Lesotho’s prospects beyond AGOA
. . . EBA an alternative, expert says
By ‘Mathabana Kotelo
MASERU — The African Growth and Opportunity Act (Agoa) trade agreement has seen to considerable growth in Lesotho’s textile and clothing industry for the past fifteen years.
With the prospect of the Agoa agreement not being re-extended beyond 2015, there is dire need for a “survival plan”.
Should the US economy not renew the Agoa agreement, the textile and clothing industry could be negatively impacted.
The duty and quota free advantage that industry currently enjoys would come to an end, a factor which could deter current and potential investors.
Currently all the textile and clothing factories are foreign owned by Asian investors mainly from Taiwan and China. When export volumes to the US decline, there is even greater risk to the local textile industry, of foreign direct investment flight out of the country if current investors decide to close shop.
The temporary nature of Agoa, as described by the Central Bank of Lesotho Agoa Economic Review report June 2011, makes it susceptible to economic shocks like recessions and decline in demand.
Economists believe there is need to look into other, more sustainable options for trade that will boost Lesotho’s capital inflows.
Arthur Majara, a local economist said European Union (EU) markets are potential export destinations to consider for duty and quota free access to the market.
“The EU is still in recovery from its recession and offers Sub-Saharan African countries like Lesotho quota and duty free access which would be unlikely in markets in the Brazil, Russia, India, China and South Africa (BRICS) and Mexico, Indonesia, Nigeria and Turkey (MINT) economies,” said Majara.
European Union under the Generalised Scheme of preferences and the Everything But Arms (EBA) arrangement offers least developing countries and lower income countries the trade preference of duty free and quota free exports into the EU of any nature with the exception of arms, sugar, bananas and rice.
Lesotho, being a Sub-Saharan country and a least developing country as classified by the United Nations, qualifies for this benefit.
Venturing into duty and quota free Asian and European markets would open up previously unexplored markets and boost the country’s economic prospects.
Majara said to be competitive in these markets, labour and production costs locally would have to be less than those of competing exporting economies.
“We need to also increase trade activity with other Southern African Customs Union (Sacu) members and tackle African countries outside the Sacu region which we are currently not exploiting,” Majara said.
Other alternatives, according to Majara, include establishing locally owned factories and export diversification.
Establishment of locally owned factories as has been suggested by the Basotho Enterprise Development Corporation (Bedco) is another alternative that could create sustainable employment for Basotho textile and clothing industry workers not only in low skilled areas but also in skilled and managerial positions.
Currently, 91 percent of Lesotho’s exports, a vast majority of which is apparel, are exported to the US market.
Diversifying the type of commodity exports to products demanded in the US and European markets beyond just clothing and textiles and exploring other markets in which Lesotho has a comparative advantage over competing exporters like agricultural produce and agro industries would also boost Lesotho’s trade prospects.
The starting point, however, Majara believes is in mending the deteriorating relations between Lesotho and South Africa so that Lesotho can take advantage of the Sacu trade agreement to boost trade performance regionally.
“Improving relations between the two countries is a matter of urgency, one which requires political will more than anything,” Majara said.
“With improved relations, the two economies can benefit from an import substitution agreement where local produce and consumer goods replace those imported from outside the two countries,” he said.
Majara further told the Lesotho Times that a platform was needed where economists, researchers and legal experts could explore the country’s opportunities in proposed trade agreements globally and make them known to local businessmen and aspiring entrepreneurs.
“With those trade opportunities internationally, an innovation and creativity driven local entrepreneurship landscape and increased access to credit, the country’s economic prospects would improve,” Majara said.