Madagascar is different to the other main Sub-Saharan African (SSA) low-income country apparel exporters given its more diverse end markets and ownership structures and the political instability that led to the loss of African Growth and Opportunity Act (AGOA) status at the end of 2009. This paper assesses the development of Madagascar’s export-oriented apparel industry and economic and social upgrading dynamics in particular in the context of the AGOA loss. It identifies four types of firms and value chains that differ with regard to ownership patterns, end markets and ‘local embeddedness’. This has important implications for both economic upgrading dynamics and possibilities and the sustainability of the industry.
The research in this paper is based on trade and national industry data and interviews in Madagascar in March 2012 with representatives of apparel firms and nine relevant institutions. The paper concludes that, despite the contraction in the export-oriented apparel industry post-AGOA, Madagascar is still a more successful apparel producer in terms of economic upgrading than the other main apparel-exporting low-income countries in SSA. The key to this trajectory lies in the differentiation of global value chain (GVC) relationships, local embeddedness and export diversification.
Key Findings:
- Madagascar is still a more successful apparel producer in terms of economic upgrading than other main apparel exporting low-income countries in SSA due to the differentiation of GVC relationships and export diversification. The industry has survived the loss of AGOA status and a substantial drop in exports to the US by expanding its exports to the EU market and growing a new presence in the South African market. In particular, the European market has allowed firms to move up the value chain and to engage in both process and product upgrading. Firms supply a more sophisticated EU market, whose buyers request smaller orders and more complex products, requiring more flexibility and thus enhanced process upgrading capabilities as well as product upgrading. End market destination clearly plays an important role in this process.
- While end market differentiation has played an important role, the crux of the process is also related to dynamics of embedded ownership patterns, derived from differentiated GVC relationships. European/French diaspora-owned firms, run primarily by longstanding French residents with historically embedded roots in Madagascar (and sales networks in France), and Mauritian-owned firms, regionally embedded with an interest in maintaining the long-term future of Madagascar’s apparel industry, have been the drivers of upgrading processes. Ownership matters and embeddedness is a powerful upgrading driver in the case of Madagascar.
- The Malagasy government has not made the necessary industrial policy and skills strategy interventions, which is a major limitation in addressing economic as well as social upgrading. Instead, institutional interventions have been left to the private sector for firm and industry initiatives.
Recommendations:
- The sustainability of this upward trajectory is dependent on the dynamics within the local apparel industry. However, there are limits to how far this can be taken by purely private sector actors. If the industry is to grow substantially and ensure that gains are to be captured more broadly and distributed throughout the economy, then the Malagasy government will have to overcome its political instability and engage in more substantial institutional intervention, in cooperation with the private sector, civil society and unions, to initiate economic, skills and social upgrading.
