AGOA: time to act is now
ATTRACTING foreign direct investment and diversifying the economy rank highly among the government’s priorities. This is rightly so given that the country’s high unemployment rate and undeveloped economy have resulted in high levels of poverty among the populace.
In addition to the aforementioned initiatives, Lesotho also needs to harness all its competitive advantages so the country can benefit while they still last. One such competitive advantage is the Africa Growth and Opportunity Act (AGOA), which gives Lesotho and other eligible African countries preferential treatment in trading with the United States.
AGOA has helped create employment for more than 40 000 people in the country’s textile factories since the early 2000s.
Those benefits are at risk not just because of the threat that AGOA might not be renewed – after the Americans expressed “serious concerns” about the government’s alleged failure to adhere to governance criteria -- but also our failure to make full use of the facility in its lifespan.
While the legislation was renewed for 10 years by US lawmakers last June, it is yet unclear whether another similar facility is in the offing after that period. In any case, it already faces a threat from the Trans Pacific Partnership (TPP) agreement between the United States and Pacific Rim countries which, if consummated would reduce tariffs and trade rules among the countries involved.
It would also allow very competitive economies such as Vietnam to do more business with the US under the same privileges AGOA beneficiaries currently receive.
While the TPP mechanism is likely to be different, many Vietnamese garment exports to the United States would receive similar benefits like those in AGOA’S third country fabric provision.
Ominously, US President Barack Obama told Vietnamese entrepreneurs yesterday during his Asia tour in Ho Chi Minh City that he hopes to see the trade pact ratified this year. Time is certainly running out for Lesotho with no plan B in sight.
In this edition, a veteran investor in the textile sector has urged Lesotho to make hay while the sun shines with regards to AGOA, saying investing in upstream industries is the only way to go to remain competitive.
Thetsane Industrial Area-based Sun Textiles (Pty) Limited President Feng Fu Lung said the garment industry had not evolved from the cut, make and trim mode it began with 20 years ago, and was now slowly but surely losing its competitive edge.
Mr Lung said Lesotho needed to establish a knit fabric mill to improve the country’s competitive edge among other textile manufacturing nations. He said a knit fabric mill would enable local textile firms to avoid the expense of importing their raw materials.
As we noted in the story, the Lesotho National Development Corporation (LNDC) has committed to establishing a knit fabric mill by the 2017/18 financial year in its strategic plan for 2015-2017.
However, their target might be too little too late given that the time Lesotho can leverage the AGOA facility is shrinking by the day. Investment in upstream infrastructure should no longer be merely envisaged but implemented as a matter of urgency.
This should be coupled with a stated commitment by the government to address the concerns raised by the Americans to ensure Lesotho is eligible for AGOA in 2017. For most, if not all, the textile manufacturers in Lesotho, the non-renewal of AGOA would be a deal breaker considering they already had other operational concerns.
The consequences of non-renewal are not only monumental but also generational. For the past 20 years, a large section of this country’s population and their dependents has subsisted on the textile sector.
The epic catastrophe of thousands of factory workers ending up on the streets should provide a sobering context for the government’s decisions.