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Morocco battles with shifting textile trade
Source: BI-ME , Author: BI-ME staff
Posted: Thu October 20, 2005 12:00 am

MOROCCO. Morocco's textile industry, the country's largest export industry and biggest employer, faced a roller-coaster ride this year due to Chinese exports. But the North African Kingdom is fighting back with plans for increased foreign investment, and the creation of new textile lines to face international competition, Prime Minister Driss Jettou said recently.

In an interview with the Moroccan daily 'L’Economiste' the premier said the Kingdom will create "opportunity lines" in three branches: denim woven fabric, underwear and poplin. The Prime minister pointed out that the Kingdom is trying "to attract major international textile companies and help them integrate the Moroccan market" as "integration is the best means to face Asian competition."

This was the case with the American Fruit of the Loom brand that has invested US$ 162 million (nearly MAD 1,416 million) in two textile units in Skhitrate and Bouknadel to produce woven fabric destined to make tee-shirts, sweat-shirts and joggers. Earlier this year two other major international textile companies invested US$ 300 million in the Kingdom creating 2,500 direct jobs.

"Our textile sector situation is not so bad and we keep great chances to be able to compete", he said as the Moroccan working force salary is only "one to two" compared to China. Morocco should adopt a policy aimed at reducing tariffs to help Moroccan companies face Asian products that offer more interesting prices for their crude products, said Jettou, noting that negotiations are underway with textile professionals to reach a decision on this issue.

Investments up, costs down

Meanwhile professionals in the textile industry are looking to financial and technical support from the EU, as well as reduced barriers to exports and investment to support a recovery in the sector. An agreement has been concluded between the government and the Moroccan Association for textile and clothing industries (AMITH) to immunise Moroccan enterprises against the competition of Chinese products. The agreement consists of a series of measures meant to cut production costs, increase investments, improve productivity and create a special fund to upgrade textile-clothing enterprises.

Morocco’s imports of Chinese textile clothing products totalled MAD922 million (around US$108 million) in 2004, a rise of 30% compared to 2003, according to the Foreign Trade Minister, Mustapha Mechahouri. Shoe imports were estimated at MAD138 million in the same period, he said at the House of Advisors question time.

The Moroccan official explained that Chinese products flowing into the Moroccan market is evolving in a legal way, saying these products are charged duties as high as 80.25%. On the lack of trade balance between the two countries, Mechahouri said he concluded during his visit last July to China an accord to reduce this gap. China, he said, is ready to import more products from Morocco including phosphates and fish.

In Mid-May, the Chinese Trade Deputy Minister visited Morocco to discuss problems resulting from the elimination of quota systems in the textile sector. The upsurge of Chinese products does not concern Morocco exclusively, but also many other countries, notably Egypt and Turkey. This subject has been the focus of a series of meetings held by the Moroccan government with representatives of manufacturing sectors, including the Moroccan Association of the Textile and Clothing Industrie (AMITH) to examine the implementation of protectionist measures, if need be.

According to Karim Tazi, President of the Moroccan Association of the Textile and Clothing Industries (AMITH) textile firms are set to see import duties reduced, financial and technical support, to help boost exports amid strong Asian competition, according to the trade and industry ministry. After the expiry of the Multi-Fibre Agreement, which set quota restrictions on Asian exports, at the beginning of the year, Morocco's textile industry suffered a sharp decline in sales, mainly to its key European customer.

A tsunami of Chinese imports

In a recent interview for the International Herald Tribune AMITH President Tazi said the fallout from the removal of global restrictions on textile trade had been swift and powerful. In China, European customers found a supplier offering everything they wanted and Moroccan producers faced an immediate and brutal collapse.

Exports in the month of January 2005 plunged by 25% compared to the previous year and within four months, 10% of textile companies shut down, putting at least 30,000 people out of work. This quickly became a national crisis for the government because the textile industry is the best way to employ the large population of unskilled labour.

In a joint plan, the government and the textile industry group AMITH, which accounts for 35% of Morocco's exports, have agreed to restructure the industry in order to reduce costs. The plan provides no export or growth level performance targets, but lowers taxes on fabric imports with preferential rates for its two main customers, the US and the EU, which are both free trade partners of Morocco.

The initiative also offers a financial support package for those firms looking to improve productivity, undertake new investments and update equipment. Finally, the scheme includes a MAD1.8 billion (US$197 million) budget to train 75,000 skilled workers by 2010 and teach 50,000 workers to read and write. AMITH also negotiated a US$20 million fund to help refurbish equipment and materials, and to invest in marketing and partnership deals over the next three years.

Karim Tazi says: "You will not believe that this year the government spent only US$400,000 promoting the export of textiles, this country's largest export and largest employing industry. Even for a country at Morocco's level of development, this is very low. Very, very low. We managed to convince the government to increase the budget next year to a still very modest US$2 million. I have been pleading that we need to show the world our magnificent Moroccan style in coordination with the promotion of tourism, but nobody wants to listen. They cannot see it."

A spokesmen for the Trade and Industry Ministry has said the new plan will help the industry "cope better with recent global changes and draw maximum benefit of our geographic position and free trade accords."

"A tsunami of Chinese exports wiped out our industry," says Tazi. "Externally, the government lobbied in Europe - which is 95% of our market - to argue that it is in the interests of the weavers and spinners in France, Portugal, Italy and Spain to have a nearby country to cut and sew clothes. Internally, the government worked with my association to create a restructuring plan on many fronts."
He adds: "So many years of preferential treatment from Europe made us lazy. European clients sent us the fabric and design of the clothes they wanted us to cut and sew. This is easy work that does not require development of an upstream industry. That meant we did not learn about the sourcing of raw materials, the selecting of fabrics or the designing of clothes. It is easy to see the attraction of China when they offer all that we have and more, but at a lower price."

The government is now acting to cut red tape in customs. The system became so complex as to make textile manufacturers seem guilty of cheating even when they tried to follow the law.

"It was like the film "Casablanca," says Tazi. The government could always "round up the usual suspects." In response AMITH negotiated a simplified tariff system to make fabric imports cheaper and the system simpler. 
Then when China exceeded quotas and containers of Chinese garments were stopped in Europe's ports, holding up retailers stock for the all important end of year holiday period, Moroccan producers experienced a rush of European customers coming back. Such was the botched nature of the implementation of the new tariff system and quotas agreed with China in June 2005, that at one time in early September there were around 80 million Chinese made garments piled up in European ports of entry awaiting customs clearance.

"They learned the lesson of relying too heavily on one supplier," says Tazi. "We suddenly had H&M, La Redoute, Levi's, and Diesel back again. We recovered up to 80% of our business, but the past will never come back again."

Looking to competitive advantages
So faced with China, what can Morocco do now? Its great advantage over China is geography and producers are learning to exploit it. The current trend toward fast fashion, led by the Spanish retailer Zara, must be the future. Zara leaves nothing in the store for more than one month and they have deadlines for new clothes that are sometimes only a few weeks. China is too far to be responsive enough to supply Europe's hyper-trendy markets. One could even go so far as to say those US and European retailers that rely on cheap costs and long lead times are those that are losing market share in the current environment.
AMITH says it is not afraid of competition from within the Middle East region. Its aim is to make Morocco the Sentier of Europe. Sentier is the part of central Paris where clothes are still manufactured - at very high cost - because they can be made within one week. Other countries that could play this role include Romania and Tunisia. "But we must be better," says Tazi. "Turkey is more on a level to compete directly with China."
International companies able to bring the supply chain revolution to Morocco with more information technology, more training in management and more training of workers, will find a ready market.

Just last week the European Commission announced a move by European Union countries to make it easier for clothing and textile producers to take advantage of cheap labour costs in North Africa. The EU countries backed a proposal to extend a customs deal to Morocco and other countries such as Tunisia.

"It is an ambitious project aimed at boosting the competitiveness in all participating countries," says Laszlo Kovacs, European Commissioner for Customs and Taxation. The agreement will principally benefit European firms which export textiles to be turned into clothes outside the EU, in North Africa, and reimported under a low or zero-rate tariff.

Meanwhile local producers are also looking to bring a new creative dimension to their production, aside from simple sewing and assembling of garments. As AMITH's Tazi says: "Our customers may bring their ideas, but it is much better if we can propose our own ideas as well. We need to develop Moroccan fashion and style."



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