MASERU — The textile sector is in distress and needs urgent export incentives to remain competitive, CGM chief executive officer Madhav Dalvi has said.
In an interview with the Lesotho Times on Tuesday, Dalvi said the troubled local textile industry was facing an uncertain future.
CGM is one of the largest textile manufacturers in southern Africa employing about 6 000 workers.
The company produces clothing for international buyers such as Levis, Wal-Mart and other labels.
CGM last year received a M30 million bailout from the government of Lesotho which allowed it to stay afloat.
“The expiry of the duty credit certificates (DCCs) has affected local firms,” Dalvi said.
The DCC was created by the Southern African Customs Union (Sacu) to help textile exporters to become internationally competitive.
It was also aimed at providing increased and sustained employment within the Sacu region.
Under the DCC programme, exporters are exempted from paying customs duty when they import certain goods.
The DCC is a compensation based system that gives exporters an opportunity to supplement their product range in the domestic market boosting profitability and growth of the business.
Dalvi said there had “not been any incentive to replace the DCCs”.
He said the expiry of the third country fibre provision was also threatening the viability of the textile sector.
The provision allowed textile firms in Lesotho to source fabric elsewhere after which they qualified for duty free market access in the United States.
“If there is no replacement for the third country fibre agreement, then it will be very hard for the industry to compete on the international market,” Dalvi said.
He added that Lesotho was already facing stiff competition from Asian countries including large textile powerhouses such as China, India, Bangladesh and Vietnam.
“Although our competitors are charged duty when entering the US market, it is already tough to compete with them since they have low labour costs and well established textile industries,” he said.
The US is CGM’s biggest export market.
The United States absorbs about 90 percent of the company’s exports while the remaining 10 percent goes to the South African market.
“We will think of expansion at the appropriate time. We are just out of the recession and there are still a lot of uncertainties for the textiles industry,” Dalvi said.
CGM produces about 2 500 garments a day which translates to about 750 000 garments a month.
Local factories are competing with well established textile firms in the developed world.
Dalvi said there were signs that the global economy and that of the US were on the path to recovery as seen in the increase in the number of orders placed with local firms.
“The market is showing signs of improvement but not in terms of prices.
“The volumes have increased . . . but the prices have not improved much,” he said.
A senior finance manager with CGM, Anjan Bhattacharya, said market diversification could help ease dependency on the US market.
He however conceded that the US remains the most important market for the local textile industry.
“Europe is a very small market for a company of our size.
“In addition it is not homogeneous which makes it difficult for large companies as there are a number of countries with different demands and smaller buyers,” Bhattacharya said.