Day 1 Paper SC2 Presented at REPOAs 23 rd Annual Research Workshop - - PowerPoint PPT Presentation

The phase-out of second-hand clothing imports: what impact for Tanzania? By Neil Balchin

Day 1 Paper SC2

Presented at REPOA’s 23rd Annual Research Workshop held at the Ledger Plaza Bahari Beach Hotel, Dar es Salaam, Tanzania; April 4 – 5, 2018

This preliminary material / interim, or draft research report is being disseminated to encourage discussion and critical comment amongst the participants of REPOA’s Annual Research Workshop. It is not for general distribution. This paper has not undergone REPOA’s formal review and editing process. Any views expressed are of the author(s) and do not necessarily represent the views of REPOA or any other organization

Draft – Strictly Not for Quotation

The phase-out of second- hand clothing imports: what impact for Tanzania?

Linda Calabrese, Neil Balchin and Maximiliano Mendez-Parra

Introduction

• Developing domestic textile and garment sectors can help spur

industrialisation

• In March 2016 the EAC Heads of State announced a phase-out of used

clothing imports and footwear (within 3 years) to promote vertically integrated domestic industries in these sectors

• The phase-out was expected to take place through a gradual increase in tariffs
• n SHC imports, with the goal of facilitating a re-orientation of demand

towards new domestic clothes and footwear

Introduction

• Tanzania initially committed to the implementation of the phase-out and

adopted the EAC CET (increased specific duty rate from $0.2 to $0.4 per kg, ad valorem rate unchanged)

• Recent evidence of a softening of the GoT’s stance on SHC imports – specific

duty rate removed in February 2018, only ad valorem tariff remains

• Phase-out of SHC imports not mentioned in the latest EAC joint Communiqué
• We unpack the potential implications of the phase-out of used clothing for

Tanzania

The nominal value of Tanzania’s SHC imports has grown six-fold since 1995

• 1
• 0.5

0.5 1 1.5 2 2.5 3 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 199519961997199819992000200120022003200420052006200720082009201020112012201320142015

% USD

Trade value (US$) % change Linear (Trade value (US$))

Source: UN Comtrade data

Figure 1: Nominal US$ value of Tanzania’s imports of SHC, 1995-2015

Tanzania has diversified its sources of SHC imports over the last 20 years

Source: UN Comtrade data

Figure 2: Tanzania’s sources of SHC imports (% share of total SHC imports), 1995 and 2015

United Arab Emirates, 16.6% USA, 16.2% Canada, 12.3%

• Rep. of Korea,

11.7% China, 10.3% Pakistan, 9.2% Germany, 6.6% India, 5.5% Poland, 3.9% Other, 7.8%

2015

United Kingdom, 41.6% USA, 18.1% Netherlands, 11.3% Canada, 7.2% Belgium-Luxembourg, 5.1% Germany, 4.4% Finland, 3.6% Italy, 1.8% Saudi Arabia, 1.2% Other, 5.7%

1995

But the share of second-hand goods has been eroded in favour

• f imports of new garments and footwear

Source: UN Comtrade data

Figure 3: Tanzania’s imports of new and used clothing and footwear, 1995-2015

20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 160,000,000 180,000,000 200,000,000 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Import value (US$) Share of total garment and footwear imports

New garment New footwear Second-hand Grand Total

Is competition from SHC really to blame for the decline of Africa’s (and Tanzania’s) garment industry?

• Textile and garment sector’s contribution to Tanzania’s total manufacturing

VA down from 30% in 1980 to just 6% in 2010

• Mixed views in the literature about the impact of SHC imports on domestic

production across Africa

• Other factors are likely to have heavily influenced the decline
• Structural adjustment programmes – Africa’s domestic garment industries were

not well equipped to deal with the rapid exposure to international competition

• Competition in domestic/export markets from cheap clothing produced in Asia

The experience of phase-outs or bans of SHC elsewhere in Africa

• Bans not effectively implemented, circumvention (Nigeria, South Africa,

Zimbabwe)

• New clothes frequently disguised and imported as used to avoid taxes
• But there is generally little research into the effectiveness of bans and phase-
• uts of SHC in Africa
• Questions remain about whether these measures have been useful in

promoting domestic manufacturing

A new approach to estimating Tanzania SHC imports

• We use data reported by Tanzania and focus on the garment sector (excluding

textiles)

• But there are significant data challenges – used clothing and footwear are

imported in closed bales recorded under one single HS code, providing no information on the types and number of items that enter the Tanzanian market

• We use information provided by UK-based SHC exporters to Tanzania

estimate what items are imported, and in what quantities

• We then compare imports and exports of new and used clothing with domestic

production to assess the production-consumption gap

Disaggregating Tanzania’s SHC imports

• 544 million pieces

imported annually (valued at $75 million)

• 2 million pieces

exported each year

• Imports of trousers and

bottoms (men and women) account for the largest share of imported mitumba by value ($14 million)

• T-shirts are the most

imported item by number (140 million pieces annually)

• 2,000,000

4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000

US$

Figure 4: Tanzania’s estimated imports of SHC clothing by type and value

Source: Authors’ calculations based on 2014 UN Comtrade data and data obtained from exporters.

Tanzania’s domestic garment production

Garment type Number of pieces produced annually Leggings (knit) 1,200,000 Ladies’ tops (knit) 900,000 Underwear (knit) 1,200,000 Sport tops (knit) 9,600,000 T-shirts (knit) 1,200,000 Polo shirts (knits) 2,100,000 Vests (knit) 900,000 Baby wear (knit) 900,000 Jeans 1,800,000 Workwear shirts (woven) 190,000 Total 19,990,000

Source: 2014 data provided by the Government of Tanzania.

Table 1: Tanzania’s garment production by number of pieces, main formally established factories only

• Tanzania’s main formally established factories produce around 20 million pieces a year
• Additional production from small establishments could be in the region of 65-100 million pieces

annually (but no data available)

The gap between domestic production and consumption is very wide

• Domestic production by Tanzania’s main formally established enterprises

accounts for just 3% of total garment consumption

Imported, new (a) Imported (net)*, second hand (b) Domestic production (c) Exported (d) Domestic consumption (a+b+c-d) 177,196,587 512,048,055 19,990,000 20,461,971 688,772,671

Table 2: Tanzania’s estimated consumption of garments (number of pieces)

Source: Authors’ calculations based on UN Comtrade data and data obtained from exporters and factory survey. * Includes both imports and exports of used clothing

The potential impacts of phasing-out SHC imports into Tanzania

Short-term effects Long-run, dynamic effects Price and supply adjustments in the domestic garment and footwear markets Investments can be made to expand production capacity (creating jobs, boosting industrial sector) But challenges in the sector need to be addressed to attract investment (e.g. lack of finance availability, inadequate infrastructure and skills deficiencies) Negative income effects for consumers (due to increased share of more expensive imported garments and footwear in expenditure basket) Increased imports of new garments Loss of business for importers, wholesalers and others engaged in the SHC supply chain Positive effects for domestic textile manufacturing firms and their workers from increased demand

The current phase-out plans are missing key elements required to support competitive production

• No mechanism to cut, eliminate or revert the increase in tariffs if domestic

garment firms do not increase their production or become competitive

• No time limit or deadline to the implementation of the phase-out –

meaning a lack of incentives to increase productivity

• Under these conditions, the current phase-out can promote some degree of

investment to take advantage of the rents generated by the increased tariff protection, but it is unlikely to push the Tanzanian garment industry to international competitiveness

Concluding remarks

• Our estimates suggest imports of both new and used clothing dwarf domestic

production – hence there is room for the Tanzanian garment sector to grow

• ST effects of the phase-out depend on whether Tanzanian consumers consider

new clothing to be a good substitute for used clothing, and on the price elasticity of demand

• Potential adverse ST effects from a phase-out include loss of employment for

those involved in the SHC value chain and increased imports of new clothing

• LT effects of the phase-out will ultimately depend on whether it prompts new

investment

Thank you