GAP INC SEES CLOUDY SKIES FOR LESOTHO'S TEXTILE INDUSTRY

UNCLAS MASERU 000051 SIPDIS SIPDIS DEPT FOR AF/S, AF/EPS; PASS USTR E.O. 12958: N/A TAGS: ECON ETRD ECIN EIND EINV ELAB PREL LT SUBJECT: GAP INC SEES CLOUDY SKIES FOR LESOTHO'S TEXTILE INDUSTRY ¶1. Summary: According to a regional representative of Gap, Inc., the largest buyer of Lesotho-made garments, the company's U.S. orders from Lesotho are gradually declining due to long lead times in sourcing, limited technology to produce higher value-added textile products, and low domestic investment in industrial infrastructure. These factors, compounded by perceived political uncertainties and the erosion of AGOA trade advantages, give rise to dark storm clouds on the horizon for the nation's textile industry. End Summary. -------------- GAP Meeting: Storm Clouds? -------------- ¶2. On January 28, Catherine Dix--Gap Inc.'s Manager for Social Responsibility, Monitoring, and Vendor Development in Sub-Saharan Africa--called on Ambassador Rob Nolan and Emboffs. While stressing that Gap Inc., the largest buyer of Lesotho-made garments, has no intention of a quick withdrawal from the Mountain Kingdom, she acknowledged that Gap orders have gradually declined over the past year. Dix said that factors which have resulted in other foreign buyers leaving Lesotho, such as Target, have also impacted Gap Inc's approach to the country. ¶3. Dix listed three specific issues which negatively effect Gap Inc.'s perception of Lesotho as a sourcing country: 1) long lead times in sourcing from Lesotho (Comment: Often due to poor transportation, border delays, and limitations on water and energy inputs. End Comment); 2) the lack of technology in Lesotho's factories to produce higher value-added textile products; and 3) the GOL's low level of investment in general industrial infrastructure. She also mentioned that political uncertainties in 2007 (strikes, demonstrations, a two-week curfew, and an unresolved post-election impasse) have not helped Lesotho's image with textile purchasers. She said that past mechanisms for GOL-textile industry dialogue, hosted by Lesotho's then Minister of Trade Malie, have collapsed under the tenure of current Trade Minister Lebesa. In the last year, three of Lesotho's textile firms have closed due to a lack of orders from U.S. customers. -------------- The General Environment -------------- ¶4. Over the past decade, Lesotho has been successful in attracting foreign direct investment in the textile and apparel sector, which now creates about 10% of nation's gross national product and employs over 40,000 workers. The industry, however, is facing stiff and growing global competition. The sector's competitiveness continues to erode due to factors such as those mentioned by Gap Inc., resulting in adverse effects on employment, production, output, and prices. U.S. orders of products that benefit under AGOA provisions decreased by 40% - 65% between 2004 and 2007. In 2007, increasing numbers of factory investors changed their employees' terms of employment from fulltime to short term to reduce wage costs. These current performance trends display early signs of the sector's vulnerability to global competition - which may strengthen when more quotas on Chinese products expire. -------------- Where to Now? -------------- ¶5. Comment: In the light of increasing competition and the vulnerability of Lesotho's textile sector to external shocks, there is a need for stakeholders in the industry, including the GOL and investors, to address the problems enumerated by major garment buyers such as Gap Inc. The starting point for dealing with these issues could be the reestablishment of a domestic multi-stakeholder dialogue, but there is also a serious need for substantial infrastructure investment to gain, or even keep, a modicum of competitiveness. Lesotho's $365 million MCA Compact includes a significant component to improve water infrastructure in Maseru and the country's lowlands, but the project could take up to five years to produce results. In the meantime, the fickle nature of the global textile industry could likely erode many of Lesotho's gains achieved under AGOA. End Comment. NOLAN