After five years of job creation in Lesotho, the country's nascent textile industry is experiencing significant job losses and faces a bleak future.
In less than five years, Lesotho developed a textile industry from nothing to one that employed about 60,000 people and by 2003 was exporting $400 million worth of garments to the United States. Lesotho exports more garments to the United States than any other sub-Saharan country.
As a result, the industry overtook the government as the largest employer in the country.
It began when the United States introduced the African Growth and Opportunity Act (AGOA) to give developing sub-Saharan economies preferential access to U.S. markets. This prompted companies from Asian countries such as China, Taiwan and Malaysia, which were subject to import quotas in the United States, to set up shop in countries like Lesotho and thus benefit from AGOA.
But the so-called Multi-Fiber Arrangement under which quotas were set, was lifted at the start of this year, as mandated by the World Trade Organization (WTO). As a result countries such as China, while still subject to tariffs and duties, are no longer restricted by quantity. And six Asian-owned factories have closed and returned to their home countries in the past four months, resulting in more than 6,000 job losses, another 4,000 jobs were lost last year.
Industry unions say the closures are directly linked to the end of the Multi-Fiber Arrangement, and Peter Draper of the South African Institute of International Affairs says this was to be expected.
"That they have known that this moment would come for quite a long time. Everybody knew that this multi-fiber arrangement would be phased out, and everybody knew that it had basically artificially distributed the clothing and textile sector around the developing world for a long time, for more than four decades and the emergence of China onto the global stage has just really exacerbated all of that," he explained.
Mr. Draper's views are not shared by Deputy Chief of Mission Karl Albrecht at the U.S. Embassy in Lesotho nor by Peete Molapo, chief executive officer of the Lesotho Development Corporation.
They say it is too soon to blame the decline in the industry to the end of the Multi-Fiber Arrangement (MFA) and point to other causes, such as poor management and the rampant rise in value of the South African Rand against the U.S. dollar during the past two years. Lesotho's currency, the MaLoti is pegged to the Rand.
Mr. Molapo says it will take time for end of the MFA to be felt.
"I think as time goes on we will know exactly what is happening on the ground," he said.
Both Mr. Albrecht and Mr. Malapo say that both the government and industry leaders are already taking steps to counter the impact of increased competition from major producers such as China. Mr. Albrecht says this includes diversifying within the industry.
"First of all there has already been some vertical integration of the industry here. There is a $100 million plus value denim production mill here in Lesotho, capable not only of supplying all the denim clothing manufacturers here in Lesotho, but a good part of countries elsewhere in Africa that are producing denim clothing," explained Mr. Albrecht.
Mr. Albrecht also notes that AGOA offers opportunities to export thousands more products to the United States and argues that Lesotho should also diversify into other industries. But Mr. Draper says that Lesotho's capacity for greater economic diversification is extremely constrained.
"And the bottom line is that very small economies with barely literate populations and so on are going to struggle,” he added. “Clothing and textiles at the end of the day, if you have economies of scale as China does, if you can produce the whole value-chain in-house. How is a small country going to compete with that?"
Mr. Draper says that while prospects for Lesotho's textile industry are now bleak, they are not entirely hopeless.
"I think the one potential saving grace for small countries like Lesotho that have built up a supply chain over the last decade or so, is that I very much doubt whether the big U.S. and European retailers would want to put all of their eggs in the China basket, simply because of protectionist pressures in the European Union and the United States,” Mr. Draper noted. “So it stands to reason that they would want to diversify their sources of supply."
In addition, says Mr. Draper, Lesotho could improve its tourist industry and look into establishing an offshore banking sector.
Lesotho has a population of 1.8 million, and is one of Africa's poorest countries with nearly 50 percent of the population living below the poverty line. Traditionally, even members of an extended family are supported by those that earn salaries, so that 50,000 jobs contribute to the support of 250,000 people. Experts say that in such a small economy, the impact of losing even 12,000 jobs has widespread, negative repercussions.