Lesotho Case Study

Topics: International trade, World Trade Organization, Free trade Pages: 8 (2653 words) Published: September 21, 2010
Lesotho Case Study

The Market and the Mountain Kingdom: Change in Lesotho’s Textile Industry

Apartheid and the resulting sanctions against South Africa are what ultimately created the textile industry in Lesotho. Aside from the workers that have historically worked across the border in South African mines, the arrival of the textile industry gave Lesotho its first real participation in the global economy. Otherwise the Lesotho economy consists mostly of subsistence farming. The textile industry gives Lesotho an opportunity to participate in trade with the rest of the world and ideally benefit from globalization. Geographically, Lesotho is uniquely landlocked and in a complete enclave of the country of South Africa. It is the abundance of affordable labor that has attracted clothing manufacturing firms, mostly from Asia that then bring the finished products to the world markets, primarily the United States and Europe. Lesotho has been an appealing location for textile manufacturing in part because of world trade agreements such as the Multi-Fiber Arrangement (MFA), the Lomé Convention and the African Growth and Opportunity act (AGOA). All of these trade agreements have expired or are set to expire in some capacity as of the writing of the subject case study, The Market and the Mountain Kingdom: Change in Lesotho’s Textile Industry written in November of 2006. I will be examining these trade agreements and other factors to determine the costs and benefits of each. Lesotho is at a crucial stage of economic development and the decisions that the government makes will affect the quality of life for the people of Lesotho for years to come. Through this examination of the past there are many lessons to be learned from these previous trade policies. In some ways, these policies benefit other countries more than Lesotho. Hopefully these lessons can be applied to a plan of action for the government of Lesotho. It is my recommendation that the government of Lesotho evaluate the causes and effects of these policies as well as the costs and benefits. Going forward Lesotho should do more to empower and educate its own people rather than rely on preferential trade policies. It is not my point that Lesotho should not take advantage of trade policies while they are in place but it has repeatedly set itself up for failure when trade policies expire. Analysis of Previous Policies Affecting the Lesotho Textile Industry The Lomé Convention: The Lomé Convention was the first experiment in development and co-operation between Europe and Africa after colonial rule. It was established in 1975 and during the 1980’s greatly benefited Lesotho by providing a developmental spark to the textile industry. It also provided for a smoother separation from British colonization and was a good stepping stone for development. As result, Lesotho along with other former colonies benefited from preferential trade with Europe. However the agreement went through five major revisions as needs changed and finally expired completely in 2007. The Lomé convention can be credited for providing a short-cut to development for developing former colonies but the preferential treatment was not sustainable long term. It originally required that clothing merely be manufactured in a former colony but later was changed to require that the raw materials originate from a former colony as well. Since Lesotho does not produce its own raw materials and imports most of raw materials from China rather than other former colonies, the policy was already outdated before it expired. This left a 17% tariff in place for Lesotho’s access to European markets. This virtually eliminated trade with Europe by 1998. The Multi-Fiber Arrangement (MFA) and, the Agreement on Textiles and Clothing (ATC)

The MFA was a multi-nation agreement that created quotas from individual countries on imports to the Unites States. The MFA was active from 1974 to 1994 and was then...

References: The Harvard Business Review (2006). The Market and the Mountain Kingdom: Change in Lesotho’s Textile Industry.
Looming Difficulties, July 19th 2007, From the Economist Print Edition
Read more at Suite101: The Rise and Demise of The Lomé Convention: An Experiment in Dialogue and Development Between Europe and Africa http://international-politics.suite101.com/article.cfm/the_rise_and_demise_of_the_lome_convention#ixzz0fd0IhNd9
African Growth and Opportunity Act data retrieved on 02/18/2020 from: http://www.agoa.gov/eligibility/apparel_eligibility.html
Loti and Rand currency information retrieved on 2/17/2010 from:
Info on the Lesotho Central Bank retrieved on 2/18/2010 from:
Peace Corps Data retrieved on 2/19/2010 from:
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