There is scarcely a blade of grass in sight over Lesotho now, with only the faintest flecks of green visible from the aircraft coming in to King Moshoeshoe I International Airport. The effects of the worst drought in 30 years are plain to see. Economic hardship raises the risk of political upheaval . But what might the mountain kingdom make and sell to offer employment to its 2-million citizens? Two decades ago, the export-driven growth route successfully pursued throughout east Asia was the obvious one to emulate. But today, does not China’s economic rise close off this development avenue for African countries?

Lesotho’s progress — and challenges — under the US’s African Growth and Opportunity Act (Agoa) offers a reality check. Now in its fourth iteration, Agoa came into being in May 2000. Under Agoa, African countries deemed to be “reforming” have the most liberal access to the US market available to any country or region with which Washington does not have a free trade agreement. Agoa lists more than 6400 items under the generalised system of preferences, which countries can export duty-free to the US. At the time of signing, it was hoped the act could create as many as 100000 new jobs in the textile sector in southern Africa alone.

There were immediate benefits visible via Agoa to southern Africa, notably Lesotho and Swaziland. Already by 2003, there were 25 (mostly Taiwanese-owned) clothing factories in Lesotho, by then the largest producer of jeans in the southern hemisphere, nearly all of which are today destined for the US market. Buy clothes now at Wal-Mart or K-Mart, or slip on a GAP garment or a pair of Levis, and the chances are it’s made in Lesotho.

Today there are 35 factories mostly cloistered around Maseru’s Thetsane industrial area. The value of clothing exports, more than 90% of all Lesotho’s manufactured exports, grew from $120m in 2000 to $215m the following year and topped $500m last year. Since 2004, the number of jobs in the apparel sector has been about 55000, up from 20000 in 2000. The textile sector is now the most important employer, more than the migrant-workers in SA (estimated at 52000) and the civil service (38000). Agoa trade directly contributes one-third of the kingdom’s gross domestic product, and some 15% of government revenue.

Foreign direct investment in the textile and clothing sector now totals more than a quarter of a billion dollars, including $120m invested in a 130000m² denim yarn and fabric mill post-2004. Built in anticipation of the end of the allowance on third-party fabric imports under Agoa in 2004, this mill produces more than 1,5-million square yards of denim monthly, manufactured from 50000 tons of cotton imported from Zambia, Egypt and elsewhere in Africa. In 2004, Agoa extended the allowance of least-developed countries to beneficiate imported fabric, while Agoa IV of last year extends this provision until September 2012. This came as a blow to the mill’s plans, but it has adjusted its operations to be a major supplier now to SA.

Overall, the Agoa textile experience in Lesotho is one of an at-times contradictory tension of growth, stagnation, contraction and frustration. In 2004, 10 factories closed, mainly due to increasing operational costs, a result of the strengthening rand (to which the Lesotho maloti is linked 1:1), and high water and energy costs. Longer-term problems with labour relations were also part of the calculation, as were the lower production costs and shorter production lead times on offer elsewhere. While a Vietnamese or Cambodian textile worker earns $45 a month, the average Basotho wage is $120. Productivity is lower and less flexible too.

Asian workers reportedly offer 30%-40% higher efficiency on the more complex “fashion styles” of garments, employing smaller numbers of “multiskill” operators per production line, who are more capable of shifting between garment styles. This is why Lesotho’s factories say, “At R10 to the dollar we were laughing, but at R7 we are crying.” Some see the industry only lasting another two to three years in Lesotho at this rate.

It has also become more difficult to attract expatriate skills necessary for some of the more complex jobs.

The lack of a suitable skills base is cited by investors as the major reason why the sector has not continued to expand or, indeed, diversified in the manner in which Agoa’s drafters originally envisaged — that textiles would, as in east Asia, be the first rung on the industrialisation ladder for Lesotho, to be followed by electronics and other industries. So far it has begun and stopped with textiles.

Another reason for this is that the small and medium “mom and pop” industrial model, a crucial part of the supply chain in east Asia, does not exist in Maseru outside of the Basotho-style fast-food enterprises crowded around the factories. This relates again to a chronic lack of skills, poor basic education, capital and facility, even though the textile industry has been in place in Lesotho for 20 years.

If it is to survive, some of the necessary savings and adjustment will inevitably have to be made by the textile sector as it reviews its own value chain. Labour comprises about one-third of the garment cost. Material, freight, packaging and utility charges make up most of the rest. The industry will also have to create a platform for their engagement with the government — and find a champion within it — along with identifying new markets in Canada, the European Union and elsewhere .

And the Lesotho government will have to play its part. For one, it will have to work out which Agoa products it might realistically be able to manufacture, and devise policy accordingly. Maseru will also have to work to keep the existing investor crop. Acting decisively rather than just signalling its intent on improving water and electricity supply and progressing with the long-mooted export processing zone, could be confidence-builders. As one factory-owner warned: “If we leave, we are likely never to come back.” The government might also have to bite the bullet with the unions in advocating payment of workers by output — as in Vietnam for example.

Not all of this is within the power of the Lesotho government. Pretoria has applied pressure on the textile industry (and in turn the government in Maseru) through the decision this March to curtail the tradability in the duty credit certification export credit scheme. As a result, senior Lesotho officials question Pretoria’s strategy towards regional development: of their apparent failure to realise that if 55000 apparel workers lose their jobs in Lesotho, they will only likely replace them in SA.

What the Lesotho Agoa experience so far shows is that preferential trade schemes can be a significant incentive in creating opportunity and jobs. Indeed, if Agoa was not in place, the factories say, “We would not be here.”

This does not mean, however, that this will automatically translate into activities and jobs in other sectors. It also shows that the rise of manufacturing giants in Asia makes it much more difficult, but not impossible, for African-based industries to compete. If they are to do so, they have to be responsive to the needs of investors and actively not only seek out fresh sectors but benchmark them against their global competitors.

Dr Mills heads the Brenthurst Foundation dedicated to strengthening African economic performance, and has recently been researching in Lesotho.

Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Lesotho’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.

Other regularly updated trade statistics on AGOA.info include: (click each link to view)