US embassy cable - 04LILONGWE1108

UNCLAS SECTION 01 OF 02 LILONGWE 001108 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S A. GALANEK 
STATE PLEASE PASS TO DEPT OF COMMERCE 
GABORONE PLEASE PASS TO SAGC AMANDA HILLIGAS 
 
E.O. 12958: N/A 
TAGS: ECON, ELAB, ETRD, KTEX, MI, Economic, Industry 
SUBJECT: GARMENT MAKERS NOT PANICKING ABOUT QUOTAS 
 
 
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SUMMARY 
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1. (SBU) Despite the impending demise of quotas, Malawi's 
garment makers expect to see few changes in the U.S. market 
in the near future.  They are banking on the prospect of 
protective measures against China becoming a reality in the 
next few months.  Malawi-based companies also have lower 
capital investment and lower operating costs than regional 
competitors, which makes them less concerned about the long 
run.  The GOM, meanwhile, has done nothing to prepare for 
potential downturns in the industry.  End summary. 
 
 
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GARMENT BUSINESS AS USUAL 
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2. (U) In the face of the beginning of the end of quotas in 
January 2005, Malawi's garment manufacturers are taking a 
"wait and see" approach.  Recent conversations with several 
garment industry executives have shown that they expect the 
USG to implement some last-minute restrictions on Chinese 
imports to the U.S., which would give them at least momentary 
breathing space under the African Growth and Opportunity Act 
(AGOA).  The manufacturers are generally not planning any 
drastic changes in their operations or investments. 
 
3. (SBU) One manufacturer is suspending plans for one year 
its plans to build a plant for the U.S. market.  Others have 
told us that they intend to work on cutting costs and to 
lobby the GOM to make faster progress on the Nacala Corridor 
project, providing cheaper and more reliable access to sea 
shipping.  In general, though, the industry here seems to be 
operating on the assumption that their U.S. markets will 
remain fairly stable over the next year. 
 
 
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SHORT-TERM CONFIDENCE IN MALAWI'S ADVANTAGES 
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4. (U) At least one Malawi-based manufacturer describes the 
labor environment as an advantage for Malawi over other 
African countries.  Workers here earn about $30 per month, as 
opposed to $120 per month in Lesotho and even more in 
Swaziland.  This is expected to continue balancing out 
Malawi's very high transportation costs.  Other advantages 
include a better security environment and docile unions. 
 
5. (SBU) Another advantage not cited by the garment makers is 
the low level of capital and organizational investment here. 
Factories tend to be cheaply leased, re-purposed buildings 
with few fixed capital improvements; most management staff is 
typically resident aliens.  Thus, current operating costs 
account for nearly the whole picture, and long-term prospects 
are less important than in locations where more has been 
committed.  Simply put, Malawi's garment makers are focused 
almost exclusively on the short term. 
 
 
6. (SBU) The Government, meanwhile, was unaware of the 
impending changes until we mentioned it in recent 
conversation with Trade Ministry officials.  Not 
surprisingly, they have made no plans for potential shifts in 
the export market nor for the unemployment that would almost 
inevitably follow.  Embassy is undertaking an effort to help 
the GOM focus on developing an export strategy, which 
includes using the Southern Africa Global Competitiveness hub 
to target other potential AGOA exports. 
 
 
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COMMENT: GOVERNMENT NOT ENGAGED 
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7. (SBU) Malawi-based manufacturers' apparent unconcern over 
the lifting of quotas may be partly naivete, but we interpret 
it as mostly a sign of their confidence in the U.S. garment 
industry's lobbying ability.  Certainly they have their 
reasons for short-term equanimity.  But the Government's 
ignorance of the situation and its longer-term implications 
is more worrisome.  AGOA is estimated to account for some 
7,000 otherwise scarce manufacturing jobs here, and the GOM 
has little idea what is happening in the sector.  We view 
this as symptomatic of the GOM's general lack of effective 
engagement with the private sector and with the 
nuts-and-bolts trade issues affecting it.  Changing that 
situation will be key to energizing Malawi's economy. 
 
GILMOUR