Clothes make the man. Naked people have little or no influence on society. ~Mark Twain
Abstract
This weeks’ paper will give an analysis of the textile industry of Lesotho. The case study “The market and the mountain kingdom; changes in Lesotho’s textile industry” (Rawi Abdelal cs. )
provides a description of the rise, demise and change of textile companies in the small African kingdom. Chinese and Taiwanese investors as well as the influence of changes in the global textile market have had a profound influence on the country’s economy. This paper will give a closer look at the reasons behind the creation of an labor and resource intensive industry in a country with limited infrastructure. It will place the role of textile manufacturing in a larger context, focusing on the role of international regulation. Finally it will analyze the role of government, labor organizations and foreign investors in the lifecycle of Lesotho’s textile manufacturing.
1. The emperor’s clothes; why textile is big in Maseru.
Lesotho, formerly known as Basutoland is a small kingdom that gained its independence from the UK in 1966. Surrounded by South Africa, the country was ruled by the Basuto National Party for the first 20 years. After a short but violent period from 1990 to 1993, during which king Moshoeshoe was exiled, constitutional government was restored. In 1998 elections resulted in violent protests culminating in an intervention by South African and Botswanan military forces. Since 2002 the country has been relatively peaceful although elections are often hotly contested and demonstrations are common[i].
The story of textile manufacturing in Lesotho doesn’t begin in the small African kingdom but starts with its larger brother South Africa and with Chinese entrepreneurs that have been present in most of Africa for centuries. As early as 1980, South African textile companies opened factories in Lesotho to circumvent sanctions on South African products because of the country’s strict apartheid policy[ii]. Most of the textile manufacturing plants were owned and run by Chinese and Taiwanese immigrants, who had come over in search of trade opportunities and found the less discriminating policy of Lesotho preferable to the racist apartheid laws in neighboring South Africa. After the end of apartheid the influence of China became even larger. The primarily agricultural economy of the mountain state was transformed when outside investors like the Taiwanese Formosa Mills started hiring more than 50,000 workers (mostly women) to man the cutting tables and sewing machines under sweat shop conditions. In 2005 the average wages was $38 per week working long hours on often unheated factory halls[iii]. Under the Multi Fiber Agreement and later under the Agreement on Textile and Clothing, Lesotho’s garments enjoyed preferential treatment over cheaper Chinese products in both the US and European markets. The effect the MFA treaty had on local manufacturers became even more apparent when it ended in 2005 abolishing quotas for Chinese made garments. For the Chinese and Taiwanese factory owners it made more economical sense to relocate to mainland China where labor cost was much lower and productivity higher than in Maseru. The results for the Lesothon industry were disastrous.
2. AGOA and the rescue of Lesothon textiles .
After the expiration of the MFA, Lesotho could still export to the EU market where it enjoyed a duty free status as least developed economy. In 1998 this status ended, leaving the industry in a serious predicament. Overnight, factories were closed, leaving the workers without pay let alone a severance package. Most of the factory workers had no warning of their employer’s intentions. Returning from a Christmas holiday they found the doors closed, the investors had left the country. Since only 11 percent of the kingdom's textiles industry was held in local hands it was easy to just close up shop and leave. Taiwan was by far the single largest foreign investor with a 65 percent share, followed by Hong Kong (13 percent), South Africa (five percent), Singapore (three percent) and Israel (three percent)[iv]. After the expiration of the MFA, little was left of this investment.
In 2000, the African Growth and Opportunity Act (AGOA) was passed. Drafted by Jim McDermott, a Democratic congressman, it was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets[v]. AGOA provides trade preferences for quota and duty-free entry into the United States for certain goods, expanding the benefits under the Generalized System of Preferences (GSP) program. Notably, AGOA expanded market access for textile and apparel goods into the United States for eligible countries.
The reasons for adopting this liberal stance towards potential competing countries on the textile market were more political then economical. As a democrat, McDermott saw the liberation of African countries out of the poverty trap as one of paramount importance. As the world’s largest export market, the US could help struggling economies like that of Lesotho attain a better standard of living. AGOA also appealed to Republican politicians because it granted economical freedom and allowed developing countries to enhance their position on the global market. The fact that AGOA could be used as a carrot and a stick at the same time should however not be underestimated. US policy in Africa after the cold war had decreased significantly. AGOA would boost US economic interest in Africa and would make African economies dependent on US import.
To benefit, African countries must convince Washington that they are not engaged in gross human rights violations and are making continual progress toward establishing a market-based economy. The latter provision effectively requires African countries to comply with structural adjustment programs (SAPs) and protect foreign investors and intellectual property rights. Civil society organizations in the US and in Africa have opposed such criteria as favoring multinational companies at the expense of poor Africans.
“This is less about African growth and more about American opportunity”, Dorothy Keet of the University of Western Cape told. The so-called market access that they are giving us, they are actually going to have to give to everybody over the next 10 years under the (World Trade Organization). But for a very minimal offer, they are extracting very heavy quid pro quos from us[vi]. For the eligible countries however, the results were more important than the “hidden” costs.
Under the AGOA, more specifically under the “Special Rule”, garments from Lesotho were granted duty free entry to the US market. The Special Rule provided this access as long as exports were below 3% (later 7%) of overall US garment exports. The results for the faltering garment industry were spectacular. By 2004 employment had almost reached its pre-MFA expiration numbers. Wages and conditions for factory workers had not improved however, most of the benefits were for the importing companies like Levy’s and GAP who could now import at lower cost.
3. Governments, Unions and Investors response.
The reaction of the Lesothon government has been almost completely passive. Their role in attracting investment and securing better conditions for its citizens, laboring long hours for minimum compensation has been very small. Companies were attracted to the small mountain state because it didn’t have the racist apartheid regime of South Africa and therefore could export without the sanction impediments placed upon its larger brother. There were little or no legal obstacles to build a factory, nor were there any repercussions when the owner decided to leave the country, leaving the workers often destitute. "Taiwanese companies together with ministers in our government, who are shareholders, are running the companies. It is very difficult to enforce the law", said Billy Macaefa of the Lesotho Clothing & Allied Workers Union[vii]. Like mentioned above, governments that did influence Lesotho often did so for political reasons not out of idealism. The US and EU governments are primarily concerned with protection of their domestic industries. As long as Lesotho doesn’t pose a viable threat and does what its foreign economic masters tell it to do, Lesotho will continue to be treated as a favored country.
The militant stance of the labor union has shied away a number of foreign investors. When China became Lesotho’s biggest competitor on the textile market, it became clear that even the low wages that Lesothon workers earned couldn’t compete with Chinese salaries. Exploitation of workers became an important point on the agenda of the LCAWU. Despite limited results, the Union represented a threat to the Chinese employers, who didn’t have to deal with their influence if they would relocate to China. The union claimed companies arbitrarily dismissed workers and many refused to recognize trade unions.
Investor’s response to the changing economic climate in Lesotho has been predictable. AGOA has created more opportunities for American companies to invest in Lesotho. Even China, faced with rising labor cost is re-outsourcing to Africa again.
To remain competitive, a company needs to keep cost down in the entire manufacturing chain. The original plants used readymade fabric from as far away as South East Asia to produce their garments. This made the transportation cost a major factor. Because Lesotho is an enclave, there are no cheap ways to provide large quantities of materials by ship. All materials were trucked in or transported by rail, and manually unloaded. To cut costs manufacturers have started to install weaving machines to produce fabric from cotton. The shorter supply chain allows easier management and lower inventory. High transportation cost remains an issue though.
A new response from investors is a result of the rising interest in “ethical” clothing. According to the ComMark Trust, a group working to develop Lesotho's textile industry, British shoppers spent almost $50 billion on ethical goods and services in 2005 - a high percentage of which was on clothing. Julia Hawkins, of the London-based Ethical Trading Initiative, says the demand in the US is just as high[viii]. The sweat shop conditions and low wages that attracted many investors before are now slowly replaced by alternative smaller scale plants that produce at higher cost but can be bought guilt free. Edun introduced the ONE Campaign T-shirt, made at its Lesotho factory, advertising that $10 of the $40 price tag would go to a new program that brings HIV testing and treatment to Lesotho's textile workers, an estimated one third of whom are HIV positive, another issue that remains unresolved. More than 30,000 shirts have been sold since they were introduced.
Sources:
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