VZCZCXRO7230
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 
 
 
¶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. 
 
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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