Dollar fall ruins African manufacturing
Source Louis Proyect
Date 05/03/13/00:31

NY Times, March 12, 2005
Dollar's Fall Silences Africa's Garment Factories

MAPUTSOE, Lesotho - Buy a T-shirt at Wal-Mart, fleece sweats at J. C.
Penney or Hanes panties anywhere in the United States, and there's a
halfway decent chance that they were stitched together here, in an
acre-size garment factory crammed with thousands of frantically clacking
sewing machines. Virtually its entire output, 25,000 items of clothing
daily, is America-bound.

These days, that is a disaster. "Two thousand people work here, and
unfortunately last week I had to retrench 500 people, because there are no
orders," Boodia Heman, director of the Ever Unison Garments factory, said
in a recent interview. "The American buyer is not coming to Lesotho to buy."

Actually, the problem is not so much the buyers from America. It is the
American dollar, and its headlong plunge in value. Three years ago,
Lesotho's garment factories had to sell only $56 worth of clothes to stores
in the United States to cover the monthly wage of 650 maloti for a
sewing-machine operator. Today, that same salary consumes $109 in sales.

When the dollar is worth 8.5 maloti or more, Mr. Heman said, "we break even
and we are satisfied." Right now, the weak dollar fetches less than 6 maloti.

The dollar could not have shrunk at a worse time for southern Africa. In
January, China's powerful apparel industry was freed from the so-called
multifiber arrangement, which for decades set nation-by-nation quotas and
capped its garment exports to the developed world. Now China, which keeps
its currency tightly pegged to the dollar, has begun to pursue the American
market much more avidly.

American shoppers may register the dollar's fall, if at all, as an
irritating uptick in the prices of imported goods. In tiny, dirt-poor
Lesotho, it is more than an irritation; it is potentially fatal. Since
December, 6 of the nation's 50 clothes factories have shut down, unable to
match the prices of foreign competitors and still make a profit. That has
eliminated 5,800 of the 50,000 garment-making jobs here. Layoffs have
claimed at least 6,000 more.

Garment makers who might otherwise decide to ride out the dollar's slide
"are starting to realize that they're losing their shirts," said Mark
Bennett, who advises the government on textile issues for the nonprofit
ComMark Trust, based in South Africa, which aims to foster development.

The government has stepped in, seeking to resurrect three of the closed
factories and offering incentives for others. And for good reason: garment
makers represent more than 9 in 10 manufacturing jobs in this impoverished

Those efforts largely depend, however, on the vagaries of the dollar.
Garment makers here, most of them foreign-owned, say that if the dollar
drops another 20 percent against the South African rand, as some economists
predict, a new wave of factory closings will be inevitable.

Across southern Africa, industries that depend on American customers or
compete with American producers are feeling the effects of the dollar's
fall. South Africa, which surrounds Lesotho, has lost an estimated 30,000
textile jobs since 2002. In neighboring Swaziland, nearly three in four
textile factories say they have no firm orders beyond March.

South Africa's fabled gold-mining industry lost 11,000 jobs from January
2003 to June 2004, in part because income from its dollar-denominated
exports fell sharply. Botswana's budget tipped from a surplus to a $325
million deficit last year as its dollar income from diamond sales was
diluted by a 10 percent rise in its currency, the pula.

All these nations, and nearby Namibia, share a common problem: their
currencies are pegged one-to-one to South Africa's rand, which has recorded
a big rise against the dollar (Botswana's pula is pegged to a basket of
currencies dominated by the rand.) The euro has risen 52 percent against
the dollar since February 2002, but the rand, driven by a boom in
commodities like gold, has nearly doubled in value.

"The weak dollar is bad economic news for countries that are not on a
dollar-parity system," said Anthony Twine, a senior economist at
Econometrix, a Johannesburg consultant.

In places like Lesotho, a nation of 1.8 million that is already wrestling
with AIDS and drought, the news is perhaps most wrenching. Lesotho's
garment industry - and therefore its manufacturing base - rests on the
faltering premise that Americans will buy all the clothes that it can sew.

That premise originates in a law, the African Growth and Opportunity Act,
which Congress enacted in 2000 in an effort to help sub-Saharan nations
lift themselves from poverty. Nations meeting the law's criteria, which
range from political pluralism to support for free markets, are allowed to
export any of 1,600 products to the United States duty-free.

With a progressive government and extremely low tax rates, Lesotho was one
of the biggest winners: clothing exports to the United States ballooned to
$500 million last year, from just $100 million in 2001 - nearly a third of
all clothing exports by the 37 nations given duty-free status.

The textile boom was a salvation to Lesotho, which lost 60,000 jobs in the
1990's as South Africa reduced migrant labor at its gold and coal mines.
Textile factory employment rose from 20,000 jobs before the law to more
than 50,000 last year.

When the dollar was more robust, some companies from Taiwan built projects
- modern, efficient factories and a mill to produce denim fabric - that is
vital to the industry's long-term health. By late 2007, garment makers must
make or buy their fabrics in sub-Saharan Africa or lose their right to ship
goods duty-free to the United States.

That denim mill probably assures that Lesotho's blue-jeans makers, who turn
out 26 million pairs a year, will survive in some form. But the dollar's
slide has damped prospects for a knitted-fabric mill.

In Maputsoe, a dog-eared settlement of about 10,000, two of nine garment
factories closed in December and January, leaving their workers stunned
and, often, penniless.

Itumeleng Khasane was in her fourth month of sewing Old Navy T-shirts at TW
Garments in Maputsoe when she went to collect her paycheck on Dec. 17
during the factory's Christmas break. At her last payday in mid-November,
it was clear that the factory was struggling: she received only about $54,
half the wages due for a month's work.

But when she arrived at the factory that day, she said recently, nobody was
there. "We didn't get our money," she said. "We didn't get a salary; we
didn't get a holiday bonus; we didn't get a termination payment."

More recently, Ms. Khasane was standing in a crowd of women, along with a
few men, outside Johnson Work Wear, a uniform maker that hired a handful of
workers in January. It was, they said, their only prospect for another job.
Many had arrived at dawn, carrying umbrellas to ward off the midday sun.

At 21, with a seventh-grade education, Ms. Khasane had been the sole
wage-earner for a family of five - two sisters, a brother and her jobless
father. Her mother died in 2002 at age 38. The family gets by now on handouts.

The second Maputsoe factory, Vogue Landmark Garments, shut down even more
unexpectedly; workers say there was no hint of financial problems until
they returned after the holiday break on Jan. 12 and found the doors locked.

Masello Motsosi, a 27-year-old sewing machine repairman, was supporting his
wife and two boys, his parents and his in-laws on his $135-a-month salary.
He used his last savings in January to pay the boys' school fees. "Now,
there's nothing," he said.

Lesotho garment factories have closed before, and been snapped up quickly
by other producers. But with the American market increasingly unprofitable,
few expect that to happen this time. Nor is it easy to diversify away from
United States buyers: Canada and Australia, among others, offer
American-style tariff breaks, but their markets are too small to replace
American orders. And the Chinese, with lower shipping costs and quicker
turnaround times, loom ever larger as a competitor.

In response, the nation's biggest garment makers are slashing costs - and
praying for an exchange-rate turnaround. "Denim isn't profitable right
now," said Oliver Li, the manager of the Global Textiles factory owned by
the Nien Hsing Textile Company. It is one of three factories that still
churn out up to 70,000 pairs of jeans daily.

"It's not only the appreciation of the rand, but other things like
electricity and water," Mr. Li said. "They're all more expensive than
before because we pay for them with our dollar income."

At its three factories in Maseru, the Taiwan-based Nien Hsing has dimmed
lights, switched from cellphones to two-way radios for communications
between plants and even told its staff to carpool to save gasoline.

Not long ago, Lesotho government officials and textile factory managers
blitzed Congress, the White House, major retailers in New York and San
Francisco and a trade show in Las Vegas with a well-honed argument: Lesotho
may not always be cheapest, but it is dependable, honest and squeaky clean
on human rights and sweatshop issues that have embarrassed American
retailers like Nike in the past.

That, the nation's trade minister, Mpho Malie, says bluntly, may not always
be true of certain competitors. "We're not only talking about the quality
of garments, but also the quality of workers' conditions on the factory
floors - labor issues, environmental issues," he said in an interview in
his Maseru office. "Because in the future, a client will come to you and
say, Where are you sourcing from, and what are you doing about the welfare
of the people you are sourcing from?"

That argument seems to have won over some of the more socially conscious
garment buyers in the United States, like Levi Strauss and Gap, which have
maintained or increased their orders here.

Whether it will play with mainstream American retailers for whom price is
the bottom line is more problematic. "As a country, we think that we are
doing something right," Mr. Malie said. "We're saying that tomorrow, there
will be questionable things about China - things that are not only a
government question, but that your consumers in the long run are going to

He said that when the honeymoon with Chinese suppliers was over, "those
questions will have to be answered."

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