Spotlight on re-opening of closed factories

MOSA MAOENG

MASERU – Lesotho’s textile, apparel, and footwear manufacturing industries, when combined, stand as the country’s largest formal private sector employer, providing jobs for approximately 46,500 individuals. However, this figure is shy of its peak in early 2003, when it employed about 54,000 workers. The industry faced significant declines in employment following the phasing out of the Multi-Fibre Arrangement (MFA) and the global financial crisis of 2008.

In 2024, Statista Market Insights estimates that the revenue in Lesotho’s apparel market will reach approximately US$102.40 million (M1 903 050 319 billion), with a projected annual growth rate of 2.29 percent. Discussing the textile industry’s revenue in Lesotho, Principal Economist, Retšelisitsoe Mabote of the Central Bank of Lesotho (CBL) highlighted the significant role played by the African Growth and Opportunity Act (AGOA) and the Southern African Custom Union (SACU). He said AGOA facilitated an expansion of the labour force in response to heightened demand for Basotho exports.

This was anticipated to result in increased tax revenue, particularly from income tax (pay as you earn) and company taxes. However, Mabote noted that, due to the calibre and income level of the labour force, the anticipated revenue from PAYE was not realised as expected. Instead, he suggested that revenue in the form of value-added tax (VAT) should have been more substantial, given its influence on consumer spending, as VAT applies to most consumer transactions.

He said the government’s arrangement with firms exporting outside SACU was intended to attract foreign direct investment (FDI) into the sector. However, many of these firms benefit from tax rebates, which, after accounting for input costs, diminish potential revenue from excise duties and company taxes. Regarding budget priorities, Mabote said both the Minister of Finance and Revenue Services Lesotho (RSL) recognised the fragility of the economy post-geopolitical issues and the COVID-19 pandemic, which significantly affected trading partners.

Consequently, there was minimal emphasis on tax policies in the budget speech, with more focus on expenditures aimed at revitalising the economy. Tax-related mentions primarily revolved around routine adjustments for inflation in tax rebates. It appears that Lesotho’s primary revenue source remains SACU revenue, alongside others. The ongoing closure of factories poses a threat to revenue generation, especially if the government continues to delay the re-opening of these facilities, resulting in further closures.

However, Prime Minister Ntsokoane Samuel Matekane has given assurance to Basotho, particularly those in Peka, Leribe, and Maputsoe, that the Maputsoe factories closed due to the COVID-19 pandemic will soon resume operations. Speaking at the Moshoeshoe’s Day horse racing event in Peka on Monday this week, the Prime Minister reiterated the government’s commitment to reviving closed factories.

He disclosed that in Maseru, several factories have already received orders and are being supported to re-open, with similar efforts planned for Maputsoe.

He also mentioned earmarked funds to assist investors in reopening these factories, thereby generating employment opportunities. Meanwhile, Tiisetso Moremoholo, Corporate Communication Manager at the Lesotho National Development Corporation (LNDC), emphasised in a recent interview with Public Eye that the development of Belo Industrial Estate/Park aims to enhance Lesotho’s capacity to attract and accommodate investments. This initiative seeks to diversify industries, foster linkages between foreign and domestic investments, and address challenges such as high unemployment and inadequate infrastructure.

Moremoholo noted that the estate is poised to host both new and expanding projects, aiding in the revitalisation of Lesotho’s industrial sector. Regarding the situation at existing industrial estates in Maseru and Maputsoe, Moremoholo said many closed factories have re-opened and are gradually scaling up operations. However, challenges such as insufficient orders and congestion at the Durban Port in Kwazulu-Natal Province of South Africa, impacting lead times for exports and imports, persist. While Belo Industrial Estate/Park may not directly impact closed factories in Maputsoe or Maseru, it is expected to bolster the investment landscape, fostering economic growth and job creation.

“Many closures stemmed from external economic shocks, including the COVID-19 pandemic, the Russia-Ukraine conflict, and the ongoing Israel-Palestine conflict. These events not only disrupted order levels but also led to increased shipping costs,” Moremoholo said. “Additionally, the rise in interest rates and inflation in the US, a key export market, affected order levels as buyers either reduced or cancelled orders.” Moremoholo further noted the global impact on the apparel industry, citing a decline in demand for garments due to the high cost of living.

She highlighted a shift in consumer priorities towards essential needs like food and healthcare over clothing. In Lesotho’s case, she underscored the exacerbation of these challenges by persistent load shedding in South Africa, one of Lesotho’s primary export markets, attributing these to external shocks beyond immediate control.

She emphasised the LNDC’s proactive approach amid these challenges, citing aggressive investment and trade promotion initiatives. These efforts have resulted in securing investors who have reopened or replaced some closed factories. The LNDC is actively engaged in trade promotion activities to secure orders for Lesotho exporters, ensuring they operate at full capacity.

Moremoholo said while some companies may appear closed, many are on temporary shutdowns due to a lack of orders or delays caused by congestion at Durban Port. The LNDC has developed financial instruments to address challenges faced by companies, including the reviewed Partial Credit Guarantee (PSG) scheme and newly capitalised Supply Chain Finance Instruments. Discussions among key stakeholders are ongoing regarding the allocation of funds to assist investors in re-opening closed firms.