–Minister Shelile hoping for a positive outcome while gvt looks for alternative markets
Lesotho has exported a significant portion of its textile products and other goods, including trout, vehicle seats, and diamonds, to the US market duty-free for nearly half a century under the African Growth and Opportunity Act (AGOA) since 2001.
Enacted in 2000 and renewed in 2015 for expiration in September 2025, AGOA provided duty-free treatment to goods from eligible sub-Saharan African countries to promote economic growth, good governance and free markets. The US is a key market, representing 45 percent of Lesotho’s exports.
However, this massive opportunity was ‘halted’ a week ago after U.S. President Donald Trump invoked a “state of emergency on trade” and imposed steep reciprocal tariffs on U.S. trade partners, including Lesotho, which was slapped with a 50 percent levy on all its exports into the US.
Trump’s “state of emergency on trade” automatically nullified AGOA and any other existing trade agreements.
A 10 percent baseline tariff is now charged on every country exporting to the US, in addition to other tariffs. For Lesotho, an additional 40 percent is charged for the claimed trade “imbalance” between Lesotho and America. The baseline tariffs were implemented on Saturday, April 5th, and the 40 percent tariff became operational yesterday (Wednesday, April 9th).
This shift in the U.S.-Lesotho trade landscape has shaken not only the government but also thousands of factory workers employed in the textile industry who now face the inevitable spectre of losing their jobs. Unless the tariffs are reversed, which seems unlikely, Lesotho stands to shed an estimated 12,000 jobs in the textiles sector or 42 percent of the total sector workforce, in addition to other economic headwinds.
In light of this grim reality, the Lesotho Times (LT)’s ‘Mathatisi Sebusi sat down with the Minister of Trade, Industry and Business Development, Mokhethi Shelile, to better understand the government’s response to avert the impending economic catastrophe.
Excerpts:
LT: With President Donald Trump’s announcement of a 50 percent tariff on goods from Lesotho entering the US market, what implications does this have for the future of AGOA? Is this the end of free trade between the United States and Lesotho?
Shelile: This indicates that AGOA has effectively been rendered void. President Trump has invoked an emergency act, declaring a trade emergency in the United States. In such a state of emergency, a Prime Minister or President possesses the authority to make unilateral decisions and take actions, whether typical or atypical. This includes the ability to introduce new legislation, annul existing trade agreements, and implement measures to tackle issues he perceives as problematic under current laws or agreements. The emergency declaration by President Trump aims to address concerns regarding his country’s trade policies. AGOA was originally designed to be tariff-free, but with the introduction of a 50 percent tariff, it can be concluded that AGOA is no longer in effect.
LT: The implementation of a 50 percent tariff will result in significant job losses within the textile industry. Approximately 12,000 factory workers employed by companies that export to the US are at risk of unemployment. What measures will the government take to address this issue, given that it cannot employ everyone, and the private sector is limited?
Shelile: We recognize that job losses are imminent, although not all individuals will be affected. Our data indicates that 12,900 workers from 11 factories, along with an additional six factories that are supplied by these primary factories for the US market, will be impacted.
Furthermore, there is a potential loss of around 40,000 jobs in other sectors. Employees in the textile industry rely on taxis for their daily commutes, reside in rental accommodations, and purchase goods from street vendors and various shops. This situation suggests that many businesses that cater to textile workers may also face financial difficulties.
Addressing this challenge is complex, and there are no straightforward solutions. However, we are actively engaged in discussions with the US to negotiate a reduction in tariffs to a baseline of 10 percent. In the meantime, factories are not expected to shut down immediately.
We anticipate that operations will continue this month, and the Minister of Finance and Development Planning is developing a support package to help mitigate potential losses for factories while they retain their workforce.
Additionally, we have been diligently working to expand our market presence in South Africa. Currently, exports to the South African market represent a significant portion of our total exports. This shift equates to 12,000 jobs at risk compared to a total of 31,000 jobs in the textile sector that remain secure, indicating that a larger share of our products is now being sold in South Africa. Many companies are transitioning their focus to this market.
LT: How many factories have transitioned to the South African market?
Shelile: Approximately 42 companies are currently marketing their products in the South African market, all of which are exclusively engaged in clothing production.
LT: What will be the impact of losing the US market on Lesotho’s economy, particularly in terms of figures and human consequences?
Shelile: The most immediate consequence will be job losses. Additionally, the revenue we received from the US was in dollars, contributing to our foreign exchange reserves. This indicates that our reserves will likely be impacted, although the exact extent is uncertain. Presently, we are in a stable position with reserves equivalent to six months’ worth of imports. The Central Bank of Lesotho will need to manage these reserves carefully, as we rely heavily on the dollars obtained from the US for various expenses, including electricity purchased from Mozambique and equipment for the Lesotho Highlands Project, as well as other imports from outside the region.
LT: A school of thought exists, particularly among trade unions, suggesting that the 50 percent tariff imposed is a punitive measure against Lesotho due to the ongoing trade conflict between the United States and China. These unions argue that textile manufacturers in Lesotho source materials from China for products intended for the US market. They believe that since China benefits from the US market through Lesotho’s textile operations under AGOA, the US is attempting to curtail this advantage by imposing a 50 percent tariff on Lesotho. How accurate is this assertion?
Shelile: This assertion lacks validity and is fundamentally flawed. Approximately 54 to 57 countries are subject to these tariffs, indicating that this is a widespread issue rather than a unique situation for Lesotho. The core problem lies in the trade imbalance between Lesotho and the US, which is the source of concern. Some speculate that the strained relations between Lesotho and the US, along with Lesotho’s status as a lesser-known nation, contribute to this situation; however, these claims are unfounded. The issue is purely a matter of trade imbalance, which has been calculated using a formula designed to support specific narratives, resulting in the claim of 99 percent tariffs that they allege we impose, which is then halved to arrive at the 50 percent tariff.
LT: What do you mean by “formula that suits their narrative”? Is it untrue that we impose 99 percent tariffs?
Shelile: I fully concur with their calculations; however, this assertion is completely inaccurate. We are part of the Southern African Customs Union (SACU), which oversees the tariffs for five member countries: Lesotho, South Africa, Botswana, eSwatini, and Namibia. There exists a comprehensive tariff book that lists every conceivable item. This book serves as a reference for tariff calculations, and it consistently shows that the SACU tariff for each member nation is a mere 7.5 percent, rather than the 99 percent figure they are claiming. In practice, we operate with a tariff rate of 7.5 percent.
LT: What is the rationale behind the imposition of this 50 percent tariff?
Shelile: President Trump did not mention tariffs in his discussions. His primary concern is the trade imbalance. We export significantly more goods to the United States than we import from them. Several factors contribute to this situation, including AGOA, which allows us to export without tariffs. Additionally, as a least developed, low-income nation with a population of 2 million, it is unrealistic to expect us to purchase as much as the US does from us. Our purchasing decisions are based on our financial capacity.
It is unlikely that we will ever be able to buy large quantities of products from the US We simply cannot afford it, nor do we have a need for items like your Teslas (popular vehicle make by billionaire Elon Musk). Our imports are likely to consist of essential commodities such as grains–wheat, sorghum, and maize–as well as seeds. In fact, the American Wheat Association is planning to visit our country to discuss potential wheat supply agreements, as we currently face a wheat shortage.
Moreover, our trade statistics lack sufficient accuracy. While President Trump focuses on commodities, our trade encompasses both goods and services. We hire consultants, who we compensate, and they take their earnings back to their home countries, including the US. We also utilize paid services such as Android applications and Microsoft products, which are not reflected in our trade data.
This indicates that our country bears some responsibility for the inadequacies in our data collection. We are beginning to understand the critical importance of accurate data. Without reliable information, we struggle to demonstrate that our imports may be significantly higher than what is perceived or recorded. In summary, the 99 percent figure relates to trade imbalance, which varies from country to country due to differing trade practices.
LT: Would you say that Lesotho has the ability to be self-sufficient and establish factories to reduce our dependence on China?
Shelile: This question raises significant concerns for me, as no nation can operate entirely without foreign direct investment. For instance, the United States actively encourages South African investors to establish businesses there. While it is beneficial to empower Basotho to engage in entrepreneurship and global trade, the issue arises when there is a call to expel Chinese businesses to allow Basotho to operate independently. One must consider what the situation was prior to their arrival. Foreign direct investment is crucial for attracting capital into our country and maintaining our foreign reserves.
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It is not a matter we should even consider abandoning. We seek investments while also ensuring that Basotho are equipped to enter the business landscape. The Lesotho National Development Corporation (LNDC) offers numerous products where equity can be shared between the LNDC and Basotho. Additionally, we have introduced supply chain financing, which provides funding to Basotho when they receive orders from clients. This approach differs from traditional financing methods, as we do not base loans on individual financial statements but rather on the client’s ability to pay, with repayment occurring after the client has settled for the services rendered.
LT: You have said that the government is preparing to visit the United States for negotiations with the Trump administration, aiming to negotiate a tariff reduction. What type of a delegation can we anticipate? Will it consist solely of cabinet ministers, or will it also include Basotho trade experts and key private sector players who are knowledgeable about trade matters to assist in negotiating a more favourable agreement?
Shelile: Those involved in trade matters are well-informed. In trade negotiations, we rely on public servants who are trained for such discussions and possess a comprehensive understanding of the issues at hand. Additionally, the private sector, as the consumers of these policies, brings valuable practical experience, as they engage with trade matters daily. In response to your question, we will include them in the delegation. Some private sector representatives approached me yesterday expressing their desire to join the delegation to the United States, and they will be funding their own participation. We aim to include as many as possible, while ensuring the delegation remains manageable.
LT: We are also aware that a request to meet with President Trump has already been made through the US Embassy here in Maseru and you are awaiting a response. What contingency plans do you have, if they do not respond or at worst decline your request to visit the US?
Shelile: I am currently awaiting a response. If we do not receive one, we will send a follow-up letter and have representatives on site to negotiate with them. I find it unlikely that they would refuse to meet with us. Our meeting will not be with him (Trump) directly, as we are not bringing the king, which is not permitted by protocol. Instead, we will engage with his advisers and executives, who possess sufficient authority to influence his decisions. We have already received indications that his senior advisers on these matters are willing to meet with us, and we are now waiting for confirmation to proceed with our travel plans. It is imperative that we go there promptly, as the 10 percent tariff was enacted on the 5th of this month, and the 40 percent tariff is set to take effect on Wednesday the 9th (yesterday).
