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Chronicle of a death foretold

When the article Madagascar: Textile Industry Unravels came across our desks yesterday, we were saddened but not surprised. That’s because people on the ground have been predicting this outcome (and Aid Watch has been stubbornly blogging about it over and over). Multiple critics have protested ever since the US government, hoping to force President Andry Rajoelina’s questionable government to hold elections, first threatened to remove preferential trading rights for Madagascar.

The Malagasy textile industry was a clear success story of the US African Growth and Opportunity Act (AGOA), which removed US quotas and duties from thousands of products from eligible African countries. Madagascar’s exports tripled in the first three years of the program, and the textile sector, which made up 60 percent of Malagasy exports, accounted directly for 50,000 jobs and indirectly at least 100,000 more.

The US pulled the plug on AGOA at the end of December and import duties of up to 34 percent were reintroduced. Now we are starting to see the effects in the formal and informal economy:

  • Factories closing and factory jobs lost: “As lead times [expire] on orders placed before the agreement [came to an end], factories are laying off workers and we are seeing an explosion in the numbers of unemployed,” said the director pf the Association of Free Trade Business in Antanarivo.
  • Increased competition among street traders now that former factory workers are pushed out to sell goods in overly crowded street markets (and lower wages now for both): “‘I used to be able to earn 20,000 ariary ($9.30) a day,’ said Soloniaina Rasoarimanana, who has been selling clothes from a pavement stall for 10 years. ‘Now, with the political crisis and more competition, I earn around 5,000 ariary ($2.30) a day.’”
  • Knock-on effects in neighboring countries (Mauritius, Swaziland, Lesotho, South Africa) which made inputs like zippers to Madagascar’s factories.

Among the effects we are NOT seeing: signs of increased interest in arriving at a power-sharing agreement or instating democratic governance on the part of Rajoelina’s government.

Ineffective sanctions, effective job destruction.  An unaccountable branch of the US government hurts poor people far away who have no voice in US politics. Deeply saddened…we don’t know what more to say.

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21 Comments

  1. Blaise wrote:

    I totally agree with this post. Western governments could target directly the leaders by preventing them from traveling or owning financial assets abroad.

    Posted February 25, 2010 at 4:13 am | Permalink
  2. Adam Jackson wrote:

    Nothing to add really, is there? Absurd these trade restrictions were there in the first place, good they were removed, absurd they were put back again.

    Posted February 25, 2010 at 7:12 am | Permalink
  3. geckonomist wrote:

    I agree that it is not a smart move by the USA.

    However, I would be surprised if USA has become Madagascars biggest trading partner.

    Secondly, when the well-being of the local poplulation is so important to you, could you please tell us what total import tariffs these locals face when they want to buy something from abroad?
    And perhaps you could inform us how free the economy of Madagascar actually is, esp. outside the EPZ (export processing zones) where real life takes place?

    Just to put things in perspective, and to know who to blame most for the poverty.

    Posted February 25, 2010 at 9:04 am | Permalink
  4. akatsuki wrote:

    Perhaps it is just realizing that the US’s own “sunshine policy” towards oppressive regimes regarding trade has its limits far sooner than we expected – that the empowered middle classes won’t scream for democracy. We are too intertwined with China to back out now, but we can do so in other countries.

    Posted February 25, 2010 at 10:18 am | Permalink
  5. Matthias wrote:

    Suspension of preferences is, admittedly, a very blunt instrument, and it is truly saddening that textile workers in Madagascar are paying a high price.

    Should remind us all of the sanctions regime against Iraq, or the current one against Iran, which disproportionately harm those already more vulnerable, without inconveniencing those in power.

    Western governments could target directly the leaders by preventing them from traveling or owning financial assets abroad.

    This is also generally ineffective, as the recent case of Honduras makes clear (although here the US played an ambiguous role throughout the crisis). Leaders of undemocratic regimes have ways of protecting their assets. And even the highly targeted sanctions against AlQaida, adopted under the aegis of the UN, are only relatively effective.

    The broader point is this: when a government is undemocratically replaced, would it be better to do nothing? Should governments just allow trading and investment?

    Posted February 25, 2010 at 10:50 am | Permalink
  6. Laura Freschi wrote:

    Hi Matthias,

    I think we have argued that if the proposed policy (in this case taking away Mada’s AGOA eligibility) is not likely to achieve the desired impact and is likely to harm people who are not at fault, then yes, it is better to do nothing.

    A lot of people (including Blaise) have suggested that targeted sanctions against Mada govt leadership (travel bans, freezing assets) might be more effective. I recently saw that the African Union has threatened exactly this if Rajoelina can’t agree on a power sharing agreement by March 16. (See article here .)

    Best,
    Laura

    Posted February 25, 2010 at 12:28 pm | Permalink
  7. William Easterly wrote:

    Time for some critical self-examination:

    even in our little tiny corner of the discussion, why did we fail so completely to make anyone care about Madagascar textile workers?

    Posted February 25, 2010 at 12:38 pm | Permalink
  8. Tim Ogden wrote:

    Bill–

    because the readers you attract tend to be realists/pragrmatists and to put abnormal weight on evidence. Since we have no evidence that “caring” was going to do anything about the Madagascar travesty, it’s fairly easy to admit there are resource limitations to our caring, make the trade-off and not “care” about this one–even though we really do care.

    Tim

    Posted February 25, 2010 at 12:49 pm | Permalink
  9. Matthias wrote:

    Well, if you can be sure that sanctions will be ineffective and predominantly affect the wrong persons, then of course you shouldn’t use them.

    AGOA preferences suspension, however, is not ‘sanctions’, strictly speaking. Getting trade preferences is a benefit that requires the US President determine ‘that the country (1) has established, or is making continual progress toward establishing— (…)(B) the rule of law, political pluralism, and the right to due process, a fair trial, and equal protection under the law;’ (http://www.agoa.gov/agoa_legislation/agoatext.pdf , section 104).

    The moment the President can no longer make that determination, the preferences should be removed. This provision is supposed to work both (i) as a deterrent for undemocratic regimes abroad; and (ii) as a guarantee – within American domestic politics – that the US does not give trade preferences to undemocratic countries (as it has long done). Now perhaps the issue is one of timing, i.e. perhaps the US could have waited a bit longer to make the determination that Madagascar no longer satisfied the eligibility requirements. I note however, that Niger and Guinea have also been suspended, and the timing seems to note give great margin to political/ideological considerations.

    Finally, as I said, I am a bit skeptical as to the effectiveness of individual sanctions. Asset freezing requires concerted action, and even in the very high profile UN Sanctions Committee’s terrorist black list, effectiveness is questionable. Even assuming there was enough diplomatic entente to order an international freeze, the time required to get there would allow leadership to move funds around and safeguard them. Travel bans, widely used in the case of Honduras, completely failed to coerce a change of policy.

    I agree however, that if you are to sanction a country, you should use the most effective tools. In this case, just suspending trade preferences – as legally required by AGOA provisions – is punishing the wrong people.

    Posted February 25, 2010 at 12:54 pm | Permalink
  10. Jeff wrote:

    Bill–

    I don’t think you failed to get people to care about Madagascar textile workers. Just not the ones who coud make a difference. Perhaps you need to get Hillary to read your blog more often. This case just shows how aid is hostage to the world of diplomacy and how diplomacy does not employ evidence based decision making. The evidence clearly shows that instituting trade restrictions will not convince an undemocratic regime. And yet in the logic of diplomacy the US is compelled to do this because it said it would and to remain credible, it has to follow through. It is indeed sad that US credibility becomes more important than the livelihood of so many poor people, including women who Hillary purports to care so much about.

    Posted February 25, 2010 at 1:06 pm | Permalink
  11. Stephen Jones wrote:

    Why is the non-preferential tariff 34%?

    Seems to me to be simply a way for the US government to use patronage to control other regimes.

    Posted February 25, 2010 at 6:33 pm | Permalink
  12. Matthias wrote:

    Why is the non-preferential tariff 34%?

    That’s what pretty much everyone in developing countries wonder, I guess.

    Posted February 25, 2010 at 7:11 pm | Permalink
  13. Lova Rakoto wrote:

    Pr. Easterly,

    We Malagasy greatly appreciate all the effort you put in raising awareness for the plight of the textile workers in Madagascar since early December 2009. As someone who thought and wrote extensively about this never ending crisis, I understand that people get a bit of crisis fatigue and that media attention inevitably vanished. Even as a native of the island, I get tired of seeing in the local news how over and over again Malagasy leaders repeatedly fail their citizens in more creative ways than ever.
    I am writing to you because in a few months (June), it will be the 50th anniversary of the independence of Madagascar and as part of this important event, a few Malagasy friends and myself are trying to put together a public round table where a panel would exchange ideas on how Madagascar could start moving forward after decades of constant failure . We would love to have your input if you would be so inclined.

    Best,
    Lova aka @lrakoto

    Posted February 25, 2010 at 8:09 pm | Permalink
  14. Jason wrote:

    The AGOA trade preferences are fairly clearly designed to benefit African nations making progress toward democracy which clearly Madagascar isn’t. The USG had no choice but to take the action it did to eliminate Madagascar’s AGOA trade preferences based on the actions of Madagascar’s government. You conveniently neglect to place the blame where it really belongs – on Madgascar’s government not some “unaccountable” branch of the U.S. government. The extension of trade preferences is the extension of a “preference” not the provision of a “right”. By removing them the U.S. is simply returning Madagascar to a normal non-preferential trading partner as Madagascar’s decision to no longer pursue a democratic path requires.

    Posted February 26, 2010 at 12:57 am | Permalink
  15. Terra wrote:

    I think Jason and Matthias raise an important distinction between sanctions and putting democratic conditions on trade or foreign aid . The inconsistency of the application of this policy notwithstanding, making foreign aid or preferential trade status dependent on good governance and respect for human rights is one of few ways the US can use ‘soft power’ to influence the democratic development of countries like Madagascar.

    Posted February 26, 2010 at 1:38 pm | Permalink
  16. Stephen Jones wrote:

    The extension of trade preferences is the extension of a “preference” not the provision of a “right”

    No, what the US is doing is imposing a punitive tariff, and then claiming it is doing a favour to those it exempts from it, instead of admitting that it is punishing those that don’t, which is what is really happening.

    Posted February 26, 2010 at 5:41 pm | Permalink
  17. Stephen Jones wrote:

    making foreign aid or preferential trade status dependent on good governance and respect for human rights is one of few ways the US can use ’soft power’ to influence the democratic development of countries like Madagascar.

    The US has nothing against bad governance and contempt for Human Rights if the regime involved happens to be a strategic ally. Look at the cases of the dictatorships in Ethiopia, Uganda and Rwanda.

    Posted February 26, 2010 at 5:43 pm | Permalink
  18. Terra wrote:

    As I said, inconsistencies notwithstanding.

    In this case, the US applied the policy to try to push inclusive negotiations and elections after a small group of men hi-jacked the country and called it a people’s movement.

    Perhaps it will be too little, too late.

    Posted February 26, 2010 at 6:32 pm | Permalink
  19. Its a crying shame wrote:

    The EPZ industry in Madagascar is probably finished. This is the second time that textile industry has been impacted by bad politics on the island. The first was the six month long crisis of 2002 when half the EPZ firms left. Given a choice a manufacturer would likely choose to invest in a country where there isnt a political/economic meltdown every 7-10 years.
    The disconnect between the people impacted by the suspension of AGOA and the income of the bandits that are running the country couldnt be more extreme. The coup leaders and cronies have earned (or stolen) hundreds of millions of dollars in the past year. Closing foreign owned factories that dont pay off to them effects them not at all. Perhaps if the coup leader’s offshore funds and properties are frozen they will feel the pain but with France’s desire to achieve a “pragmatic solution” to the coup, dont count on that. Not to mention many of the coup leaders are also French passport holders.
    Until the the recent earthquake Haiti looked to be a predictive model for the future of Madagascar; deforestation, poverty, illiteracy, frequent destructive changes in government are common elements to both countries. Post earthquake it is harder to make linked predictions but Madagascar does often suffer from major destructive cyclones.
    The question so often asked in this blog is why do some countries just never seem to be able to develop despite all aid efforts and good intentions of intl donors? I cant answer the question but I can show you two poster children for countries that will never reach critical mass and escape poverty.

    Posted February 27, 2010 at 12:11 pm | Permalink
  20. Matthias wrote:

    ‘No, what the US is doing is imposing a punitive tariff, and then claiming it is doing a favour to those it exempts from it,’

    The US — and any other country — has no legal obligation to extend trade preferences. The WTO agreements accept these preferences — and distinguish them from normal trade concessions that would be extended to all other trade partners due to the MFN clause — on the ground that this can be a tool of economic cooperation and promotion of development. So preferences are, in a sense, a WTO-compliant privilege.

    Now one might argue that states have the moral obligation to practice no barriers to trade at all. But this has no relation to the way the trade system operates or has historically evolved. Removing preferences in a clear case of undemocratic coup is not a ‘sanction’, or ‘punishment’, even though it certainly punishes people.

    Posted March 1, 2010 at 7:45 am | Permalink
  21. E Aboyeji wrote:

    Call me overtly suspicious and skeptical but I think the US’ economic interests must have played into this decision.

    Frankly, I doubt the US really gives horse shit about Madagascar’s democratic process. The facts still remain that 85% of AGOA trade is in crude oil. Beneficial to development as Madagascar’s texile industry might be, it not the same as say Nigeria’s oil interests and for very practical reasons.

    Especially when you also consider that it is people like these who advised the changes, you can’t but just shake your head.

    http://jasonpoblete.com/2009/04/29/economic-sanctions-on-madagascar-coup-plotters-needed/

    The simple fact is there’s nothing you could have done Bill. Africa has simply got to look out for itself. Maybe ending AGOA was a good first step in disguise. Hopefully, whatever is left of the market finds a regional home.

    Posted March 1, 2010 at 8:25 am | Permalink

3 Trackbacks

  1. By So Many Links « The Everyday Idealist on February 25, 2010 at 5:38 pm

    […] Politics vs development.  This prompts a deeper question of how effective are sanctions? and what to do when they’re not? […]

  2. By why doesn’t anyone care about madagascar? on February 25, 2010 at 6:48 pm

    […] directs you to his recent post about Madagascar, Chronicle of a death foretold. I read the article he refers to, that no one seems to be noticing, on IRIN News: MADAGASCAR: […]

  3. […] of AGOA and a sad story related to […]

  • About Aid Watch

    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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