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The views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

October 2012

Hub Highlight

Southern African Countries Shine at Solar Power International In partnership with the US Embassy in Botswana, the Trade Hub sponsored eight renewable energy companies from Botswana, Mozambique, Namibia, South Africa and Zambia to attend the Solar Power International Conference and Exhibition held September 10-14, 2012 in Orlando, Florida. The purpose of the trip was to encourage investment in Southern Africa’s clean energy industry. To that end, the delegation met with US suppliers, distributors and manufacturers of solar energy products and services in order to develop linkages and draw attention to solar power investment opportunities in the region. Solar Power International (SPI) is the largest and most comprehensive solar energy event in North America, bringing together over 1,200 exhibitors and 21,000 delegates. The Southern Africa delegation was comprised of Solar Power, the oldest company dedicated to natural resource development in Botswana; BPC Lesedi, which removes barriers to the utilization of renewable/clean energy in Botswana; Energy Systems Group, a prominent supplier and installer of solar systems in Botswana; Alternative Energy Systems, one of the leading suppliers and installers of solar electrical systems in Namibia; and AE-AMD Renewable Energy, a South African company that has been licensed to develop and operate renewable energy utility scale power plants. The solar companies from Southern Africa also met some major players in solar energy including Quanta Power Generation, which has resulted in preliminary discussions with AE-AMD Renewable Energy Company for possible EPC (Engineering, Procurement, and Construction) Services. Discussions are also underway with ASP, a photovoltaic module manufacturer, as well as Advanced Energy, a supplier of inverters, which transform energy from solar panels into usable current. Delegates identified possible suppliers of solar storage, inverters and off-grid systems, while others had discussions with Africa Energy Group to procure solar storage systems. The delegation also held an interactive session with Mr. Timothy Kim from the US Export-Import Bank (EXIM). As a result of the trip, some of the Southern African companies are seriously considering EXIM financing possibilities and are in the process of submitting financing proposals to EXIM Bank.

During his visit to SPI, Morteza Abkenari from Solar Power was impressed with the 5,800 panel rooftop array and the cost savings achieved through net metering.

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On the Road

Due to its exposure to the Southern Africa solar industry at the conference, Quanta Power Generation visited the region in mid-October to explore investment opportunities in clean energy. Quanta, a publicly traded US$4.5 billion company employing 17,000 people, visited Mozambique, Botswana and South Africa in a series of Trade Hub-facilitated meetings. In Botswana alone Quanta met with Botswana Development Corporation, BPC Lesedi, Solar Power, Pula Holdings, Energy Systems Group, BITC, and the Department of Energy Affairs. Quanta has already taken the first steps towards collaboration with several of the firms, with follow-up visits anticipated in November. Cutting-Edge Customs Systems to Improve Trade The World Customs Organization (WCO), under the theme “Borders Divide, Customs Connects,” has dedicated 2012 to the promotion of ICT-driven customs management systems, which include communications, connectivity and enhanced cooperation. Adopting the latest technology will lead to improved transparency, greater efficiency and enhanced security for customs administrations throughout the region. To this end, the SADC Directors of ICT met in Mauritius from October 9 - 12 to develop a SADC Customs ICT Strategy that would identify, prioritize and harmonize ICT initiatives according to Article 6 of Annex II of the SADC Protocol on Trade. Currently the system is composed of individual country or bilateral initiatives in customs modernization, e-commerce and e-customs. The venue was chosen to enable participants to learn from the experiences of the Mauritius Revenue Authority, which has successfully implemented a variety of customs ICT initiatives such as National Single Window, Electronic Certificate of Origin, Cargo Community System, Customs Enforcement Network and the Paperless Environment. The Trade Hub gave a presentation on Cloud-Based Customs Connectivity at the meeting and sponsored a presentation by MCNet on the successful efforts to bring National Single Window to Mozambique. As a result of the summit, the Directors of ICT agreed on the terms of a regional ICT Strategy, which will now be submitted to the SADC Sub-Committee on Customs Cooperation (SCCC) for review. It includes cooperation in the following areas: • Customs Interconnectivity and Data Interchange to enable customs to make decisions in

real-time regarding the integrity of trade data. • National Single Window to enable governments to process submitted information, documents

and fees faster and more accurately, speeding up the supply chain. • National Central Enforcement Network to enable member states to conduct intelligence-led

operations and controls as a part of risk management, enhancing security and trade without impeding the free movement of persons, goods and means of transport.

Adopting the latest technology will lead to improved transparency, greater efficiency and enhanced security for customs administrations.

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• Electronic Certificate of Origin to allow for electronic submission of the certificate of origin and supporting documents to Customs for endorsement.

• Paperless Customs Clearance to allow the Single Goods Declaration form and attached documents to be submitted online, enabling Customs to facilitate trade, increase transparency, and follow international best practices.

• New e-payment and e-accounting system to allow importers to send a payment instruction message electronically. When received by Customs, duties and taxes would be considered paid and the Bill of Entry would be processed, greatly speeding up the customs declaration process.

Now that a single, cohesive SADC Customs ICT Strategy has been agreed upon by the ICT directors, it can be reviewed by the SCCC in the spring of 2013 for approval. The Trade Hub is working to support the adoption of technology-based trade facilitation tools to help facilitate trade throughout the region. Facilitating Clean Energy with Financing With its abundant sunshine, access to advanced technology and widespread support for renewable energy operations, Southern Africa has the potential to develop into a significant provider of clean energy for the region. However, an important barrier must be removed to unleash the full capacity of the sector. The installation cost of clean energy technologies (CETs) is very high, and there is a lack of affordable and easily accessible financing schemes for the purchase, installation and maintenance of CETs. To address this constraint, the Trade Hub, in collaboration with the Regional Electricity Regulators Association of Southern Africa (RERA), is focused on the crucial issue of CET financing. To strengthen the region’s capacity for energy sector planning and cooperation, the Trade Hub and RERA recently conducted a comprehensive training course for regulatory agencies, as well as public and private sector participants, on environmental and renewable energy finance.

The training was held from September 10-14 in South Africa and attracted over 50 people from 10 countries including Angola, Ethiopia, Lesotho, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Uganda, and Zambia. Participants learned about the various financial instruments used in environmental projects and finance such as tradable renewable energy certificates (TRECs), Clean Development Mechanism (CDM), certified emission reductions (CERs), and renewable energy feed-in tariffs (REFIT). Delegates demonstrated a high level of dedication and commitment through their attendance and active participation, including an after-hours evaluation of case studies on Internal

Rates of Return (IRR) before and after the application of Renewable Energy Certificates (RECs). Participants left the course better able to explain the importance of finance in solving environmental problems, to appraise the impact of various financial instruments on their projects, and to understand nuances and concerns related to financing the clean energy sector. As a result of the course, participants are well-prepared to advise organizations on clean energy projects and the financing opportunities available to support this important industry. It is expected that this investment in human capital will lead to the improved financial health of clean energy projects,

During the training, participants were introduced to the various financial instruments appropriate for environmental projects.

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influencing the promotion and development of clean energy in Southern Africa. Exceeding Expectations on Delivery, Quality and Needlework The Trade Hub and the American Apparel & Footwear Association (AAFA) recently concluded textile and apparel roundtable discussions in New York, Los Angeles and Miami with the largest representatives of the apparel industry, including Passport Brands, The Jones Group, Ann, Inc., Astor & Black, Orvis, Macy’s, Bebe, Pacific Sunwear, Kellwood, Restore Clothing, Ralph Lauren and Edun. The conversations addressed the growth of the garment industry in Lesotho, Botswana, Mozambique, Swaziland and South Africa since the adoption of AGOA duty-free legislation in 2000 and the diversification of garment items being produced. The region now produces complicated sewing and finished products. For example, nearly all (98 percent) of the woven products made in Lesotho was jeanswear in 2004. By 2010, 76 percent of Lesotho’s production was jeanswear, 11 percent workwear and 17 percent menswear and womenswear. The diversification trend continued in 2011, dropping jeanswear to 63 percent. In addition, the country can now meet shorter runs. Participants came away from the discussions better aware of the challenges and resources available to them as they look to source from this market.

US brands and retailers such as Kellwood, which manufactured a range of its brands in Madagascar, Lesotho and Swaziland until 2005, were intrigued by the diversification taking place. Astor & Black, maker of made-to-measure custom clothing, and Pacific Sun, producer of California lifestyle garments,

The Trade Hub and the American Apparel & Footwear Association (AAFA) recently concluded textile and apparel roundtable discussions in New York, Los Angeles and Miami in order to raise awareness of sourcing opportunities in Africa prior to the SOURCE Africa trade show scheduled for April 2013 in Cape Town.

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shared first-hand accounts of the manufacturing landscape, labor and utilities costs, and lead times/speed to market. Both companies had recently returned from Southern Africa where they visited several factories. They hope to identify additional manufacturers in Mauritius as well as new partners in Swaziland and Lesotho with spare capacity to produce their woven and knits garments. Furthermore, Astor & Black expressed the possibility of shifting 30-40 percent of its clothing to Southern Africa as early as next year due in large part to an estimated $200 savings per high-value garment. Although Africa is a small part of US companies’ sourcing portfolios, the continent has a place in every company’s portfolio, either for volume/replenishment or fashion-focused exports to the US and Europe. In Los Angeles, the conversations turned toward the role of the socially conscious consumer – a growing trend. Although price, quality and delivery are still king, there is an increasing amount of consumers who want to know where their clothes come from. Consumers are curious about how garment workers are treated or how their clothes might affect the environment. Accordingly, a growing percentage of apparel and footwear companies such as Edun, a fashion brand that brings positive change through its trading relationship with Africa, are focusing on the story for their products. The discussions were part of a larger initiative by the Trade Hub and AAFA to promote apparel and footwear manufacturing in Southern Africa. In April 2013, the Trade Hub and AAFA will support LTE South Africa’s SOURCE Africa event, which takes place in Cape Town, South Africa. SOURCE Africa will include two days of exhibition, a matchmaking program, factory site visits and business seminars. The Trade Hub’s support of SOURCE Africa and LTE South Africa is part of its efforts to promote intra-regional market linkages and improve regional manufacturers’ productivity and competitiveness in this global value chain. For AAFA, SOURCE Africa is an opportunity to handle members’ concerns about sourcing in Africa and hear first-hand accounts of factories exceeding expectations on delivery, quality, needlework and partnerships. The Trade Hub and AAFA’s active support of SOURCE Africa will help facilitate this industry in the region, presenting an opportunity for African manufacturers to showcase African-made textiles, apparel, footwear and services to international and African buyers. Knowledge is Power: Trade Data Training in Lesotho In September, the Trade Hub conducted a Trade Data Analysis Training in Maseru, Lesotho to train technical staff at Lesotho’s Ministry of Trade, Industry, Cooperatives and Marketing (MTCIM) and other relevant stakeholders working on trade issues. The two-day training was designed to enable participants to analyze trade policy issues and trade data, enhancing country trade negotiations. Specific objectives included the following: • To introduce participants to research questions in the area of trade and trade policy that can be

addressed with quantitative techniques; • To familiarize participants with sources of trade and trade policy data, with a focus on trade in

goods; • To train participants on the use of quantitative methodologies appropriate for trade and trade policy

analysis, including the quantification of trade flows and trade policies.

The ability to conduct high quality analysis of trade data is essential for trade and for industrial policy making. Countries must know precisely what they are exporting and importing. Government officials must know where to obtain trade data, how to analyze it and how to formulate policy recommendations based on this data. Similarly, sound international marketing strategies by the business sector are based on qualified analysis and assessment of trade data. The Trade Hub conducts Trade Data Analysis Training to better equip the region with this important knowledge, facilitating an improved trade environment. In Lesotho, knowledge of trade and tariff analysis is limited in some aspects. In order to create trade and tariff statistics, officials require not only extensive knowledge of relevant databases but also a thorough knowledge of trade classifications, trade indicators, and tools such as Microsoft Excel and Word. The workshop covered all of these relevant knowledge areas and engaged participants in hands-on exercises using World Integrated Trade Solution (WITS) database software.

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Export Digest

Export Digest The Export Digest covers export-related matters, including Trade Hub export-related activities, export marketing, trade finance, export logistics, international trade law, export administration, export sales contracts and export success stories under the African Growth and Opportunity Act (AGOA). We answer readers’ questions about practical export-related matters and highlight important trade-related developments such as new trade agreements or regulatory changes. International trade experts, exporters and importers feature as guest contributors to the column to share their experiences. Write to exportdigest@satradehub.org with your suggestion for a topic or question. Or start a conversation via our Facebook Page – www.facebook.com/satradehub. Partnering in Textiles/Apparel Exports International and domestic business has been evolving from a transactional business, marketing era to a consultative era, and now to a new partnering era. African firms that want to be successful in the export market must embrace the partnering concept. This concept is like a marriage, where partners are not just in it for convenience, but for the long haul—think long-term—and both must give it their all for the relationship to be sustainable and beneficial. Export Digest (ED) will look at the partnering era as critical to the success of garment exporters (and other exporters) and use the marriage analogy to stress the importance of partnering. Hypothetical Example Imagine that Africa Best Clothing (ABC), an African garment factory, attended the SOURCE Africa show (www.sourceafrica.co.za) and met with a US buyer, State Apparel. Discussions resulted in an agreement between ABC and State Apparel for the former to supply the latter with 80,000 pieces of yoga garments within three months. ABC’s Asian fabric supplier was to ship fabric to reach ABC within four weeks, leaving ABC with two months to produce and send the finished yoga garments to State Apparel. The shipment would take three weeks. Meanwhile, ABC entered into a strategic arrangement with another garment factory to complete 30,000 pieces of the order. The fabric supplier delayed the dispatch of fabric by two weeks. Three weeks later, the strategic partner who was to produce 30,000 pieces was hit by a worker strike and thus unable to continue with the arrangement. ABC went ahead to produce the yoga garments for State Apparel, hoping to air-freight the finished garments and meet the deadline. At the end of the three months, ABC had produced 40,000 pieces which were air-freighted to State Apparel. Naturally, State Apparel was shocked when informed that ABC would only do half of the order in the agreed period of time. All along ABC was promising the deadline would be met, hiding the problems it encountered for fear of losing the deal. In addition, the freight costs drilled a huge hole into ABC’s possible profits, and the company was left with a tarnished image. Partnering The hypothetical example above sounds familiar in the apparel sector (and other sectors), whether in international or domestic trade. In this case, ABC considered State Apparel to be an outsider who

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could not know the challenges ABC was facing; ABC wanted to address the challenges on its own and assumed State Apparel would just accept the half order and wait for the other half. On the other side, State Apparel assumed all was well as agreed. There was no probing done, or request for regular updates from the supplier. In a marriage relationship, communication is the fuel that runs the relationship. Trust sustains it, and integrity protects it. Partners communicate in good faith and reach agreements. This is the same with a business relationship. When the buyer or seller has a piece of information that is closely guarded yet impacts the business relationship, it’s a signal that the relationship will be short-lived. At each stage, ABC should have communicated with State Apparel on the challenges being encountered. The latter could have offered solutions, such as changing the volumes and delivery dates, or accepted delivery in phases. Both ABC and State Apparel are expected to work together to address problems, to celebrate successes and have a long term relationship. Recently, the Trade Hub was in the US to promote SOURCE Africa (www.sourceafrica.co.za) to US buyers. During discussion, some of the potential buyers raised the concern of non-responsiveness by African firms. Instead of treating buyers as partners, they tend to regard them as customers with a wall between the two. However, most buyers are now more interested in a partnership and long term strategic relationship with suppliers. They want to invest in quality improvements, productivity, ethical issues, social issues (e.g. HIV/AIDS), environmental issues and fair labor. Partners should also negotiate and reach agreements that are beneficial to both parties. One US buyer observed that African firms generally don’t want to negotiate. When a potential US buyer drops a price or lead time which the African supplier can’t meet, the latter simply does not respond. Instead of negotiating, they shut the door. Most celebrated deals are a result of intense and sincere negotiations. If the delivery time is not possible, get to the table, pick up the phone, send out an email and be open about it. You will be surprised how the flexible the other party can be. For fear of losing prospective deals, suppliers tend to agree to terms that are difficult to meet. When negotiations genuinely fail, it is more important to lose a deal and retain your integrity, than to land a deal and fail to deliver. There is no “junior partner” in a relationship: both are equal. The “junior” or “senior” mentality kills a relationship. Generally, large buyers/retailers have a hold on small/medium suppliers; they have the bargaining power. Once that is brought in to the negotiations, it leaves a bad “after-taste” and a feeling that one partner is taking advantage of the other. When both parties keep their cards to their chests, a simple problem can appear insurmountable. Marriage counselors cite lack of communication as the deal breaker. It is difficult for a buyer in the US or Europe to guess what is happening in a factory in Selebi-Phikwe or Ezulwini, or vice-versa. The onus is on both buyers and sellers to treat each other as long term business partner prepared to make relationships work. For more information about: AGOA, please visit: www.agoa.gov; www.agoa.info; www.ustr.gov SOURCE Africa: www.sourceafrica.co.za Cos Mamhunze Column Editor Cos is an international trade specialist with more than 12 years’ experience promoting international trade between Africa and the US and intra-regional trade within Southern Africa. His work has involved working with small and medium enterprises (SMEs) and large firms, women-owned enterprises, importers, exporters, trade support institutions as well as government departments. Cos holds a MBA and has studied International Trade Management. Opinions expressed in this column are not necessarily those of USAID or the Trade Hub.