Economic bulletin for Africa: vol. XI, no.1

ECONOMIC COMMISSION FOR AFRICA

ECONOMIC BULLETIN FOR AFRICA

Vol. XI. No.1

UNITED NATIONS New York, 1975

EXPLANATORY NOTES

The designations employed and the presentation ofthe material in this~ulletln do not imply theexpression of any opinion whatsoever on the partofthe Secretariat of the United Nati ms ccoceeo- lnq the legal status of any country or territory or of its authorities. or concerning the delimitation of the frontiers of any country or territory.

The foll<WVing symbols have been used throoghout this Bulletin:

o U =not avaitable or not pertinent;

_ "" nil or negligible

In referring to combinations of years. the use of an obligue stroke _~e .q, 1972/73 -signifies a twelve-month period (say from 1 July 1972 to 30 June 1973). The use of a hyphen -e.q, 197Qoo1973-nor•

mally signifies either an average of,^IXa total for, the full peri-od of calendar years covered (includ- ing theend years indicated}, Unless the contrary is stated. the standard unit of weight used thrCJtJd'lout is the metricton. The definition of .. billion" used throoghout is one thousandmillion.

Mine.- discrepancies in totals and percentaqesare due to rounding.

Symbols of the United Nations are composed of capital letters combined with figures. Mention ofsucha symbol indicatesa reference to a United Nations document. United Nationsdocuments symbolswhIchare preceded by the designation EICN.14/ • • •indicate that thedocumentswere

issued undertheauspices of the Econojiic Canmissionfa,Africa.

E/CN.141644

I

UNITED NATIONS PUBLICATION Sales No. :E .75.II.K.6

Sales price: US $ 5.00 (or equivalent in other currencies)

TABLE OF CONTENTS

Terms of reference of the United Nations Economic Commission

For Africa • p.v

Garment making in a low-wage nation:

The case of Ethiopia

• by Anthony Bottomley 1

Agricultural development through multilateral co-operation

and trade expansion: Possibilities for Dahomey. Niger and Nigeria

• by Joint ECA/FAO

Agriculture Division (ECA) - 12 The role of women in African development

• by African Training

and Research Centre for Women.

Human Resources Development

Division (ECAl . 57

IE

•

1,'_ ._.._

..

TERMS OF REFERENCE OF THE UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA·

1. The Economic Commission for Africa, acting within the framework of the policies of the United Nations and subject to the general supervision of the Economic and Social Council, shall, provided that the Commission takes no action with respect to any country without the agreement of the Government of that country:

fa) Initiate and participate in measures for facilitating concerted action for the economic development of Africa. including its social aspects, with a view to raising the level of economic activity and levels of living in Africa, and for maintaining and strengthening the economic relations of countries and territories of Africa. both among them- selves and with other countries of the world;

(b) Make or sponsor such investigations and studies of economic and technological problems and developments within the territories of Africa as the Cpmmission deems appropriate, and disseminate the results of such investigations and studies;

(c) Undertake or sponsor the collection, evaluation and dissemination of such economic, technological and sta- tistical information as the Commission deems appropriate;

(d) Perform, within the available resources of its secretariat, such advisory services as the countries and terri- tories of the region may desire, provided that such services do not overlap with those rendered by other bodies of the United Nations or by the specialized agencies;

(e) Assist the Council at its request in discharging its functions within the region in connexion with any eco- nomic problems, including problems in the field of technical assistance;

(f) Assist in the formulation and development of co-ordinated policies as a basis for practical action in promot- ing economic and technological development in the region;

(g) In carrying out the above functions, deal as appropriate with the social aspects of economic development and the interrelationship of economic and social factors.

2. The Commission is empowered to make recommendations on any matter within its competence directly to the Governments of the members or associate members concerned, to Governments admitted in a consultative capacity, and to the specialiZed agencies. The Commission shall submit for prior consideration by the Economic and Social Council any of its proposals for activities that would have important effects on the economy of the world as a whole.

3. The Commission may, after discussion with any specialized agency concerned and with the approval of the Economic and Social Council, establish such subsidiary bodies as it deems appropriate for facilitating the carrying out of its responsibil ities.

4. The geographical scope of the Commission's work shall be the whole continent of Africa, Madagascar and other African islands.

5. Membership of the Commission shall be open to: Algeria, '!./ Botswana,!!./ Burundi, '!.f Cameroon, ,"-I

Central African Republic, f.../ Chad, £1 Congo (Democratic Republic of), ,"-f Dahomey, ,"-f Equatorial Guinea, U

Ethiopia, Gabon, ,"-f the Gambia, !if Ghana, Guinea, '!./ the Ivory Coast, ,"-f Kenya, U Lesotho,!!.f Liberia, Libya, Madagascar,,"-f Malawi,gJ Mali, ,"-I Mauritania,!lf Mauritius, LI Morocco, Niger, ,"-f Nigeria,,"-f People's

These terms were adopted by resolution 671 A (XXV) of the Economic and Social Council of 29 April 1958.

They were amended by resolution 974 0 (XXVI) of 5 July 1963 and by resolution 1343 (XLV) of 18 July 1968.

v

Republic of the Con

po,

6. The following shall be associate members of the Commission:

(a) The Non-Self-Governing Territories situated within the geographical area defined in paragraph 4 above;

(b) Powers other than Portugal responsible for international relations of those Territories.

7. Representatives of associate members shall be entitled to participate without vote in all meetings of the Commission, whether sitting as commission or as committee of the whole.

8. Representatives of associate members shall be eligible to be appointed as members of any committee or any other subordinate body which may be set up by the Commission, and to hold office in such bodies.

9. The Commission shall invite any Member of the United Nations not a member of the Commission to participate, in a consultative capacity, in its consideration of any matter of particular concern to that non-member, following the practices of the Economic and Social Council.

10. The Commission shall invite representatives of specialized agencies to attend its meetings and to partici- pate, without vote, in its deliberations with respect to items on its agenda relating to matters within the scope of their activities: and it may invite observers from such other inter-governmental organizations as it may consider desir- able, in accordance with the practices of the Economic and Social Council.

11. The Commission shall take measures to ensure that the necessary liaison shall be maintained with other organs of the United Nations and with the specialized agencies, with special attention to the avoidance of a duplica- tion of effort. The Commission shall establish appropriate liaison and co-operation with other regional economic commissions in accordance with the resolutions and directives of the Economic and Social Council and the General Assembly.

12. The Commission may establish such liaison as it deems appropriate with inter-governmental organizations in Africa operating in the same field.

13. The Commission shall make arrangements for consultation with non-qovemmental organizations which have been granted consultative status by the Economic and Social Council, in accordance with the principles approved by the Council for this purpose.

14. The Commission shall adopt its own rules of procedure, including the method of selecting its chairman and other officers.

15. The administrative budget of the Commission shall be financed from the funds of the United Nations.

16. The Secretary-General of the United Nations shall appoint the Executive Secretary of the Commission.

The staff of the Commission shall form part of the secretariat of the United Nations.

17. The Commission shall submit to the Economic and Social Council once a year a full report on its activities and plans, including those of any subsidiary bodies. For those years in which the Commission does not hold a session,

the Executive Secretary shall submit to the Economic and Social Council a full report of its activities and plans, lnclud- ing those of any subsidiary bodies, after approval by the Chairman of the session in question and circulation to Govern- ments of member States for their comments and any necessary modifications.

VI

.*

18. The headquarters of the Commission and its secretariat shall be located in Africa. The site of the head- quarters shall be decided by the Economic and Social Council in consultation with the Secretary-General of the United Nations.** The Commission may in due course also establish such subregional offices as it may find necessary.

19. The first session of the Commission shall be called by the Secretary-General of the United Nations as soon as practicable, but not later than the end of 1958. The Commission shall at each session decide upon the locality of the meeting of its next session, due consideration being given to the principle that the Commission should meet at its headquarters or in the different countries of Africa.

20. The Economic and Social Council shall, from time to time, make special reviews of the work of the Commission

At its 1018th meeting on 29 April 1958, the Council decided to choose by ballot among the five sites proposed as the headquarters of the Economic Commission for Africa. Addis Ababa was chosen as the headquarters of the Commission.

iLl ^{Member of the United} Nations since 1962.

QI _{Member of the United} Nations since 1966.

r,,1 ^{Member of the United} Nations since 1960.

sJ./ ^{Member of the United} Nations since 1965.

~I Member of the United Nations since 1958.

U Member of the United Nations since 1963.

gj Member of the United Nations since 1964.

hi Member of the United Nations since 1961.

U ^{Member of the United} Nations since 1968.

L! ^{See resolution 974 0 IV (XXXVI) of the Economic} and Social Council, of 30 July 1963.

~I Formed on 26 April 1964 by the union of Tanganyika and Zanzibar, which became Members of the United Nations in 1961 and 1968 respectively.

VII

VIII

NOTE TO CONTRIBUTORS

1. The Economic Bulletin for Africa is published twice a year - April and October. In this connexion, contributors are expect- ed to submit their articles (of 20·30 pages) at least three months before the date of the publication of the issue in which they want their contribution to appear.

2. Three copies of any article should be submitted. All copies must be typed on one side of the paper only and record the name of the author clearly.

3. Statistical tables should be clearly headed and the reader should be able to understand the meaning of each row or column through clear explanations of the symbols, etc., used. Units of measurement, base dates for index numbers, geographical area/areas covered and sources should be clearly stated. Authors are fully responsible for the accuracy of the data and for checking their proofs although supplementary notes on the methods used will be welcome.

4. Diagrams should be clearly drawn and accompanied by the basic statistics that were required tor their preparation: the axes must be clearly labelled, and the reader should be able to understand its meaning without searching in the text for its explanation.

5. Bibliographical references should be carefully checked, and complete in respect of the year, place and author of publicatlon.

Postal address:

All contributions should be sent to the Editor, Economic Bulletin for Africa,

United Nations Economic Commission for Africa, P. O. Box 3001

Addis Ababa, Ethiopia

GARMENT MAKING IN A LOW-WAGE NATION THE CASE OF ETHIOPIA

• by Anthony Bottomley

*

G,croent mo'.king is the third ffic.jor component of the Ethiopicn textile in- dustry. But unlike the other two, cotton gr01ling and spinning plus we2.V- ing, the outlines of its costs ~d

revenues are not e~sily discerned.

There is a multiplicity of producers

m~cing different things in different W2.yS. Up to now, whether by aco i.derrt

or design, they have succeeded in ob- scuring their fin=cial positLon, ~I

Not thd this necns thc.t they neces··

sc.rily preside over the 2.ccurnulc.tion of abnor-nc.L profit s; if most of them more th= cover the opportunity cost of their ccpi,t<11 one would be sur- prised. But, fortun2.tely, we do not need to know in det2.il how they 12.Y

out their costs or gather their reve- nues in order to formulde pl<:usible policy recommend2.tions for the devel- opment of the g2.roent mo.king industry in Ethiopic. as well as in other low- wc.ge 2frio= countries. Let us, then, proceed to deploy our frc.gnent,'.I'Y in- formation Q.S best we can under the headings: (1) types of production; and

(2) export promotion.

1. TYPES OF PRODUCTION Fc.ctories for m~ing gc.rments on ccny s";Je··;::;8'-".ll in the hc.nds of for-- eigners. They usuc.lly, though not ,-,lwc.ys, comprise purpose-built build- ings ',ith cO number of knitting mr.ch'i.ne s , or cutting, sewing ~d pressing m&~

chines r.nd irons. They pr-oduce Hoven

outerwe~r ~:nd knitted oute~~ear end unde rweur , All operu.te 2.-t well below capacity, no matter how defined, ,end production could e<:sily be expanded - doubled, trebled, perhc.ps qucnrupled.

'Thy, then, is this so? Tfhy doesn't muxQerous price competition elininGte c.ll but the fittest? To begin with, the Ethiopicn producer operc.tes behind a protective tc.riff wc.ll, though he does himself hc.ve to pc~ tariffs on

his imported inputs. Nevertheless, he does cppe ar- to receive an effective mar- gin of protection, c.lthough most com- plain thc.t it is not enough. But this need not surprise us unduly, and 2.t least one mnjor producer p Lans for ex-·

pansion under the present tariff regime.

Notwithstanding the merits or de- merits of the tariff system, iuports do continue to penetrate the home market in substantial quantities. The Technical Agency of the Ethiopicn Goverr.ment olaims that, out of total domestio con- sumption of some 9 million reGdy-00de pieces in Ij70, ~I more then one third were imported. The situction is not GS

serious ~s ell th~t, however, if we con- sider that these imported garrnent e con- tainea. only Ij.5 million square metres of imported =d lcnitted cloth, or less th~n

3 per cent of the estimQted totGl do~es­

tic consumption of 165,020,000 squnre metres in 1972, <:lthough the v~lues of iraportecl garments ar-e higher since the cloth will normally represent considerG- bly less th~ 50 per cent of their c.i.f.

vo.Lue , :../

Never-t he Les s , i t does seem tho.t Lm- ported gnrments c.re sufficiently differ- entio.ted in terms of style ~nd qu0lity to climb the very considerc.ble tariff ,,10..11.

1m

But the f~ct remains th~t the Ethiopic.n producer does not seem to try to elimi- nc.te this foreign competition by lower- ing his prices in order to use his full

c2.p~city. Perho.ps he feels th2.t his products are sufficiently differenti2.ted in style ~nd quc.lity for e~ch to he~le its own little market which is more or less

fixed in extent. It c.ppears, for excr<- ple, thd one mcnuf'ac'tur'e r turns out more th~n 400 different styles of gc.r- ment, and no st otters offer an e;ctensive

r-ange , In these c i.r-cums-sances , Lotrer-

prices might not le2.d to compens0ting

11 See notes at t~8 end of each article.

incrC~'~S8S in 5,-,le80 Den:.nd nc.y ~)G ine-·

Lr.sti c for e"ch of these different types of gc~.rl71en-t.. ~il-tez-nc.tS.ve Iy , evon if the n:".npf,-',oturer Coes feel th,-~,t he coul.d sell consider"::,,~01ymore if he Lowered his prices^J he racy "be rc;s-trc'.ined by the 1:no1,'Jl e c1g e thC'..t his competitors miGht

\Tell do the s,',me, in ;,hioh cr.se both

Houl(~ 12;11(1 up sulling only slightly nore

;~,t con8ic~erc,~Jl~" Imfer prices, per-hc.p s even ,::',t r. loss.

EconO;~1ists \Jill recoe,nize in this the aellmring influence of vfh2.t is cr.LLed il:1perfoct Gor'1pptition. Under such cir- cums tr-ncen1 oonsider<"~Jle potentL.._.....L perv- ::-;ists for exp::.11ding; dor.lestic production ,ct Lcuer prices wher-e ",lditionccl or n:::-rgin,.,l cos't s per g2.rment produced ae em very Lovr , The Ethiopicn Govern-

",ent SUTve;;-- of I!c,nufc,cturing for 1970/

714J Lndicr.t ed thcet cap.i,t d investment per h~orker HL',S -ccound 7,000 l:::thioric..ll dol.Lr.r-s (,1"th7,OOO). But suoh

informcetion ces the 1973 l~ssion of the Intorne:-tionc,l 'Joo L Secretc..ri<:'.t wo.s c.IJle to 01iJt~'.in shoved thC',t C',dditionc:.l or r12T- ginc,l Lnvostnerrt per wor-ker- over the pr.st t\IO yeers vrr.s only ~Ethl,OOO,

includ-ing import duties on mcchi.nery ,

2/

'cnd, SUDS ',G 10" r.s '!;Eth500 have oeen reportec~. ~I This marked differ- ence loe-tHeGn the high aver-age end 10H ncerginccl ir.vestment per "orker could ,_,rise from the fc',ct thnt the foreign entrepreneurs "ho estceblished the plents in question Dey h.we felt 'thr.t;

it "ces simply not "orth~,hile bringing themselves, their men~gers end skilled meohc;nios to Ethiopi~ unless they pro-

vide~ ~~ the outset for eventuc,l su~

stcnti~l production. FGotory shells

n~'.y thus hr.ve been built on ^2. eoc.Le

consider~blyin excess of iTIQedio.te needs. This floor spcece, "ith its ces- eocL...tec'_ mcncger-Le.L end mr.Lrrtenunce

cc,V-Joili tiesI f,ley be ",hc,t they refer to irhen they speak of "ocpao'i ty", cl- though they f,lC,y not fill it up Hi th seHing n.ichi.nes and the like d the outset. They kno'" thr.t these machine s (Jill "be e2,s~r to ccqui.r-e ^2.8 and vrhen

\

s_,lllel. stc.f'f oould mccu"ge end mc,lntc,ln ItheD thenselves, or tr2.in Et hi.opd.ens so

to do. But they still expc;nd SlOHly

bec~use they compete imperfectly, for the recesons which we hceve outlined.

But should a Government st,cne' by

~nd see this process of impor~ substitu- tion c"rrestecl irheri it is less thc,n two

thir(~.s complete wher-e gzz-merrt making is concernec? If not, what should it do?

It could, of COL1rSe, _r~ise tQriffs further on imported g~rments of 8,11 kinds. Alternatively, it oould intro- duce strictly limited quotces on gcerment imports. Belt this last mecesure genercelly leads to the licences involved ceoquiring

~ velue "hich bring undeserved ",indfall profits to their owners, _{and r} perh~ps,

corruption to the licensing process itself, although regul2X reccell cene! re- 2uction of these quotas ~ the Govern- ment m~y eliQincete this tendenoy.

Dut if imports ~re reduced in ~his

wv,y, "hat will happen then? No one can be sure. Don8stic producers may tcl<e up the mc~ket vC1ov,ted by the importer ~t

present prices, moving forwcrd tent~­

tively so ces not to upset the delic~te

eclanoe of imperfect oompetition. They may, on the other hcnd , Lower- pr-Lces in order to gr~sp more th~n thGir sh~re of this new mar-lcet , or they IiJc.y feel tlet, lJi th expanded sales, 11 new, lm/er-priced imperfect equilibrium ,dll yip Ld "r-er.son-.

ab'Le" profits, or, again, new producers

m~y crowd in to fill the g~p. Fincelly, there is allJays the possibility thcet Ethiopic;n producers would tnke a£lvc.nt~ge

of reduced foreign oompetition due to higher tccriffs or quotas to r-a'i se th0ir prices under some t~cit understQnding, although the multitude of ar-ti aan t;ci- lors 11ill c.lways mount <:'..n intensely

oompetitive guard over 2~y such tendency, even if their own effioienoy =d qU2,lity

ertcndur-de cannot actually foroe the priG6 of f'ac't or-y produots dovm,

But no mcetter whnt mcey hceppen to prices, the direct effect of further iLl"

port substitution, no nutter how it is cechieved, "ill be to increase eQployment in the gccrment makf.ng industry. It should, of cour-se7

oe

cTtificL'.lly r educed cost of foreign ex-

ch~nge, then the scope for emploJnTIent credion elseuhere through non-d.nf'Lc--

tion~ry Donet~ry exp~nsionwill be less, c.s 'Jill be the chance of expr.nd i.ng tror-k for expor-t ..

A solution to the problem of "heth·- er or not to incre~se t~riff8 on foreign gCTments, or to impose quotas on imports, is1 then, feT from c Lear--cut ; This is p"rticuL,rly so if tre r-emember- thct 2.ny

rec1uction in prices which might conceiy.·

"bly tdee p^Lr.ce as ^2. result of using fixed, overhecn investment more fully in the fE.ctories r.s import s er-e r-epl.aced ,

"ould be mitig~ted by the probo:ble need to trcensfel' revenue..rc,ising from tariffs to excise tc.xes. Then too, tho EthiopiC\n consumer would hGve less choice of style and qur.H. ty of garment D.nd the br-ccd.ng effect cf this ~d price competition on the Ethiopi~ producer would be lost.

In this connexion Glso, it should be re- membered th~t some producers add so little to the vaLue of the garment by the work which is "ctually done in

E~hiopia that little social gain c~ be expected from expansicn in their o:cti- vities behind ~ higher protective "all.

It is, then, extremely difficult to give o.c1vice on to:riff or quota policy.

But econorIic theory does tell us th~t

protection is soci~lly disGdv~tageous

except in the following circumsto:nces:

the industry being protected is in the infent st _'.ge; economies of scale can be o.chieved which might other"ise not be reo:chedj the industry gener~tes what

~re called extern~l economies, such ^QS the provision of skilled labour to other types of prcducersj or one or more of

tha f'c.ctcr-s of production ar-e artifi-

ci~lly over-priced. None but the l~st

of these c~n re~lly be "dduced in sup- port of higher tariffs for Ethiopi~

gc',rment n.Jcer-s , The industry is no longer inf~nt; econonies of scnle 2r8

very slight indeed,

7.

The case for protection must there- fore depend upon the shadow-pricing of labour. But for the 6 apparel-making and the 19 knitting mills reported on in the 1970/71 Annual Survey, _~/ less

'thr.n c. quar-t.er- of the vc.Lue added \o12.S contributed by Ethiopian 12.bour, while foreign man~gers end skilled labour con- tri buted c.Lmcst hc.Lf' 2.8 much 2.8 Et hi op.i.an IG"bour, und 2. significant proportion of the rost irr.s potentLc.L'ly remi ttc,ble c:cs interest ~nd dividends on foreicn c~pit~lt

since more thun three qUGrters of the c2.pitGl for the IS reporting !cnitting mills ~d more th~ hulf of the c~pitGl

of the 6 c:cpparel m~ufacturers w~s from Qbro~. ~I The signific~ce of sh~do,,­

pricing labour "ould, no doubt, be in- creased if the gGrment mGkers "ere using domestically produced rc.w materi2.ls, but often they cere not , For the six report·- ing cppar-e I conpcme s in the AnnuaL

Survey, .1:.01 the proportion of imported raw materials in the total inputs \lC\S more tho.n t1l0 thirds, c:lthough fcr lcnit- ting it "e.s only" quo.rter. One pro- ducer at le~st imports liter"lly every- thing from ubroen before se"ing the pieces together in Ethiopi2..

But even when the manuf'ac^turer- does use domestic rGw materi~ls, th~t does not necess~rily me~ thGt he gre~tly

reduces the social opportunity cost of his oper~tions. Cotton spinners ~nd

weavers are operGting c.t close to full cGpacity c.lready. ExtrG c"pe.city would

h~ve to be installed if dem2end "ere to be increased. It ce~ be s~id, however, tho:t this would employ more labour "ith its rel~tively low opportunity cost, although it should be remembered th"t spinning and we~ving ~re by no means ~s

labour intensive as in garment me.king it se If. Moreover, Ii ttle ccn be expected in this respect from an increase in the domestic demand for ra1l cotton. This should no" comm~d " price abroad equal tc "hatever it can e ar-n d home. Thusr only greater utilization of the lGbour component in spinning and weaving is likely to show " social return from a shift from imported to domestic r"w mGterials on the part of gGrment makers.

But that is, of course, better thGn nothing.

All this, coupled with low c.i.f.

prices, no doubt led Guisinger.12¹ to conclude th~t the Domestic Resouroe

Cost (DRC) r~tio WGS 2.26 on men's shirts Uld 1 .. 70 on ['len's suits, althol;.gh he did concede thGt, if capital invest~ents were

3

disreg~ded, the DRC ratio on shirts would fall to 0.77 a figure which does seem to reflect more closely the ICo~e!!­

,t.i.2J: comparative cd.varrtcge of Ethiopia in such ~ low-skill, lubour-intensive industry nS gnrment n2king, where the margin2.1 investment per worker ccn be extremely low.

It is then, ns hus been said, ex- tremely difficult to mnke clear-cut re- commendations where protection is con- cerned. in lmi tting End gc.rment maki.ng, Suffice it to sny th~t, where less than 5 per cent of total cloth ccnsumption

"ppec.rs to be in imported ready-made garments, ns it is in Ethiopia, the issue mny not be a purticularly impor- tc.nt one.

Artisan production comprising small lcnitting installations, shirt-makers and

t~ilors prolifer~tes throughout Ethiopia c.s it does in many Afrio2.ll countries. A second-hand flat-bed lcnitting machine, or n pnir of cutting shears, a sewing machine and en iron can be installed blf ..nyone "ith a few hundred dollars at his di.spoee.L, Sc,lesmen, cloth suppliers, money-lenders, relntives and friends or even be.nks may be persuaded to provide a loan. Additional cap~city continues to be installed despite a gener~lly

existing excess capacity, becnuse oppor- tlUlities open to the new entrants are sh::-.rply limited elsewhere. This ex- plnins, too, the proliferation of taxi drivers and even shoe-cleaners.

But, as already indicated, the g=ment making industry is losing part of its market to foreign competition, r.Lbeit only n smc.Ll, part. Garment

mc.ker-sI inventories cooumujat e , They work less -hhc.n they would if the sort of demand which could compensate them meagrely for the loss of their virtually involuntnry leisure could be sustained.

There is, in shcrt, a tremendous pent- up productive cnp~citywhich lacks only a market in the c,rtis2.ll garment making industry as well es in the factories.

Further import substitution would as- suege it to but n small degree, as would the slow pace of ~dv2.llce embodied

in the income-elasticity of demand for

4

textiles in " rising G}ll'. Given the ease of entry into the garment maki.ng industry, an Q.ssoci~ted immense pro- ductive capacity will still be dammed up behind Em inability to find addi- tional markets. If this force is ever to be released, Government intervention must playa substantial role.

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•

•

•

•

~

_•

"',

_• ^• _-"-

_•

f- '" ^if>

"

FIGURE

COMPARISON IN VOLUME OF CLOTHING IMPORTS INTO THE UNITED STATES AND THE COMMON MARKET FOR THE YEAR 1968

34.!l %

35.!l%

Hong Kong

Other indultrial countri••

14"/0 EOltern

block countries

Japan 27%

USA EEC

SourCI' National Economic Devllopmlnt OfficI, Clothing EDC, The Clothing Indultry in thl Cammon Mamt

(Glneva, Copelin Alsociat. ., June 1971), p.17.

5

(')

o s:: ~

en

o

o

~

rIT1

<

~ Z

-I ::I:

fTI

...-

I-~ - - - -- - - - f---~---

Figure

2

- - - . _ - - - - - - - ~~-

-

(')

0r

f-- ~ - - - - ~ - - - - - - - -I::I:

Z

r - C)

-

I _{f -} e-- ^C/)-f

::u

-<

2

- -

-

^...-

-

1----

.--

o

r

3

2 4 5

Hourly 6 rafe in Ethiopian Dollars

~

Source: Tables 7-11 HistoQtOms show maximum and minimum rates lor all but Poland and Grooel.

Note: Walle levels quoted lor USA, UK, EEC, EFTA are lor 1968,the

EthiOPIO Poland Greece UK EfC EFTA

others for 1972.

USA Ealt

USA Mid- Ealt

USA

Sout~

fait

II. EXPORT EXPANSION

The apportionment of clothing mar- kets in the United States and western Europe Gmong producers in different parts cf the world is shown in figure 1.

Clearly, the hitherto low-wage produc- ers of Hong Kong and the Republic of Korea have played a large part in the imports of these two areas.

The reason is that making-up forms considerably more than half the ex- factory price of a garment in a high- wage country. It is typically less than half in a low-wage country. At least this is true of the cost struc- ture outlined in table 1 for woollen

~nd semi-woollen suits; and whQt is true of a relatively high raw·-materinl- cost article, such as wool, must be more

emph~tically true of cotton and synthet- ic goods.

It seems, then, that low labour charges favour making-up in low-welge countries. Direct labour costs for mcking--up represent 20 per cent of the

ex-f~ctoryprice of the typical garment in Britcoin, E/ against only 11 per cent in Ethiopia.~/. This is because "the basic item LSi£/ of equipment in cloth- ing manufacture is still the sewing ma- chine and is likely to remain so for the foreseeable future, so that little re- duction in the current ratio of labour costs to total costs can be expected". ~/

Technology in the apparel industry is, then, substantially the same in both developed and developing countries, give or take some varic,tions in cutting machinery and the automating of material flows between operators, ~ it is

highly labour-intensive. Thus, the comparative wage structures outlined in figure 2].5./ graphically illustrate Ethiopia's potential comparative adv~­

tage in this field, if only it could equal the throughput times for different garments which, in general, it is as yet unable to do. 16/

The same argument applies, although with less force, to knitting. Differ- ences in machinery and work-force capa- bilities did allow the United States

worker of 1963 to produce between three and four times as much value added as his Ethiopian counterpart in hosiery.;2/

But even where the European or United States worker can manage to produce up to four times as much as an Ethiopian - and generally it is not nearly so much as that if the throughput times are any- thing to go ~ - this is not enough compensation for the fact that wages are up to ten times as high in Europe as they are in Ethiopia and more than twenty times as high in the United States (see figure 2). Thus, to set out the situation in these terms is to explain figure 1. The East Asian coun- tries which broke so heavily into the garment markets of the West during the nineteen-sixties did so on the basis of wage levels which were close to those which now obtain in Ethiopia. But were is the operative word here. They are no longer.

By 1968 the average manufacturing wage stood at the equivalent of circa

'~Eth40 an hour in the Republic of

Korea, 3.'2/ and Hong Kong is now reputed to have wage levels second only to Japan

in the area. By now, Korean wage levels are certain to be a good deal higher than those given above, and by 1972 apparel companies in the United States were finding that they had to pay the equivalent of '~EthO.60 an hour in Belize, close to ~EthO.70 in Costa Rica,

'~EthO.80 in Trinidad, 1lEthO.90 in

Honduras and ~Ethl.06 in Mexioo. Never- theless, the levels of earnings in the same industry in the United States re- mceined between 5 and 7.5 times the wages in the less developed oountries.12/

The consequence is that the garment- exporting countries of the 1960s are no longer providing the bargains that they once did. Footloose multinational compa- nies engaged in the sale of garments, particularly women and children's wear in the United States and Western Europe, are now on the look-out for new sources of supply. At least one Ethiopian gar- ment manuf~cturer has nlready been

approached by foreign buyers, 2()/ and i t is the foreign buyers who con open the flood-gutes for Ethiopiu's dammed-up potential garment supply. But it must

7

Figure 3

EXPORTS OF SWEATERS FROM THE REPUBUC OF KOREA AND HONG KONG

(Million pieces)

50

~o

130 120 110 100

Republic of Korea Hoog Kohg

...

:-:.;.:-:-:

...

90 80 70 60 50 40 30 20 10

...

...

h-,-".

1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971

8

5Duree:Harry Bush, \ WS International memorondum, 197 3.

be remembered that whenever a potential clothing exporter pays duties on imports of machinery, oloth, buttons, zips, or whatever, he is incurring a cost which his potential competitor in other parts of the world does not. .~enever the 2 per cent export tax is collected, or whenever there is a delay in the grant- ing of refunds to thc exporter on these duties, to which he is supposedly enti- tled, the garment maker is handicapped in the fierce competition with other low-wage countries throughout the third world. There will, then, be no exports in any bulk until the Government pays close attention to these considerations.

'lut a Government must do more than that, much more. The Republic of Korea expended its exports on the basis of considerable subsidies. It was allowed to enter the market of a country, the United states, which had political and strategic reasons for wonting to smooth its path to wider markets as well as for wanting to furnish it with massive foreign aid, much of Which, however, was in the form of military expenditure.

The exporters of Hong Kong, too, seized upon Commonwealth preference, and fleeing capital, entrepreneurial ability and skilled labour from China in 1948 r6pid- ly produced the necessary supply. Both drew upon an industrious and, by third world stcmdards, wello-educated labour force. Yet, as has been said, their competitive power is fading where gar- ments are concerned as they now reap the fruits of their past advantages and their wage levels continue to riseo

There are, however, plenty of candi- dates waiting to seize the mantle of garment exporter to the lifest; they in- clude other African ccuntries with special trading relations with the

Europe~ Economic Community and similar surplus capacity to Ethiopia, and na- tions which already export goods of the ~equired standard, such as lndiu and Banglclesh whose wage levels are every bit as low as Ethiopia's. Wh~t, the~, should Ettiopia and other Afri- can countries do besides putting their tariff and tax machinery in order, and, perhaps, considering the provision of export sUDsidies which their exctequers may D~rely be able to afford?

one answer is thut they might make things as easy for the foreign buyer as they possibly can, After 0.11, once the export market is breached, the amount of employment opened up to a girl with a sewing or knitting machine is ~lrrost

infinite; witness the example of the bui.Id-sup of sweater exports from the :"ar East illustrated in figure 3. The prize is a considerable one, even though the work may be exacting and the pay lew.

The choice which it offers is better than the existing one between vi.r-t ucLl.y no work at all and no work at aLl.,

But apart from making a start on eliminating tariffs on raw materials, African GoverrlIDents should set up export marketing mcchinery for garments. This might not consist solely, or even pre- dominantly, of government officials. lot could also comprise the buyir:g agents of wholesalers and retailers in foreign

countries. Moreover, African Governments should consider paying part, if not all, of the cost of the agents' operations ',.,.ithin their boundaries. The agents would then De able to Dring the styles, quality and delivery times for Africun garments up to the level which their home market deraand s , This may be a

drawn-out process, but it is unlikely

that government officials can hope to find a substitute for the acumen and expertise of such foreign business buyers in the first instance, not to mention for their commercial interest in success.

The ultimate objective should be for Africans themselves to learn these

marketing skills from foreigners, so

that exports may continue to grow and flourish on the basis of indigenous capabilities. In the neantime, however, foreign purchasing agents may well be the key to an exporting operation, but it is possible and even likely that they will be unwilling to invest the time, effort and money in developing African quality control unless much of their

cost is covered ~t public expense. Such

public expe~se need not be wholly govern- mental. Multilateral and bilateral aid agencies are incre~singlyfavouring loans and grc.,nts for enterprises which "max- imize" employment. The \/orld Bank, in

9

pc,rticuL:r, pL,ns to concentrde more ..nd mOTE: of its lending in fields wher-e emp'Loymerrt provision is li':ely to be:

substcntLr.L, espe ci c.Ll.y in those ooun·

tries wher-e per c aprit,:'. incomes ere crnorig the lo',.ie·sf." The' Bank's "soft"

Lo..ns c,t, sC,y, 0.75 per oent over long periods should therefore be forthcoming for projects whioh oombine muoh employ- ment \dth little cap^i,till investment, if the speeches of its President hilve ilny currency wh~tsoever. ~I

CONCLUSIONS

The EthiopiQn 2nd simililrly pl~ced Af'r-Lc ..n Governments should therefore lose no tirae in preparing plans for the

est~blishment of export agencies,on .rhf.ch foreign buyers may be repre- sented. The plc-ns should be presented to the 'Torld DccnJc =d/or others for f'Lnancing , Contribut ions tovar-ds the locc-l, African expenses of foreign buyers should form p~t of the plans, c'nd the point should be made as forci- bly ws possible thc-t, if Ethiopia is

H'

"nything to go by, mocrginc,l investments of less then 'lUS500 per operator r.r e ,,11 thilt is needed to secure addi.tLona.L empLoymerrti th....'.t vaLue <..l..cl.dec1 of between

~USl,OOO end ~USl,500 may "e gcethereo annuc.Ll.y for ec.ch one of theseiUS500 outlays; thcet the ratio of output to oapi tal investment may go above 3 to 1 on m~rginal investments, if our figures cere to be believed; i11'ld that this riltio is unlikely to rise above 1 to 2 even where average capital cut Lay s o.re involved and tlllderutilization is envisaged ..

At least, this is what we h~ve

shown in this certiole. In other words,

~ Oilse o~n and should be mwde to the c:id agenoies that gar-ment making for export is a relatively simple-teohnology, labour-intensive industry with minimQl possibilities of eoonomies of scale,

th~t it is ideally suited to low-wage African oountries such as Ethiopia, and that suoh skills as are required are already widespread throughout the con- tinent.

* Professor of Economics at the University of Bradford, United Kingdom.

1/ Imperial Ethiopian Government, Technical Aqeocy , ~:"I.i.~~~ry Info~~.!:..!.~~~~Clothing...!.:2­

~ustry in .it.hi oola (Addis ababa , -tar-ch 1':173). p.l.S.

2/ .2P~?.!.!" p.B,

3/ See for example, tnt.er-natione L'voo I Secre- tariat (11:!5)Headquarters, Market Reee ar-ch Department,

~~~omponentsSurvey (IYlen'S Suits: ""orr.en's Dresses) in ,Europe, USA, and Japan (London, October 1'373), passim and Hlnl st.r-y of Commerce, Industry and Tourism and Central Statistical Office, Imperial F.thiopian Government. Annual Survey of l\I1anufacturing Jndustry for 1970/71: Basic Statistical Data for 1970/71

(Addis Ababo, July 1973), items 3213 and 3220 p.3 (mieeoqr-aphed ) ,

4/ "cc , cit.

5/ See ,\. Bond" Garment Specialist, I\~S Mission, Manufacturing Data Sheets (Dec. 1972), International Wool Secretariat, tIk Iey , Yorkshire. United Kingdom.

6/ Technical Agency. op~~., p.2S.

7/ See C.F. Pratten, ~omi~ofScaJe in Ivlanufacturi ng Industry (London: Cambridqe Uo! ver-eity Press., 1971), Chapters 23 and 24, pp. 2 and 3; aJ_

though it does take at least 100 high_production knitting machines to support finishing equipment.

8/ .2£!~.. Part J, p.3 and ir. Part 3.

9/ ~,.£.!..t., Part 3, pp. 2 and 3.

10/ 9~~., Part 1, p.3.

11/ Technical Agency. op. cit. p. 15. The so- called ORe ratio is a calculation in which the costs of the domestic resources going into a unit of output (i.e. a manlS shirt) is divided by the cost of import- ing the same item minus the value of the imported cO'lponents in the domestic production. A low DRC ratio signifies that a country has a considerable comparative advantage in the line of production in question; a high one. that it does not. {See M. Bruno,

"Dome s tlc resource costs and effective protection:

clarification and syo t.hesls". 20~':c:2._c:!. Po2itica~

Eco~?~:; VoL 30, 10. 1 {Januar-y-Febr-uar-y 1972);

pp. ).6-33 and ,'-1. Ur-ono , "The optimal selection of export-promoting and lmport.csubstit.utlnq projects", paper- submitted to the First Interregional Seminar- on Development Planning, held in .'\nl<ara from 6 to 17 September 1965. Issued in tile report of the Semin~r, ~la,~~nq the external~cto~~hni~J

!::.r.:~~.~_'::~~E21~~[Unl ted 'atIons pub!icatl on, Sales .to , 67. II.U.S), PP. 38-135.

12/ .lationa I Economic Development Office, Clothing EDC, \'~age ~t~tSystems ~ the Clothing lr1dus~J. (London: H~O" 197?-) p.2.

13/ Surve y of .._~anufacturin9 1970/71, .£E.:....:.!..~., Part J., p.3.

14/ Clothing [DC, Your Future in Clothing

(H,r~;!) 1970) .mo Technology and the Garment Industry (H,.i,)O); ooLh cited iowaqe Payment Systems .•. ,

~E.:.~~t.•

~5/ See also: ~atjonal Economic Development Councl1. Clothing EOC: Aspects of the US Apparel

~r1uf-:-,.:turing Industry - A report of a Visit by the Clothir1g toC (London: HIv1S0. August J972), p.3;

The Clothing Industry in the Common :',brket ••••

~.__::..i..!.., Chart I~O. 22, p.51; and l:-1age Payment Systems ••• , ~~~~•• p.2.

16/ A. A. Bond, IWS Product Det.a Sheets ... op. ci t..

17/ Pr-att.en, op. ci t , , table C.4, p.346 and Sur-ve-. of .claouf'ac t.uri oq '970/71, op~i..!..

J.8/ EJu] Ie tin of Labour Sta tis tjce , 1970:

1st Quarter Geneva, International Labour Office, p.49 and 'anI< of Korea, Economic Statistics Year-bock , 1970, p,357.

19/ G.K. Hel letoer-, "Manufactured exports from less dove loped count.r-i es and multinational flr-me", The cc cnomic Jourl"lal 1]0. 329, Vol , '_~3 (I'~arch 1973), pp , 21-47.

20/ Iecbni ca I Agency, op. cit., p.29.

21/ See for example: Robert -iacuamar-a , Report to the Goard of Gover-nor-s (Washington, DC, International Bank for Reconstruction a~d Development, 1973l.passim.

11