kwok Hing have informed 
the Customs office that they will transfer their equipment to Egypt 
and Lesotho before the end of February. 
 
¶3. (SBU) The following companies have opted to lay off all workers 
for six months because they could not reach a deal with their U.S. 
buyers to cover new customs duties: Cosmos Knit (3,012 workers), 
Radha Fashion (2,000), BL Garment (800), Diamond Empire (727), BM 
(500), Kuk Rim (700), K3 Apparel (300).  This decision to lay off 
rather than close could reflect a hope that AGOA will be reinstated 
to allow re-opening or that new buyers will be found in Europe in 
the interim, or alternatively, could be a move to get out of paying 
severance packages to workers that will be due upon closure. 
 
¶4. (SBU) The Mauritian Ambassador told the Ambassador Feb 8 that 
Cosmos, the Mauritian firm noted above, was in the process of 
deciding the ultimate fate of its factory.  One of the factory 
managers (mistaken for her husband, the head manager) attempted to 
fly to Mauritius to consult the company's owner and was blocked at 
the airport from leaving Madagascar.  After investigation, the 
Mauritian Embassy discovered that the Commission of Security and 
Defense of the HAT led by hardliner Alain Ramaroson had established 
a no-fly list of more than fifty expats working in the textile 
industry and instructed airport officials to block the departure of 
these individuals.  When the Cosmos manager was convoked by 
Commission Director Rakotomazafy Feb 5, the Mauritian Ambassador 
appeared with him in the HAT office and demanded a halt to arbitrary 
travel bans.  The director explained that the government is 
concerned that Cosmos' workers were not paid in January and may not 
receive the benefits to which they are due.  Cosmos' manager also 
complained that customs officers were hindering factory operations 
and that their inputs were being blocked at the port.  Rakotomazafy 
promised to help resolve these issues.  The company will go into 
receivership.  The HAT's intentions with respect to the no-departure 
list remain unclear at this time. 
 
¶5. (SBU) The following companies have implemented partial layoffs: 
 
- Mklen and L5, a Jordache company that was the largest exporter 
under AGOA in 2009, has significantly reduced its workforce.  Before 
June 2009, the company employed 4,500 workers and sub-contracted 
work to 1,000 workers at Radha Fashion.  In June, they fired around 
1,200 workers when they closed one factory.  In the beginning of 
February 2010, they fired another 1,000 workers, reducing the 
workforce to around 2,300.  They also cancelled their contract with 
Radha Fashion.  They plan to cease operations by the end of March 
and will fire remaining workers at that time.  They will keep their 
assets here until June and decide what to do with them then. 
 
The labor law does not require companies to pay workers if laid off 
("chomage technique"), but does require severance payment upon 
termination.  Unlike other companies, Mklen has acted proactively to 
reach a settlement with workers.  It has paid accumulated holiday 
leave, all salaries due, and severance pay based on base salary and 
number of years worked.  All the workers have signed this 
settlement, except around 110 who have threatened to go to court, 
and Mklen has been able to continue its operations with the 
remaining workers without hassle or strikes or protests.  According 
to the factory manager, however, due to political manipulation of 
laid-off workers by the Ministry of Population (led by Nadine 
Ramaroson, niece of HAT hardliner Alain Ramaroson), he hired 32 
armed police to guard the factory, but subsequently reduced that 
number to seven. 
 
- Mazava with 1,200 workers laid off 400 workers in January. In 
December 2009, Mazava opened a new firm in Dar Es Salam, Tanzania, 
 
to where it is shifting production to address Madagascar's AGOA 
suspension. 
 
- Vieo Madagascar with 462 workers will lay off 238 workers in 
March. 
 
- JH Madagascar having 1,425 workers will lay off 300 workers by the 
end of February. 
 
- Grove, a Hong Kong subsidiary, had to reduce its workers by 
two-thirds (1,200 now instead of 4,000 before the crisis). Thanks to 
an arrangement with its U.S. buyer, Grove has orders until April. 
 
 
¶6. (SBU) The following companies have only exported to the U.S. once 
or twice in 2009: Logistics (January), Casero (June), BG Confection 
(June), Antan Production (August, October), Fatexma (April, July), 
Floreal (March, June), MIW (June, July), and Radha Fashions 
(February, March).  According to Malagasy Customs, these firms are 
sub-contractors or export partially to Europe. 
 
Strategies to Address the AGOA Suspension 
----------------------------------------- 
¶7. (SBU) A few companies have adopted strategies to keep their 
American market: 
 
- Griffy S.A. which has been working in Madagascar for almost twenty 
years and employs 2,800 people is the only AGOA garment factory that 
continues to operate with 100 percent of its staff, according to 
Griffy managers.  They have orders through March, but are 
negotiating now with buyers to continue production beyond that date. 
 Following the suspension of AGOA, as a producer of woven goods, 
Griffy is subject to U.S. custom duties of around 17 percent.  For 
existing orders, they are paying the duty themselves, but for future 
placements, they are negotiating to split the difference with 
buyers, such as Jones of New York and Gloria Vanderbilt.  The 
company would like to stay in Madagascar for the long-term, but may 
be unable if AGOA is not renewed.  In addition to the increased 
tariffs, longer transit times and buyers' concerns about security in 
Madagascar are having a negative impact on their business.  Because 
Malagasy imports have dropped, vessels are not docking as frequently 
as before, and the main shipping company Maersk is only able to 
provide a schedule for three weeks out, rather than three months as 
was the previous practice.  This uncertainty, plus an additional ten 
days on average, of transit time could deter buyers, who operate on 
tight timelines. 
 
- Cottonline, a main supplier of Gloria Vanderbilt, employs 1,900 
people.  In January, the company had to lay off 500 temporary 
workers and is now negotiating with its customer to find a mutual 
compromise.  According to its manager, Cottonline may agree to pay a 
portion of the U.S. customs duties.  In addition, Cottonline is 
negotiating with the suppliers of its accessories and fabrics to get 
competitive prices.  Cottonline exports 55 percent of its production 
to Europe and the remaining 35 percent to the U.S. 
 
- Candytex, a Mauritian company that is the main supplier of Berne 
Apparel, employed 760 workers before the AGOA suspension.  The 
company laid off 209 people who have been on strike since Feb 1 and 
are blocking the others from going to work.  The company has not 
paid any severance benefits, but offered to establish a bank 
guarantee that would cover such benefits should it eventually close. 
 The manager had to call the armed forces to protect the staff and 
the factory.  The manager said they have orders until the end of 
March, and Candytex has to pay part of the U.S. duty to keep its 
customers.  The company hopes to keep its operations going by 
finding a European buyer.  According to the Mauritian Ambassador, 
HAT Defense Commission Director Rakotomazafy, Alain Ramaroson's 
subordinate, was able to calm the workers, but "someone" clearly 
wants the firm to fail and is encouraging the laid off workers to 
block operations. 
 
- JNJ, a Hong Kong firm, is also splitting the U.S. customs duty 
with its customer.  JNJ has orders through April, but to be 
competitive, it has to reduce its profit margin by 20 percent to 
cover the duty.  Before the crisis JNJ had 1,200 workers, but now 
has only 300. 
 
- Madagascar Sales (1,200 workers) and Madagascar Fashion Knits 
(1,127 workers) have maintained all their workers until now because 
they still have orders from Europe.  However, Mr. Chow, general 
manager of the two companies, is now negotiating with U.S. buyers to 
convince them to support the duties on a mutual basis. 
 
- Nova Knit's case is a bit different from other firms.  The firm is 
producing only cashmere, a high-end product for which the 
 
international market was disturbed by the world economic crisis. 
The firm had to lay off 2,000 workers (out of 3,000) in September 
2009 and halted its exports to the U.S.  With its remaining 1,000 
workers, Nova Knits is now only exporting to Europe.  Around 60 
percent of garment factories export to Europe, and others are 
shifting their focus to this more promising market, where Malagasy 
garments enter duty free under the interim Economic Partnership 
Agreement, following the termination of AGOA. 
 
Workers Lobby GOM for AGOA Reinstatement 
---------------------------------------- 
¶8. (SBU) On January 22, the Workers Committee for Maintaining AGOA 
(KMM) organized a gathering in the capital.  Only around one hundred 
workers attended the gathering because of its political objectives. 
During its General Assembly on Feb 3, the Export Processing Zone 
(EPZ) Association announced that it was still possible to save AGOA 
if a political solution could be found before March.  EPZ unions, 
workers, and employers are urging the political leaders to find a 
solution to the crisis in order to once again benefit from AGOA 
provisions. 
 
GOM Fails to Deliver 
-------------------- 
¶9. (SBU) After the AGOA suspension, the de facto government met with 
the owners of apparel firms exporting under AGOA to discuss 
solutions or measures to mitigate the impact.  Companies sent 
propositions to the ministry of industry, such as the GOM 
reimbursing the companies for a portion of the U.S. customs duties, 
but to date, the cash-strapped GOM has not provided relief.  A 
contact in the garment sector told Emboff that the companies would 
need approximately USD 44 million per year from the GOM to make up 
for the customs duties in the U.S., a sum that the minister of 
economy confirmed would be impossible for the GOM to provide.  The 
minister of economy also announced that the GOM may devalue the 
local currency to boost export competitiveness, but the central bank 
asserts that such a policy is not being applied.  However, the 
ariary has depreciated against the dollar by nine percent since the 
beginning of 2010.  The GOM has also proposed granting land to the 
unemployed.  At least 5,000 people registered for this program and 
are waiting for its implementation. 
 
Comment 
------- 
¶10. (SBU) Most workers have accepted their unfortunate fate quietly. 
 The rhetoric of the few disgruntled workers who have taken action 
and press reports has for the most part not been directed towards 
the U.S., but has been focused on employers and the GOM.  Discontent 
may build, however, in March and April as remaining workers are 
fired and factories close, particularly if severance benefits are 
not paid.  End comment. 
 
 
MARQUARDT