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Lesotho: New Trade Regime Threatens Economy

Published date:
Thursday, 13 January 2005

About 7,000 clothing and textile workers face a bleak year after three factories in Lesotho failed to reopen after the festive season.

The impact of the closures on the tiny mountain kingdom, one of the least developed countries in the world, will be significant.

LesothoDeputy general-secretary of the Lesotho Clothing and Allied Workers Union, B. Shaw Lebakae, told IRIN that the end of quotas for cheap imports to the United States from Asian countries would cause more foreign factory owners, originally from Asia, to reconsider the location of their businesses.

Although Lesotho still enjoys duty-free access to the US market under the Africa Growth and Opportunity Act (AGOA), goods manufactured in countries like Lesotho will probably be more expensive for US importers than goods from countries like China, which are able to achieve superior economies of scale, Labakae added.

The end of the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC) on 1 January 2005 means access to US markets will no longer be restricted by quotas.

"Given the end of quotas and the WTO allowing China and India back into the market [unrestricted, except by general rules and disciplines embodied in the multilateral trading system], we believe most of the foreign-owned textile companies in Lesotho will relocate back to their original countries. They were in Lesotho to utilise AGOA and [get around] those ATC quota restrictions," Lebakae explained. "All these companies come from the East, as does the fabric and the yarn used in Lesotho."

AGOA, which has been extended until 2007, benefited Lesotho's economy. "Before AGOA there were around 20,000 people employed in the textile industry; with AGOA we have 56,000 people employed in the industry," Lebakae pointed out.

The International Monetary Fund (IMF) recently noted that the textile and clothing industry had been the key engine of growth in Lesotho's small economy. But the country is facing mounting challenges, including increasing global competition as export quotas for textiles and clothing are phased out, a decline in miners' remittances from South Africa, the fragile food situation, and the HIV/AIDS pandemic.

Lebakae said one of the three factories was placed under liquidation in December, while the other two closed for the holiday period and have simply not reopened.

The government of Lesotho has offered various incentives to foreign investors in the textile sector, and authorities are to address the latest closures soon, an official of the Lesotho National Development Corporation told IRIN.

The main repercussion of the closures "is, as usual, a loss of jobs", the official commented. "The minister is going to make a press statement tomorrow. We know one factory had financial problems - we don't know why the others have not opened, because when we closed for the holidays they had applied for additional factory space. We are still trying to get into contact with these guys to find out why they have not reopened."

Lebakae believes that, with the end of the ATC, the Asian giants are "going to compete with least developed countries [such as Lesotho] and it's of great concern. A lot of people are going to lose their jobs - even the informal sector will suffer".

He noted that "in terms of salaries, textile factories pumped Loti 40 million [US $6.7 million] into the economy, so we think it [the closures] will have a very negative economic impact".

[ This report does not necessarily reflect the views of the United Nations ]

“AGOA Latest AGOA Trade Data currently available on

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 include: (click each link to view)

  • AGOA-beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.

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