Crisis leaves textiles sector in dire straits

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MASERU — Lesotho’s ailing textile industry has shed 6 000 jobs over the past eight months as the global crisis begins to take its toll on the key sectors of the economy.

Textile companies have been cutting jobs to remain viable after orders from the main source markets, especially America, started dipping last year.

The number of people employed in the sector plunged from a high of 45 000 in July last year to 39 000 in February.

“The decrease in exports has seen a resultant decrease in employment levels of 13 percent from approximately 45 000 in July 2008 to 39 000 in February 2009,” said the Lesotho Textile Exporters Association (LTEA) in its latest appeal to the government for help.

The association warned that the sector was in dire straits because of the global crisis.

“With the current global economic crisis, Lesotho’s garment industry is in a very vulnerable state,” the LTEA said.

“Exports to the USA have decreased by 11.43 percent from 2007 to 2008 and apparel retailers are continuing to see depressed sales.

“This downward trend in sales in the US retail sector is expected to continue throughout 2009, exposing garment manufacturers to lower order volumes and tighter, more competitive pricing.”

About 80 percent of Lesotho’s textile products are exported to the United States.

Clothing sales in America have been on the slide because customers are buying less.

LTEA administrator Moroesi Akhionbare said the trend is likely to continue.

“Lesotho’s textile sector is quite vulnerable. Unless something is done immediately more jobs are going to be lost,” Akhionbare said.

Akhionbare said the textile industry is set to shrink further this year after the Southern Africa Customs Union (SACU) removed long-standing duty incentives that had sustained the industry for the past six years.

There were two forms of incentives for the textile and garment manufacturers in SACU.

One option was that they could import raw materials duty-free as long as they were going to export the products.

The second option was for them to register for the Duty Credit Certificate Scheme through which they were allowed to claim a certain percentage of the value of their export earnings as reflected on the certificate.

The certificate was then used towards paying the duty on imports.

The amount of the duty they paid was always lower than the value reflected on the certificate.

This left them with value that they could sell to the manufacturers in South Africa.

The South African manufacturers would then use the certificate to offset duty payable on their own imports.

The textile companies would use the value earned to sustain their cash flow and reduce their prices to remain competitive on the market.

Because retailers are always demanding lower prices the incentives helped Lesotho companies to remain competitive.

The incentive was however removed by the SACU on March 31, leaving Lesotho’s textile companies in a serious fix.

The SACU Council of Ministers abolished the tradability of certificates.

According to the new regulations, Lesotho manufacturers can only use the certificate to pay for duty on raw materials but the residual value cannot be sold.

Akhionbare said the decision was going to hit Lesotho companies hard.

“Lesotho is the only country in SACU that has a very strong textile industry. This decision will affect us the most,” she said.

“Because the manufacturers cannot trade the certificates it means that their residual value is of no use.”

She said although this will not lead to closures immediately there was a possibility that some companies might start cutting jobs to remain viable.

“There is havoc in the sector. Companies might not close now but we have no doubt that soon some will start retrenching,” she said. “The textile industry is already in trouble and this move just makes it worse.”

The LTEA has since appealed to the government to intervene.

In its presentations the sector requested that the government lobbies SACU to reinstate the tradability of the certificates.

“The usefulness of duty credit certificates as an incentive scheme lies in their liquidity or tradability,” the association said. 

“It allowed beneficiary manufacturers to factor credit received from their sale into the selling prices of their exports. 

“This went a long way towards enhancing their international competitiveness.  It also encouraged manufacturers to repatriate their export earnings to Lesotho.”

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