Cadott, Olivier, and John Nassir, 2001, “Incentives and Obstacles to Growth: Lessons from Manufacturing Case Studies in Madagascar,” World Bank, RPED Discussion Paper No. 117.
Global Development Solutions, 2004, “Value Chain Analysis of Selected Strategic Sectors in Lesotho” (Washington D.C.: World Bank).
Husain, Shahabuddin, 2004, “Textile Industry: Performance, Constraints, and Future Prospects,” Lesotho: Selected Issues, IMF Country Report No. 04/5, Washington: International Monetary Fund.
Kauffman, Daniel, Aart Kraay, and Massimo Mastruzzi, 2003, “Governance Matters III: Governance Indicators for 1996–2002,” World Bank Policy Research Report No. 3106 (Washington D.C., World Bank).
Olarreaga, Marcello, and Caglar Özden, 2005, “AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?” World Economy, Vol. 28, pp. 63–77.
Public Private Infrastructure Advisory Facility, 2004, A Country Framework Report: Private Solutions for Infrastructure in Lesotho” (Washington D.C., World Bank).
United States Agency for International Development (USAID), 2004, “The Elimination of Quotas Under the World Trade Organization Agreement on Textile and Clothing: The Impact on Swaziland,” (Botswana: USAID/Regional Center for Southern Africa).
United States International Trade Commission (USITC), 2004, “Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market,” USTIC Publication No. 3671 (Washington, USITC)
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Prepared by Victor Lledo, Jan Kees Martijn and Jacob Gons.
Garment exports, of which more than 90 percent destined for the United States, constituted about 80 percent of total exports in 2003 and 2004.
Since 2002, nongarment manufacturing exports have actually declined.
Thus, for given foreign input costs, the cost of finishing garment products (the “cut, make, and trim” phase) could be at least 30 percent higher in Lesotho than in a country not receiving these preferences, at the same after-tariff import costs.
Under the ATC, which superseded the Multifiber Arrangement (MFA), these bilateral quotas were to be eliminated in four phases over the period 1995–2005 (1995–98; 1998–2002; 2002-04; and the beginning of 2005). The last ATC phase was expected to have the largest impact because it applied to products that were highly quota-constrained and that account for the bulk of Lesotho’s exports such as trousers and T-shirts. These are products in which China and other low-cost producer countries are expected to increase their market share following the quota removal.
See Chapter I, The Institutional Arrangement of the Common Monetary Area and Policy Implications for Lesotho.
The real effective exchange rates were calculated on the basis of Lesotho’s consumer price index (CPI). An alternative and more appropriate methodology, given the focus on cost competitiveness, would have been to use unit labor costs, but data limitations prevented this.
In theory, imports of garment sector inputs could be included as a negative item in the calculation of export weights (rather than as a positive item in the calculation of import weights) in order to derive an indicator of the effective exchange rate for net exports—as opposed to the current one, which relates to gross exports. However, data limitations precluded such a calculation.
Profitability per unit can be expressed as: π = (p$ - α * pi$) - E$/M * [w * (L/Q) + Cnw], where p$ and pi$ are the dollar-denominated output and input prices, α is the input coefficient (of imported fabric), E$/M is the U.S. dollar-loti exchange rate, w is the wage rate, L/Q represents the labor input share, and Cnw stands for the per unit nonwage costs. Because of data limitations, the analysis focuses mainly on output prices and wage costs.
For further analysis, see Olarreaga and Ozden (2005). Across Africa the average price increase for products benefiting from AGOA preferences was 6 percent, with U.S. buyers capturing the remaining 14 percent (given a 20 percent average tariff). The price increase was smaller for smaller countries (like Lesotho) and those with higher importer concentration.
Lesotho’s largest buyer, GAP, recently announced that it would continue sourcing from Lesotho, even if China were cheaper, in the context of the company’s membership in the Ethical Trading Initiative (The Independent (United Kingdom), May 18, 2005).
See World Bank (2005). Some of this report’s data may still be revised due its preliminary nature.
For a more detailed analysis of the performance and constraints of the garment sector, see Hossain (2004).
Without access to water, the dyeing, bleaching and washing cycles, which constitute the core of textile production, cannot be completed.
Evidence from business surveys conveys a similar message. Relative to China and most countries in the region, firms in Lesotho are less likely to report that bribes are needed to “get things done”, and that bribes are lower when they are needed (World Bank 2005).
It takes about 92 days and US$ 500 to set up a business in Lesotho. This is longer than observed in most comparator countries (India, China, Kenya, South Africa).
Export regulations are substantially less cumbersome. Generally, the private sector does not find the processing of export documentation, which takes less than a week, to be problematic.