TRALAC - Trade Law Centre

Lesotho's Material Gain

Friday, 08 August 2003

Source: Financial Mail

What is SA's loss is our neighbours' gain. Taiwanese textile and clothing companies have established dozens of factories in Lesotho and, more recently, Swaziland to take advantage of favourable export deals between Africa and the US.

What is interesting though is why they are avoiding SA, which is also one of the beneficiaries of the African Growth & Opportunity Act (Agoa) that provides duty-free access to clothing and textile imports from 35 African countries.

The first Taiwanese investment drive into the region came in the 1980s when they took advantage of trade incentives offered by SA's apartheid regime and to strengthen diplomatic ties.

In 1994 the ANC government terminated diplomatic relations with Taiwan in favour of mainland China.

The result was a mass exodus of Taiwanese investors from SA. However, in the past two years they have returned to Southern Africa, only this time to build a clothing and textile dynasty in the region with Lesotho as the base.

There is a general feeling among Taiwanese textile owners that Lesotho is more investor-friendly.

John Leu, MD of Lesotho Precious Garments, which employs about 7 000 people, says the Lesotho government is more supportive than its SA counterpart.

His views are echoed by other factory owners who say inflexible labour laws, rigid visa requirements and higher taxes are keeping them away from SA. Some who have remained in SA say if it were not for high relocation costs they would also move to Lesotho.

SA's loss is Lesotho's gain. The investments have created a US$600m industry that employs 50 000 people, 20% of the Basotho workforce. The factories supply popular brands to the US including Levi's, Gap and Walmart.

The companies are also expanding, taking advantage of investment incentives. Fancy Garments Group, with 3 000 employees already at its Maseru factory, is embarking on a $40m expansion which will create a further 2 000 jobs.

The nearby Nien Hsing Textile company employs about 7 000 people in three factories which are producing more than 1m pair of jeans a month. It plans to build two more plants that will boost its employment levels to 15 000 and its total investments in Lesotho to $2bn.

The investments suggest the Lesotho textile industry could eventually employ a total of 400 000 Basotho once it is fully integrated. This implies that Lesotho produces the raw materials for its textile factories which are currently imported cheaply from the Far East and the US. That provision expires later this year.

Swaziland is fast catching up. There are about 20 Taiwanese garment operations in Swaziland, already employing 20 000 people. Before Agoa there were only three such operations in Swaziland, with 3 000 workers.

Taiwan's representative officer in SA, Du Ling, says companies are also looking at Botswana, given that country's sound economic record.