’Mantoetse Maama
MASERU — The government has set aside M100 million to bail out local textile firms, the Minister of Trade and Industry, Leketekete Ketso said on Wednesday.
This follows the removal of the Southern African Customs Union (Sacu)’s Duty Credit Certificate Scheme (DCCS) last year.
Under DDC scheme, textile companies in Sacu member states including, Lesotho, earned duty rebates on imported raw materials.
The rebates were based on the value of their exports to non-Sacu countries.
The DCCS was scrapped in 2010 owing to disagreements between members, who felt South African companies were benefiting the most at the expense of the textile industry in the region.
Lesotho is the biggest textile and clothing exporter in Sacu.
The local textile companies used to sell their DCCS to South African companies.
These companies will then use them to import from other countries outside Sacu.
The money generated from the DCCS helped textile companies manage their cash flows.
The removal of the DCCS came at a time when the local textile industry was already saddled with low margins and a sudden drop in orders from major buyers especially those in the United States.
Orders from the United States, which is the major importer of Lesotho’s textile products, are yet to recover to pre-2008 levels.
And with the United States’ recovery from the economic recession getting slower many factories are getting less and less orders.
This has thrown the industry deeper into a quandary and there are now fears that some of the factories might shut down.
With nearly 35 000 people on its payroll the textile industry is Lesotho’s biggest employer after the government.
Its collapse will affect the whole economy.
Lesotho’s economy is already fragile having been hit by the global economic recession that wiped out a significant chunck of the revenues from Sacu, which used to contribute about 65 percent to the country’s annual budget.
Ketso told the press on Wednesday that the credit facility was an initiative by Sacu countries to save the textile industry.
“We are coming up with these funds because of the importance of the textile and clothing sector to the country as well as the entire Sacu region,” he said.
The incentive is meant to encourage exporting companies in the textile and clothing sector within Sacu to become internationally competitive through building production capacities and specialisation. Expectations are that this would ultimately enhance the industry’s productivity, Ketso said.
To qualify for assistance, companies should have been operating in Lesotho for at least two years.
They should also continue to operate in Lesotho for at least the next two years. Ketso said the firms should also increase their employment or at least maintain the current size of their work force.
“An exporter who fails to observe these conditions is liable to pay back all the money received under this scheme,” he said.
Speaking at the same occasion Finance Minister Timothy Thahane said the government was committed to maintaining local textile companies because they employed many people.
“We need to build on this sector and create more jobs for our people,” he said.
Ketso added that historically the textile and clothing industry has played an important role in the country’s economy by contributing meaningfully to job creation and poverty reduction.
“We have observed interventions in many countries where governments have recognised that the collapse of certain sectors of the economy can be disastrous hence their strong commitment to save them.
“In the recent past the United States bailed out financial sectors to prevent the country’s economy from collapse. As we speak some countries in the region as well as in Asia are offering varied forms of support to textile and clothing firms because of their importance to the livelihoods of their people,” Ketso said.
The government of Lesotho likewise had decided to offer financial support to textile and clothing manufacturers to help them address some of their challenges, the minister added.