MASERU — Embattled China Garments Manufacturers (CGM)’s boss, Madhav Dalvi, yesterday pressed the panic button when he warned of a massive job carnage that he said will hit the textile industry in Lesotho in the next six months.
Dalvi predicted that within the next six months the textile industry which is Lesotho’s biggest private sector employer with about 35 000 workers on its payroll will be on its knees.
He sounded the alarm bells while speaking at a press conference he had called to deny allegations that CGM could have evaded tax, externalised and laundered millions of maloti from Lesotho.
His warning of a pending crisis came a week after the Lesotho Revenue Authority (LRA) raided his company as it sought evidence of tax fraud and externalisation.
It is suspected that CGM owes nearly M300 million in tax arrears that accumulated over the past 24 years that the company has been operating in Lesotho.
Jobs will be wiped out, Dalvi said.
The reason, according to Dalvi, is that at the end of September there will be no new orders from the United States which buys over 90 percent of Lesotho’s textile products because the country would have lifted the Africa Growth Opportunity Act (Agoa)’s third countries fabric provision.
The provision that expires on September 30 is a special dispensation that gives least developed countries like Lesotho an additional preference in the form of duty-free access for apparel made from fabric originating anywhere in the world.
It allows sub-Saharan Africa’s least developed countries (LDCs) like Lesotho to export apparel made with non-US fabric and yarn duty-free and quota-free.
Under this provision 91 percent of Lesotho’s textile exports are destined to the United States, according to the Central Bank of Lesotho’s Economy Review.
When that provision expires, Lesotho-based textile companies will have to source fabric from the United States or sub-Saharan countries.
The problem is that US fabric prices are more than double those in Asia from where Lesotho-based factories have been buying all along.
Sourcing from sub-Saharan Africa is equally challenging because the fabric is either not available or too expensive.
This means that apparel produced in Lesotho will be repulsively expensive and United States buyers will shift to Asian suppliers who produce at a lower cost and make their own fabric.
Orders to Lesotho’s textile firms will dry up and the firms will have to shut down.
Dalvi said not even a single textile firm in this country has orders to deliver to America after September 30.
“No exporter has orders to be delivered after September,” Dalvi said, adding that orders in the textile industry are no normally made six months in advance.
“If any exporter is saying they have an order after September 30 then they are bluffing.”
He said as of now CGM “is on oxygen”.
His prediction of an “Armageddon” in the textile industry has however been received with scepticism by key players in the sector.
Trade and Industry Minister Leketekete Ketso said Dalvi was making misleading predictions of a crisis to divert attention from his troubles with the LRA.
“That man (Dalvi) is merely trying to divert people’s focus from investigations mounted against him,” Ketso said.
“He is just playing tricks. He knows what he is running away from.”
The Lesotho Clothing and Allied Workers Union (Lecawu) general secretary, Daniel Maraisane, also poured water on Dalvi’s predictions.
He described Dalvi’s statement as baseless. “Did he tell you the source of his information?” challenged Maraisane, adding: “If there was such a thing we would know it and our lobbying partners in America would know it as well.”
Maraisane who is also an executive member of the Lesotho Congress of Democratic Unions said the Lesotho unions work closely with a lobby group in the US called Unite.
The group keeps them informed about anything that affects textile trade between Agoa eligible countries and the US.
Maraisane also said the Lesotho government through the trade ministry had marketing consultants in the US who could have raised the alarm a long time ago if it was true that the expiry of the third countries fabric provision meant that orders would not come.
Dalvi said the Agoa trade arrangement which allows the least developed countries quota free access to the US market would be useless even before the expiration of Agoa in 2015 because of its changing third-country fabric provision.
The US Embassy in Lesotho yesterday confirmed the expiration of the third country fabric provision in September but added that “textile companies can still import fabric from the United States or from any of the sub-Saharan countries”.
Some Lesotho textile firms are already relying on fabric from sub-Saharan countries to manufacture their apparel.
Formosa, Lesotho’s largest denim fabric manufacturer, has for a long time been importing ginned cotton from African countries including Malawi, South Africa, Zambia and Zimbabwe according to Mark Bennet in a paper titled Lesotho’s Export: Textiles and Garment Industry.
Dalvi said apart from the crisis posed by the expiration of the third country fabric provision the textile industry is already struggling from the effects of the global financial crisis that has hit the United States and European Union countries.
He added that currently Lesotho’s wage costs were already higher than that of its major competitors.
Lesotho’s minimum wage is currently at US$130 while Bangladesh’s is pegged at US$45.
Factories in Cambodia are required to pay a minimum wage of US$65 while those in India pay US$70.
He said since 2003 Lesotho has not received any new investment in the textile industry.