Making the Cut?

Page 92

74

World Bank Study

At least, part of the export production needs to diversify and upgrade to higher-value products for the following reasons. First, profit margins and value addition is higher in higher-value products and if more production steps are conducted besides CMT such as input sourcing and design. Risk is also lower if export products are more diversified. Second, in basic, long-run production, labor costs are a critical competitiveness factor. SSA countries won’t be able to compete solely on price as labor costs and other operational costs are higher than in many Asian countries. Thus, it is central to upgrade to products where price is not the most important competitive factor. Third, as discussed above export market diversification may be related to product diversification as other end markets such as the EU and Japan demand other and, in this case, higher-quality, fashion and design standards. There are few comparable markets to the United States with regard to large orders of basic products. The main challenges to upgrading into higher-value products are quality, lead times, and missing design and technical skills (see below). Firms in Mauritius as well as South African-owned firms in Lesotho and Swaziland and some firms in Kenya and Madagascar already produce for higher market segments. Since market research and R&D is necessary to diversify and upgrade export products, research centers built on public-private partnership could be established. Their role would be to gather and disseminate information to local manufacturers on the latest developments in products, markets, and buyers. Lack of Backward Linkages and Long Lead Times

Access to raw materials, in particular yarn and fabrics, is crucial for clothing exporters. SSA is a net exporter of clothing but a net importer of textiles. The SSA clothing industry depends almost completely on imported yarn, fabrics, and accessories; local sourcing is very limited with the exception of Mauritius (and South Africa). Most textile imports come from China and other Asian countries. Table 3.9 shows that 57 percent of textile imports come from China followed by India (9.3 percent), Pakistan (2.5 percent), Germany Table 3.9. SSA Textile Imports: Top 10 Importers in 2008 2000 Country

2004

2006

2008

Value

Share

Value

Share

Value

Share

Value

Share

China

619

22.2

1,830

41.2

2,722

49.8

4,086

57.1

India

430

15.4

432

9.7

490

667

9.3

Pakistan

182

4.1

185

3.4

182

2.5

Germany

77

2.8

134

3

130

2.4

177

2.5

239

8.6

290

6.5

206

3.8

172

2.4

79

1.8

105

1.9

162

2.3

Hong Kong SAR, China Japan Netherlands

9

63

2.3

80

1.5

135

1.9

203

7.3

220

5

127

2.3

131

1.8

United Arab Emirates

69

2.5

162

3.6

145

2.7

118

1.6

Thailand

98

3.5

83

1.9

84

1.5

116

1.6

Korea, Rep. of

World

2,784

Source: UN COMTRADE. Note: Values in million US$.

4,442

5,461

7,152


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