- as leading textile factory retrenches 2500 workers,
- more job losses loom as sector reels from Covid impact and ballooning production costs.
IN a move that spells doom and gloom to the economy and thousands of livelihoods, denim wear manufacturing company, Nien Hsing International, has begun retrenching 2500 employees. The company will shut down its factory next month.
In an interview with the Lesotho Times this week, Nien Hsing manager, Ricky Chang, blamed the “negative impact of Covid-19 and other market forces” for the retrenchments.
Nien Hsing manufactures jeans for top US clothing brands like Levi Strauss and Co among others.
The factory is part of the larger Nien Hsing Textiles Group, which originates from Taiwan. The group has four textile manufacturing factories in Lesotho, which collectively employ about 10 000 workers.
The four factories are Nien Hsing International, Global International, C & Y Garments, and Formosa Textiles. The fifth factory, Glory International, closed last year sending home 1500 workers. This means that by the end of next month, the Group would have retrenched more than 4000 workers in just a year.
This is a massive jobs carnage considering that the Lesotho National Development Corporation (LNDC) has reported that at least 6000 workers lost their jobs within the manufacturing sector from March 2020 to March 2021 mainly due to the Covid-19 induced slow down in global economic activity.
A massive jobs carnage is looming in the entire textiles and garment factories as other employers are also considering laying off workers to manage their ballooning production costs.
Prior to last year’s retrenchments, the government had put the number of factory workers in the country at 45 000. Given the LNDC reports of 6000 job losses since last year, this means that the total number of those who would have been retrenched by end of next month will be 8500. In other words, a staggering 20 percent of the entire workforce would have lost their jobs since last year.
The jobs carnage could get worse after the Lesotho Textile Exporters Association (LTEA) last month warned that its members were considering laying off thousands of workers, as the recent salary hikes had made their operations unsustainable to retain all their employees.
Over a month ago, the government awarded a 14 percent salary increase to textile workers. Other sectors were awarded a nine percent wage increase for the 2021/22 financial year.
The salary hikes came on the back of violent worker protests for better pay from 10 May to 7 June 2021.
The workers complained that the cost of living had gone up since their last wage adjustment in 2019. They wanted a 20 percent salary increase for the current 2021/22 financial year, while their employers were offering six percent.
They were also demanding the retrospective publishing of the minimum wage gazette for the 2020/21 financial year which was never issued after employers pleaded that they were financially constrained due to the negative effects of Covid-19.
The majority of Lesotho textile factories export their products to the United States (US) under the African Growth and Opportunity Act (AGOA) trade concession. Others export to the neighbouring South Africa.
In an interview with this publication this week, Nien Hsing’s Mr Chang alluded to the impact of the salary hikes and the consequent escalation of production costs as the reasons behind their move to lay off workers.
He said they were gradually releasing up to 2500 workers. The retrenchment process will be completed next month when the company shuts down one of its factories, he added.
“We are shutting down one of our factories which employs 2500 people and we have started gradually retrenching its workers,” Mr Chan said.
“We have a schedule to gradually release the workers and we will complete the process by next month when the factory shuts down. We are hopeful however, that we will resume operations in the near future when the situation has improved.
“At first our major challenge was the reduction in orders from buyers but now it is more than that. The current uncertainty in the business environment, including the wage protests a few months ago severely crippled our production. We have lost revenue.
“Also, the recent riots in South Africa and fluctuations of Covid-19 infections have all contributed to an uncertain business environment which is difficult to operate in. Both the supply and demand side of the business have suffered under the current economic climate and it is no longer feasible to continue operating as we are running at a loss,” Mr Chang said.
Even before the violent June wage protests and the subsequent wage hikes, Mr Chang had in April this year already warned of retrenchments due to the “insufficient orders from buyers”.
One of the termination letters given to the workers this week states, “due to the Covid-19 pandemic causing an unstable and decreasing market demand, the company would have to suspend operations.
“After numerous consultations, the management regrets to inform you that your employment will be terminated with one month’s notice. Once job vacancies become available in the future, the Human Resource (HR) office will contact you to determine your willingness to be reemployed. Your understanding and cooperation will be much appreciated,” the letter states.
Commenting further on the issue, Mr Chang said, “we did not want to take this route”.
“We understand that this is bad news for employees but this is a painful decision that we had to take for the survival of the enterprise,” he said.
It is highly likely that more textile companies will follow Nien Hsing’s example and retrench thousands of workers.
Late in June this year, the LTEA- a grouping of employers in the textile industry- said its members were considering downsizing their operations to manage costs. They were also considering automating their production to manage costs.
“The LTEA is unhappy with the 14 percent minimum wage increase as awarded by the government,” the association said at the time.
“The 14 percent wage increase will significantly affect our pricing making Lesotho products more expensive than those from other countries we are competing with for the US market.
“Under these circumstances, employers are considering temporarily downsizing their workforce to manage costs on delivering the outstanding orders until they get new ones,” the LTEA added.
Meanwhile, National Clothing, Textile and Allied Workers Union (NACTWU) secretary general, Samuel Mokhele, has bemoaned the “unfortunate retrenchments” due to be implemented by Nien Hsing.
Mr Mokhele said they had done everything in their power to stop the retrenchments including proposing a government bailout to keep the company on its feet. However, this was all in vain as the company indicated that the markets for their products would still be unstable even if the government bailed them out, he said.
“It is always sad when someone loses their job no matter the circumstances. It is even worse that so many people are losing their jobs at Nien Hsing.
“This will only compound the unemployment problem which Lesotho is already struggling with. Many people lost their jobs in the past year due to the impact of Covid-19.
“The crime rate will increase as unemployed people struggle to feed themselves and their families. The economy will also significantly suffer because of the reduction of disposable incomes, Mr Mokhele said.
CEO of the Private Sector Foundation and business analyst, Thabo Qhesi, said the retrenchments were “most likely in retaliation to the 14 percent wage increment” awarded by the government for the 2021/22 financial year.
“If you read between the lines, you get the sense that the factory is simply doing this to let the government know they are not happy about the 14 percent wage increase,” Mr Qhesi said.
He however, took aim at the government for awarding the massive uneconomic increments, saying it could have done so for purely political reasons given that there will be general elections next year.
“We are headed for elections next year and political parties will do anything that could help to improve their performance in the elections,” he said.
Consumer Protection Association director, Nkareng Letsie, said the Covid-19 induced slowdown in global economic activity and the wage increment had both contributed to the Nien Hsing retrenchments.
“Our textile sector heavily relies on the US market and since demand from this market has significantly declined due to the Covid-19 pandemic, our factories have been negatively affected.
“The 14 percent wage increments have increased the costs of production, thus lowering the factories’ competitive edge in the market in terms of pricing,” Mr Letsie said.