‘Govt failing to lobby for AGOA’
LONDON –– An estimated onethird of Lesotho’s textile and clothing production will be decimated if the African Growth and Opportunity Act (AGOA) is not renewed in September, a senior South African textile and clothing sector consultant has warned.
However, Andy Salm, who works for markets-based development organisation Commark Trust, claims that the small landlocked country – entirely surrounded by South Africa –– is failing to lobby for an extension.
AGOA is a nonreciprocal trade preference program that provides duty-free treatment to U.S. imports of certain products from eligible sub-saharan African countries.
This is despite Lesotho being the largest sub-saharan African garment exporter to the US, accounting for 30 percent by value and 28 percent by volume of exports from the region to America, according to Lesotho Textile Exporters Association (LTEA) figures. It says 80 percent of the country’s textile and garment exports are Us-bound.
The Formosa Textiles Yarn Spinning Mill, based in the capital Maseru, is one such key exporter, producing more than 1.3 million yards of denim fabric annually and 900 tonnes of cotton and cotton blend yarns, according to the LTEA.
With Lesotho being a low-income country ranked 162 out of 187 on the United Nations Human Development Index, Lesotho workers earn an average US$570 annually with around 42 percent of the economically-active population being unemployed. The employee dependency ratio is around ten to one, says Mr Salm.
Lesotho, a constitutional monarchy, operates a complex political system combining the electoral principles of first-past-the-post and proportional representation, leading to fragile coalition governments.
That translates into problems when developing long-term, coordinated strategies. Lesotho went to the polls on 28 February, and on 17 March Prime Minister Pakalitha Mosisili was sworn into office having formed another coalition government to lead the country.
The political upheaval puts into perspective why Lesotho has put AGOA on the backburner. Yet, Mr Salm says, orders demand at least four-month lead times and, with the deadline looming, the possibility of those drying up and employers laying off workers is becoming increas- ingly real.
Before AGOA, the Lesotho textile and clothing industry employed around 20 000 people, with South Africa and Europe being the principle export markets. In the years following the establishment of AGOA in 2000, the focus shifted to the US and employment in the sector rose to 55 000. This has fallen back to 44 000 since the abolition of the World Trade Organisation’s MultiFibre Arrangement (MFA), which sparked more intense competition from Asia.
“While the market is now more robust, AGOA’S disappearance would still slash 15,000 jobs,” says Mr Salm.
United Nations figures show that since AGOA’S introduction, Lesotho’s garment industry has grown to contribute 20 percent of gross domestic product –– with 80 percent of the manufacturing for US mega-brands like Gap, Levi’s, and Walmart.
According to the LTEA, Lesotho clothing and textile manufacturers have made significant moves to boost competitiveness on price, delivery times, quality and working conditions.
Lesotho is the “jeans capital of Af- rica”, producing 26 million pairs of denim jeans annually. It also makes 70 million knitted garments a year.
Currently around 75 percent of industry investment is from China, Taiwan and Southeast Asia, and Mr Salm says while the early days of AGOA saw the development of poor quality temporary businesses, MFA abolition saw many of those players eliminated.
More solid businesses, many with 25 years’ manufacturing in Lesotho, remained.
“However, the question now is whether or not they would stay should AGOA dissolve, with many of those companies taking direction from parent companies in the East,” says Salm.
As other countries including Kenya, Ethiopia, Tanzania, Mozambique and Ghana promote investor-friendly policies and offer opportunities for efficiency and labour competition, Salm argues Lesothobased manufacturers may consider relocation.
A September 2014 report released by Better Work Lesotho, a partnership programme of the International Labour Organization (ILO) and the World Bank’s International Finance Corporation, posed three sce- narios for AGOA’S future –– a full renewal, a renewal without South Africa, and an economic partnership agreement-type deal.
The organisation suggested full renewal is most likely, with 40 eligible countries maintaining duty-free access to the US market on 1,800 tariff lines, effectively safeguarding the gains AGOA has already made in boosting overall trade by 78 percent.
Better Work Lesotho would like the trade agreement to be extended for longer than 10 to 15 years to provide certainty investors require. An AGOA without South Africa should not damage Lesotho’s prospects.
And under an economic partnership agreement deal, the AGOA would become a two-way trade agreement where African countries, including Lesotho, would open their markets to US exporters, which may not impact the kingdom’s sector either.
“In renewing AGOA, the US can score a major win in the battle for hearts and minds in Africa. It is an investment that will rise in value as the continent does,” South African Institute of International Affairs research fellow Christopher Wood said in the report.