All change for African textile giant
Embedded in the belly of South Africa, landlocked Lesotho has emerged as a textile giant in Africa.
With a population of just two million, the small, mountainous kingdom now surpasses exports from larger competitors such as Kenya and Madagascar, making it the largest exporter of clothing to the United States from sub-Saharan Africa.
Although the industry has already faced a string of challenges, in 2015 they will culminate with the expiry of the United States law that made it all possible – the African Growth and Opportunity Act.
It allows preferential access to the United States for some goods from sub-Saharan African countries and single-handedly grew Lesotho's infant textile industry to unpre-cedented production levels.
When the Act expires, it appears almost certain that the companies catering to the US market, which are entirely foreign owned, will move from Lesotho. This will be a substantial setback for its export-based textile industry.
Furthermore, the textile industry has become the largest employer in Lesotho, accounting for nearly 50% of those employed in the formal sector.
Lesotho, classified as a least-developed country, cannot afford to lose this industry, but the writing is on the wall – the Act's poster child will not be able to weather the post-Act storm. Those who should have built the shelters have not done so.
The fragile textile industry in Lesotho provides the clearest example that the coalition government can draw on to illustrate the economic wellbeing it has brought about. So the failure of the textile industry will represent a failure of Lesotho's political leadership.
But the country has been here before. A major crisis in 1991, a year of violent anti-foreigner protests, obscured a relatively understudied period of rapid growth in Lesotho's textile industry. During that time, Lesotho showed nascent signs of a development success story. Therefore, it is imperative that Lesotho's policymakers recall that pre-Act textile boom to overcome some of its current economic challenges.
Between 1986 and 1991, Lesotho's political leadership embarked on an aggressive investment promotion strategy, which included marketing the country as a stable and attractive investment destination. Despite its excesses and infringements of civil liberties, the military government created a positive economic climate that attracted many textile industrialists and jump-started the industry.
Among its many benefits, the birth of the textile industry provided much-needed employment. From 1985 to 1991, the number of workers in the textile sector leaped from 3316 to 9688. Given that by 1999, before the introduction of the Act, the textile industry employed nearly 10000 workers, it appears that, when the Act was passed in 2000, it took Lesotho into the second stage of textile production.
The exceptional expansion that followed should have been expected, because Lesotho had been primed for it. The infrastructure, both soft and technical, was in place. The path had been paved and the country only needed to launch into the second and more dynamic phase of growth.
But Lesotho has failed to build on this second chance. Based on the successes of the first boom, which was facilitated by foreign investment, the government should have continued to promote the country to attract both foreign and local investors.
The industry was established exceptionally well by foreigners, but locals are essential for its sustainability and further development. The textile industry is notoriously mobile and only local investors will safeguard its continuity.
The two main reasons that account for Lesotho's failure to optimise on its chances are first, isolation, and second, an unambitious mindset.
The government has allowed the industry to develop apart from the local economy. At present, the main monetary benefit Lesotho accrues from textiles is wage remuneration and the payment to utilities and of overhead costs. The circulation of money in the local economy is essentially the distribution of wages.
Even that is dubious, given that factory workers employed by Chinese, mostly from Taiwan, spend their wages in a retail sector dominated by Chinese, mostly from the mainland. One wonders whether the economy of Lesotho benefits at all.
The industry's lack of integration with the national economy stems from the failure to create links between the Asian-owned and smaller local firms. In an interview, a local entrepreneur blamed the government for failing to develop a policy to facilitate the links.
On the other hand, the buyers have stipulated conditions for production at each step of the value chain. But without sufficient support, most locals do not have the capacity to comply with these regulations. Thus, forming links with smaller local manufacturers without sufficient resources would jeopardise the financial interests of larger foreign-owned firms.
Notwithstanding the challenges of integrating this key industry with the economy, it must be done urgently.
The second major reason for Lesotho's predicament is the industry's lack of local ownership. A Mosotho entrepreneur put it tellingly: "In Lesotho we changed it from being the African Growth and Opportunity Act … into the Asian Growth and Opportunity Act. The Asians came to develop in Lesotho. The Asians came to grow. The Africans have not grown in Lesotho."
In the kingdom, textiles have been seen as the "Chinese thing" the Basotho have no business pursuing. A young official said: "It is in their blood; every Chinese person knows how to make a skirt."
As far as the locals are concerned, the textile industry is a place for uneducated female low-wage earners. Perhaps this is one of the reasons why Basotho with capital do not invest in this industry.
Unwittingly, this view has filtered through the government and development agencies, which claim their mission is to attract foreign investors to provide jobs for locals. But this seemingly benign quest has left Lesotho in the rut of seeing locals only as employees and not as the leaders of industry.
Without changing this mindset and without the localisation of the exporting textile industry, Lesotho is bound to experience two grim realities: in the short term it will experience soaring unemployment and economic stagnation and in the long-term it will not establish industries that will lead to lasting development.
The government can still, and must, salvage the gains of the diminishing textile industry.
It is incumbent on Lesotho's political leadership to employ long-term strategic thinking that builds upon the successes of the previous boom and avoids the mistakes that accompanied it.
Lesotho now, perhaps more than ever before, requires a forceful approach to developing a local cadre of entrepreneurs to take ownership, even if only partial, of this industry. It must be committed to helping locals to compete globally.
It is important to note that this inward focus could also benefit foreign investors and they need not be marginalised by the inclusion of locals. Lesotho needs both.
The story of Lesotho's textile industry is not yet over. With one eye on the lessons of the past, Lesotho's decision-makers can build a more prosperous industry that could serve as the springboard to wider and more sustainable development in the country.
<em>Sebabatso Manoeli is the Brenthurst Foundation's Machel-Mandela intern. She is also a Rhodes Scholar and will begin graduate studies at Oxford University in October </em>