TRALAC - Trade Law Centre

Lesotho makes AGOA work for textile industry

Sunday, 10 August 2014

Source: Sunday Times (South Africa)

A factory in Maseru, the capital of Lesotho, is buzzing with activity.

On one side, men load box after box of ladies' hooded sweatshirts destined for the US. Elsewhere, hundreds of workers cut and sew cloth, iron the finished products and put them on hangers. Even the price tag and Walmart logo are included.

When the clothing got to the US, shops just had to hang them up and start to sell them, said David Cheng, managing director of TZICC Clothing Manufactures, which runs the factory.

The scene is common at clothing plants across Lesotho, a small, landlocked country that has taken advantage of a US trade agreement to build one of Africa's leading textile industries.

The growth of Lesotho's US exports, worth about $321-million (about R34-billion) last year, was made possible by the African Growth and Opportunity Act, or Agoa, a piece of legislation crafted under the presidency of Bill Clinton in 2000 and extended under his successor, George W Bush.

Aimed at boosting African trade by offering duty-free access to lucrative US markets, Lesotho is one of the best examples of Agoa's success. From a handful of factories in the 1990s, Lesotho now has 40 textile producers employing about 40000 people - the largest private sector employer in the country. John Kerry, US secretary of state, recently hailed Agoa as a key driver of trade with and investment in Africa.

"Whether it is cocoa and cashews from Ghana, textiles from Mauritius or petrochemical products from Angola, Agoa has served as a catalyst for greater trade and prosperity," he said.

But the Agoa initiative is due to expire next year, threatening a US-Africa economic relationship worth nearly $60-billion for businesses on both sides of the Atlantic. The renewal of Agoa was a priority as President Barack Obama brought nearly 50 African leaders to Washington this week for the first-ever US-Africa summit.

Although a renewal of Agoa is expected, the White House is pushing for broader measures to boost African trade. Obama said this week that although tariff preferences provided by Agoa were important, they alone were not sufficient to promote transformational growth in trade and investment.

"For beneficiary countries to be able to utilise Agoa to its fullest, this programme must be linked to a comprehensive, co-ordinated trade and investment capacity-building approach with clearly stated goals and benchmarks," he said.

African apparel exports to the US have surged from $264-million in 2001 to more than $900-million last year, but few other industries have taken advantage of the trade agreement to grow on such a scale.

Agoa-related trade is dominated by oil. Last year, $22-billion of the $27-billion exports to the US under the deal came from oil and gas, along with petroleum products and coal.

With the exception of South Africa, the continent's most industrialised country, which exports high-end goods to the US, including cars, the main beneficiaries of Agoa are oil-producing nations, notably Nigeria, Angola, Chad and Gabon.

Indeed, total Agoa imports have slipped from a high of $67-billion in 2008, partly because of a slowdown in the US economy, but also because of a fall in US imports of African oil and gas. US officials note that non-oil exports under Agoa have increased from less than $1-billion in 2001 to about $5-billion last year. But they cite constraints ranging from a dearth of infrastructure in many nations to productivity issues and a lack of skills that act as a brake on African trade. "Is there room for improvement? Absolutely," said a US trade official.

Lesotho offers a glimpse of where more could be achieved.

The creation of 40000 jobs - about the same as the kingdom's entire public sector employment - has been critical to the impoverished nation. But its garments industry has remained under the control of foreigners, mostly Taiwanese, who could pack up easily and move elsewhere if Washington did not renew the legislation.

Officials also believe Agoa has made Lesotho too dependent on the US. The country has largely failed to tap Europe, where it also enjoys duty-free access. "We are trying to look for a second buyer, but it is a bit difficult," said Cheng, who also chairs the Lesotho Textile Exporters' Association.

"We have tried Canada and Europe, but their orders are much smaller than those of the US."

Uncertainty about the time frame for renewing Agoa and key elements of the agreement have also hurt investment in new production facilities in Lesotho. That fear has continued to play on the minds of the industry, even though Agoa has enjoyed support from Democrat and Republican administrations since its inception.

Ricky Chang at Formosa Textile, a denim mill set up by Taiwan's Nien Hsing Group as part of a $150-million investment in Lesotho, said his company was committed to the country, but "if the environment changes we would have to adjust to it".

"We might scale down or relocate," he said.

 

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