US embassy cable - 05LILONGWE177

UNCLAS LILONGWE 000177 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S ADRIENNE GALANEK 
JOHANNESBURG FOR FCS 
GABORONE FOR SAGCH AMANDA HILLIGAS 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EIND, MI, AGOA, Economic, BUD FIN, Industry 
SUBJECT: MALAWI LOSES GARMENT MANUFACTURER 
 
REF: A. 2004 LILONGWE 1108 
     B. MASERU 0048 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
1. (U) SUMMARY: Haps Investments, one of Malawi's largest 
AGOA garment manufacturers, has ceased operations, putting 
over 2,000 employees out of work.  The closure stems from the 
financial failure of the Taiwanese parent company, which 
apparently faltered as a result of losses suffered at its 
operations in Lesotho.  Though the failure does not result 
directly from the end of textile quotas, it may at last focus 
the Government on the need to respond to the end of quotas. 
End summary. 
 
2. (SBU) Haps Investments, which exported to a number of 
large U.S. buyers, closed its doors as usual for the latter 
half of December, releasing employees for the holiday period. 
Beginning in early January, the company announced a series of 
one-week delays in its opening.  By the end of January, the 
plant's 2,500 employees reached the conclusion that it would 
not reopen and alerted the GOM and their labor unions.  The 
company has not announced the closure, and the Taiwanese 
managers have reportedly stayed in Taiwan since the holidays. 
 The Taiwanese embassy finally made the company's closure 
public earlier this week and has taken responsibility for 
paying off the workers.  Malawi's High Court is expected to 
appoint a receiver in March to sell off the company's assets 
and pay the roughly $200,000 in local debts. 
 
3. (U) The closure has sparked speculation in government and 
industry circles that it is the first of a series of closures 
and layoffs generated by the end of Multi-Fibre Arrangement 
(MFA).  This nervousness runs against our earlier sense that 
garment makers here are generally unconcerned about the end 
of garment quotas, at least in the near term (ref A). 
 
4. (SBU) As it happens, the closure has nothing to do with 
the demise of garment quotas. As we recently learned from the 
Taiwanese diplomatic mission here, Haps's Taiwanese parent 
company, Haps Investment Company, has suffered large losses 
in its Lesotho operations over the past two years, largely as 
a result of the rising value of the SA Rand and Lesotho 
Maloti (ref B).  Toward the end of 2004, the company found 
itself unable to service its debts (it is reported to have 
taken out a $6 million bank loan recently) and ordered the 
closure of all overseas operations.  The Malawi operation is 
essentially a collateral casualty of the parent company's 
larger problems. 
 
5. (SBU) COMMENT: While the Haps closure is not directly 
connected to the demise of the MFA, its sudden failure is 
focusing the minds of GOM officials who did not even know 
about the end of quotas until we told them last year (ref A). 
 The engagement of the Ministry of Trade and Private Sector 
Development on AGOA issues--and on trade development in 
general--has been unimpressive up to now; whether this will 
change with a new minister remains to be seen.  The current 
visit of the AGOA advisor from the Southern African Global 
Competitiveness Hub may help the GOM with some ideas for 
expanding AGOA exports beyond the threatened cotton garments. 
 As we will report by septel, in our initial meetings on this 
topic, the GOM brought little to the table besides requests 
for more money. 
 
GILMOUR