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Coordinated response can protect African garments industry from coronavirus fallout

In depth
This article is part of the dossier: Corona Chronicles: 23-27 March
Dirk Willem te Velde
By Dirk Willem te Velde

Director of Programme - International Economic Development Group, at the Overseas Development Institute, UK

Dominic McVey
By Dominic McVey

Entrepreneur and CEO. Former chairman at Hela Clothing, which has operations in Kenya, Ethiopia and Sri Lanka.

Posted on Friday, 27 March 2020 08:59

Workers sew clothes inside the Indochine Apparel PLC textile factory in Hawassa Industrial Park in Southern Nations, Nationalities and Peoples region
Workers sew clothes inside the Indochine Apparel PLC textile factory in Hawassa Industrial Park in Southern Nations, Nationalities and Peoples region, Ethiopia REUTERS/Tiksa Negeri -

Exports of African textiles and garments have grown rapidly over the past decade, but US and European orders for African garments have dried up as a result of the coronavirus pandemic.

As we have argued in a recent paper, there are three main options to protect African workers who face the prospect of extreme hardship.

These are:

  • to subsidise wages for workers,
  • a subsidised training package to retain manufacturing capabilities
  • a retooling of garment factories to produce garments for medical needs

Each option requires different commitments from buyers, factories, workers, the public sector and donors.

READ MORE: WHO’s Tedros: ‘Don’t abandon the poorest to coronavirus’

In Kenyan, each garment firm on average needs $400,000 per month to pay workers. This could be financed through a combination of commitments from buyers, factories, workers, the public sector and donors. Workers may be able to take a cut to, for example, 75% of full wages. Factories may be able to contribute a share. The rest would need to be financed through grants or loans from the public sector and buyers.

A central challenge is to keep employees committed so they can keep working, or be re-employed immediately after the crisis. Without such arrangements, they may simply disappear and the value of the training they have received will be lost. A temporary retraining programme – consistent with strict social distancing policies – would raise productivity.

Benefits will accrue to workers, factories, the country and eventually buyers and consumers. Donors should be interested in maintaining momentum behind manufacturing, for example in Hawassa Industrial Park in in Ethiopia.

Investments there total $400 million, and the cost of keeping on 30,000 workers would be $1 million, or 1% of sunk costs, over four months.

READ MORE Kenya, Ethiopia battle with Coronavirus

Several factories whose orders have halted may be able to retool to produce protective clothing, of which there is a global shortage.

For this to happen, there needs to be a fast supply of fabrics. Factories need to find and stock fabric that is suitable for end use and be able to transport it to the sewing factory in an environment of rising fabric prices and reduced airfreight options. Factories need the connections to get the requests, the capability to produce according to new specifications.

Ports and borders such as those supported by Trademark East Africa need to remain open. The orders may come from home countries, which need protective clothing, or donors in Europe and the US, which could finance this as part of stimulus packages.

A coordinated approach by buyers in the UK and US could, for example, continue to provide payments now but recoup the costs by charging a very small mark-up on the consumer price when the recovery takes hold. This means consumers would eventually also contribute, but they might hardly notice this as wages are only around 10% of the final price.

READ MORE Coronavirus: 5 economies to watch as the impact spreads

If nothing is done, factories in Kenya would find it too expensive to pay their workers during uncertain times. They could be forced to close. Workers in Ethiopia will leave factories, even if they received subsidised pay. But in other contexts, factories with the right networks and capabilities may be able to retool.

A wider umbrella facility, for example administered by the World Bank, could coordinate support in different countries and sectors. This could be supplemented by targeted action by retailers. Retailers are in a stronger position than factories.

READ MORE: Rural time-bomb remains as Kenya reacts faster than UK to coronavirus

They may benefit from stimulus support in the US or the UK, and they should extend this throughout their supply chains. Retailers also want to ensure there is sufficient inventory and factories are able to supply this during the recovery.

In the longer term, a global network of factories should have a designated emergency response for natural disasters or pandemics. All mills and factories should have the ability to switch to manufacturing of something needed in a crisis. A central database can help coordinate factories, mills and governments, to make sure valuable time is not wasted in future outbreaks by factories trying to locate mills and governments trying to locate suppliers that may not be based on the same continent.

The next steps include working with retailers and buyers on a coordinated worker subsidy scheme throughout supply chains, pushing donors to frontload training schemes, and encouraging donors and developing country governments to place orders for protective clothing with garment factories. G20 countries should ensure that stimulus packages that support their own firms extend to integrated supply chains.

Bottom Line: The time to act is now. In Ethiopia and Kenya, hundreds of thousands of people stand to lose their jobs if nothing is done. Hundreds of millions of dollars have been invested in the garment industry in east Africa. That money risks being wasted: it will be much cheaper to save east Africa’s manufacturing capability than to build it again from scratch.

 

 

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