Lesotho, a country of 1.9 million people, has beenquite successful in capitalizing on the AfricanGrowth and Opportunity Act (AGOA), the eco-

nomic partnership agreement between the United Statesand Africa launched in 2000 to increase African exports tothe U.S. market. Lesotho’s experience with its apparelexports demonstrates that competitiveness is not onlyabout firm-level costing but about developing a broadercoordination mechanism through which the governmentdelivers public goods necessary for overcoming market fail-ures in such a way that private sector investment is trig-gered and sustained.

A notable aspect of Lesotho’s experience is the govern-ment’s decision to combine an apparel industry competi-tiveness initiative with a series of early-stage incentives forinvestors—a tactic that has yielded positive results forLesotho thus far. The sequencing and balancing of such pol-icy measures has differentiated Lesotho’s apparel exportpath from those of other African countries in recent years.Its proximity to South Africa and its membership in theSouthern African Customs Union offers Lesotho uniquegeographic and fiscal advantages that other countries maynot have, but the industrial policy measures and institu-tional reforms undertaken by the government of Lesothoare relevant for several African countries. Lesotho’s successcan especially be attributed to its direct engagement withglobal and regional apparel buyers and an overall policyacknowledgement of the rapidly changing structure of the

global apparel trade. Over time, Lesotho has started to climbthe apparel value chain and overcome issues of corporatesocial responsibility.

To better understand the policy measures behind thesuccess factors involving Lesotho’s apparel trade, this chap-ter asks three main questions. First, how are spatial andeconomic factors balanced in pursuing a coherent compet-itiveness strategy in Lesotho’s apparel sector? Second, whatwere some of the industry-specific strategies employed bythe government of Lesotho in overcoming the governmentand market failures? How are they complemented witheconomywide measures and socioeconomic measures? Andthird, what public-private collaborative efforts have led toreforms that maximized private sector investments? Howhave bottlenecks related to transportation, logistics, innova-tion, and quality been overcome to produce the success ofthe apparel industry in Lesotho?

In exploring these questions, this chapter takes as a basicpremise that international trade is no longer a random phe-nomenon where anonymous producers and buyers engagein exchange of what they produce and consume. Rather,international trade and investment decisions increasinglydepend on a successful ecosystem of producers, suppliers,and providers of specialized services and infrastructure,along with cooperation from the public sector on essentialissues of tax, finance, innovation, and quality control.There is a growing tendency for global apparel investors,buyers, and producers to rely on concerted public support

219

Apparel Exports in Lesotho:The State’sRole in Building Critical Mass forCompetitiveness Mallika Shakya

C H A P T E R 1 3

Mallika Shakya is Wolfson Research Fellow at the School of Interdisciplinary Area Studies, University of Oxford.

that harnesses new production methods, facilities, andlogistical models. Beyond macroeconomic soundness,countries should also give attention to micro- and meso-level issues related to delivery of necessary public goods forprivate investment. All of these factors add up to a betterbusiness-enabling environment necessary for sustainedcompetitiveness.

Not only is the apparel industry an entry point for abroad range of light manufacturing industries but, if man-aged well, it has the capacity to unleash the growth andcompetitiveness potential of an economy. Growth of theapparel industry makes immediate contributions toemployment and creates tremendous potential for back-ward and forward linkages that are important to developingcountries such as Lesotho.

Lesotho exported just under $350 million worthof apparel to the United States in 2008, approximately29 percent of apparel exports (Edwards and Lawrence2009) from all of Sub-Saharan Africa to the United Statesfor that year (figure 13.1). Although this marks a dip fromthe amount exported in 2004, Lesotho still exports sub-stantially more apparel than its closest rivals in the sector,Madagascar and Kenya. The value of Lesotho’s apparelexports to the United States is about three times higherthan those of Swaziland, a country that has similar geopo-litical conditions and that follows Lesotho’s growth path toa certain extent. Lesotho is also far ahead of neighboringMozambique, which exported less than $400,000 worth ofapparel to the United States in 2008, approximately 0.1 per-cent of the amount Lesotho exported.

Other African countries, such as Cameroon, Ghana,and Tanzania, lag far behind Lesotho in apparel exports,

and even middle-income countries in Sub-Saharan Africasuch as Mauritius and South Africa are rapidly losing theircomparative and competitive advantages in the apparelsector. Although both these countries exported amountscomparable with that of Lesotho in 2001, the situationchanged dramatically in 2008, when Mauritius exportedonly about $100 million worth of apparel and South Africaexported a negligible amount to the United States. WhileSouth Africa exports some of its apparel to the EuropeanUnion (EU) and has a significant domestic market, it isquite striking that Lesotho, a country with a very smalldomestic market, exports three times as much apparel thanMauritius and is decisively ahead of larger African countriesMadagascar and Kenya. Even though the global financialcrisis negatively affected Lesotho’s apparel exports in 2008and 2009, it is difficult to challenge the country’s successbetween 2001 and 2007.

Figure 13.1 shows that Lesotho’s apparel exports to theAmerican market grew exponentially in the late 1990s andearly 2000s, before more or less stabilizing in recent years. Abrief slowdown due to the uncertainty in international tradeagreements resulted in the closure of six firms and a mod-erate compromise on exports in 2004 and 2005, but fournew firms entered the market at the same time, and therewas a significant increase in total employment in the apparelindustry. Despite the impact of the 2008/2009 global finan-cial crisis recovery has been relatively quick.

The magnitude of Lesotho’s apparel industry successbecomes clearer when its export figures are weighed againstthe size of its population. While high population densityand availability of cheap labor explain the success of theapparel industry in Bangladesh, China, and India, the situa-tion is not that straightforward in Africa. As measured byapparel exports per capita, smaller countries with lowerpopulation density are outperforming larger countries withlarge labor forces (figure 13.2). Lesotho, in fact, outranksother apparel-producing countries in Sub-Saharan Africa,with apparel exports per capita of $177 as of 2009. Swazi-land and Mauritius have the second- and third-largest percapita apparel exports, respectively, among Sub-SaharanAfrican countries.

The apparel industry represents a significant proportionof Lesotho’s gross domestic product (GDP), trade, andemployment. Clothing, in fact, has represented the majorityof Lesotho’s total exports since the late 1990s (figure 13.3).In addition to Lesotho’s successful entry into the U.S.apparel market, investors are producing higher-value-added items such as woven shirts and men’s trousers andare now targeting the regional (South African) and EU

220 CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS

Figure 13.1 U.S. Imports of Clothing and Textiles fromAGOA Countries

Source: U.S. Trade Development Agency.

500

$ m

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Lesotho Madagascar Kenya

Mauritius Swailand South Africa

markets. Lesotho has also emerged as one of the few Africancountries where regionally grown cotton is processed intodenim and exported as part of final apparel products to theUnited States.

Beyond economic considerations, direct employmentbenefits make Lesotho’s apparel industry an important partof the national economy. In 2010 just under 40,000 of a totalpopulation of 1.9 million people were employed in theapparel industry. Figure 13.4 shows the extent to whichlabor conditions in the apparel sector dictate the overallemployment conditions in Lesotho.

GLOBAL AND REGIONAL TRADE AGREEMENTSSET THE STAGE FOR APPAREL TRADE

AGOA, which went into effect in October 2000, designated34 “least developed” countries in Sub-Saharan Africa as eli-gible for specialized trade benefits in the United States.1

Swaziland was designated as the 35th AGOA-eligible coun-try in January 2001. Under AGOA, Lesotho’s apparel exportsenjoy duty-free access to the American markets until 2012,making them up to 15 percent cheaper in the U.S. marketthan exports from non-Sub-Saharan African countries. Andbecause Lesotho is still categorized as a least developedcountry under AGOA, it is exempt from the rules of originclause, meaning that it is free to import fabrics and otherinputs from anywhere in the world.

Because it was among the first countries to put necessarysystems into place, Lesotho was among the first Africancountries to reap the benefits of AGOA. It was not until February 2002, for example, that neighboring Mozambiquewas technically qualified for the U.S. apparel provision. Toqualify for the AGOA, each country must ensure the UnitedStates Trade Representative’s office that it has the adminis-trative capacity to effectively monitor against possible abuseof the privileges granted under AGOA.

The period from 2000 to 2004 was a unique time forAfrican countries seeking to seize opportunities in theglobal apparel market. During these years African countriesnot only received preferential treatment in the U.S. marketunder AGOA, but the preference came at a time whenquota-based restrictions were being imposed on exportsfrom large Asian countries to the United States under theMultifibre Agreement (MFA).2 For some large Asian coun-tries, the MFA-imposed quota meant that they could onlyexport less than half of what they had historically exported.

CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS 221

Figure 13.2 Per Capita Apparel Exports to the United States

200

150

100

50

0.1

$

0.2 0.7 5 715

8095

177

0

Ethio

pia

Sout

h Afri

ca

Malawi

Botsw

ana

Kenya

Madag

ascar

Maurit

ius

Swaz

iland

Leso

tho

Source: Apparel data, Edwards and Lawrence 2009; population data, UnitedNations database.

Figure 13.3 Composition of Lesotho’s Exports

100

0

Perc

ent

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

20

40

60

80

Clothing Diamonds Television sets

Footwear All other goods

Source: Lesotho Bureau of Statistics.

Figure 13.4 Employment Trends in Lesotho

Source: Lesotho Bureau of Statistics.

0

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of w

orke

rs

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20,000

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All other Textiles and clothing Total

The MFA quota, however, could be borrowed from theforthcoming year and any unused quota from one yearcould be carried over to the next. More importantly, quotascould be transferred between countries (that is, countrieswishing to export more could purchase quotas from coun-tries not using them). At times the value of quota reachedup to 30 percent of the original value of apparel beingtraded. Over time, this quota system encouraged largeAsian manufacturers to relocate their operations to less-developed countries, such as Lesotho, that could participatein preferential trade arrangements with the United States. Inaddition to the tariff-based preferences it offered, Lesotho’shistorical ties to East Asian countries made it attractive as alocation for apparel manufacturing.

KEY FACTORS BEHIND LESOTHO’SCOMPETITIVENESS IN APPAREL

There is no set formula to explain why some countries aremore competitive than others in a given industry. In general,competitiveness stems from sophisticated firms engagingin productive ventures, supported by a policy and institu-tional environment in which firms are able and encouragedto forgo rent-seeking behavior and government and marketfailures are overcome. In this regard, competitiveness is akind of continued filtration process through which well-performing firms and markets distinguish themselves fromweaker firms.

Although a sound macroeconomic environment is nec-essary for increased competitiveness of a sector, that alonewill not create competitiveness when the basic buildingblocks of industrialization, such as having a critical mass offirms that can develop a sustainable economic ecosystem,are missing, as is often the case in Sub-Saharan Africa.Development of a critical mass of firms, however, is subjectto public support for necessary institutional and infra-structural mechanisms. In the case of Lesotho’s apparelindustry, the institutional framework was created througha coordinated public-private partnership.

To answer the question of why Lesotho succeeded inapparel while most other African countries failed, despitehaving equally preferential market access through AGOA, acloser examination of the costs of apparel manufacturing isneeded. Beyond having the appropriate macroeconomic fun-damentals in place, success in apparel manufacturing isrelated to labor and overhead costs, which together representthe bulk of the cost of apparel manufacturing. Figure 13.5shows that while labor makes up as much as 49 percent ofthe nonmaterial costs of apparel manufacturing, overhead

and utilities are 20 percent of such costs. Both of these costsare dependent on the presence of public goods that are nec-essary for factories’ efforts to reduce cost and enhance com-petitiveness.

Factory market

A typical apparel factory in Southern Africa spends approx-imately 20 percent of total production costs in overheadand utilities, including land, electricity, and transportation.Land ownership in Southern Africa was historically undera communal system, and later a public system, hence thereis no commercial land market. Availability of land is amajor problem for any foreign investor seeking to start abusiness venture in Southern Africa. In Lesotho, even ifland becomes available, the cost of renting it is sometimesas high as in developed countries, and obtaining a permitto construct a factory or other commercial building on theland takes an average of 16 months. According to the DoingBusiness report, it takes 601 days to obtain a constructionpermit in Lesotho, compared with the Sub-Saharan Africanaverage of 260; and 157 days in developed countries. Thecost of obtaining a construction permit in Lesotho is 670percent of per capita gross national product, comparedwith 56 percent in developed countries, while the unsubsi-dized rate of renting a factory shell in Lesotho is more thantwice the rate for a comparable facility in South Africa andother developed countries.

While national land ownership systems are not likely tobe reformed overnight, it seems logical for governments tooffer transitional arrangements for commercial land use inthe form of hassle-free leasing contracts. This point washighlighted in a study commissioned by the government ofLesotho in 2002 to develop a comprehensive apparel indus-try development plan. Among the 11 principal constraintsto the growth of the apparel industry in Lesotho identified

222 CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS

Figure 13.5 Breakdown of Nonmaterial Costs of ApparelProduction in Lesotho

Source: World Bank 2006.

0 20

Labor(49%)

Profit(10%)

Misc(20%)

Overhead/utilities(20%)

40Percent

60 80 100

in the report, lack of industrial land and factory shells werethe top two constraints.

To compensate for high land costs, the government ofLesotho constructed industrial zones and serviced factoryshells available for rent by foreign investors, allowinginvestors to avoid cumbersome bureaucratic processes. Twolarge industrial zones—Maputsoe on 29 hectares of landand Ha on 10 hectares—were built between 1991 and 1995.Additional zones were built subsequently on theLesotho–South Africa border areas of Mohale’s Hoek,Mfeteng, and Butha Buthe. Currently these fully functionalindustrial zones in Lesotho together house about 60 facto-ries and employ just under 40,000 workers (figure 13.6).

The industrial zones provide a range of real estate ser-vices to assist manufacturing and commercial enterprises,including fully serviced industrial plots, customized factorybuildings, and development of commercial properties forleasing. The buildings are fully serviced with electricity, tele-phone, water, and sewerage. All six zones can be reached bytarred road, are within reach of the public transport system,and have access to rail links connecting them to apparel dis-tribution hubs in Johannesburg.

Because the land tenure system in Lesotho does not pro-vide for land being bought or sold, investors were offeredlong-term leases within these zones and were given theoption to sublease if necessary. Rental procedures and reg-ulatory processes were simplified and centralized so thatthe export promotion agency, Lesotho National Develop-ment Corporation (LNDC), could undertake all necessaryadministrative procedures and cater to the business needsof potential foreign investors. In fact, LNDC’s success asan export promotion agency draws enormously on its suc-cess as a property developer and service provider, whichcatalyzed development of a critical mass of first-generationapparel manufacturing companies in Lesotho. After man-aging these services in house for several years, LNDCrecently began subcontracting day-to-day property opera-tion and maintenance tasks to JHI Real Estate, a prominentestate management company active in several other Africancountries.

Timing was crucial to the success of industrial zoneconstruction in Lesotho, a point that is often omitted frompolicy discussions. After AGOA became effective in 2000,and foreign investors operating in East and South Asia

CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS 223

Figure 13.6 Industrial Zones in Lesotho

Source: Government of Lesotho.

MASERUMASERU

MafetengMafeteng

Mohale’s HoekMohale’s Hoek

MokhotlongMokhotlong

Butha-ButheButha-Buthe

THABA-TSEKA

QACHA’S NEK

QUTHING

MOHALE’S HOEK

MAFETENG

MASERU

LERIBE

BEREA

BUTHA-BUTHE

MOKHOTLONG

Mafeteng

Mohale’s Hoek

Quthing

Thaba-Tseka

Mokhotlong

Butha-Buthe

Leribe

Teyateyaneng

Qacha’s Nek

MASERU

SOUTH AFRICA

SOUTH AFRICA

28° 29°

29°29°

30°

29°

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LESOTHO

0

0 30 Mi.

50 Km.

INDUSTRIAL PRODUCTION ZONES

DISTRICT CAPITALS

NATIONAL CAPITAL

DISTRICT BOUNDARIES

INTERNATIONAL BOUNDARIES

IBRD 38607MAY 2011

began to operate factories in Africa, and Lesotho wasamong the few countries that already had industrial zoneswith well-equipped and serviced factory shells. As a specificresponse to AGOA, Lesotho offered the apparel investorssubsidized rent for at least the first five years of operation.While the sustainability and macroeconomic rationale ofthis policy decision may be questioned, it virtually pre-empted the efforts of other countries in the region toattract foreign direct investment (FDI).

Export and investment promotion

Observers often claim that export and investment promo-tion activities have not yielded results and that they haveinstead become rent-seeking activities. This is true in sev-eral cases both in Africa and elsewhere in which exportpromotion agencies are captive to poor leadership due toheavy government involvement, inadequate funding,cumbersome bureaucracy, and lack of client orientation.At times, countries suffer from strong antitrade bias andanti-FDI sentiment. By many measures, Lesotho’s successin export and investment promotion defies the generaltrend in developing countries. The LNDC is the mainwing of the government charged with the implementationof export and investment promotion programs. Foundedin 1967 by an act of parliament, LNDC was amended in1990 and again in October 2000. LNDC is primarilyowned by the government of Lesotho (90 percent); DEG,a German finance company, owns the remaining 10 per-cent. The LNDC is part of the Ministry of Trade andIndustry, Cooperatives and Marketing, which is responsi-ble for overall policy direction on industrialization inLesotho.

The LNDC works with medium and large companies inthe manufacturing and services sectors to strengthenLesotho’s exports and generate foreign investment inLesotho. Rather than relying on a broad strategy to pro-mote all exports, the LNDC focuses on nontraditionalexports. Because of Lesotho’s extreme concentration inapparel, the LNDC also has functioned as a de facto gar-ment promotion agency in the past several decades, devel-oping with it several sector-specific skills and insights. Suchinsights have proved instrumental in ensuring that incen-tive packages offered to investors are not poorly utilized orcaptured by rent-seekers.

In addition to the LNDC’s role as real estate developer,facilitator, and service provider, it acts as a one-stop shopthat covers most aspects of company operations, rangingfrom business inquiries, site selection, firm registration,

regulation and facilitation on various aspects of productionand sales, and management of government incentiveschemes and tax procedures (box 13.1). Through its Invest-ment Promotion Center (IPC), the LNDC markets Lesothoas a destination of choice to potential manufacturers. Toachieve this, it has developed an information disseminationsystem that reaches out to potential investors withinLesotho, Southern Africa, and beyond. The LNDC has senttrade missions to South and East Asia to mobilize networksof firms that are already invested in Lesotho. One factorbehind the success of Lesotho’s export and investment pro-motion is that the IPC has adopted tailor-made strategies toattract and sustain investments from very differentinvestors, including those from South Africa; China; Tai-wan, China; and elsewhere. In recent years, the IPC has alsosought to attract yarn, trim, zipper, button, bag, hanger, andcarton manufacturers to Lesotho. To some extent, these spe-cialized manufacturers can assist Lesotho in taking fulladvantage of AGOA and allow a structured approach toinward investment.

Labor coordination and skill development

At 49 percent, labor is the largest nonmaterial cost inLesotho. It goes without saying that labor costs directlyinfluence investors’ decisions about where to locate theiroperations and buyers’ decisions about where to choosesuppliers. In the case of Lesotho, however, labor costs arenot the primary point of consideration for investors andbuyers. In other words, investors have chosen Lesothodespite its relatively higher labor costs compared withother Sub-Saharan African countries. Nonetheless, becauseproduction and sourcing dynamics are constantly chang-ing in the global apparel market, it is important thatLesotho takes measures to reduce labor costs whileimproving labor productivity.

Labor costs are high in Lesotho compared to otherSub-Saharan African countries. Hourly wages rangefrom approximately $0.14 to $1.80 in apparel-producingAfrican countries as well as in several non-African coun-tries with significant apparel sectors such as Bangladesh,China, and Sri Lanka. Wages in Lesotho average $0.46 anhour, lower than those in Mauritius and South Africa butsignificantly higher than those in Ethiopia, Kenya, Mada-gascar, Mozambique, and Swaziland. Even when productiv-ity is taken into account (labor costs per shirt), Lesotho stillis an expensive manufacturer compared with Ethiopia,Kenya, Madagascar, and Mozambique (figure 13.7).

224 CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS

Labor unions in Lesotho have undergone a majortransition. The first apparel factories were set up inLesotho by South African companies in the 1980s, and were,for the most part, subsidiaries of bigger industrial conglom-erates that had specialized for decades in the South Africanmarket. Primarily located in Maputsoe, these companiesinitially established higher labor standards for Lesotho.They negotiated recognition agreements with the tradeunion of employees at the LNDC and the Department ofLabor. While those negotiations were frequently difficultand protracted, they inevitably resulted in pay increases forworkers. Over the years, negotiations with trade unionsbecame commonplace among apparel companies inLesotho, even among those where the majority of employ-ees were not union members.

The new generation of apparel manufacturers and buy-ers that moved to Lesotho in response to the MFA andAGOA provisions created a demand for a very different setof labor skills and expectations. In short, the industrybecame less regulated by local labor codes and more influ-enced by the global momentum around labor-related cor-porate social responsibility. The apparel industry in Lesothounderwent a major labor crisis in the 2000s as a result, onethat involved policy deadlocks and street riots. On one

hand, workers were upset that job stability was no longerguaranteed; on the other, factory owners were frustratedabout low labor productivity. Fueling the antagonism wereseveral cases of exploitation of workers by foreign factoryowners and foreign supervisors.

The Lesotho Clothing and Allied Workers Union(LECAWU) is the predominant union representing employ-ees of the apparel industry. It was formed under the termsof the national labor code of Lesotho in1992 and is recog-nized by the government of Lesotho as the representative oflabor. Historically, anti-union sentiment has made it diffi-cult for LECAWU to organize workers; the unwillingness ofmanagement, particularly in Maseru and Thetsane, toengage in meaningful negotiation also impeded the union.Nevertheless, LECAWU membership has grown in recentyears as a result of AGOA provisions, changes in apparelcompanies’ codes of conduct, and increasing interest inlabor relations among company owners and managers. Thelabor movement in Lesotho encouraged the government tocreate the legislative framework that set up the IndustrialRelations Council, the Directorate for Dispute Preventionand Resolution, and the Labor Appeal Court. This impor-tant piece of legislation provides for the settling of labor dis-putes through mediation, conciliation, and arbitration,

CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS 225

Company support

■ Business registration procedures■ Acquisition of permits and manufacturing licenses■ License and residency paperwork for foreign work-

ers, managers, and owners■ Arrangement of site visits and assistance in selection

of suitable sites■ Key focal point for contact with relevant ministries

on business regulations■ Facilitation of contact with business companies sup-

plying services■ Facilitation of skill and technology development

programs■ Industrial relations if disputes arise with workers

Management of incentive schemes

■ Unimpeded access to foreign exchange■ Export finance facility

■ Short- and long-term loans■ Import value added tax (VAT) credit facility for local

purchase of raw materials and capital goods

Tax management oversight

■ No tax on income generated from exports outsidethe Southern African Customs Union

■ Permanent maximum manufacturing tax rate of 10percent on profits

■ No tax on dividends to local or foreign shareholders■ Free repatriation of profits ■ Double taxation agreements with Germany, Mauri-

tius, South Africa, and the United Kingdom

Investment attraction

■ Information dissemination to targeted investor pools■ Trade missions to targeted markets and investor

pools

Box 13.1 LNDC as a One-Stop Shop

Source: Consultations with LNDC officials.

effectively creating an independent authority that is repre-sentative of the government, employees, and employers.

The global labor movement has benefited the local labormovement in Lesotho. As manufacturing has shifted fromdeveloped to developing countries, there has been growingconcern among developed-country consumers, as well asfrom activists and nongovernmental organizations (NGOs),regarding the wages and work conditions under which prod-ucts are manufactured. As a result, most major multinationalcompanies have adopted codes of conduct they require theirsuppliers to meet. In addition, a number of NGOs havedevised codes of conduct in partnership with the multina-tionals: these include the U.K.-based Ethical Trading Initia-tive (sponsored, in part, by the Department for InternationalDevelopment, or DFID), the Institute of Social and EthicalAccountability, the Global Reporting Institute, the Nether-lands-based Clean Clothes Campaign, the U.S.-based FairLabor Association, the U.S.-based Worker Rights Consor-tium, and the EU’s European Code of Conduct. A majorprivate initiative called Social Accountability 8000(SA8000), along with the nonprofit organization Account-Ability’s AA1000, are attempting to create a benchmark for

social accountability much like the ISO9000 has done forquality. Meanwhile, several multinational apparel manufac-turing companies have formed the Worldwide ResponsibleAccredited Production (WRAP) principles to accredit sup-pliers. In addition, all major multinational apparel manu-facturing companies have their own codes of conduct.

The need to comply with the various codes of conducthas created a major change in most apparel factories inLesotho. And though the inspections surrounding suchcodes of conduct can measure a degree of compliance,industrial relations will be smooth and sustainable in thelong term only if they contribute to productivity.

Labor productivity must increase. A typical apparelfactory now works with its workers, regulators, and serviceproviders as a group to drive down costs and improvestandards. By working with providers of training andskills, factories are able to shift to new production meth-ods that reduce costs, improve product quality, andenhance factories’ commitment to their workers. Nike’sshift from a normal assembly line production system to“lean manufacturing,” for example, has been marked with

226 CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS

Figure 13.7 a. Factory-Floor Productivity and Labor Costs in Apparel Assembly; b. Hourly Wages for Apparel Assembly(US cents)

Source: Labor productivity figures and costs are from Eifert, Gelb, and Ramachandran (2005) except for those for Ethiopia, which were calculated usingGlobal Development Solutions (2005). Hourly wages were collected from government sources.Note: Daily productivity is the number of men’s casual shirts made by a machine operator in one day.a. Mozambique wage indicates the minimum industry wage specified under the national labor law.b. Data for China is for export processing zones only.

Country Daily

productivity

Laborcost pershirt ($)

Mozambiquea 10–11 .16

Chinab

Ghana 12 .12

Ethiopia 10–12 .12

Kenya 12–15 .18

Madagascar 14–15 .16

Lesotho 18 .19

South Africa 15 .65

India 16 .17

18–22 .29

179.4

125

72

46

35

33

31

30

27

26

26

25

21

18

14

South Africa

Mauritius

EPZ China

Lesotho

Sri Lanka

Swaziland

Nepal

Kenya

India

Madagascar

Pakistan

Mozambiquea

Bangladesh

Ghana

Ethiopia

a b

significantly higher productivity and better labor condi-tions. The initiative has been followed by the incorporationof more sophisticated production planning and merchan-dising systems, such as “Just in Time,” that aim to eliminateinefficiencies in space, time, and activity and also managethe inventory stock.

Most buyers of apparel assess their producers on four keycriteria: cost, quality, timeliness, and corporate responsibility(that is, labor and environmental standards) (figure 13.8).After an initial baseline is developed, buyers regularly mea-sure factories’ performance to track delivery, quality, andprices over time. Indicators are typically expected to improveeach quarter. Such proactive measures toward labor produc-tivity are not yet under way in Lesotho, although a numberof initial steps have been taken. The fact that Lesotho is at thelower end of productivity in apparel manufacturing meansthat it needs to develop systematic analyses to diagnose bot-tlenecks and then design institution measures to tackle thosebottlenecks accordingly.

Successful skill development initiatives. In 1999the Lesotho Garment Center (LGC) was opened to providenecessary training for the apparel workforce. Developedwith funding from the DFID, the LGC had the objectiveof training workers and entrepreneurs in the manage-ment of industrial apparel production in anticipation oftheir participation in the opportunities presented byAGOA. Although the LGC succeeded in training hundreds

of machinists, its primary aim of launching entrepreneursinto the formal garment subsector was not successful, andit was terminated in 2003. Lesotho’s experience with theLGC is similar to that of several other developing coun-tries, where the public sector has developed channels tosupport the private sector that turn out to be ineffective.Coordination and incentive structures have been majorproblems in making public sector efforts useful for the pri-vate sector.

No other training institutes have been created to fill thevoid left by the termination of the LGC. Several other train-ing establishments, such as Lerotholi Polytechnic and theInstitute of Development Management, offer a range ofgeneric management and general studies, although none aretailored to the needs of the formal garment sector. LerotholiPolytechnic offers a two-year series of courses related to theapparel industry, for example, but the focus is on design,pattern construction, and bespoke tailoring. The Commer-cial Training Institute offers similar courses that lead to theaward of a certificate in tailoring and dressmaking. TheBasotho Enterprise Development Corporation (BEDCO)also runs a series of short courses, including marketing skillsand, actively seeks to identify and focus on the future needsof the garment industry. Saint Luke’s Mission in Maputsoeoffers a three-year course providing students with a range ofapparel industry skills, including pattern construction,machine knitting, small business studies, leadership, man-agement skills, and industrial garment production on theappropriate machinery.

Upon completion of these courses, many students areemployed in the local craft industry or their own enter-prises, but very few graduates from these institutes end upworking on the apparel shop floors. The training institutesare seldom approached by apparel manufacturers to trainmanagers, workers, or technicians, underscoring the needfor sector-specific contents and modules in training insti-tutes for them to be truly useful to employers. This scenariohighlights a larger problem in the apparel industry inLesotho: while existing training institutes do not cater to theapparel industry, apparel factories report that their in-housetraining facilities are not sufficient. For the most part,trainees in factories are taught single machine skills ratherthan being cross-trained.

Most apparel factories in Lesotho also acknowledge theneed for trained supervisors and indicate that they areprepared to pay for it. In the factory survey, 69 percent ofinterviewees confirmed that they would support trainingprograms that addressed their particular sector needs if suchprograms were delivered in a way that minimized employees’

CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS 227

Figure 13.8 Buyer’s Scorecard for Assessment ofProducer Competitiveness

Gross margin

DeliveryCorporate

responsibility

Quality

n Labor productivity

n Product defective rate against target 0.9%n Vendor test submit rate against target 10.0% for use of restricted substance in production, finishing and packaging

n Scalen Locational advantagen Connectivity

GAC: Goods at consolidator,the date and the productleaves the factory

‘C’ rated factories: lack ofbasic terms of employmentand legal non-compliance

‘D’ rated factories: unwillingnessto comply with CR standardsand denial of access toinspectors

OTP: On time receipt to thefinal port after dispatching,loading and shipping

Source: World Bank 2006.

time away from the workplace. Approximately 11 percentsaid they might support such a facility, while 20 percent saidthey would not. Only one of the companies surveyed hadactually developed a supervisory training course, and isusing its own staff to deliver the training. The course coversa range of topics, from organization and planning to indus-trial relations and health and safety. The most common rea-sons companies gave for developing their own courses werethat no such courses were available locally and that they hadconcerns about quality of delivery and training materialsprovided by third parties.

The fact that services offered by existing training insti-tutes are not used by apparel factories while the samefactories acknowledge need for more effective trainingindicates a coordination gap. While an initiative is underway in Lesotho to develop broader public-private coordi-nation on skill development, it is too early to comment onits success. Among the commendable initiatives in thisdirection has been the development of an interactive data-base that would collate information on leading global andregional experts in specific areas. Depending on the inter-est from the private sector, selected experts would beinvited to develop training modules that would feed intothis interactive database. Eventually, private sector partici-pants would be expected to use those modules to commis-sion training at their own expense. The success of such aninitiative will depend on the degree of collaboration amongvarious stakeholders. A breakthrough in this area will benecessary for Lesotho to climb up the global apparel qual-ity value chain.

Transport, logistics, and customs

The time and cost of transport is often an important barrierto competitiveness in the apparel industry. A smooth trans-port corridor supported by competent logistical serviceproviders and punctuated by efficient border crossing mech-anisms is a prerequisite for any exporting economy. Thanksto the critical mass of apparel producers that regularly usethe corridor between Maseru and Johannesburg, Lesotho hasmade enormous strides in developing systems for transport,customs, and logistics.

The road infrastructure in Lesotho is substantially devel-oped and is well connected to the extensive road networksof South Africa. Trucking services are provided by privateoperators that cater to a wide range of apparel producers.Although there is only one railhead in Lesotho, it is locatedin Maseru, just across the river border with South Africa.Railway lines, station buildings, and handling facilities in

Lesotho are owned and operated by Spoornet, the SouthAfrican rail service.

Customs processes in Lesotho have significantly improvedsince AGOA took effect. The government has put in place arigorous training and regulation system among the customsstaff to meet the requirements of exports under the AGOAvisa scheme and now offers duty rebates on fabrics importedin the production of apparel exports. Further, a duty creditscheme was put in place for exporters of manufactured goodsthat use raw materials sourced from Southern African Cus-toms Union countries. For certain factories, customs requirescloser inspection of waste and offcuts disposal before rebateson imported materials are issued, though such inspectionsare expedited after factories establish a good track record orafter in-factory inspections are streamlined with other regu-latory measures. Such multiple inspection requirementsnecessitate an efficient, well-trained customs team to ensuresmooth implementation.

LESSONS FROM LESOTHO’S APPAREL INDUSTRY EXPERIENCE

Integration into global supply chains has been an importantavenue for growth and competitiveness for Lesotho’s apparelindustry. Geographical advantages and disadvantages—ofweather, location, and connectivity—cannot be ignored, butdiscovery and pursuit of new opportunities through correctformulation of policies and development of effective public-private partnerships has been the key channel throughwhich Lesotho has achieved apparel industry success. Sev-eral key features of this success story can be identified.

First, the government of Lesotho was successful inattracting foreign investors through its policy of construct-ing industrial zones and serviced factory shells. Throughoutthis process, the government has remained cognizant of thegeographical implications of such facilities, ensuring thatthey are not far from the public goods necessary for indus-trialization. Construction and effective management of thefactory shells compensated for inherent inefficiencies in theland market in the form of prohibitions on private owner-ship and sales-based transactions of land.

Second, when AGOA-related opportunities becameavailable, Lesotho made stronger, clearer efforts to attractFDI than other countries in Southern Africa. Lesotho notonly moved quickly to administer AGOA in country butalso offered generous tax and financial incentives to earlyinvestors to help develop a critical mass of apparel manu-facturers that then made way for service providers and reg-ulatory bodies to join in.

228 CHAPTER 13: APPAREL EXPORTS IN LESOTHO:THE STATE’S ROLE IN BUILDING CRITICAL MASS FOR COMPETITIVENESS

Third, Lesotho’s export and investment promotionefforts would not have been effective without the LNDC,which pursued promotion measures through appropriateinformation dissemination models and targeted interestsolicitation. Once a critical mass of apparel investors cameto Lesotho, the LNDC developed an effective one-stop shopfor business development, firm registration, financing, andstate-industry coordination on issues such as tax manage-ment and access to state industrialization incentives.

Fourth, when labor disputes arose around the industrialtransition, the government of Lesotho quickly stepped in tomediate among multiple stakeholders who were nurturingmutual antagonism.

And fifth, although it is too early to make informed ver-dicts, the government of Lesotho has acknowledged its pastmistakes on skill development and is developing a coordi-nated skill development initiative in conjunction with theprivate sector. If successful, the initiative will compensateLesotho for its competitive disadvantage in labor costs.

NOTES

1. As per the definition as used in AGOA, a least developedcountry in Sub-Saharan Africa is a country with grossnational product (GNP) per capita of less than $1,500 in 1998.This provision was renewed in 2006 for the period 2007–12.

2. The Multifibre Arrangement governed textile and cloth-ing quotas between 1974 and the end of 1994. Upon forma-tion of the World Trade Organization in 1995, textileexports became governed by the Agreement on Textiles andClothing.

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