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Implications of the Asian Miracle on Africa: A Comparative Analysis of the Textile/Garment Sector in Senegal and China

Case study by Mbaye, Ahmadou Aly and Yang Weiyong, 2008

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In this paper, a case study approach is used to further the understanding of trade patterns between Asia and Africa, focusing on textiles in Senegal and China. It presents an analysis of compared trajectories of textile/clothing in Senegal and China which reveals huge differences between both countries. While this sector is booming in China, it is experiencing tremendous difficulties in Senegal, due mainly to decreasing productivity, high unit labor costs and prices of non-tradable inputs. Hence bilateral trade of textile and clothing is almost one way, flowing from China to Senegal, and supported by a growing community of Chinese traders based in Dakar. The paper argues to support Chinese/Senegalese joint ventures in order to further intensify trade flows between both countries and to reap additional benefits for both countries. The paper is interesting to researchers with an interest either in the international textile sector or in Senegalese economic structures. The interviews with Chinese traders in Dakar make it a piece of primary research that did some data collection, besides the analytical part.







United Nations Conference on Trade and Development
Virtual Institute Research Material












Implications of the Asian Miracle on Africa: A Comparative Analysis of the
Textile/Garment Sector in Senegal and China





By
Ahmadou Aly Mbaye1 and Yang Weiyong2

















June, 2008






1 Centre de Recherches Economiques Appliquées (CREA), University of Dakar, Senegal.
2 University of International Business and Economics, Beijing, China.





List of acronyms

ACP Africa, the Caribbean, and the Pacific


AGOA Growth and Opportunity Act


APMA All Pakistan Mills Association


CFA Communauté financière d'Afrique


COSETEX Compagnie Sénégalaise de Textile


ECOWAS Economic Community of West African States


FNPH Fédération Nationale des Professionnels de l’Habillement


MFA Multi Fibre Agreement


NIP New Industrial Policy


ODM Original Design Manufacturer


OEM Original Equipment Manufacturer


SAP Structural Adjustment Program


SIV Société Industrielle du Vêtement


SODEFITEX Société de Développement des Fibres Textiles





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Table of contents

Abstract ................................................................................................................................... 5
Introduction ............................................................................................................................. 6
I China and Senegal in the world market of textile/garment ............................................... 6
II The textile sector in China ................................................................................................11


II.1 National textile consumption .....................................................................................11
II.2 General information on production ............................................................................11
II.3 Reforms in the textile and clothing sector .................................................................11
II.4 Trade of textile and clothing of China ........................................................................13
II.5 Some persistency problems ........................................................................................14
II.6 Development strategies for 2006-10 ..........................................................................15


III The textile sector in Senegal .............................................................................................15
III.1 Productivity ................................................................................................................15
III.2 Wages .........................................................................................................................20
III.3 Other inputs ................................................................................................................22


IV Determinants of trade of textile/garment between China and Senegal .............................23
IV.1 The scope of trade between China and Africa ...........................................................23
IV.2 China’s trade regime ..................................................................................................24
IV.3 China’s tariff regime for textile and garment .............................................................25
IV.4 Other determinants of Sino-African trade and capital investment .............................25
IV.5 Factors impeding trade flows from Senegal ..............................................................26
IV.5.1 A biased customs clearing system ........................................................................27
IV.5.2 Fraudulent imports and theirs effects on the domestic textile/clothing industry .30
IV.5.3 The role of Chinese traders in Dakar in Sino-Senegalese trade............................31


a) Why did they come to Dakar? ..........................................................................32
b) Characteristics of their business .......................................................................32
c) Difficulties encountered ...................................................................................33
d) Perspectives ......................................................................................................34


V General conclusion and policy implications ......................................................................34
V.1 Implications for China’s textile/clothing sector..........................................................35
V.2 Implications for Senegal’s textile/clothing sector.......................................................36
V.3 Implications for trade and investment between China and Senegal in the textile


/clothing sector .........................................................................................................37
References ................................................................................................................................38
Annexes....................................................................................................................................40


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List of tables

Table 1: Top ten world exporters of textile ............................................................................. 7
Table 2: Top ten world garment exporters .............................................................................. 7
Table 3: Overview of textile/clothing in China ....................................................................... 8
Table 4: Production and exports of clothing in Pakistan (millions of square meters) ............ 9
Table 5: China‘s textile and clothing sector in 2005 and projections for 2010 ......................11
Table 6: Efficiency comparison among different property forms of medium-large


enterprises in the textile and clothing sector ............................................................12
Table 7: Chinese trade of textile and clothing ($ billion) .......................................................13
Table 8: Compared costs of electricity (costs of 1kilowatt per hour) .....................................19
Table 9: World rankings for business climate, 2007 ...............................................................19
Table 10: Indicators for starting a business, 2007 ...................................................................20
Table 11: Indicators for labor flexibility, 2007 .......................................................................20
Table 12: Monthly wages comparison in West African countries ..........................................21
Table 13: Compared costs of oil-related items: Senegal versus other West African


Countries (CFA) .....................................................................................................22
Table 14: China’s trade structure in 2006 ($ billion) ..............................................................23
Table 15: Main textile/clothing suppliers to Senegal ..............................................................29
Table 16: Main textile/clothing clients for Senegal ................................................................29
Table 17: Senegal's trade balance for textile/clothing (CFA) ..................................................30
Table 18: Estimation of fraudulent imports to Senegal, 2000 (CFA million)..........................31


List of figures

Figure 1: Evolution of labor productivity in Senegal ..............................................................16
Figure 2: Evolution of relative productivity: Senegal/India ....................................................17
Figure 3: Evolution of relative productivity: Senegal/Korea ..................................................17
Figure 4: Evolution of relative wages in local currency: Senegal/India .................................21
Figure 5: Evolution of relative wages in local currency: Senegal/Korea ................................22


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Abstract

In this paper, we use a case study approach to better understand the trade patterns between
Asia and Africa, focusing on textiles in Senegal and China. The textile/clothing sector
provides an interesting opportunity to jump start the African industrialization process, since it
is very intensive in unskilled labor and requires a very simple technology. In this paper we
present an analysis of compared trajectories of textile/clothing in Senegal and China which
reveals huge divergences between both countries. While this sector is booming in China, it is
experiencing tremendous difficulties in Senegal, due mainly to decreasing productivity, high
unit labor costs and prices of non-tradable inputs. Hence bilateral trade of textile and clothing
between both countries is almost one way, flowing from China to Senegal, and supported by a
growing community of Chinese traders based in Dakar.

In order to further increase intensity of trade flows between both countries, we strongly
support the emergence of Chinese/Senegalese joint ventures; which are likely to be beneficial
for both countries in a variety of ways. This will allow China to have a better preferential
access to West African regional markets, namely those of ECOWAS (Economic Community
of West African States), and WAEMU (West African Economic and Monetary Union).
Besides, it will give China increased access on a preferential basis to the US market, by taking
profit of AGOA. Senegal has a well known buoyant activity in fashion and style with a huge
demand potential in the black Diaspora in Europe and in the US. Jointly owned activities are
likely to successfully take profit of this market segment and develop it. On the Senegalese
side, this kind of cooperation can give an impetus to increased foreign market access for
domestic products. Also Chinese investments would flow more and productivity and
technology absorption could be expected.


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Introduction

In recent years, improvements in Asian growth pattern and outcome have been quite
impressive, with an income per head that has been multiplied by a factor of one hundred in a
generation's life span and total foreign exchange reserves amounting to about $1.53 trillion
only for China at the end of 2007. These trends seem to have had some implications for
Africa, notably as regards trade: Chinese trade with Africa surged from $2.64 billion in 1994,
to $55.46 billion in 2006. The rise of Asia, particularly of China and India, has some major
implications both in developing countries and in developed ones. In the latter it exacerbates
competition in traditional industries and dramatically feeds the capital markets; while for most
developing countries it has entailed huge losses in market shares on international markets. In
Africa, the process has fuelled the trade relationship with Asia, mostly China, and the
potential for the continent to benefit from increased flows of FDI from these countries seems
huge even though it is surprisingly not yet enough documented. On the political and
diplomatic sides, China has recently expressed great interest in deepening further
relationships with African countries and consequently to provide additional aid to foster the
continent’s development process.

In this paper, we use a case study approach to better understand the trade patterns between
these two regions, focusing on textiles in Senegal and China. The purpose is to give a
complete description of such patterns which should eventually indicate the way forward for a
mutually beneficial cooperation. Most African countries have increased their imports of
textile and garment from China while exporting very few such items to this country. Recent
studies on textile in Senegal (Mbaye, 2006) show that despite Chinese global competitiveness
in this kind of product, one could find some niches in which Senegal could develop some
comparative advantages and increase its exports to other countries, including China. On the
other hand, it might be envisaged that China increases its FDI to Senegal to increase its
market shares in other African countries and to take advantage of AGOA to further penetrate
the US market.

The rest of the document is organized as follows: section I describes the places of China and
Senegal in the world market of textile/clothing, sections II and III deal with textile/clothing
sectors in China and Senegal, respectively, and section IV investigates the determinants of
trade on textile/clothing between both countries. Section V concludes with some policy
implications.


I China and Senegal in the world market of textile/garment

The textile/garment sector is playing a critical role in the process of developing countries’
economic growth and poverty reduction. It used to be so for Europe and the US, too, in the
18th and 19th centuries, and continues to play this role in the contemporary era. Developing
countries tend to have a comparative advantage in this sector, given that technology required
for its development is quite simple. At the beginning of the 1960s, developing countries’
share in world exports of textile and garment was only 15 per cent and 25 per cent,
respectively. Nowadays, this share is 50 per cent for textile and 70 per cent for garment. This
sector is the leading one in Asian countries: For example, textile made up 51 per cent of
manufacturing exports in Pakistan and garment 50 per cent of manufacturing exports in Sri
Lanka in 2000. It is expected that such figures expand tremendously, since the Multi Fibre
Agreement (MFA) ended in 2005. Firms located in developed countries are facing huge


6




competition from developing countries, which has lead to either relocations or close-downs.
In the US market which is absorbing a third of world imports for these items (Shahnawaz,
2004), developing countries have the largest shares: 14.8 per cent for Mexico, 8.4 per cent for
China, 4.5 per cent for Dominican Republic, 4.3 per cent for Korea, 3.9 per cent for Taiwan,
and 3.4 per cent for Bangladesh. With the phasing out of the MFA, it is expected that some
countries, mainly China and India, crowd out exports from smaller developing countries.
Since its integration into the World Trade Organization (WTO), China has increased its
exports to the US by 125 per cent. Besides, under the rule of the MFA, the country
significantly used the quotas of those who could not exhaust their own, to increase its exports
to the developed world.

Segments of the value chain in the textile/garment sector include: cotton fibers production,
shelling, spinning, weaving, knitting, printing, and clothing. World trading of garment is
structured by global buyer chains, in which some big actors match production in the
developing world, through relocation and subcontracting to tastes and styles in the developed
world. Wal Mart and Hallmark in the US are the biggest clients of China. In 2004, their total
purchases from China amounted to $18 billion; which is more than Chinese exports to some
big countries like Canada, Russia or Australia (Hughes, 2000).

Table 1. Top ten world textile exporters


Countries Share in world
exports in 1990 (%)


Share in world
exports in 1995 (%)


Share in world
exports in 2000 (%)


- China
- Korea
- Italy
- Taiwan
- Germany
- USA
- Japan
- France
- Belgium
- India




6.92
5.83
9.10
5.88
13.46
4.83
5.62
5.81
6.11
2.09


9.30
8.22
8.55
7.94
9.61
4.92
4.79
4.99
5.26
2.91


10.25
8.12
7.59
7.42
7.00
6.96
4.46
4.29
4.07
3.23


Total 65.66 66.49 63.38
Source: Yeung and Mok, 2004.

Table 2. Top ten world garment exporters


Countries Share in world
exports in 1990 (%)


Share in world
exports in 1995 (%)


Share in world
exports in 2000 (%)


- China
- Italy
- Hong-Kong
- Mexico
- USA
- Germany
- Turkey
- France
- India
- Korea


8.95
10.96
8.58
0.54
2.37
7.30
3.08
4.32
2.34
7.30




15.28
9.01
6.06
1.74
4.23
4.77
3.89
3.57
2.61
3.15




18.13
6.64
4.99
4.37
4.35
3.44
3.28
2.73
2.59
2.53



Total 55.76 54.30 53.05


Source: Yeung and Mok, 2004.

As shown in tables 1 and 2 world trade in textile and clothing is dominated by Asia and
Europe: 5 out of the 10 top world exporters are Asian, while 4 are from Europe. But what is


7




worth singling out from this table is the shrinking share of developed countries in world trade
of textile/clothing, 3 contrasting with the thrift of those of developing countries. Another
remarkable fact is the observed reduction in the shares of ‘first wave’ Newly Industrialized
Countries, like Korea and Taiwan, to the benefit of other developing countries, like China,
whose labor is cheaper. Thus China could increase its share in world trade of these items from
4.6 per cent in 1980 to 14 per cent in 2000. It benefited from important relocations of
exporting firms from Hong Kong; firms mainly headed to the southern part of the country. In
effect, it is estimated that labor costs in the southern part of China are only 15 per cent to 20
per cent of its level in Hong Kong, when adjusted for productivity (Yeung and Mok, 2004).
When we now turn to world imports, they are overwhelmingly dominated by Europe and the
US, which make up 75 per cent of world demand (41 per cent for Europe and 34 per cent for
the US).

Table 3. Overview of textile/clothing in China


1980 1990 1995 2001
- Number of enterprises in the sector
- Share of State-owned enterprises
- Share of State-owned enterprises


showing a loss
- Share in value added
- Share in income taxes
- Share in total export




37'900
-



-
-


14.2%
24.1%


83'800
-

-
-


7.8%
27.0%


102'500
33%



16%
9.7%
4.3%


25.5%


24'500
32%



-


9.5%
11.5%
18.7%


Source: Yeng and Mok, 2004.

Government is very present in the industry of textile/clothing in China. This sector in China is
dominated by SMEs, with an average number of employees amounting to 121. Their number
surged from 37'900 units in 1980 to 102'500 in 1995, out of which an important number are
state-related firms. The latter have for a long time experienced serious competitiveness
problems, low quality equipments and difficulties in meeting international technical standards,
which were hidden by generous state subsidies and government support of all kinds. By the
end of the 1990s, the central government encouraged the implementation of the Chinese
association for textile and garment, and set up the national bureau for the textile and clothing
industries. In 1998, a national program for restructuring the sector was implemented, and
came up with withdrawing from operating outdated machines, and reducing the number of
firms operating in the sector from 102'500 in 1995, to 24'500 in 2001.

China’s increased presence in the world market of textile/clothing has several implications for
other countries. Prices of Chinese products are lower than those of competitors. This partly
owes to the fact that production is often realized by state-related firms, benefiting from
advantages private firms in other countries normally do not have access to. Besides, China is
the world’s second largest oil importer, with a contribution of 31 per cent to world import
growth. If the current trends are to be sustained, further strains should be expected leading to
higher prices on the energy markets. This would negatively affect the textile sector in poorer
countries, given the big share of energy in total costs of textile products and the inefficiency
of such countries in the use of energy input, in particular, due to aged and high energy-
consuming equipments that are used in these countries.

Pakistan is another big player on the textile market. Most of this country’s economic growth
in recent years relied primarily on this sector. During the 1990s, the government launched a



3 This seems less true for the US than for other developed countries.


8




vast program of restructuring and modernizing the textile sector, which resulted in huge
replacements of old machines. Consequently, material production in that country more than
doubled, from 2.73 billion of meters in 1989/90 to 5.65 billion of meters in 2002/03, out of
which 35 per cent are exported. The textile/clothing sector is now very diversified in Pakistan
with high quality cotton products in line with world demand, put in parallel with a low quality
mix of cotton and polyester items, and other products. Its labor costs are cheap, with a cost
per hour of $0.34 against $0.57 for India, $0.40 for Sri Lanka $0.69 for China (Memon, 2005).
Moreover, this country is the fourth largest cotton producer and its share in world cloth
production has increased from 6.1 per cent in 1994 to 9.5 per cent in 2002.

Table 4. Production and exports of clothing in Pakistan (millions of square meters)


Years Production Exports Exports/production (%)
1971-72 1'350.67 409.81 30.34
1972-73 1'238.11 517.98 41.84
1973-74 1'828.72 353.02 19.30
1974-75 1'827.08 440.81 24.13
1975-76 1'503.36 463.84 30.85
1976-77 1'445.30 416.84 28.84
1977-78 1'573.07 453.47 28.83
1978-79 1'487.10 531.53 35.74
1979-80 1'720.02 545.77 31.73
1980-81 1'834.00 500.90 27.31
1981-82 2'200.44 584.35 26.56
1982-83 2'048.77 605.33 29.55
1983-84 2'165.98 664.38 30.67
1984-85 2'000.00 687.62 34.38
1985-86 1'985.40 727.35 36.63
1986-87 2'009.85 693.42 34.50
1987-88 2'230.82 848.61 38.04
1988-89 2'250.00 845.33 37.57
1989-90 2'734.77 1'017.87 37.22
1990-91 2'854.00 1'056.53 37.02
1991-92 3'238.99 1'196.12 36.93
1992-93 3'360.00 1'127.58 33.56
1993-94 3'378.00 1'046.79 30.99
1994-95 3'100.75 1'160.66 37.43
1995-96 3'706.00 1'323.09 35.70
1996-97 3'781.20 1'257.43 33.25
1997-98 3'913.70 1'271.27 32.48
1998-99 4'386.79 1'355.17 30.89
1999-00 4'987.16 1'574.88 31.58
2000-01 5'591.40 1'736.00 31.05
2001-02 5'653.09 1'957.35 34.62
2002-03 5'650.52 2'005.38 35.49


Source: Memon, 2005.

World textile production is now having new uses, different from clothing, which is growing
slower than the newer uses. Those are mainly: bed cover sheets, abrasive and filtering
materials, materials for thermal protection and blood absorption, safety belts, etc. It is
estimated that this product segment is growing at least twice as much as the traditional use of
textile and makes up more than half of current world textile production. It is mainly
dominated by developed countries, being highly technology-intensive. In effect, it requires a


9




very high level of expertise, and equipment which is expensive. Thus, developed countries are
progressively moving to this area of production which is capital intensive and in which their
comparative advantages seem higher. Hence, job losses in traditional textile sectors are huge
in rich countries. In the US, employment in the textile sector plummeted from 1.4 millions in
1942 to only 400’000 in 2001. During this latter year, job losses in this sector in Europe
amounted to 60’000. In Sweden, 131 firms went bankrupt in the textile sector and 321 in the
clothing sector between 1980 and 1996. Very similar trends are observed in other developed
countries. Due to new developments in the sector and the emergence of intelligent textiles, the
capital labor ratio in the US increased by 60 per cent between 1949 and 2000. At the same
time, productivity increased by 400 per cent. Labor productivity in the textile sector increased
by 65 per cent between 1980 and 1996, while for the garment industry, the increase was 77
per cent in the same period (Christoffersen, 2004).

In contrast to China and other Asian countries, Senegal is playing an almost non-existent role
in the world textile/clothing market. Textile production is almost entirely intended for local
consumption. Tailors, operating on the borderline of the informal sector devote most of their
activities to making traditional clothes that Senegalese enjoy wearing on special occasions:
family ceremonies like weddings, on Fridays, on some Muslim holidays like Eid. The sector
used to enjoy high levels of protection from independence to the mid-1980s, with the
implementation of structural adjustment plans. Costs of labor and non-tradable inputs are
higher than in competing countries, quality is lower, and equipment is aged and outdated. But
still, the sector, mainly its clothing segment may have some potential for development in the
country. The Société Industrielle du Vêtement (SIV), a private firm operating in the sector
and now bankrupt, used to play a very important role on the world market for subcontracting.
Unskilled labor is abundant and relatively cheap. Substantial experience on traditional
weaving does exist as well as capabilities in African style. On the other hand, Senegal could
better expand its niches on wax and fancy products which it developed before independence
and which’s market share is narrowing down from year to year. Furthermore, the US
government’s Growth and Opportunity Act (AGOA) is providing a unique opportunity for
Senegal to access the US market. Last but not least, demand for textile in the sub-region is
booming and consumers only show limited satisfaction with Chinese products, which are
deemed to be of low quality. Moreover, Senegal belongs to UEMOA (West African
Economic and Monetary Union) and ECOWAS (Economic Community of West African
States), which give access to the markets of 15 West African countries, on a preferential basis.
The same facility exists with respect to the European market, under the ‘everything but arms
arrangement’ for LDCs among ACP (Africa, the Caribbean, and the Pacific) countries. But to
develop this sector, the country first will need to have a better control on costs and business
climate, which is getting worse. A vast program of sector restructuring, similar to what has
happened in several Asian countries, should be put in place, in order to make existing firms
more viable. Another reason why Senegal should not give up textile/clothing to other
developing countries is the high growth and employment potential this sector is offering to
low-income countries. In Morocco, the total employment in the sector is 100’000, and
200’000 in Tunisia. By contrast, in Senegal, the number of employees is less than 2’000 in the
modern sector.



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II The textile sector in China

China is one of the world’s largest consumers, producers and exporters of textile goods. In
addition, the textile and clothing sector is one of the most important sectors of the nation’s
economy.


II.1 National textile consumption

China is one of the biggest consumption markets of textile and clothing. In 2005, per capita
consumption of fiber was about 14kg, rising from 7.5kg in 2000, compared to a world average
of 10.9kg. According to an estimate, the consumption level in China in 2010 will be 18kg.
Domestic consumption accounted for more than 70 per cent of China’s total production
(China Wool Textile Association, 2006). Per capita expenditure on clothing has increased
from 3’375 yuan in 2000 to 6’826 yuan in 2005, with an annual growth rate of 15 per cent
(China’s State Bureau of Statistics, 2006).

Table 5. China’s textile and clothing sector in 2005 and projections for 2010


Indicator 2005 2010 (projections) Expected annual
growth rate


Processed fiber (million tons) 26.9 36 6%


Per capita consumption (kg) 13 18 6.7%


Labor productivity 51099 yuan/year 85000 yuan/year 10.7%


Export ($ billion) 117.5 180 9%


Source: China Wool Textile Association, 2006.


II.2 General information on production

As the world’s largest producer of textile products, textile is an important sector in China
employing 19 million workers directly and involving nearly 100 million peasants’ livelihood
indirectly. The number of medium-large enterprises in China rose from 19’400 in 2000 to
36’000 in 2005, with employment from 7.38 to 9.78 million workers. The whole sector’s
employment amounted to 19.6 million persons. Since China’s accession to the WTO,
production capacity has increased steadily, with annual growth rate of gross fixed capital of
29 per cent, 66.7 per cent, and 30.2 per cent respectively for 2002, 2003 and 2004. In 2006,
the value added of the textile and clothing sector has increased by 22.1 per cent compared to
2005. However, due to the rise in prices of raw materials and labor cost, as well as low prices
of textile products, the profit rate of this sector was quite low, at merely 3.7 per cent (Wei Qin,
2007). China’s production of yarn, nylon, silk products, clothing and chemical fiber ranked
first in the world. The sector is composed by three sub-sectors: textile, clothing and chemical
fiber with the following shares in terms of gross output value: 61 per cent, 28 per cent and 11
per cent.


II.3 Reforms in the textile and clothing sector

As in other sectors, the textile and clothing sector has experienced deep property reforms. At
the beginning of the reform period at the end of 1970s, most textile and clothing enterprises
were state-owned or collectively owned. To solve the inefficiency problem relating to


11




unclearly defined state or collective property, a system of manager’s responsibility has been
introduced in this sector at the beginning of the 1990s. This management system gave
autonomy to contracted managers in daily management of enterprises, while the property
remained state or collective. This led to an increase of productivity, but at a cost of over-use
of productive assets. Since 1993, under the joint effects of unfavorable internal factors
(restructuring of textile sector and austere monetary policy since 1994) and external factors
(Asian financial crisis in 1997), the textile sector showed a deficit. In 1996, 53 per cent state
textile enterprises ran a deficit, the total amount rose to 10.6 billon yuan. Since 1997, the
sector experienced 3 years of restructuring. Therefore, during the second half of the 1990s, a
large portion of these enterprises, especially the smaller ones, have been privatized by selling
them to the managers or foreign investors. This property change has led to a recovery of
financial return since 1999, and in 2000 the result turned to surplus (Li Jianglong, 2007). The
position of private enterprises has been further strengthened by a vigorous development of
new private textile enterprises, especially in the coastal region. Meanwhile, with the
increasing opening of the country, more and more foreign investment entered into the textile
and clothing sector. We observe a diversification of property forms in this sector. As a result,
the share of the state and collective enterprises in this sector continued to shrink in favor of
private and foreign-owned enterprises. In 2001, among all textile and clothing enterprises
with medium-large scale, the share of state or collective enterprises has fallen to 33.35 per
cent in terms of registered capital, compared to 36.53 per cent for private enterprises and
30.15 per cent for foreign owned-enterprises. The state and collective share continued to
decrease since then. The private and foreign owned enterprises have become the most
dynamic component of China’s textile and clothing sector. In 2002, the average profit rate of
state enterprise was only 1.29 per cent compared to 3.87 per cent for non-state enterprises
(China’s State Bureau of Statistics, 1997-2006). Private enterprises also play an important
role in exports with a share of more than one third of total exports of textile and clothing in
2005 (Chen Honglan, 2006).

Table 6. Efficiency comparison among different property forms of medium-large
enterprises in the textile and clothing sector


Debt-asset ratio (%) Labor productivity (yuan/worker)


State-


owned


Private Foreign


capital


State-owned Private Foreign


capital


1999 79.52 73.29 60.82 15’325 19’861 38’496


2000 75.07 69.67 59.56 19’387 24’300 43’450


2001 73.14 66.41 56.13 20’908 27’245 44’785


2002 73.82 66.02 54.95 22’176 31’207 45’283


2003 72.95 62.26 53.95 23’472 39’567 49’352


2004 72.97 63.02 54.91 - - -


2005 72.73 61.48 53.47 33’021 57’733 56’463


Source: China’s State Bureau of Statistics, 2000-2006.
Note: Debt-asset ratio is calculated by the following formula: total debt/total asset * 100 per cent. This indicator
measures enterprises’ financial risks, the higher is this indicator, the higher is risk level.

As we can see from the above table, state-owned enterprises are less efficient than private and
foreign-owned ones. The debt-asset ratio of state-owned enterprises is 10-20 percentage
points higher than for enterprises of the two other categories, and their labor productivity is
much lower. With the opening-up of the country, the Chinese textile and clothing sector


12




received massive foreign direct investment. Up to the end of 2006, there are 39’929 foreign-
owned textile enterprises, with total equity capital of $43.1 billion. As we can see from the
above table, this foreign capital enterprises have the highest labor productivity among the
three property rights forms.

From regional perspectives, most textile and clothing operations are located in the coastal
region in the east of the country, especially in Zhejiang (where most textile and clothing
enterprises are private enterprises), Guangdong, Jiangsu, Shandong provinces and Shanghai
municipality. These 5 provinces accounted for 75 per cent of China’s total turnover of textile
and clothing, 85 per cent of total profits and 80 per cent of total export. However, with the
rise of labor cost in this region, these industries tend to move to the center and western
regions.


II.4 Trade of textile and clothing of China

China is the world’s biggest producer and exporter of textile products. In 2005, China’s textile
export experienced many unfavorable changes: removal of quota, export taxes appreciation of
the Renminbi, abolition of export tax refunds, renegotiations of textile quotas with the
European Union and the US. Despite these events, exports of textile and garment increased
steadily in 2005. According to customs statistics, total export rose to $117 billion, a growth of
20.1 per cent compared to 2004 (Deng, 2007). In 2006, the country exported $144 billion of
textile and clothing, which accounted for nearly 25 per cent of the world’s total exports. From
January to August 2007, total export of textile and clothing was valued at $109 billion (Zhang
Yixuan, 2007). Foreign capital enterprises, being highly export-oriented, play an important
role in Chinese export of textile products. In 2006, their total export value reached $47 billion,
which accounted for 32.6 per cent of China’s total export of textile and clothing, compared to
27.6 per cent in 2005 (Zhang Yixuan, 2007).

Table 7. Chinese trade of textile and clothing ($ billion)


Source: China’s State Bureau of Statistics, 2001-2007.


Year Export value
Share in total


export
value %


Growth
rate % Import value


Share in total
import


value %


Growth
rate %


2000 52.17 20.9 29.4 14.02 6.2 16.6


2001 53.44 20.1 2.4 13.84 5.7 -1.3


2002 61.79 19 15.6 14.4 4.9 4


2003 78.87 18 27.7 15.63 3.8 8.5


2004 97.385 16.41 21.01 16.804 2.99 7.81


2005 117.535 15.42 20.69 17.099 2.59 1.76


2006 144 15 25.2 18.1 2.3 6



On the other side, the expansion of China’s textile industry gave rise to imports of fabrics,
cotton and textile machinery. In 2006, China’s total textile and clothing import rose to $18.1
billion; the cotton import rose by 52.3 per cent compared to 2005; the import of textile
machinery increased by 19 per cent to reach $4 billion. Moreover, China’s rapid economic
growth has created many opportunities for the textile and clothing industries of other
countries. From January to August 2007 clothing import from the EU increased by 43 per cent,


13




and 28 per cent for the US (Zhang Yixuan, 2007). Chinese textile and garments constitute the
second most important commodity exported to Africa, behind Mechanical and Electrical
Products. From January to September 2006, exports of textile and garments to Africa
amounted to $4.65 billion, an increase of 31.9 per cent compared to the preceding year.
However, the share of Africa in China’s total textile and garments exports is quite small with
only 4.32 per cent (Deng, 2007).

However, recently, China’s textile exports increasingly suffer from some economic and social
hurdles. First, SA8000 certificate sets the working conditions for workers, such as at least
one-day rest per week, the supplementary hours should not exceed 12 hours per week and
require extra-payment. Some countries like Germany, France, Netherlands, and the US plan to
use this certificate as selection criteria of Chinese exporters in textile and garment, toys, and
shoes sectors. The implementation of this certificate will reduce China’s advantages in terms
of low labor cost. According to a recent report on labor cost per hour in the textile sector, in
2007, labor cost in the coastal region of China, where the textile industry is concentrated, was
close to $1 per hour, much higher than in other developing countries such as Vietnam ($0.29),
Cambodia ($0.36), Bangladesh ($0.22) and Indonesia ($0.36) (Zhang Yixuan, 2007).


II.5 Some persisting problems

Despite significant reforms in textile sector to improve the sector’s efficiency and trade
competitiveness, Chinese textile sector still suffers from persisting difficulties.


• Low technology, especially in spinning and yarn-dying industries. According to the
State Development and Reforms Committee, the investment in R&D accounted for
only 0.3 per cent of the sector’s turnover in recent years. Most high-tech and advanced
equipments rely heavily on import.



• Low standard of products. About 80 per cent of textile enterprises produce medium-


low quality products, only 10 per cent of enterprises offer high-quality products.


• Lack of high-quality human resource in the international context.


• Low level of information systems, resulting in long reaction times for orders.


• Very few own brands and high proportion of subcontracting. At present, China has
more than 100’000 national textile and clothing brands, but none of them is an
internationally well-known brand. A significant share of export is in form of OEM
(Original Equipment Manufacturer) or ODM (Original Design Manufacturer).



• High pollution and environmental problems. The yarn-dying sector is one of the main


sources of water pollution. The sector’s water consumption ranks second among all
industry sectors in China, its waste-water discharge ranked sixth in 2006; only 7 per
cent of used water is recycled. High energy consumption of equipment; on average,
77.5 per cent higher than advanced equipments in developed countries (Wang Chunyu,
2007).



• Appreciation of the Renminbi. According to an estimate, 1 per cent of appreciation


will lead to a profit loss of 7.2 billion yuan for the whole sector. 2 per cent of


14




appreciation will reduce the profit by 24 per cent for the cotton textile sector and by 16
per cent for the wool textile sector, and by 26 per cent for the highly-export-oriented
clothing sector (Wei Qin, 2007).




II.6 Development strategies for 2006-2010

Facing increasing internal and external challenges, China’s textile sector has adopted the
following development strategies for the 11th five-year plan from 2006 to 2010.


• Create own brands of textile and clothing;


• Improve the technologies;


• Limit and regulate competition among Chinese exporters by creating sector
associations;



• Reduce energy and resource consumption and respect the environment. By 2010,


reduce electricity consumption by 10 per cent compared to 2005 for 1 ton of produced
fiber, water by 22 per cent, and used-water discharge by 20 per cent;



• Promote textile trade by 2 policies: self-restriction policy (taxes for export, quantity


restriction) and support for national brands to increase value added of exported
products (Deng, 2007; Yu, 2006).




III The textile sector in Senegal

Unlike China, Senegal’s textile sector is facing very severe difficulties that are critical to its
survival. The country almost literally gives up any attempt to increase market shares over its
competitors. Rather, it is coping with holding its share in the domestic and sub-regional West
African and Central African markets, without great success. The major impediments for
textile/clothing growth in Senegal are low productivity, high labor costs, higher costs of non-
tradable inputs, lack of relevant training, and a weak business climate. All these issues are
documented in several firm level surveys undertaken in the sector from the end of the 1990s
onwards (Golub and Mbaye, 2002; Mbaye, 2003; Mbaye, 2006). The section below, draws on
these survey results and provides a deeper description of such constraints.


III.1 Productivity

Productivity is a key element to competitiveness improvements, since the most relevant
indicators of competitiveness in Senegal are mainly determined by productivity.4 Whenever
costs (mainly labor and other non tradable input costs) growth outweigh productivity growth,
this is likely to result in serious losses in market shares and competitiveness problems. In a
context of a declining productivity like the Senegalese, we would need a greater reduction in
costs, in order to avoid losing market shares. Productivity is measured as the ratio of real
value added to labor.



4 See Mbaye and Golub (2002) for a review of such indicators.


15





i


i
i L


QPT =
PT is labor productivity, Q is real value added, L is labor, and i refers to the given sector.

Figure 1. Evolution of labor productivity in Senegal



Source: Mbaye, 2003.

Figure 1 shows that manufacturing productivity has sharply declined over time in Senegal.
This is true for overall manufacturing, but especially for textile/clothing, in the second half of
the 1980s; and it stagnated during the 1990s and 2000s. The sector has been particularly hit
by liberalization and de-protection measures the government implemented as part of structural
adjustment programs (SAPs). Of course this sector was not the only one to take profit of the
huge amount of protection the government had granted to manufacturing before SAPs were
implemented, in order to support the country’s import substitution strategy. But there is no
doubt that it suffered more than any other sector from the removal of such protection.
Textile/clothing value added has undergone a very important decrease from the 1980s onward,
and even became negative for some years. This means that sometimes firms have to operate
below their average costs to stay in activity. During our interviews,5 this argument was raised



5 At CREA, several interviews with businesses were performed to find out what are the major perceived
impediments to industry growth and competitiveness. Some results of those are reported here.


16




several times with supporting evidence by firm managers who are seeking government
support to stop the decline of the sector.


Figure 2. Evolution of relative productivity: Senegal/India



Source: Mbaye, 2003.


Figure 3. Evolution of relative productivity: Senegal/Korea



Source: Mbaye, 2003.

By contrast, productivity evolution has a somewhat different pattern in competing countries.
Figures 2 through 3 display relative productivity (Senegalese productivity divided by
comparison country’s productivity) for manufacturing and the case of textile/clothing.
Productivity across countries is computed using the above formula and converting value
added in local currencies into PPP US dollar. Comparison countries involve Kenya, Mauritius,
Hong Kong, India, Korea, Kenya, Mauritius, and Hong-Kong. 6 These charts show that

6 We only report here the result of comparisons with India and Korea. Mbaye (2003) presents a wider array of
country comparison cases.


17




compared to all these countries, Senegalese productivity has decreased over time. Relative
productivity was favorable to Senegal in the 1970s and the 1980s, but rapidly deteriorated in
the following years. This declining trend in relative productivity is explained both by a
productivity decline in Senegal and its increase in other countries, namely Asian countries
included in the sample and Mauritius. The consequence of this productivity decline is loss of
competitiveness on international markets as well as on domestic markets.

The determinants of Senegal’s dismal performance in productivity are varied and encompass
factors related to overall business climate and factors more sector-specific to textile/garment.
Factors related to business climate are: lack of appropriate training, high costs and poor
quality of electricity supply, financing problems, etc. Among those, some play a more
significant role for textile/garment.

Training. Training plays a central role in productivity evolution. For textile purely speaking
(weaving, yearning, dying, and printing), no structure is taking care of training in the
Senegalese context. Manpower is trained on the job; it takes a relatively long period of time
for workers to familiarize themselves with equipments. Most firms we visited in our
interviews we referred to, above, reported some losses due to lack of training of employees.
This can be explained by the fact that apprenticeship is the first level of working level. Most
employees start as apprentices and upgrade as their ability expands. The lack of experience
leads to equipment deterioration due to inappropriate use. But most managers we talked to
recognize that after a short period of trial, employees end up having a good command of
operating the equipment. Clearly, this lack of training is critical to firm productivity and
competitiveness in textile. But it is likely to be so as long as Senegalese firms keep
specializing in low quality products only destined to local and sub-regional markets, which
are characterized by very few requirements regarding quality. But if the country wants to
target foreign markets, mainly of developed countries, the issue of training will need to be
addressed. Technical standards are very stringent on these markets, with electronics playing a
central role. No default on product specification is tolerated; while for Senegalese textile
products, printing capabilities are very weak; which makes Senegalese producers unable to
deliver a homogeneous color for materials. For a given length of material, the same color
turns from light to dark and therefore color homogeneity is no longer guaranteed. Even local
garment producers with very low demand about quality sometimes turn to imports instead of
purchasing local textile products. In the cloth production segment of the sector, the issue of
training is even more acute: measurement errors are very frequent, technical
specifications/standards are not properly respected. And all these weaknesses are detrimental
to reputation and have as consequences rejection of delivered products and sometimes order
cancellations. According to the president of the federation of Senegalese garment producers7
the areas in which Senegal needs to build capacities in clothing are as follows: quality control,
production organization, machine maintenance and repairing, etc. The FNPH is seeking for
years to implement a training program for garment production. But this is yet to be fully
realized.

Electricity supply. The textile/garment sector is undoubtedly one of the most energy-intensive
industries. Energy makes up almost 20 per cent of total output costs in this sector. In Senegal
electricity is quite expensive (e.g. see table 8) and delivery service is of low quality with
frequent power cuts and instable voltage. Thus it costs more than in competing countries
while no preferential treatment exists for firms to ease this constraint and allow them to
increase market shares.

7 This is the Fédération Nationale des Professionnels de l’Habillement (FNPH).


18





Table 8. Compared costs of electricity (costs of 1kilowatt per hour)
Countries Costs in CFA
Benin 68
Togo 61
Burkina Faso 112
Senegal 76
Côte d'Ivoire 56
Mali 76
Niger 67


Source: Mbaye, 2006.

An aged and outdated stock of equipments. Equipments in this sector are almost all outdated.
Most of them date back to the 1950s and require frequent repairing and replacements; they are
also more energy consuming than the average in other countries. This is particularly crucial to
productivity evolution since productivity is supposed to be a proxy of technology. What is
otherwise surprising in the Senegalese textile industry is that even when investments are done,
it usually consists of purchasing old second hand machines with low performance. And this is
further compounding firm effectiveness.

The issue of financing. This issue is diversely apprehended by the actors we talked to. One
feature of the Senegalese financial system is the low proportion of investment financing (long
term) loans as compared to short run loans. Nevertheless, some other firms we talked to
seemed to overlook the scope of this constraint. Clearly this is linked to agedness of
equipments, since it would be very hard for a firm to invest in modern machines, without
benefiting from appropriate financing. This is compounded by banks’ reluctance to finance
enterprises operating in the textile sector.

Table 9. World rankings for business climate
Bangladesh Benin Burkina China India Mali Morocco Senegal
Business climate 107 151 161 83 120 158 129 162
Starting a
business 92 137 105 135 111 149 51 159
Labor flexibility 129 115 152 86 85 88 165 160
Property
registration 171 105 170 29 112 90 102 155
Loan availability 48 115 115 84 36 135 135 135
Protection of
investors 15 147 138 83 33 147 158 158
Payment of taxes 81 161 133 168 165 151 132 164
Contract
enforcement 175 166 109 20 177 157 114 148


Source: World Bank, 2008.

The regulatory framework. Here, we are dealing with business climate, which is also a
critical variable for firm productivity growth. The textile/garment sector has started
experiencing difficulties when the government removed the protection existing from
independence up to the 1980s. Then the brisk de-protection of the sector heavily affected its
efficiency, since installed investments were meant to address the wider regional market.
Nowadays, Senegal is facing very serious weaknesses related to business climate; it is ranked
very low in most international classifications on this topic (e.g. see tables 9 and 10). It is clear
that these crosscutting bottlenecks are also impeding growth of the textile/garment sector.


19





Table 10. Indicators for starting a business
Bangladesh Benin Burkina China India Mali Morocco Senegal
Number of
procedures 8 7 6 13 13 11 6 10
Time (number
of days) 74 31 18 35 33 26 12 58
Costs (% of per
capita income) 46.2 195.0 82.1 8.4 74.6 132.1 11.5 107.0


Source: World Bank, 2008.


III.2 Wages

An appropriate response to the decline in Senegalese relative productivity would be a
paralleled decrease in costs of non-tradable inputs, mainly, in labor costs. Decreases in input
costs would compensate the decline in relative productivity and mitigate unfavorable
competitiveness evolution and subsequent losses of market shares. This is particularly true for
the textile/garment sector which is highly labor intensive.

In Senegal, relative wages in dollar did not decrease with respect to comparison countries;
instead, it has remained almost unchanged over time. Indeed, we even noticed a slight
increase in this variable relative to some other countries. This is clearly not very good news
for Senegalese manufacturing, especially, the textile/garment sector which experienced more
than others a sharp decline in productivity. Even relative to neighboring African countries
which are not well performing in terms of competitiveness, Senegal seems disadvantaged.
Minimum wage per hour is CFA209, against 211 for Côte d’Ivoire, 125 for Togo, and 166 for
Burkina Faso. If we now turn to average wage rate in dollar, Senegal’s handicap is even
greater. It amounts to $0.34 per hour for Pakistan, $0.57 for India, $0.69 for China, $0.25 for
Bangladesh, $0.40 for Sri Lanka and $0.62 for Senegal. Thus Senegal is one of the countries
with the highest labor costs, among those considered in our sample, except China. Meanwhile,
average working time is 12 hours in Asia, but only 8 hours in Senegal.

Table 11. Indicators for labor flexibility
Bangladesh Benin Burkina China India Mali Morocco Senegal
Index of hiring
difficulty 44 39 83 11 0 33 100 72
Index of firing
difficulty 40 40 40 40 70 40 50 50
Index of employment
rigidity 35 40 61 24 30 38 63 61
Costs of hiring (% of
wages) 0 29 20 44 17 28 19 21
Costs of firing (week
equivalent wages) 104 36 34 91 56 31 85 38


Source: World Bank, 2008.
Note: Each index can take values between 0 and 100; higher values representing more rigidities. The index of
employment rigidity is an average of three other indices.


20




Table 12. Monthly wages comparison in West African countries
Country Monthly wages


Min Max Mean
Benin 25'000 67'359 46'179.5
Togo 25'540 85'785 55'662.5
Burkina Faso
Senegal 38'105 81'803 59'954
Côte d'Ivoire 126'000
Mali 24'118


Source: Mbaye, 2006.

Tables 11 and 12 depict the evolution of nominal wages in Senegal and in competing
countries. They show that compared to all comparison countries, nominal wages have
increased less in Senegal despite the high minimum wage mentioned above. What this means
is that Senegalese government has been quite prudent in social policies, by keeping wages
low. But at the same time, the CFA has appreciated a lot relative to other currencies. The
exchange rate between CFA and US dollar doubled from almost $1 for CFA800 in 2002 to $1
to about CFA400 in 2007. Obviously, Senegal’s competitors have a better control on the
dollar wage rate, through exchange rate policy. Like other UEMOA countries, Senegal has
very little room to cope with unfavorable exchange rate evolution, being a member of an
economic and monetary union. The only room left with is to increase productivity in order to
compensate for the dollar wage rate disadvantage.

Figure 4. Evolution of relative wages in local currency: Senegal/India


0


50


100


150


200


250


300


350


19
74


19
76


19
78


19
80


19
82


19
84


19
86


19
88


19
90


19
92


19
94


19
96


19
98


20
01


20
03


total
textiles
Clothing



Source: Mbaye, 2003.


21




Figure 5. Evolution of relative wages in local currency: Senegal/Korea



Source: Mbaye, 2003.


III.3 Other inputs

Besides labor, other inputs, mainly non-tradable, are playing a critical role in the evolution of
competitiveness. They are cotton prices, energy (electricity, fuel, gas), water, telephone,
transportation, and taxation.

Table 13. Compared costs of oil-related items: Senegal versus other West African
countries (CFA)


Products Senegal Togo Mali
Burkina


Faso Benin Cameroon
Diesel oil (metric
tons) 261'727 394'000
Fuel 180 (metric
tons) 164'206 275'000
Fuel 380 (metric
tons) 152'838
Gasoline 446 365 548 531 362.5 454
Regular gasoline 485 360 532 468 332.5
Gasoline for boats 328
Domestic gas 709 260 264.6


Source: Mbaye, 2006.

Regarding cotton availability, Senegal is not in a disadvantaged position, with respect to other
countries; but it is not in a more favorable position either, since the domestic cotton price is
indexed to its world level. Firms operating in the textile sector consider the system as being
unfair, and that SODEFITEX, the large cotton producer, should provide them with this input
at a price lower than the international level. If we consider the support in diverse forms, that
similar firms in Asia are enjoying from their governments, this request of textile firms is
highly understandable. But what is worth observing is that prior to SAPs, a generous
protection scheme was granted to firms from this sector, with very little results, if any. Thus
any further support to the sector should be subjected to accomplishments as regards efficiency,
job creation, and growth in activity. Another question is who should bear the costs of such
‘subsidy’? Obviously it should not be the cotton producing company which is applying the
same prices to domestic and foreign buyers, but instead the government.


22





Domestic as well as international transportation is another source of inefficiency for
Senegalese products. From our interviews, it appears that the costs of transporting a container
from Kahone (a city located in the countryside of Senegal) to Dakar (the capital) are about
$1000; that is as much as the costs of transporting the same container from Dakar to New
York City in the US. On the other hand, the port of Dakar is deemed less effective in terms of
costs and delivery time as compared to those of neighboring as well as competing countries.
Tables 8 and 11 to 13 depict inputs costs of Senegal compared to those of neighboring
countries. They show a quite unfavorable position of Senegal with respect to the latter. This is
quite worrisome since these countries are not even good performers in terms of cost control
and productivity improvement.


IV Determinants of trade of textile/garment between China and Senegal

IV.1 The scope of trade between China and Africa

According to the statistics provided by the WTO, in 2006, China ranked third in world
commodity trade, behind Germany and the US, with a trade value of $1'761 billion and a
share of 8 per cent. China’s trade is overwhelmingly dominated by manufactured products;
these products constitute 95 per cent of its export.

Table 14. China’s trade structure in 2006 ($ billion)


Export Import


Value Share Value Share


Total 969 100% 792 100%
Primary products 52.9 5% 187.1 24%
Manufactured products 916.2 95% 604.5 76%
Mechanical and electrical
products


549.4 57%


High-tech products 281.5 29%
Textile and garments 144 15% 18.1 2.3%


Source: WTO, 2007.

During the 1950s, the annual trade value between China and Africa was about $12 million,
even in 1994; it was only $2.64 billion. In 2000, the trade value exceeded for the first time
$10 billion. Since then, Sino-African trade increased sharply to reach $55.46 billion in 2006.
Now, China is the third trade partner of Africa behind the US and France. In 2005, Sino-
African trade rose to $39.7 billion. China’s export to Africa amounted to $18.68 billion, of
which mechanical and electrical products (mainly agricultural machinery and motorbikes) had
the largest share (since 1995) of 43.7 per cent, followed by textile products (20.1 per cent).
On the import side, the main imported commodities are raw materials and minerals, such as
oil, iron ore, cotton, diamonds, logs, and copper ore, which accounted for 85 per cent of
China’s total import of $21.06 billion. Oil (38.3 million tons) alone accounted for nearly 70
per cent of the total import, and 30 per cent of China’s total oil import. Another important
commodity exported from Africa to China is cotton. Africa is one of the most important
cotton producers, the sown area accounted for 17 per cent of the world total, about 70 per cent
of cotton is exported, which makes Africa the second exporter of cotton in the world with a
share of 20 per cent, behind the US. In Africa, 35 countries produce cotton and 32 export it.
Furthermore, distribution of trade among African countries is very unequal, 82.1 per cent of
total trade ($32.64 billion) is concentrated in 11 African countries whose trade value with


23




China exceeded each $1 billion. Due to massive imports of materials from Africa, the trade
balance of China with Africa turned to deficit since 2004 ($1.83 billion), and the deficits tend
to increase in recent years. In 2005 the deficit rose to $2.38 billion (International Business
News, 2006). In 2006 China registered a deficit of $2.1 billion with Africa.

In recent years, China’s investment in Africa has increased steadily. This is a natural response
to the changes in some African countries’ development strategies. To reduce trade deficits and
unemployment, some African countries have set up trade barriers. In order to get round these
barriers, Chinese firms invest directly in African countries. There are more than 800 Chinese
enterprises which have invested in Africa, the total investment amounted to $11.7 billion at
the end of 2006 (Xie, 2007).


IV.2 China’s trade regime

Since the accession of China to the WTO on November 10, 2001, the average tariff level has
been reduced sharply, from 15.3 per cent to 12 per cent in 2002, 11 per cent in 2003, 10.4 per
cent in 2004, 9.9 per cent in 2005 and 2006, and 9.8 per cent in 2007-2008. Since 2007, the
average tariff rate for agricultural products is at 15.2 per cent and 8.9 per cent for industrial
products. China has fulfilled her commitments made for the accession to the WTO.

Policy of “Zero tariff” for the least developed African countries. This policy was established
in 2003 under the framework of the Sino-Africa Forum created in 2000. According to this
policy, China offers “Zero tariff” treatment for 190 types of goods imported from 30 least
developed African countries. Before, the most favorite rates for these commodities averaged
at 9.8 per cent, since January 1st 2005. The tariff rates for all products were reduced to zero.
Till June 2007, 26 countries benefit from this policy, they are Ethiopia, Benin, Burundi,
Equatorial Guinea, Togo, Eritrea, Cape Verde, Djibouti, Guinea, Guinea-Bissau, Lesotho,
Liberia, Rwanda, Madagascar, Mali, Mauritania, Mozambique, Niger, Sierra Leone, Somalia,
Sudan, Tanzania, Uganda, Zambia, Chad, Central African Republic. Congo (K), Comoros,
Angola and Senegal will soon join this program. During the 2006 Sino-Africa Forum in
Beijing, the types of goods were increased to 454 which include almost all important
commodities exported to China from these countries. These commodities cover more than 10
categories in which these countries have comparative advantages: fresh aquatic products,
processed and semi-processed agricultural products, medicinal plants, minerals, leather,
textile and garments, light-industry products, mechanical and electrical products, wood
furniture etc. Until the end of 2006, imports from these countries under this policy amounted
to $350 million, the main imported commodities are sesame seeds, copper products, sheep
leather, cocoa beans etc. Moreover, the import of sesame seeds doubled compared to the
preceding year, with an import value of $180 million (International business news, August 2nd
2007). The “Zero tariff” policy has promoted the sound and balanced development of Sino-
African trade. However, only a very small share of African exports to China benefited from
this policy, according to Chinese custom statistics, during January and March 2006, only 1.6
per cent of imports from the beneficiary countries took advantage of “Zero tariff” treatment.
This can be mainly explained by the complexity of Chinese custom procedures and
difficulties of beneficiary countries in providing the certificate of origin for their exports to
China.



24




IV.3 China’s tariff regime for textile and garment

The Agreement on Textiles and Clothing planned to remove the quota of textile and clothing
from January 1 2005 to promote free trade. The developed countries had 10 years from
1995-2004 to adjust their textile and garment sector. With the abolition of the quota, China’s
exports of textile products have increased substantially. From January to March 2005,
Chinese exports of textile and clothing to the US rose to $3.48 billion, an increase of 70.5 per
cent, and $3.85 billion to EU market with a growth rate of 48.3 per cent. This led the US and
the European Union to re-establish the quota to protect their fragile textile industry against
Chinese imports. Facing the increasing trade conflicts with both developed and developing
countries, China decided to limit her textile exports by implementing bilateral voluntary
export restriction with the US and EU and by setting export taxes for textile products. Even
before the removal of the quota, the Chinese government in 2004 undertook several measures
to limit textile production and exports. China has reduced the export rebate for textile and
clothing from 14 per cent and 17 per cent to 11 per cent and 13 per cent respectively.
Meanwhile, the investment in this sector has slowed down, from an annual growth rate of
86.7 per cent in 2003 to 30.3 per cent in 2004. The import of textile machinery ($4.48 billion)
grew only at a rate of 2.5 per cent between 2003 and 2004 (Jiang Zhe, 2005).


st



In 2005, the restriction measures were further reinforced. First, the import tariff rates for
textile and clothing have been reduced to 11.4 per cent, below the US's level of 14.6 per cent.
Moreover, the “Zero tariff policy” was applied to a part of textile import from 25 African
countries (see above). From January 1st, exports of 148 textile products were subject to export
taxes. Finally, from March 1st, China implemented a temporary voluntary export restriction to
textile exports (Jiang Zhe, 2005).

To avoid this double restriction (quantity restriction + taxes), China adjusted her policy in the
following months. On June 1st and August 1st, China removed export taxes for 98 textile
products. And from January 1st 2006, China removed export taxes for all textile products (Li
Lihui, 2005). From January 1st 2008, the voluntary export restriction of 10 types of textile
products with the EU will be ended; then, Chinese textile export to the EU will be no longer
subject to quantity restriction (Zhang Yixuan, 2007).

Finally, on the import side, China is the no.1 importer of cotton in the world. In 2006, import
of cotton amounted to $4.87 billion, with a growth rate of 52.3 per cent compared to 2005. To
regulate the cotton import and protect interests of national cotton producers, China
implements the adjustable tariff rate for cotton import to stabilize the cotton price in the
domestic market. It consists in adjusting the tariff rate according to the cotton price. When the
cotton price is low, the tariff rate is high and vice-versa. In 2005, the adjustable tariff rate
varied between 5 and 40 per cent.


IV.4 Other determinants of Sino-African trade and capital investment

Besides the above trade regime factors, the sharp rise of Sino-African trade and capital
investment can also be partly explained by the stakes of China’s presence in Africa: 1)
Exploit energy and natural resources of Africa, especially oil and minerals (Africa has the
largest reserves for 17 minerals out of the 50 most important minerals; its reserves of
platinum, manganese, chromium and iridium account for more than 80 per cent of the world
total; and of reserves of gold, diamonds, cobalt, germanium and phosphate it holds above 50


25




per cent). 2) Develop new markets for Chinese consumer goods and investment opportunities.
3) Political and diplomatic considerations also play a role (e.g. Chinese aid for Africa).
However, the Sino-African trade still occupies a marginal place in the total trade of each side,
for instance, since 2000, it accounted for only 4-7 per cent of Africa’s total trade value, and
only 2-3 per cent in China’s total trade. Therefore, there is great potential for the future
development of Sino-Africa trade.


• As far as textile and garment are concerned, Chinese firms seek a number of business
opportunities in Africa to increase their exports and investment in the continent. The
large population (about 800 million people) and under-developed textile industry in
Africa provide a huge market potential for the Chinese textile sector. At present, the
per capita consumption of fiber in Africa is only 3.2kg, much lower than the world
average of 8.7kg. Therefore, the market potential for textile and garment is substantial
(Deng, 2007).



• Low prices of Chinese textile and garments make Chinese exports very competitive in


African markets in view of the relative low income levels in many African countries.


• A gateway to European and American market. The US’s “African Growth and
Opportunity Act” (2000) and the EU’s “Cotonou Agreement” give sub-Saharan
countries favorable trade conditions for their textile exports to American and
European markets. This offers Chinese textile products made in Africa favorable
access to American and European markets.



• Chinese Government’s “outward” policy encourages Chinese enterprises to invest in


Africa by providing fiscal advantages, low-cost loans and other services. For example,
the Chinese government has spent more than 100 million yuan to create 11 investment
and trade centers in Africa serving Chinese enterprises. The Chinese government has
signed Bilateral Trade Agreement with more than 40 African countries, and Bilateral
Agreement of Encouraging and Guaranteeing Investment with 28 African Countries
and Agreement to Avoid Repetitive Taxation with 8 African countries. Furthermore,
China has established Bilateral Economic and Commercial Committees in 35 African
countries, in order to promote trade and investment between China and Africa (Yu
Peiwei, 2006). In the textile sector, the Chinese government has reinforced the
cooperation between Chinese enterprises and African partners in the field of
management and training of textile technicians. Moreover, Chinese textile enterprises
are also encouraged to invest directly in Africa to stimulate the development of local
textile industry and create the employment.



• To attract Chinese investments, many African countries, such as Egypt and South


Africa, have provided fiscal advantages and attractive investment policies.

All these favorable factors have bolster China’s exports of textiles and clothes to African
countries and Chinese investment in local textile/garment industries.


IV.5 Factors impeding trade flows from Senegal

The textile/clothing industry in Senegal is not performing, in the sense that rules of fair
competition do not apply to it. The most documented impediments to a competitive market in


26




the literature include: industrial concentration, collusions in price setting, lack of information
access and sharing system, etc.

In this section, two major features of market imperfection are singled out, fraudulent imports
and a biased import regime. Before the implementation of the New Industrial Policy (NIP), in
1986, government intervention in the economy was overwhelming, and high-level tariff and
non-tariff protection was granted to firms operating in the textile/clothing sector. This was
meant to substitute domestic production for imports and to encourage domestic processing of
locally produced raw materials, namely cotton in our case. In practice, it granted huge levels
of rents to some actors, contrasting with a negative protection for exporting firms with high
level of purchase of international inputs. Almost the whole textile/clothing sector experienced
big trouble with the removal of protection they had been accustomed to, with NIP. And the
instability of the sector can be tracked back to this period.

Hence, since NIP, the country’s macroeconomic environment is much clearer. Quantitative
restrictions to trade are almost all lifted and tariffs are reduced in level and streamlined, which
positions Senegal among the best performing countries as regards trade liberalization (Hinkle
and Herrou-Aragon, 2002). An adverse effect of these measures on manufacturing, and
mainly on the textile/clothing sector is a negative bias against domestic production, in favor
of imports that is brought about by smuggling and an ineffective customs clearing procedures.


IV.5.1 A biased customs clearing system

Most surveyed firms in the textile/clothing sector point to the customs clearing system as the
major obstacle to output and export growth. Senegal is member of WAEMU8 which has
implemented a common external tariff, which is streamlined to only four major items: level
zero tariff, level 1, level 2, and level 3. The corresponding applicable rates are: 0 per cent, 5
per cent, 10 per cent and 20 per cent. The problem with this tariff scheme is that it does not
distinguish between unbleached and printed materials. Both of them are applied the tariff rate
of 10 per cent, while bleached materials are intermediate and printed ones are final products
for textile producers. Hence, tariff protection is almost nil for this segment of product. Since
average costs are otherwise higher in Senegal than in average competitor countries, prices are
higher on domestic markets for local items than for imported ones. Thus, while the 12 yard
long domestically processed materials by SOTIBA, and COSETEX9 cost CFA7000 in Dakar
(capital of Senegal) with a margin rate of 7 per cent, the corresponding price for imported
materials is CFA4000. Obviously, several factors contribute to explaining this wide spread
between domestic and imported product prices. Among those are local firms’ inefficiency in
reducing costs and improving productivity is critical. But the observed tariff bias is also worth
emphasizing. Generally speaking, if we compare tariffs on textile/clothing between UEMOA
countries and other developing countries, they are lower in the formers. It is invariably 10 per
cent for textile and for clothing, in UEMOA, while these two items are differently treated in
other countries: 35.9 per cent for textile and 49.8 per cent for garment in Morocco; 20.1 per
cent and 23.5 per cent in China; 28.4 per cent and 36.9 per cent in Bangladesh. These figures
show clearly that tariffs on clothes tend to be higher than tariffs on textile in other developing
countries, while that is not the case in UEMOA. This tariff structure in developing countries
outside UEMOA seems to make sense, since materials are input for clothing.

8 WAEMU is the West African Economic and Monetary Union, which includes Benin, Burkina Faso, Mali,
Niger, Togo, Senegal, Guinea Bissau, and Côte d’Ivoire.
9 The most visible textile producers in Senegal, SOTIBA eventually went bankrupt.


27





Another bias linked to the system of customs clearance relates to the determination of
indicative values. For imported bleached materials, the value to which tariff rates are applied
is $0.45 per yard, which is the actual value, formal importers have to declare to customs.
What informal business importers are doing is making false declarations to customs, in which
case, customs officers apply the face value of similar items on the market. When this option is
not feasible for whatever reason, they can breakdown the value of declared merchandises,
realistically value each component and sum them up before applying the relevant rates.
Customs officers can also reconstitute costs by gathering information from producers. When
all these methods are impossible to apply, customs can use as a last resort, to take indicative
value they have in their database. The fact is that when the latter method is applied, the
corresponding value is only $0.2, instead of the $0.45 formal importers are paying. This acts
like a premium to informal importing of goods and thus exposes formal importers to unfair
competition.

These customs-related weaknesses are exacerbated by lack of a level playing field brought
about by some practices happening sometimes in competing countries. For example, in China,
many firms are state-owned or controlled. Thus, there are reasonable hints that they can
benefit from state subsidies or other kind of support that can actually lower costs; that are
likely to alter competition across countries. According to WTO safeguard clauses, importing
countries can limit purchases from China, when such imports are likely to disrupt domestic
industry stability; this is applicable until 2013, i.e. 12 years after China is accepted as a WTO
member. Another safeguard clause allows importing countries to consider China as a non
market country and to draw all relevant trade consequences out of this, for a period of up to
15 years after China’s admission into the WTO (Yeung and Mok, 2004). Application of such
clauses is mainly done by developed countries, for developing ones, mainly African countries
lack the needed capabilities to appropriately document the cases when they apply. In 2002,
China underwent 540 legal complaints before the WTO, involving as much as 33 countries
and 4'000 products.

Another issue on competition against China is about standards. In the context of
textile/clothing the most used standards are: ISO9000, ISO14000, SA8000, and WRAP.
ISO9000 is mainly about quality management, i.e. making sure that all possible efforts are
deployed so that customer requirements as regards quality are met. ISO 14000 is about caring
about the environment, to make sure that every possible effort is deployed to ensure that the
environment is not damaged by firm activities in the production process as well as in storage.
SA8000 deals with social protection inside the firm, in particular with respect of ILO rules on
rights of employees and international laws protecting children under the UNICEF system .
WRAP is similar to SA 8000, but is peculiar to clothing. In order to export to the US,
ISO9000 and ISO14000 are prerequisites, and more buyers are requiring now SA8000 and
WRAP. Very often, Chinese firms are open to ISO9000, but reluctant to ISO14000, given its
implications about choosing environmentally friendly equipments which are also more
expensive. By contrast, they do seem to envisage meeting SA8000 or WRAP. Senegal, at
least in the formal sector seems to be all right with labor protection and children’s
internationally protected rights. This also could be a ground for raising tariffs on imports from
China without being in conflict with WTO obligations.


28




Table 15. Main textile/clothing suppliers to Senegal
Countries Import values (CFA)
India 1'707'906'117
Benin 1'692'089'712
Cote d'Ivoire 949'308'054
China 548'742'824
Nigeria 283'778'106
Malaysia 69'320'145
Hong Kong 61'331'479
France 39'565'116
Italy 30'038'648
Japan 19161'412
Switzerland 19'009'441
St. Vincent and the Grenadines 10'681'439
United Arab Emirates 8'553'107
Saudi Arabia 3'100'034
R.F.A. 2'132'973
Belgium, Luxemburg 1'607'668
Canada 1'319'057
Turkey 858'201
Spain 701'237


Source: Républic du Sénegal, 2005a.

Table 16. Main textile/clothing clients for Senegal
Destination Export values (CFA)
Gambia 892'083'354
Guinea Bissau 824'428'223
Cote d'Ivoire 431'358'683
Mauritania 274'522'941
Guinea 257'386'436
Burkina Faso 89'420'799
Gabon 73'603'394
Togo 73'257'258
Mali 37'329'120
Algeria 26'505'000
Benin 6'627'456
Congo (B) 4'229'263
France 3'699'579
Ghana 2'880'000
Cameroun 2'379'576
Cape Verde 112'241
United Arab Emirates 100'046


Source: Républic du Sénegal, 2005a.


29




Table 17. Senegal’s trade balance for textile/clothing (CFA)
Imports Exports Balance
India 1'707'906'117 0 -1'707'906'117
China 548'742'824 0 -548'742'824
France 39'565'116 3'699'579 -35'865'537
Italy 30'038'648 0 -30'038'648
Switzerland 19'009'441 0 -19'009'441
Germany 2'132'973 0 -2'132'973
Belgium, Luxemburg 1'607'668 0 -1'607'668
Spain 701'237 0 -701'237


Source: Author's calculations from Senegal’s customs statistics, 2005.

Senegal’s trade balance vis-à-vis China has a very important deficit. Tables 15 through 17
show that Senegalese exports to Asia are minuscule. The main destinations for Senegalese
exports are: Europe and the African region. At the same time, among the top ten
textile/clothing exporters to Senegal, 5 are from Asia.

In Senegal as well as in other UEMOA countries, competition policy is very weak. Only
collusions between producers and antidumping practices are addressed by domestic laws and
regulations (act 94-63 of August 8, 1994). On the other hand, instruments that are put in place
to investigate cases of non-compliance to competition laws are rudimentary. Senegal does
have a national commission for competition policy, but with a very small budget and almost
no permanent personnel. In other UEMOA countries, the same institutional vacuum is
observed. Article 5 of UEMOA regulation number 02/2002/CM/UEMOA forbids any kind of
government support whatsoever to private firms. Yet, no policy instrument seems to be
implemented to investigate Asian imports’ compliance to such rules.


IV.5.2 Fraudulent imports and their effects on the domestic textile/clothing industry

Fraudulent imports are illicit activities that violate several articles of the Senegalese customs
code. Very impressive repressive mechanisms to fight them exist, but they are not yet
effective to tackle the phenomenon. Senegalese borders with the Gambia and Mauritania are
very porous, and a huge amount of fraudulent items are exchanged without passing through
customs. Most of such smuggling concerns textile and clothing.

We have attempted to estimate fraudulent imports to Senegal on textile and clothing. The
methodology is based on computing total textile/clothing consumption and the share of
domestic production and official imports. The balance is estimated as being fraudulent
imports into Senegal by the following formula:

Total consumption – domestic production – net official imports10 = fraudulent imports.



10 Net official imports are defined as imports minus exports. Domestic informal production is not accounted for,
which biases upward our fraud estimate. On the other hand, official statistics on clothing include leather; which
has the opposite effect on it.


30




Table 18. Estimation of fraudulent imports to Senegal, 2000 (CFA million)
Production 48'721.60
Imports 20'916.87
Consumption 126'000.00
Exports 16'285.49

Net imports 4'631.38
Total supply 53'352.98
Estimated frauds 72'647.02

Ratios (%)
Frauds / consumption 57.7
Frauds / total supply 136.2
Frauds / domestic production 149.1
Frauds / official imports 347.3


Source: Author's calculations based on statistics from Républic du Sénegal, 2005b and Républic du Sénegal,
2005c.

Total consumption of textile/clothing is estimated from the ESAM data base. ESAM is a
living standard measurement survey, with several sections, including a section on households'
consumption of textile/clothing. We extrapolated these results by using the relevant weights
annexed in the dataset. Official imports are from customs data, and official production, from
national accounts. The results of our estimates are presented in table 18. They indicate that
total textile and clothing recorded production amounts to CFA48.7 billion in 2000. Official
imports and exports are respectively CFA20.9 billion and 16.2 billion, and total domestic
consumption of these articles is CFA126 billion. The resulting estimate of fraudulent imports
is CFA72.6 billion, which makes up 57.7 per cent of total consumption, 136 per cent of total
official supply, 347.3 per cent of official imports. The estimated total imports of
textile/clothing in Senegal represented CFA93.5 billion, while official statistics only reported
only CFA20.9 billion.

Fraudulent imports are pushing domestic prices of textile/clothing downward, at a level
domestic producers can hardly sustain. This appears to be a major impediment to industry
development in Senegal. Our estimates also show that government income losses owing to
this fraud can be as much as CFA14.52 billion per year. This estimate is obtained by 10 per
cent11 tariff rate on materials to fraudulent imports.


IV.5.3 The role of Chinese traders in Dakar in Sino-Senegalese trade

In bilateral trade between China and Senegal, Chinese traders in Senegal play an important
role by importing commodities from China and selling directly to Senegalese consumers. This
form of trade has important impacts on the two countries’ trade balances as well as on the
welfare of Senegalese consumers and local employment. In order to obtain more details about
this pattern of trade, we have conducted 25 interviews with Chinese traders in Dakar. These
interviews allow understanding the motivations of Chinese traders in Dakar, characteristics of
their business and difficulties encountered in an economically and culturally different country.




11 The actual tariff rate on clothing is 20 per cent, so this figure underestimates the amount of income loss.


31




a) Why did they come to Dakar?

The reasons why they come to Dakar are multiple. First, the local demand for Chinese goods
is huge as the prices of Chinese products are very competitive in Senegal where local
manufacturing industries are underdeveloped and the purchasing power of local consumers,
especially the poor, is very low. The second reason is that in China business is becoming
more and more difficult due to rising competition, and sharp increases in labor cost and heavy
tax burdens. Before coming to Dakar, they were workers in state or private enterprises in
financial difficulties, or taxi drivers, or owners of small shops. Their annual income was less
than 20'000 yuan (about $2740 at current exchange rate at $1 = 7.3 yuan). However, in Dakar,
they can earn 100'000 yuan or more per year. The low income in China and the relatively
higher investment return in Senegal push them to set up their business in Dakar. Furthermore,
compared to China, the tax burden in Senegal is much lighter. In Senegal, since there is no
accountancy in these Chinese stores, the local government collects a lump-sum tax composed
by two components: annual fixed business rate of CFA150'000 and a variable rate, ranging
from CFA200'000 to CFA400'000 according to the area of the store. However, in China, as
said by the tax laws and regulations, a private storekeeper should pay 4 per cent of value
added to the national fiscal bureau, and a tax for city’s construction (7 per cent of value added
tax) and fees for education (3 per cent of value added tax) to local fiscal bureau, plus 2 per
cent of income tax. In practice, the fiscal bureaus fixed a lump-sum tax for each store
considered much higher than taxes paid in Dakar by Chinese storekeepers. Last but not least,
the network effect has played a crucial role in attracting more Chinese businessmen to Dakar.
The first movers to Dakar provided information to their relatives or friends in China and
encouraged them to follow by providing all kinds of services to facilitate the settlement of
new arrivals. Besides the high rate of investment return, the network effect can explain sharp
increases of Chinese stores in Dakar, especially since 2004. Most of them, nearly two-third of
Chinese storekeepers, come from Henan province of China (a relatively poor province in
Central China). Other traders come from Zhejiang and Fujian provinces in the coastal region
and few from the inland region such as Sichuan province and the North-East of China.


b) Characteristics of their businesses

These Chinese traders open a store and sell to Senegalese consumers the commodities
imported from China. They are concentrated in two business centers in the city of Dakar. We
count 113 stores held by Chinese traders in the district of Allées du Centenaire, and 34 stores
in the district of Petersen. The shops offer very similar goods which can be divided into three
categories: textile products, shoes and items for daily use such as products for interior
decoration, lamps, batteries, or toys. Very few stores have a specialization in terms of sold
goods, for instance, two brothers from Zhejiang province have opened a store of wigs made
by their parents’ factory in the hometown.

Most traders have the same supply source, which is the market of “usual items” in the city of
Yiwu in Zhejiang province. It is a wholesale market for products of current uses and famous
for products at very low prices and low quality. For a great number of stores, 90 per cent of
products come from this market. Other products such as shoes and some textile products
come from Fujian and Guangdong provinces. As far as textile products are concerned, we find
all kinds of clothing, T-shirts, trousers, scarves and fabrics. Most of them come also from
Yiwu market. The stores sell on average 2-3 containers of products (68 m3 for each container).
The storekeepers use Internet to order the products from wholesalers in Yiwu, the latter send


32




the products in containers by ship. The storekeepers should pay the customs duty by a lump-
sum around CFA120'000 increased from CFA90'000 in 2004. For the reason that they do not
speak French nor local languages and they do not know local law about Senegal’s customs
system, most of them rely on Senegalese importers to accomplish the customs procedures by
paying a commission.

The main customers of these stores are local poor people. Each store has one or two local
employees to sell the goods, as most Chinese storekeepers speak neither French nor local
languages (notably, Wolof). Most local employees have little education; few of them can read
and write. They are paid at a fixed salary ranging from CFA400'000 to CFA600'000 per
month without any social protection. A significant portion of sales (more 60 per cent) are the
sales to small local mobile salesmen who buy each time a small quantity of products (often 2
or 3 items) and sell them in the streets, and then come back to the Chinese store for more
goods. In recent years, with substantial increase of Chinese stores in Dakar and massive
imports of Chinese products, Dakar is becoming the wholesale center for Western Africa.
More and more retailers of nearby countries, such as Mali, Guinea-Bissau, Guinea and
Mauritania, come to Dakar to purchase goods from Chinese storekeepers. Their purchase,
often in large quantities, is occupying an increasing share in the total sales of Chinese
storekeepers.

In the local market, Chinese stores face competition from Lebanese and Senegalese shops.
The latter offer similar goods, but with better quality and at higher prices. Some of the
Senegalese and Lebanese traders import from China and then compete directly with Chinese
stores. However, the most serious threats arise from Chinese themselves. Since all stores have
the same supply source and sell very similar products. The competition among them is so
fierce that stores are often engaged in price-wars against each other. Therefore, the profit rate
has fallen sharply over years, especially since 2004 with massive arrivals of Chinese
businessmen. According to the interviewed storekeepers, the profit rates in the early 2000s
were higher than 40 per cent, for some of them they reached even 200 or 300 per cent. But
now, this rate has fallen to merely 5-10 per cent. The price wars among Chinese stores have
led to a general reduction of prices in local market, which has caused discontents from
Senegalese and Lebanese storekeepers. In the summer of 2005, there were anti-Chinese
protests in Dakar organized by Senegalese and Lebanese storekeepers.


c) Difficulties encountered

In recent years, Chinese traders in Dakar face increasing difficulties.


• Language barriers. Most Chinese storekeepers have received little education in China
and most of them can only speak their regional dialect. While their customers can only
speak French or a local language. This is why every store has to employ local
personnel to sell goods. Furthermore, Chinese traders have also many communication
problems with local officials, such as policemen, custom agents and fiscal agents.



• Price-wars among them. As mentioned above, the price-wars have reduced sharply


the business profitability. Most of them call for regulation of business behaviors of
Chinese traders by establishing a trade association. However, the coordination failure
failed to stop price wars.




33




• Market volatilities. The demands of the Senegalese market change frequently. For
example, many traders have imported textile products. However, the tastes of local
costumers changed rapidly, and then, they had to sell off these products below their
own costs. Most of them consider that market studies are necessary before importing
products from China.



• Problems with local employees. Most local employees have no education, can not


read and write. According to many storekeepers, their employees often steal goods.
Therefore, they should keep constantly a watchful eye on their employees.



• High costs of living in Dakar compared to China. Most storekeeper complained


about the high prices of water, electricity, internet connection and food. For instance,
electricity in Dakar costs CFA160-180 per Kwh, 4-5 times higher than in China. They
complained also about frequent power cuts.



• Problems with local administrations. Many storekeepers complained about


difficulties and administrative complexity to get the entry visa and resident’s permit
for Chinese citizens. They also complained about corruption of some Senegalese
officials.



• Little support from the Chinese Embassy in Dakar. The Chinese storekeepers said


that if they had a problem in Dakar, they will get very little support or help from the
Chinese Embassy who seems to be indifferent to their interests.




d) Perspectives

Facing the increasingly unfavorable business environment, some of Chinese traders plan to go
back to China or to other African countries, such as Morocco and Côte d'Ivoire, if the
business profitability continues to fall. Others will stay in Senegal and continue the business.


V General conclusion and policy implications

This report provides a comprehensive analysis about the Chinese and Senegalese
textile/garment sectors, as well as Sino-African in particular Sino-Senegalese textile trade.
After a comparative analysis on the competitiveness of the textile/garment sectors in both
China and Senegal, we explore, on the one hand, the determinants of China’s sharp increases
in textile exports to Africa and in investment in the local textile industry, and on the other
hand, the weak performance of African countries, particularly Senegal, in exporting
textile/clothing to China. The analysis has highlighted the important roles of trade policy,
tariff regime, and costs of key inputs in explaining the difference in competitiveness between
China and Senegal. Finally, a case study of Chinese traders in Dakar illustrates their important
role in imports of textile products from China to Senegal. Our analysis allows to draw some
policy implications for Chinese and Senegalese textile/garment sector as well as for the
bilateral trade of these products between the two countries.



34




V.1 Implications for China’s textile/clothing sector

As discussed above, China’s textile/clothing sector is facing numerous opportunities and
challenges in recent years. On the one hand, the abolition of textile quotas provides good
development opportunities for China’s highly export-oriented textile sector; On the other
hand, the rising costs of inputs such as labor and raw materials and the appreciation of
Chinese currency have put increasing pressures on the sector’s financial situation and export
competitiveness. As shown in Table 5, the new five-year plan for 2006-2010 of Chinese
government has set out ambitious objectives for textile production, exports and productivity
improvement. To achieve all these goals, a series of measures should be carried out. .


- Deepen property reforms. To solve inherent inefficiency problems, large state-
owned textile enterprises could be transformed into stock companies with private
participation, or sold to private entrepreneurs. Meanwhile, the government should
promote private textile/clothing enterprises, including foreign-owned enterprises, by
simplifying set-up procedures and providing them with preferential loans and other tax
advantages, for these private enterprises are the most dynamic actors of Chinese
textile/clothing sector.



• Promote technological progress and upgrade products. Facing a stagnant demand


due to the recent slowdown of the world economy, the appreciation of the Chinese
yuan, and a recent rise of labor cost, the traditional labor-intensive textile products
have experienced increasing difficulties both in domestic and international markets.
The export growth rate of textile products has slowed down in the first trimester of
2008 compared to the same period of last year. This constitutes both a challenge and
an opportunity for China’s textile sector to adopt new production technologies and
improve the products’ quality. Therefore, an easy access to credits or other financial
sources is needed for R&D investments. Moreover, foreign direct investments with
advanced technology and upgraded products should be further encouraged in China.



• Improve the enterprises management by introducing information management


system and international management standards, such as ISO 9000.


• Create internationally well-known Chinese brands of textile/clothing products.
As mentioned before, a large share of production and export is in the form of
subcontracting, OEM and ODM for foreign brands. To increase the value added of
Chinese textile products, China’s textile/clothing enterprises should not only improve
products’ quality, but also do more efforts of marketing on the international markets.



• Increase control over distribution channels. To increase the value-added and profits,


Chinese textile/clothing enterprises have to increase their control on distribution
networks to limit the profits losses in favor of transporters and foreign importers.



• Regulate competition among Chinese exporters. To earn the market share, many


Chinese textile/clothing exporters are engaged in vivid price wars against each other.
This leads to very low export prices and substantial profit losses, and anti-dumping
charges from destination countries. As pointed out by the Chinese traders in Dakar,
creation of a governmental or non-governmental industry associations of textile
companies I is increasingly a consensus to regulate disordered competition.




35




• Reduce pollution. Textile/clothing is one of the most polluting sectors in China,
especially regarding water pollution. Environmental standards such as ISO14000
should be adopted in the Chinese textile/clothing sector in order to promote the
sustainable development of the sector.



• Develop human resources. The implementation and achievement of all above


measures require significant improvement of human resources in the textile/clothing
sector. Training programs should be available for unskilled labor of the sector.
Moreover, the textile/clothing enterprises in China should recruit more well-educated
and experienced managers to improve management. Finally, to promote R&D,
textile/clothing enterprises need high-quality technicians and scientists. The
cooperation between universities or research institutes and enterprises should also be
encouraged.




V.2 Implications for Senegal’s textile/clothing sector

As far as Senegal’s textile/clothing sector is concerned, great efforts should be made to
improve the low productivity and international competitiveness.


• Develop training programs for unskilled young workers in the sector. As we have
illustrated above, the lack of skills of workers is one of the main factors of low
productivity in the Senegalese textile/clothing sector. To solve this problem, the
Senegalese textile sector should further develop training programs. Cooperation
between China and Senegal in this field could be also a good solution: China can send
its skilled technicians to Senegal to provide training to Senegalese textile workers, or,
Senegal can also send workers or technicians to China and obtain the training in
Chinese textile/clothing enterprises.



• Improve quality and costs of electricity. To increase the productivity of the


Senegalese textile sector, greater efforts should be made in improving electricity
supply. Senegal should increase its electricity production capacity and improve
delivery quality to reduce the electricity price and power cut.



• Reform distorted trade regime. As discussed above, the import tariffs for processed


products and raw materials are distorted in Senegal. The Senegalese government
should redesign its tariffs system and tighten the control of smuggling of
textile/clothing products in order to protect domestic textile/clothing enterprises.



• Encourage foreign direct investment in textile/ clothing sector. The Senegalese


government must adopt policies to encourage FDI in these sectors, including Chinese
textile enterprises. FDI can take various forms such as joint-ventures, purely feign-
owned enterprises etc. The inflow of FDI will contribute to the exploitation of local
rich raw materials such as cotton and to the improvement of production technology
and product quality. As discussed above, Senegal’s textile industry suffers from low
productivity and management inefficiency, the inflow of FDI in this sector may have
positive spillover effects on local industries.





36




V.3 Implications for trade and investment between China and Senegal in the
textile/clothing sector

Both China and Senegal pay great attention to economic relations between the two countries.
They have quite complementary resource endowments. China has abundant labor resource
and rich experience in the textile/clothing sector, while Senegal is rich in raw materials such
as cotton. Therefore, there is a great potential for trade and capital investment for the
textile/clothing sector of both countries. To encourage the trade and capital investment in both
directions, the two countries should make joint efforts in a number of fields.


- Trade regime. Both China and Senegal should offer further market access to each
other by lowering the tariff rate and simplify the custom procedures. China should
further simplify the procedures of “Zero-tariff policy” for Senegal, such as Origin
Certificate requirement, to facilitate imports from Senegal. Senegal should make their
tariff system more transparent for Chinese exporters, as claimed by Chinese traders in
Dakar.



- Encouragement of FDI. One way for Senegal’s textile sector to improve technology


and product quality is to encourage Chinese textile/clothing companies to invest in
Senegal. Chinese FDI in local textile industry also limits the negative impact of
massive Chinese textile exports on local textile industry and on local unemployment.
To do so, Senegal’s government could adopt some preferential policies for Chinese
investments.



- More bilateral aid from China for Senegal. China can provide more bilateral aid for


Senegal in various forms. For instance, China can provide technology transfer in the
field of textile/clothing, training programs for Senegalese workers and technicians, etc.



- Improvement of business environment and corruption reduction. A stable


economic and political system and well-functioning legal system are prerequisite for
international trade and FDI. Therefore, both governments should improve their
governance, reduce corruption and develop infrastructures in order to promote
bilateral trade and attract more FDI from each other.




37




References

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main contributors Zhejiang, Guangdong, Jiangsu and Shanghai”, China Textile Journal,
January 18.

Chen Honglan (2006). “China’s textile and clothing export exceeded 100 billion dollars with
main contributors Zhejiang, Guangdong, Jiangsu and Shanghai”, China Textile Journal,
January 18.

China Federation of Logistics and Procurement (2005). China Logistics Yearbook, China
Economic Publishing House, Beijing.

China Wool Textile Association (2006). China’s textile and clothing sector: Current
situation and perspectives, November.

China Wool Textile Association (2006). China’s textile and clothing sector: Current
situation and perspectives, November,.

China’s State Bureau of Statistics (1983-2007). China Statistical Yearbook, Beijing.

Christoffersen, S. (2004). “The changing structure of US textiles: productivity implications”,
Journal of Buisiness and Economic Studies, Vol 10 N°2

Deng Xueqin (2007). “The Analysis on the Development of Sino-Africa Textile Trade”,
Economic and Trade Update, Vol. 5, No.58, Feb.

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Competitiveness: Case Studies of the Textile, Fishing, and Peanut Sectors” African Region
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Reform Go? An intermediate Methodology for Comparative Analysis of Trade Policy. Worl
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Reform Go? An intermediate Methodology for Comparative Analysis of Trade Policy. Worl
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Hughes, A. (2000). Retailers, Knowledges and Changing Commodity Networks: The Case of
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People’s Daily, June 2 . nd

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enterprises: from perspectives of property clarification”, Textile Economy of Shandong, vol. 5.


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Li Lihui (2005). “The tariff rate of more than 100 imported products will be reduced”
People’s daily, 16 December.

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39




ANNEXES


Annex 1. Senegalese imports from China, 2000-2007 (CFA million)


0


20000


40000


60000


80000


100000


120000


140000


2000 2001 2002 2003 2004 2005 2006 2007



Source: République du Sénégal, 2007.

Annex 2. Share of garments and textile in Senegalese imports from China, 2000-2007


27,79%
29,42% 29,93%


32,25% 33,16%
30,45%


26,27%


20,80%


0%


5%


10%


15%


20%


25%


30%


35%


2000 2001 2002 2003 2004 2005 2006 2007



Source: République du Sénégal, 2007.


40




Annex 3. Share of China in total Senegalese imports, 2000-2007


2,77% 2,68% 2,65% 2,78%


3,70%
4,18%


5,23%


7,84%


0%


1%


2%


3%


4%


5%


6%


7%


8%


2000 2001 2002 2003 2004 2005 2006 2007



Source: République du Sénégal, 2007.


Annex 4. Evolution of Senegalese exports to China, 2000-2007


0


500


1000


1500


2000


2500


3000


3500


4000


2000 2001 2002 2003 2004 2005 2006 2007



Source: République du Sénégal, 2007.


41




Annex 5. Senegalese exports to China, 2000-2007 (CFA million)


Year
Clothing


and textile
Other


manufacturing
Total


manufacturing
2000 0.00 4'342 43.42


2001 0.00 14.85 14.85


2002 0.00 385.13 385.13


2003 0.00 2'124.61 2'124.61


2004 0.00 1'213.77 1'213.77


2005 0.00 2'484.66 2'484.66


2006 0.58 3'884.91 3'885.49


2007 1.73 1'210.53 1'212.26
Source: République du Sénégal, 2007.

Annex 6. Share of exports to China in total Senegalese exports, 2000-2007


0,0050%0,0017%
0,0423%


0,2192%


0,1178%


0,2378%


0,4115%


0,1280%


0,0000%


0,0500%


0,1000%


0,1500%


0,2000%


0,2500%


0,3000%


0,3500%


0,4000%


0,4500%


2000 2001 2002 2003 2004 2005 2006 2007



Source: République du Sénégal, 2007.


42




Annex 7: Senegalese imports and exports with China (CFA millions)


0


20000


40000


60000


80000


100000


120000


140000


2000 2001 2002 2003 2004 2005 2006 2007


senegalese import to China Senegalese export to China


Source: République du Sénégal, 2007.


43




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