Identifier
Created
Classification
Origin
08MASERU51
2008-02-26 11:39:00
UNCLASSIFIED
Embassy Maseru
Cable title:
GAP INC SEES CLOUDY SKIES FOR LESOTHO'S TEXTILE INDUSTRY
how-toVZCZCXRO7230 RR RUEHBZ RUEHDU RUEHJO RUEHRN DE RUEHMR #0051 0571139 ZNR UUUUU ZZH R 261139Z FEB 08 FM AMEMBASSY MASERU TO RUEHC/SECSTATE WASHDC 3562 RUCNSAD/SADC COLLECTIVE INFO RUEHMR/AMEMBASSY MASERU 3977
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
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
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