VZCZCXRO5654
RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0360/01 2811538
ZNR UUUUU ZZH
R 081538Z OCT 09
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 4414
INFO RUCNSAD/SADC COLLECTIVE
RUEHMR/AMEMBASSY MASERU 4848

UNCLAS SECTION 01 OF 02 MASERU 000360 
 
SIPDIS 
 
FOR AF/S, AF/EPS, AND EEB 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND LT
SUBJECT: EFFECTS OF ECONOMIC CRISIS ON LESOTHO'S GARMENT AND TEXTILE 
INDUSTRY 
 
MASERU 00000360  001.2 OF 002 
 
 
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Summary 
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¶1.  According to the Central Bank, GDP growth for 2009 is 
estimated to be 1.1 percent.  Because of the declining world 
prices, inflation remains under control.  The exchange rate also 
has remained fairly stable during the past six months.  However, 
the slowdown in the global markets, the potential loss of AGOA 
trade benefits, and limited public investment paint a bleak 
economic picture for 2010.  The garments and textile industry, 
the key sector for Lesotho from the perspective of sustainable 
development, has been negatively affected by the economic 
crisis. Two firms shut down operations in September, leaving at 
least 1,250 people jobless, and industry recovery is uncertain. 
 
 
 
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Economic outlook for Lesotho 
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¶2.  According to the Central Bank, GDP growth for 2009 is 
estimated to be 1.1 percent; the slowdown is mainly due to the 
slowdown in the global economy, especially in the U.S. The US 
slowdown affects Lesotho because its economic growth is mainly 
driven by diamonds and textile and garments exports destined for 
the U.S.  Because of declining world prices, inflation remains 
under control.  The exchange rate also has remained fairly 
stable during the past six months, with the South African, which 
the Lesotho loti is pegged to, floating around 7.5 against the 
U.S. dollar. However, there are concerns that the strength of 
the rand erodes the competitiveness of local exports and 
threatens any expectations of recovery in the economy. 
 
 
 
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Effects of the economic crisis on Lesotho's economy 
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¶3.  Lesotho has been significantly affected as its main exports, 
diamonds and garments, face a double hit, with slowing world 
demand and lower prices. The garments and textile industry, 
being one of the key sectors from the perspective of sustainable 
development for Lesotho, has made a negative contribution to GDP 
(-0.5%) in 2008.  The industry operates under difficult 
conditions at the moment and there is a lot of uncertainty about 
the future of the industry as long as the economy of the U.S. is 
in crisis, because almost 80% of the products from this industry 
are destined for the U.S. market. The potential loss of AGOA 
benefits further threatens the livelihood of some 36,000 people 
currently employed in the industry (the employment figures in 
the industry were around 45,000 in September 2009). 
 
 
¶4.  Due to this unfavorable economic environment, Raytex 
Garments textile firm, a subsidiary of Raytex Limited based in 
China, shut down in early September, leaving at least 750 people 
jobless.  The firm had already started laying off most of its 
workers in 2008.  A second firm, Lesotho Hinebo Textile (Pty) 
Ltd, also shut down at the end of September.  At the time of 
closing down, Lesotho Hinebo left 500 people jobless. The main 
reason cited for the closure of these two factories was the 
unfavorable economic climate, specifically the low demand from 
the U.S. for the textile products. 
 
 
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Government intervention in trying to rescue the industry 
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¶5.  In order to mitigate the impact of the crisis the GOL 
budgeted  a `Stimulus Fund' of USD 80 million, which is to be 
spent over two years and is aimed at supporting specific 
investments that will stimulate economic growth in the face of a 
global economic downturn. Manufacturing is one of the targeted 
sectors under this stimulus package. 
 
 
MASERU 00000360  002.2 OF 002 
 
 
 
¶6.   The government of Lesotho also presented a proposal for 
amendment of AGOA legislation to Congressman Charles Rangel, 
through their Embassy in Washington, in early September.  The 
proposal would allow US garment buyers who continue to source 
from Africa to be rewarded with the opportunity to import equal 
volumes of garments from the Asian LDCs duty free. This proposal 
is fashioned after the "Earned Import Allowance Programs" and 
the HOPE Act for Haiti. It would allow US apparel imports to 
earn the right to import an equivalent square meter of eligible 
garments duty-free from non-African LDCs for every importation 
of garments from Africa made with Third Country Fabric.  This 
proposal was drafted with assistance from Lesotho's textile 
industry. 
 
 
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Comment 
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¶7.  Although it has a negative growth rate currently, Lesotho's 
textile and garment industry contributes significantly to social 
stability and is of high political importance in Lesotho.  The 
wages that the workers in the industry earn feed thousands of 
people in this poor country, and Lesotho's relatively high share 
in AGOA textile imports to the U.S. are a point of pride for the 
GOL.  Their proposal to amend AGOA show the government's 
commitment to retaining this industry, currently the only major 
industry of any kind in Lesotho, as a viable driver of Lesotho's 
economy.  While struggling in the current financial climate, 
industry representatives have indicated that they hope for a 
market recovery that will allow them to return to full 
operations by around June 2010. 
POWER