The gloves are off

The gloves are off

MASERU – THE government’s decision to push the factory workers’ minimum wage to M2 000 a month was against advice and warnings that it will trigger a catastrophe in the sector.
thepost can reveal that the government flatly rejected concerns from the Lesotho National Development Corporation (LNDC) and textile companies to stagger the increases over years to avoid saddling companies with unsustainable costs.

In the end, the controversial decision seems to have been motivated by a desperate need to placate factory workers who are a key constituency of the coalition government.
The violent demonstrations that left a trail of damage at the factories in Maseru and Maputsoe could have triggered a kneejerk reaction from a government keen to be seen to be living up to its electoral promises.

Now as the unions and workers celebrate what they see as a major victory, factory companies are squirming at the eye-watering costs, with some already warning that they might be on the way out of Lesotho.
Nein Hshing Group, the biggest textile company in Lesotho by jobs, is reported to have put its expansion plans on ice.
Sources in the industry say the company will no longer open its new factory in September as scheduled unless there is a significant change on the minimum wage.
Nein Hsing’s factory was going to create 1 600 jobs.

In the meantime the other factories are desperately trying to block the new wages that the government says should be backdated to April 1.
This week the Lesotho Textile Exporters Association (LTEA) pushed back with an interim court order to block the government from issuing the gazette to announce the new minimum wage.
That means that the government will not gazette the new wages until the case is finalised.
The association is challenging the cabinet’s authority to set the minimum wage, arguing that it is the Minister of Labour who is supposed to make the decision based on recommendations from the Wages Advisory Board.

The unions say they have been proposing the M2 000 figure since 2010 but the employers have always pressured the Wages Advisory Board and the Ministry of Labour to reject it.
Although it is the International Labour Organisation (ILO) that suggested the M2020 as the living wage, it would seem that it is the campaign promise by Prime Minister Thomas Thabane that could have emboldened the unions to aggressively push for it this time.

The wage negotiations started earlier this year with the unions demanding a M2000 minimum wage plus a 15 percent increase across the board.
The Wages Advisory Board rejected both proposals after employers argued that they will be too steep.
Following protracted negotiations, the board recommended a seven percent increase that the labour minister accepted and gazetted.
The unions however rejected the increase and pressured the minister to reconsider. After another round of negotiations the employers acceded to a 9 percent increase which the board approved and the minister gazetted again.

The unions however still insisted on M2 000 as the starting point before any review. And last month the workers handed Thabane a petition, saying they will not take anything below the M2000.
Thabane then set up a committee of ministers to advise the cabinet on the issue.
The committee was made up of the Minister of Trade Tefo Mapesela, Minister of Small Businesses Chalane Phori and Minister of Gender Mahali Phamotse.

It is that sub-committee that made the M2 000 recommendation to the cabinet despite grave concerns from the LNDC and the textile companies.
thepost has documents showing that the LNDC strongly advised against the proposed minimum wage.

The LNDC is responsible for courting investors to Lesotho. Its major success thus far has been in the textile industry to which it has brought investors from Taiwan.
It has pitched Lesotho as an investor-friendly destination with low wages, benign laws as well as cheap rentals, water and electricity.
In the submission to the subcommittee the LNDC warned that Lesotho is already losing its competitive edge to countries like Ethiopia and Kenya that have incentives for textile companies.
The gradual loss of competiveness over the years, the LNDC said, “reinforces the need to re-look into our basket of incentives and structural transformation of the economy.”
The corporation said increasing the minimum wage at once would hurt the sector that is already struggling to stay afloat.
It proposed that the wages be increased by 9.3 percent over the three years.

That meant that a general worker’s salary would increase from M1 372 to M1 500 this year before moving to M1 639 in 2019. The idea was that the general workers would earn M1 790 by 2020.
The LNDC noted that Lesotho’s textile companies do not have much room to wiggle in negotiations with the buyers because they are in the ‘Cut, Make and Trim’ business where prices determine who gets the order.
It said because of stiff competition from other countries Lesotho’s exports to the United States under Agoa have been dropping.
Part of the reason, the corporation reasoned, is that the local sector is not diversified enough to produce value-added textile products that would fetch better prices on the international market.
Despite its limitations and overreliance on the United States market the textile industry remains the mainstay of the economy, providing 92 percent of jobs in Lesotho’s manufacturing sector.
The crux of the LNDC’s submission was for the sub-committee to be cautious when deciding the minimum wage.
While the corporation was advising restraint the textile companies were pleading with the sub-committee to consider other less painful ways to reach the M2 000 mark.
In several meetings, the LTEA told the ministers that a minimum wage of M2 000 will force the companies to either retrench or close shop altogether and empty a significant chunk of the 40 000 factory workers onto the streets.

LTEA officials say they told the ministers that companies were not hostile to the proposed minimum wage but were concerned that implementing it at once would affect their viability which is already subdued because of low orders and shrinking margins.
“It didn’t look like they were prepared to listen. They just said you have to find a way to make it happen,” said an LTEA official who said he did not want to be named because “the ministers might come after me”.

“The numbers were very clear that M2 000 would not work but the ministers said we should find a way.
We even proposed that they should give us until 2020 to get to M2000 but they said we should do it now.”
He said during the negotiations the LTEA asked the ministers for some incentives to cushion them against the “shock wage increase”.
“The ministers said we could get subsidies on water, electricity and rentals. But in the next meeting the bosses of Wasco, LEC and LNDC said they were not able to give us any subsidy.”
“Instead water and electricity tariffs have increased. Lesotho is the only country that doesn’t have incentives for textile companies. Kenya, South Africa and Ethiopia have incentives that make the textile business better.”

He however said despite the impending gazette and the court case the LTEA remains in negotiations with the subcommittee because the “consequences are dire”.
“Putting the minimum wage at M2 000 means that we increasing the wage bill by about M30 million. There is no way we are going to get that amount especially under the current economic conditions. Companies will leave this country and thousands will lose their jobs.”

“We are saying give us time to increase the wages because we cannot do it at one go. It’s too heavy for us,” he said.
Minister Phori said the government is not hostile to negotiations but demands that the companies disclose their profits before they start pleading poverty.
Phori said there is evidence that some textile factories are not complying with local financial and tax regulations. (See the Phori story on Page 6).
Former finance minister Dr Timothy Thahane said the government should remember that Lesotho is not an island.

“We cannot run away from the fact that the textile industry is a low-wage sector. What determines who gets the orders is the price. The prices are a function of the costs of doing business and the incentives that might be provided by government,” Thahane said.
“If our garments are more expensive than other countries buyers will move. The question is whether we are in a position to lose some companies to those countries. I doubt that we can afford any job losses especially in this economy.”

He said while he understands that people have to earn decent wages he doesn’t believe it should be at the expense of the survival of the very companies that create jobs.
“The danger here is that the next sector might want the same rate of increase. We could open an open season for more wage demands that might hurt companies and the whole economy.”

Staff reporter

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