Draft – Strictly Not for Quotation The phase-out of second-hand clothing imports: what impact for Tanzania? By Neil Balchin Day 1 Paper SC2 Presented at REPOA’s 23 rd 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
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 on 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 $0.4 per kg, ad valorem rate unchanged) • Recent evidence of a softening of the GoT’s stance on SHC imports – specific duty rate removed in February 2018, only ad valorem tariff remains • Phase-out of SHC imports not mentioned in the latest EAC joint Communiqué • We unpack the potential implications of the phase-out of used clothing for Tanzania
The nominal value of Tanzania’s SHC imports has grown six -fold since 1995 Figure 1: Nominal US$ value of Tanzania’s imports of SHC, 1995 -2015 80,000,000 3 70,000,000 2.5 60,000,000 2 50,000,000 1.5 USD 40,000,000 1 % 30,000,000 0.5 20,000,000 0 10,000,000 -0.5 0 -1 199519961997199819992000200120022003200420052006200720082009201020112012201320142015 Trade value (US$) % change Linear (Trade value (US$)) Source: UN Comtrade data
Tanzania has diversified its sources of SHC imports over the last 20 years Figure 2: Tanzania’s sources of SHC imports (% share of total SHC imports), 1995 and 2015 1995 2015 Saudi Arabia, 1.2% Italy, 1.8% Poland, 3.9% Finland, 3.6% Other, Other, 7.8% 5.7% Germany, 4.4% India, United Arab 5.5% Emirates, 16.6% Belgium-Luxembourg, 5.1% Germany, 6.6% United Kingdom, 41.6% USA, 16.2% Canada, 7.2% Pakistan, 9.2% Netherlands, 11.3% China, 10.3% Canada, 12.3% Rep. of Korea, USA, 18.1% 11.7% Source: UN Comtrade data
But the share of second-hand goods has been eroded in favour of imports of new garments and footwear Figure 3: Tanzania’s imports of new and used clothing and footwear, 1995 -2015 100% 200,000,000 Share of total garment and footwear 90% 180,000,000 80% 160,000,000 Import value (US$) 70% 140,000,000 60% 120,000,000 imports 50% 100,000,000 40% 80,000,000 30% 60,000,000 20% 40,000,000 10% 20,000,000 0% 0 New garment New footwear Second-hand Grand Total Source: UN Comtrade data
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 o not well equipped to deal with the rapid exposure to international competition o 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) o New clothes frequently disguised and imported as used to avoid taxes • But there is generally little research into the effectiveness of bans and phase- outs 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 Figure 4: Tanzania’s estimated imports of SHC clothing by type and value imported annually 16,000,000 14,000,000 (valued at $75 million) 12,000,000 • 2 million pieces 10,000,000 US$ exported each year 8,000,000 • 6,000,000 Imports of trousers and 4,000,000 bottoms (men and 2,000,000 women) account for the - largest share of imported mitumba by value ($14 million) • T-shirts are the most imported item by Source: Authors’ calculations based on 2014 UN Comtrade data and data obtained from exporters. number (140 million pieces annually)
Tanzania’s domestic garment production • 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) Table 1: Tanzania’s garment production by number of pieces, main formally established factories only 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.
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 Table 2: Tanzania’s estimated consumption of garments (number of pieces) Imported, Imported Domestic Exported Domestic new (net)*, production (c) (d) consumption (a) second hand (a+b+c-d) (b) 177,196,587 512,048,055 19,990,000 20,461,971 688,772,671 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 Investments can be made to expand production domestic garment and footwear markets capacity (creating jobs, boosting industrial sector) Negative income effects for consumers (due But challenges in the sector need to be to increased share of more expensive addressed to attract investment (e.g. lack of imported garments and footwear in finance availability, inadequate infrastructure and expenditure basket) skills deficiencies) 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
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