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Viewing cable 06DARESSALAAM1638, TANZANIA'S TEXTILES: THE CHALLENGE TO COMPETE

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Reference ID Created Released Classification Origin
06DARESSALAAM1638 2006-10-04 13:21 2011-08-25 00:00 UNCLASSIFIED Embassy Dar Es Salaam
VZCZCXRO9494
PP RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #1638/01 2771321
ZNR UUUUU ZZH
P 041321Z OCT 06
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 4861
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RUEHJB/AMEMBASSY BUJUMBURA PRIORITY 2416
RUEHKM/AMEMBASSY KAMPALA PRIORITY 2843
RUEHLGB/AMEMBASSY KIGALI PRIORITY 0866
RUEHNR/AMEMBASSY NAIROBI PRIORITY 0302
UNCLAS SECTION 01 OF 03 DAR ES SALAAM 001638 
 
SIPDIS 
 
SIPDIS 
 
DEPT EB/TPP/ABT FOR T LERSTEN AND AF/E FOR B YODER 
DEPT PASS TO MILLENNIUM CHALLENGE CORPORATION 
ALSO TO COMMERCE/ITA/OTEXA M D'ANDREA 
USTR FOR HEYLINGER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX TZ
SUBJECT: TANZANIA'S TEXTILES:  THE CHALLENGE TO COMPETE 
 
REF: STATE 138090 
 
1. SUMMARY. Tanzania's textile industry faces not only 
increased global competition, but also critical domestic 
challenges including a lack of reliable power, rising oil 
prices and a significant depreciation ofits currency over 
the past year.  Based on its Poverty Reduction Strategy 
Plan, the Government of Tanzania (GOT) has demonstrated 
its commitment to enhance Tanzania's overall 
competitiveness by improving the infrastructure network. 
Two specific GOT strategies pertaining to the textile 
industry are to revitalize Tanzania's Export Processing 
Zones (EPZs)and to maintain taxes on used-clothing in 
an effort to stimulate apparel production for the local 
market.  The GOT does not appear ready to take measures 
against the import of cheap fabric, instead offering tax 
exemptions for woven fabric imported from India and China. 
While prospects for the textile sector may appear thread- 
bare in the face of daily power cuts, with sound investment 
policies, sustained infrastructure improvements and trade 
preference programs, Tanzania does show the potential to 
become competitive in the global textile market. 
END SUMMARY. 
 
2005 Textile Data 
------------------ 
2. According to the Ministry of Industry and Trade (MIT), 
2005 data on Tanzania's textile sector is as follows: 
 
Total Industrial Production USD 1,848,154,000 
Total Textile Production    USD    93,638,000 
 
Textile Exports to US (2005-06) USD 5,373,697 
Textile/Apparel Imports      USD 102,079,754 
Textile/Apparel Exports      USD 153,473,692 
 
Total Manufacturing Employment   88,713 persons 
Total Textile/Apparel Employment 15,000 persons 
 
Key Challenges to Competitiveness 
---------------------------------- 
3. Beyond international competition, high production cost 
is the biggest challenge facing Tanzania's textile 
industry.  High production costs derive in large part 
from Tanzania's current energy crisis which emerged in 
late 2005.  During 2006, January, May and June were the 
only three months in which Tanzania's Electricity Supply 
Company (TANESCO) did not undertake power rationing on the 
national grid.  The rising cost of oil and the depreciation 
of the shilling against the dollar by approximately 17 
percent from 2005 to 2006 (from Tsh 1,150 to 1,350), have 
further increased pressure on production costs in the 
textile and other industrial sectors.  For small and 
medium-sized entrepreneurs, access to credit or start up 
capital is also an important barrier to entry. 
 
4. According to the Confederation of Tanzanian Industries 
(CTI)and MIT, the U.S. and EU restrictions on certain 
exports of textiles and apparel from China have not 
affected export prospects for Tanzanian manufacturers. 
Nor has the GOT implemented safeguards or other measures to 
reduce the growth of imports of Chinese textile and apparel 
products.  To the contrary, the GOT has provided tax 
waivers to textile mills importing woven fabrics from both 
China and India.  In 2005,the Ministry of Finance (MOF) 
provided tax waivers on USD2.5 million dollars worth of 
woven fabric from China and India.  The MOF's tax waivers 
benefited three companies: NIDA Textile Mill, Karibu 
Textile Mill and Friendship Textile Mill; the latter is 
a joint venture between Chinese and Tanzanian partners. 
(source:www.mof.go.tz/revenue/exemptionsbenef iciaries/sept05 
/html). 
 
Star Apparel Shuts Down, but New Investments Arrive 
--------------------------------------------- ------ 
5. In 2005, Star Apparel closed down and NIDA was on the 
verge of collapse.  The closure of Star Apparel in March 
2005 remains clouded with controversy.  According to the 
MIT, the factory closed due to "misappropriation of funds" 
that led to the company failing to pay its employees' 
salaries on time.  Strikes and "industrial unrest" ensued 
and the company, which is headquartered in Uganda, closed 
its nearly brand new operation in Tanzania.  NIDA, a 
Pakistani textile company established in Tanzania in 2001, 
 
DAR ES SAL 00001638  002 OF 003 
 
 
has experienced major difficulties over the past several 
years, stopping production for several months in 2005 and 
operating far below production capacity in 2006. Claiming 
that it would not be able to continue operations, NIDA 
received an USD 18 million tax exemption on imported 
fabrics from the GOT.  This tax exemption is part of a 
performance contract which NIDA has with the GOT, promising 
to increase employment from 500 to 2000 people. 
 
6. In 2006, there have been significant new investments in 
the textile industry.  Cami Apparel, for example, has 
invested in three new apparel factories in Dar es Salaam: 
Everfit Apparel, Cami Apparel and Cami Suma.  The A-to-Z 
Textiles company, based in Arusha, has embarked on a multi- 
million dollar joint venture with a large Japanese firm, 
the Sumitono Chemicals Company.  The new factory will focus 
on production of long lasting insecticide-treated mosquito 
nets.  These new investments from Cami and A-to-Z are 
estimated to create 5,000 new jobs by 2007. 
 
GOT Trying to Become Competitive 
-------------------------------- 
7. Under its National Vision 2025, Tanzania spells out both 
its commitment and strategy to become a semi-industrialized 
country by 2025.  With its National Poverty Reduction 
Strategy Plan, the GOT has pinpointed infrastructure as 
a key priority area for stimulating economic growth and 
poverty reduction.  The GOT's recent Millennium Challenge 
Account Compact proposal reflects the GOT's strategy to 
strengthen the infrastructure network with the goal to 
increase Tanzania's competitiveness, including in the 
industrial sector. 
 
8. Regarding the textile and apparel sector in particular, 
the GOT appears to be undertaking two key measures.  First, 
the Kikwete administration has attempted to revitalize the 
concept of Export Processing Zones (EPZ) and Special 
Economic Zones (SEZ) which were legally created by legislation 
in 2000, but which still lack the necessary infrastructure and 
administration to get off the ground.  While misplaced, 
another GOT strategy aims at levying significant taxes 
on used-clothing imports to stimulate domestic textile 
production for the local market.  In 2005, the GOT placed 
75 percent tariff on used clothing.  In 2006, the GOT 
reduced the tariff to 45 percent but, to date, has 
resisted reducing the used-clothing tariff rate any 
further. 
 
Trade Preferences Help Tanzania Compete: AGOA, EAC and SADC 
--------------------------------------------- -------------- 
9. In 2005, Tanzania exported over USD 3 million worth of 
textiles to the U.S. market under the African Growth and 
Opportunity Act (AGOA).  The Sunflag Textiles firm is 
responsible for nearly all of these exports.  While AGOA 
has enabled Sunflag to compete in the U.S. market, other 
firms such as NIDA have struggled.  In addition to high 
production costs, key challenges are to establish market 
linkages with U.S. buyers and to increase production 
capacity. 
 
 
10. Tanzania is a member of both the East African Community 
(EAC)and the South African Development Community (SADC). 
Both the EAC and SADC provide a duty free market for trade in 
locally manufactured products, including textiles and 
apparel.  Moreover, in 2006, the South African Customs Union 
(SACU) signed an agreement with the GOT, relaxing strict rules of 
origin to allow greater market access to Tanzanian textiles 
and apparel in the SACU market.  While Tanzania's textile 
industry has yet to fully exploit these regional trading 
areas, the move toward integration represents important potential 
for the Tanzanian textile and apparel sector. 
 
Comment: Key Is Infrastructure and Investment Climate 
--------------------------------------------- -------- 
11. Despite several challenges confronting its textile 
sector, there is no reason why Tanzania cannot become a 
stronger player in the global textile market.  Leveraging 
trade preferences regionally and with the U.S. and Europe, 
Tanzania clearly has potential to increase textile exports 
both regionally and internationally.  While AGOA and regional 
trade preferences do provide important threads to Tanzania's 
overall competitiveness, the make or break stitches will be 
sustained infrastructure advancements as well as business climate 
 
DAR ES SAL 00001638  003 OF 003 
 
 
improvements to ensure new investments grow and attract even 
more new investors.  END COMMENT. 
DELLY