THE COTTON AND TEXTILES SECTOR IN TANZANIA: ISSUES AND OPPORTUNITIES Report to the Government of Tanzania supported by the Tanzania Gatsby Trust and the Gatsby Charitable Foundation Tanzania Gatsby Trust Samora/Morogoro Rd 3rd Floor PPF House P. O. Box 8695 Dar es Salaam Tanzania September 2007 i Preface and Acknowledgements This study originates from discussions between the Honourable Juma Ngasongwa, Minister of Planning, Economy and Empowerment and the Honourable Basil Mramba, Minister for Trade and Industry, and Lord David Sainsbury, settlor of the Gatsby Charitable Foundation (GCF), in January 2007. In discussions held in Dar es Salaam, it was agreed that GCF and its associated trust, the Tanzania Gatsby Trust (TGT), would fund an exploratory study of the cotton and textile sectors with a view to identifying issues, constraints and investment opportunities. The focus of the study would be on the long-term potential for a major increase in the output of Tanzania’s cotton and textile sector with a view to maximising its potential contribution to the generation of increased GDP, exports, farmer incomes and manufacturing employment. Terms of Reference were finalised in February and the report was completed by the end of June 2007. It was reviewed at a Stakeholders’ Forum held in Dar es Salaam on September 19th chaired by the Honourable S Wassira, Minister of Agriculture and Lord David Sainsbury. This edition of the report reflects comments and changes agreed at that Forum, in relation to both statistics and institutional arrangements. This report represents the findings of a team comprising of consultants from Golder Associates of South Africa, the University of Manchester in the UK and Oxford Policy Management. The individuals concerned were: Golder Associates: Bill Berry, John Howcroft, Julian Ward, René Ford University of Manchester (Materials and Paper Dept): Drs Hugh Gong, Richard Kennon, Neil Towers, Pammi Sinha, Mr. Les Downes and Mr Alan Johnson Oxford Policy Management: Tim Ruffer The study was co-directed by Ibrahim Seushi and Laurence Cockcroft on behalf of GCF and TGT. Organisational arrangements were carried out by TGT under the leadership of Mrs Olive Luena. TGT, in cooperation with the Ministry of Trade and Industry, arranged many on-site visits for which the consultancy team is very grateful. The majority of these are listed in an Annex to this report and the team is likewise extremely appreciative of the time and interest shown by the many individuals who participated in interviews and meetings. It was particularly helpful to have two stakeholder meetings with cotton growers, ginnery owners and farmers in both Mwanza and Morogoro and the team is very grateful to the Tanzania Cotton Board and representatives of Regional Governments for arranging and participating in these meetings. The main report of the study synthesises five technical reports which are presented as Annexes to this report (see Table of Contents). It is intended to comprise a basis for discussion which will lead to an Action Plan for the sector to be further developed through a Stakeholders Forum to be held later in 2007. Front cover images Top – supplied by Golder Associates Bottom – supplied by CAMI, Dar es Salaam ii Table of contents Preface and Acknowledgements i List of tables, figures and boxes iv Abbreviations v Executive summary 1 Background 1 Development strategy 2 1 Introduction and objectives to the study 4 2 Sector performance 6 2.1 History of the sector 6 2.1.1 Cotton 6 2.1.2 Textiles 7 2.2 Patterns of production, consumption and trade 8 2.2.1 Cotton 8 Yields and quality 9 Exports 10 2.2.2 Textiles and clothing 11 Sectoral composition 11 Production capacity and quality 12 Employment 13 Exports 13 Domestic consumption 14 Second-hand garments 15 2.3 International market access and prospects 16 2.3.1 Regional market access 16 2.3.2 International market access 16 2.3.3 The global cotton market 17 2.3.4 Niche cotton markets 18 3 Constraints and challenges 20 3.1 Government policy 20 3.1.1 Taxation 20 3.1.2 Tariff policy 21 3.1.3 Export Processing Zones and Special Economic Zones 21 3.1.4 Business environment 25 3.1.5 Supply chain management and infrastructure 26 3.2 Cotton 27 3.2.1 Summary of constraints and possible solutions 27 3.2.2 Research 28 3.2.3 Extension 29 3.2.4 Seed production 29 3.2.5 Access to finance 30 3.3 Textiles 31 3.3.1 Skills and labour productivity 31 3.3.2 Design 31 iii 3.3.3 Technology and quality 32 4. Sector goals and strategy 33 4.1 Goals 33 4.2 Cotton strategy 33 4.3 Textiles strategy 34 5. Policy recommendations 37 5.1 Trade policy 37 5.2 Tax policy and fiscal incentives 37 5.3 Regulations and business environment 37 5.4 Infrastructure 38 5.5 Research, extension and seed production 38 5.6 Institutional development 38 5.7 Human resources 40 6 Investment plan, financing sources and socio-economic impact 41 6.1 Investment plan 41 6.2 Financing sources 45 6.3 Socio-economic impact 45 References 48 Annex A. Cotton Report Annex B. Analysis of the Tanzanian Cotton Textile Industry Annex C. Supply Chain Management Challenges Annex D. Design Capabilities Annex E. International market Access and Prospects iv List of tables, figures and boxes Table 2.1 Tanzania seed cotton production 1990/91 to 2006/07 6 Table 2.2 Cotton yields comparisons in selected countries (kg of lint/ha) 9 Table 2.3 Exports of cotton lint 10 Table 2.4 Shares of major markets for Tanzanian cotton (%) 10 Table 2.5 Imports of second hand garments 15 Table 3.1 Taxes and levies on cotton production 20 Table 3.2 Rental/Lease Rates of Tanzania/Kenya EPZ Facilities 24 Table 3.3 Ease of doing business: world rankings for Tanzania 26 Table 3.4 Summary of constraints faced by farmers 28 Table 3.5 Summary of constraints faced by ginners 28 Table 6.1 Aggregate Indicative Investment Costs: 42 Table 6.2 Public Sector Investment Plan 44 Table 6.3 Socio-economic impact 46 Figure 2.1 Textile value chain 11 Figure 2.2 Composition of Textiles exports 2000-04 14 Figure 2.3 Production and export of cotton lint 15 Box 3.1 Millennium Business Park 23 Box 3.2 The Clothing and Textile Centre in Mauritius 24 Box 5.1 The Tanzania Cotton Board 39 Box 5.2 The RATES Cotton Programme 39 v Abbreviations ACP Africa, Caribbean and Pacific AGOA Africa Growth and Opportunity Act CAD Computer-Aided Design CDF Cotton Development Fund CET Common External Tariff CFA Coopération financière en Afrique centrale CIF Cost, insurance and freight CMT Cut, make and trim COMESA Common Market for East and Southern Africa CRDB Cooperative and Rural Development Bank CTC Mauritius Clothing and Textile Centre EAC East African Community EBA Everything But Arms EC European Commission ECGA Eastern Cotton Growing Area EO Extension officer EPA Economic Partnership Agreement EPZ Export Processing Zone EPZA Export Processing Zone Authority EPZDA Mauritius Export Processing Zone Development Authority EU European Union FDI Foreign Direct Investment FLO Fairtrade Labelling Organisations GDP Gross Domestic Product GSP Generalised System of Preferences ha Hectare vi IARI Ilonga Agricultural Research Institute kg Kilogram LDC Least Developed Country MBP Millennium Business Park MFA Multi Fibre Agreement MFN Most Favoured Nation NDC National Development Corporation NIFT India National Institute of Fashion Technology OECD Organisation for Economic Cooperation and Development p.a. Per annum RTA Regional Trade Agreement SACU Southern Africa Customs Union SADC Southern Africa Development Community SEZ Special Economic Zone SME Small and Medium Sized Enterprise TCB Tanzania Cotton Board TIB Tanzania Investment Bank TRA Tanzania Revenue Authority TSDU Textile Sector Development Unit UK United Kingdom UKRS Ukiriguru Cotton Research Station UNICEF United Nations Children’s Fund US United States USAID United States Agency for International Development VAT Value Added Tax WCGA Western Cotton Growing Area WTO World Trade Organisation 1 Executive summary Background a) This report examines the current situation within the cotton and textile sector in Tanzania with a view to identifying where the comparative advantage of the sector lies, the policies which would contribute to realising this advantage and the steps which might be taken to achieve it. b) Whilst cotton production in Tanzania has close to a 100 years the trajectory of production over the last 50 years has been mixed. A set of liberalisation policies introduced in the last 15 years has had significant success in raising aggregate production levels of cotton and re-introducing private sector investment into manufacturing. Some investment in the last five years has been designed to access the US market under AGOA, and current trade arrangements with the EU have also led to an expansion of exports (from a very modest base). Exports within the eastern region of Africa (under SADC and EAC arrangements) have also been modest, though Tanzanian kitenge and kanga cloths are valued in neighbouring countries. The informal sector is important in the context of the domestic clothing market but is limited by the market dominance of the second-hand clothes market, which is highly valued by consumers. The craft market is also limited but some SME suppliers are acquiring a niche in international markets, though the full potential of this is held back by a limited set of design skills. c) A further increase in seed cotton production is central to the development of the sector, and could be a valuable source of additional income to farmers. Current input supply and marketing arrangements in the sector have been shaped by policies which have placed private sector ginneries in a dominant position, and they have been the key players in creating additional demand amongst farmers.