Lesotho Plans to Keep Textile Industry Afloat
Lesotho government plans to spend 100 million maloti (US$12.7 million) in order to revive their textile industry. Lesotho is one of the largest textile manufactures in Africa. Minister of Finance and Development Planning, Dr. Timothy Thahane, said, “Our goal is to stabilize the level of employment in the textile industry and also to provide capital to the companies in order for them to take advantage of the economic recovery”. He also added that African countries have a hard time staying competitive in the international market. But, it is crucial for the Lesotho economy to still go on with textile manufacturing.
During the 1990s and early 2000s, Lesotho’s textile industry grew quickly with the help of the African Growth and Opportunities Act (AGOA). This act enabled 34 eligible countries in sub-Saharan Africa tax-free access to the US markets. Also, the Southern Africa Customs Union (SACU) credit certification system allowed textile-exporting companies to earn refunds on the taxes paid on imports used for manufacture. Yet, the textile industry has been hit roughly in the past few years. The SACU credit certification scheme terminated in March 2010 and the dwindling US economy has reduced the exports of textiles.
In 2005, the textile industry was the largest formal sector employer in Lesotho. It was comprised of 45 factories, employing around 55,000 people and the exports were estimated to be approximately $500M per year. Currently, there are only 23 factories left employing 33,000 workers. This also led to a decline in profits and employment to about 40 percent and exports amounting to $300 million.
The textile industry still contributes to around 20 percent to Lesotho’s annual gross domestic product. It is also the largest employer in the country wherein the unemployment rate is around 40 percent. Minimum wages for textile workers are set at 778 maloti ($92) per month. One textile worker can support to four or five family members on their wage. Thus, the impact of job loss in the country is critical.
Most of the challenges faced by the industry are beyond the control of the garment companies or of the government.
According to Chin-Yi Lin, President of the Lesotho Textile Exporters Association, the exports of the textile industries here in the country are down due to the decline of the US economy, the low exchange rate, and the termination of the SACU certification scheme. The textile manufacturers need the US economy in order to recover, and as well as the exchange rate to become more advantageous for the industry to be uplift.
Thabane also said that the industry is threatened by the Asian manufacturers since production costs there are much lower because these companies can grow their own raw materials. It is a disadvantage the Lesotho manufacturers need to buy raw materials from afar and transport them back to Lesotho.
The maloti, which is Lesotho’s currency also continues to strengthen against the dollar, with a rise which is more than 8 percent in 2010 and the worsening of the situation since the industry has to drive up the costs of exports to American consumers.
Until recently, the AGOA agreement and the SACU certification scheme allowed the countries to balance any competitive disadvantages had. The SACU scheme enabled companies to import fabric and other supplies cheaply from Asia, but it terminated after issues were raised that it was being abused by importing items from Asia that is unconnected to textile production.
There has also been no announcement of making a replacement incentive similar to that of SACU. Also, the AGOA will be expiring in 2015. Johnny Lin, executive secretary of the Lesotho Textile Exporters Association (LTEA), described as the ending of these agreements “a catastrophe for Lesotho and other African AGOA beneficiary countries“.
Lin predicted that because of these the textile manufacturers will be unable to compete against the products of Asian countries in both price and lead time. It is possible that some factories might survive the changes, yet majority of the factories would have to terminate their operations in Lesotho due to high production costs.
It was said that US President Obama’s administration has conveyed its plan to extend the agreement. Deputy US Trade Representative Demetrios Marantis said that his department has been preparing towards “a smooth renewal of AGOA after its expiration in 2015.”
Thahane did not go on with explaining the other details of the plan, since it is still being formulated. Yet, he said that they aim to inject $12.7 million woth of capital to help keep the textile industry floating until the international economy bounces back and the US would again start purchasing bigger quantities of jeans and t-shirts.