Jumping out of Agoa frying pan
MASERU – EARLY 2012 was a testing period for Madhav Dalvi. The future of CGM Group, a textile company he leads, looked bleak.
Orders were drying up and margins had become so thin that the company could barely service its loans.
The Africa Growth and Opportunity Act (Agoa), the mainstay of the company’s survival, was yet to be renewed for clothing factories using third country fabric. There was pandemonium across the whole textile industry.
The Agoa itself was valid until September 2015 but for CGM who uses third country fabric the deal would expire by September 2012.
The end of Agoa would be the end of Lesotho’s textile industry. The Lesotho government too was on tenterhooks for it knew that the end of Agoa spelt doom for the whole textile industry. Nearly 40 000 people would lose their jobs.
Dalvi watched as United States buyers slowly moved orders to other companies in Asia because they did not know what the US Congress would decide. Established in 1987, CGM had always relied on the export market for business. That reliance deepened in 2000 when America gave Agoa to poor African countries.
Allowing the countries to sell their garments to the US market duty and quota free, Agoa was seen as a major boon for the poor countries.
But it had an expiry date which most African countries seemed to have ignored as they reaped the results of that preferential treatment. For companies the margins on sales under Agoa were meagre but at least the business was guaranteed.
CGM had joined the bandwagon and signed deals with major American companies.
Its customers included Levis Straus, KMART, PEPE Jeans, Gloria Vanderbilt and few other importers who would then sell to American retailers.
As he pondered the next move with his management Dalvi realised that it was a mistake for the company to throw all its lot with the American market if the CGM Group wanted to have a long term future.
Every month that went without Agoa being renewed was another blow on the nail of the company’s coffin.
“Those times were tough,” Dalvi recalls. Dalvi had been in this situation many times before. Every three years he and his team would hold their collective breath as they waited for African countries to plead the case for Agoa’s renewal in the US Congress.
While the politicians crossed the Atlantic Ocean, begging bowl in hand, Dalvi and his team braced for bad news. They knew that if the US lawmakers said ‘No’, then the company would go under. Presitex Enterprises, a division of the CGM group, would not get more orders from Levi Straus, its main customer.
CGM Industrial, another division which makes garments for US importers, would have to shut its doors. All in all 4 000 workers would be out of jobs.
The Agoa facility for countries using third country fabric was eventually extended in September 2012 but the wait was more than Dalvi and his team could bear. During the wait Dalvi and the management had gone through what he calls “a period of deep introspection”.
“We knew we could not have the same sword hanging over our heads every three years when Agoa had to be renewed,” Dalvi says.
A veteran in textiles, Dalvi had always known that the future of Lesotho’s garment manufacturing industry lay somewhere far from the US. He was cocksure that at some point the factories in Lesotho and other African countries would have to stand on their own without Agoa.
What came out of the research to find the most viable market for his garments pleasantly surprised him. It turned out that the answer was right next door: South Africa.
The numbers painted a picture of staggering potential.
As he perused the numbers Dalvi discovered that the South African market is worth nearly 700 million garments every year.
Add the other regional countries that rely on South Africa for clothing merchandise and the number gets to just over a billion.
The combined production capacity of Presitex and CGM was about 6 million garments. He estimates that the total production of Lesotho’s textile factories is 70 million garments per year.
Those numbers emboldened Dalvi to bin Agoa and concentrate on the regional markets such as South Africa, Zimbabwe, Botswana, Zambia and so on. The result of that change in strategy is astounding, he says. After years of losses the company is beginning to turn decent profits. The CGM Group now makes 300 products annually compared to about 10 products it used to produce under Agoa.
Beyond that, Dalvi and his team do not have to fret over the renewal of Agoa. Freed of the uncertainties associated with Agoa, Dalvi’s team is focusing on new ways to grow the business. The company already has long term contracts with the Edcon Group, the owners of Edgars, Edgars Active and Jet.
Dalvi’s eyes glow as he explains an important curvet in the contract with Edcon.
“CGM is the preferred supplier and that means it’s a strategic partner,” he says. Retailers like FIX, EXACT, Dona Claire, Milady’s, The Hub have also come on board. Soon Guess and Spree will have their products made at the CGM factory. Talks with Pick n Pay Clothing are promising, Dalvi says.
Retailers in other regional countries are signing deals with the company. CGM has thus diversified both its products and market. In that way the company has provided Lesotho a window into what the future without Agoa looks like. And with Agoa set to expire for good in 2025, that future is not so distant.
Sadly, not all companies in Lesotho seem to be prepared for that future. Dalvi predicts a catastrophe if Agoa comes to an end and the companies have not found new markets. “By the time they look for other markets it might be too late.”
Meanwhile, CGM is plodding ahead into a future without Agoa.
“In 2012 everything we made was for Agoa. Today we don’t make even a single pair of jeans for Agoa. We are completely off Agoa.”
Dalvi says it has taken “guts” to walk away from the Agoa market and every year there is evidence that it was the right decision for CGM.
It doesn’t need much head-cracking and number-crunching to see why it makes business sense for local textile companies like CGM to focus on the regional market, especially the Southern African Customs Union (SACU) area.
Lesotho companies don’t pay duty when they export garments to SACU countries. There is a 45 percent duty on the imports of woven bottoms (CGM’s specialty) produced from outside SACU.
It takes CGM 24 hours to deliver products to warehouses in South Africa. That’s a huge cut on the time it would take if the South African companies were buying from say, China, Bangladesh or Madagascar.
Proximity has also significantly reduced their inventory-carrying costs. Dalvi explains: “If these companies were buying from China and suddenly realise that a certain product they have made is not selling very well they will be stuck with the stock. They will still have to receive another consignment of the same product that is still at sea.”
“But with us they simply tell us to stop the line and their person flies into Lesotho to make the necessary changes. That way they are not stuck with merchandise that is not selling.” But Dalvi says for this to happen a company has to have the systems and structures in place to deliver on time, change products fast and expeditiously respond to customers. He says that CGM Group is known as “A Quick Response Vendor” for all the South African retailers it deals with.
This, he says, is what CGM has managed to get right. It is one of the few companies with head offices in Lesotho. That means unlike companies that are controlled from Taiwan, CGM is able to make instant decisions.
“If the client wants to change the style of the garment we don’t have to wait for approval from somewhere else. We make the decision right here and now,” Dalvi says. “South African companies want to work with companies that are controlled at the point of manufacturing. That means the supplier must be controlled at the factory. Everything from banking to sourcing of raw materials, production and merchandising of garments should be at the point of manufacturing.”
Dalvi says what has made CGM’s partnership with South African companies work is that it is fair. That is in stark contrast to the relationship with American companies he says had a take it or leave it with African companies”. “With US retailers you either bend to their demands and prices or you would lose the order. There is very little room for negotiation.” “But when I pick the phone to talk to a retailer in South Africa we are usually talking the same language. It’s the same currency, inflation and cost. If fuel goes up in South Africa the same is likely to happen in Lesotho.”
Dalvi had the first meeting with Edcon officials in 2012, at a time when CGM was looking for a way out of the US market. That meeting with the Edcon’s sourcing team has led to deals with other retail companies. The secret, Dalvi says, lies in doing good work because it will always get rewards in time.
CGM has gone beyond just being a supplier to the retailers. Because of his knowledge in fabrics Dalvi has also trained buying and sourcing personnel from the retailer shops.
“That way they understand what we are offering them. The relationship is way beyond that of a buyer and a supplier.”
Having diversified the market, CGM is now looking for ways to create new revenue streams. It has since made inroads into the work wear market with its Nut and Bolt brand.
“We are looking at protective clothing for industry and uniforms for nurses, companies and government departments.”
In addition the company has factory shops selling its own denim brands. So far there is one at the CGM factory premises and another at Thetsane which is owned by locals.
Dalvi says soon they will open one in the Station Area and another in Maputsoe.
“The idea is that our people must be able to afford the clothes made in our factories. The plan is to have at least ten shops but we are moving cautiously because we also have to remember that such shops should be a way of empowering local entrepreneurs by way of franchises.”
An increase in the sales in the factory shops will allow the factory to hire more hands.
Because of its regional market CGM has also begun to invest heavily in new machinery. For instance, it recently acquired three laser machines from Spain that reproduce designs faster.
Those machines will help CGM in its new venture: the fashion market.
“We will make denim for the high-end market. The European boutique market is the destination for those products. We are not looking at the US at all.
Dalvi says a major handicap of the local textile industry is that factories don’t have support services around them. He means there are no manufacturers of zippers, threads and labels around the factories in Lesotho.
“So you are forever incurring costs to import those.”
Dalvi has made it his mission to bring those support services to Lesotho. CGM is about to sign a joint venture deal that will bring a label maker to Lesotho. Not only would CGM benefit but all the clothing manufacturers would also benefit from having a label manufacturer next door.
Yet CGM’s forays into the regional market have had its challenges. The biggest is the cost of capital in Lesotho.
“We are competing with companies that are borrowing at interest rates which are based on libor which is as low as one percent while here we are dealing with rates of PLR (Prime Lending Rate) of 10 to 11 percent.”
He says South Africa had tried to revive its textile industry with a production incentive scheme which offers subsidies on capital and interest.
CGM Group also has its state of the art water treatment plant where water out of jeans washing is treated and reused in the washing plant.
FIX, one of its customers, had since started using that recycling process in its marketing. It crows that its jeggings are made by CGM Industrial using recycled water.
Lesotho’s own brandy
ROMA-“Go, eat your food with rejoicing, and drink your wine with a cheerful heart, for already the true God has found pleasure in your works,” so says the Big Book.
Driven by that divine, Mohapi Pule has gone a step further – by coming up with a new type of brandy – to make you merry.
The brandy, Mountain Spels Brandy, will make the heart of the dying man rejoice.
“The healthy nutrients in fruits that make brandy, end up in you when you drink it,” he said.
Pule studied nutrition at the National University of Lesotho.
His brandy is made by fermenting fruits into wine. The wine is then distilled into a brandy. It carries the flavour and the aroma of the original fruits.
The story began when Pule was born in Quthing, Mphaki. He was born to a hardworking mother who brew traditional beer like no other.
“She brew beer well before I was born. She is still making it to this day,” he said.
His passion for brewing was probably “born” even before he was born. Mothers have a hidden way of passing not just their looks but their passions to their children.
As he grew up, he found that he was still intertwined with his mom’s brewing business in one way or another.
“Mostly, I am expected to fetch water for the brewing process. That, I still do to this day when I visit home,” he says.
Two decades later, Pule found himself in the Roma Valley, doing BSc in Nutrition.
“At some point, I found that I had lost purpose in life. There was not a thing that I could say, well, I was passionate about this thing or that thing.”
That situation, of course, threw him into some serious soul-searching.
It brought him back to his roots.
“During this period, I recalled that when I was younger, I used to imagine helping my mom do the packaging of the beer she was making and helping distribute it countrywide,” he said.
From a young age, the issue of subsistence business didn’t appeal to him. But that imagination came and passed. Now here he was, worried that he might not amount to anything in life.
Then, boom! An idea came!
What if he produced an alcoholic drink?
He could have thought about anything to do as a business but, lo and behold! He thought about his mother’s passion!
One of the things he loves about alcoholic beverages is that they are popular.
“I haven’t seen products as popular as alcoholic drinks,” he said.
He might be wrong or right but the reality is, the rest of the world has for generations found delight in alcoholic beverages – some to the extent of overdoing it to their injury!
“Mabele khunoana ralitlhaku thabisa lihoho. Mabele u tsoa kae e le khale re u batla re sa u thole? Ueeeena mabeeeele!” (Loosely translated beer brewed from sorghum make men happy. We’ve been looking for you from afar, you sorghum. In short, this is a praise poem for the Sesotho sorghum brew).
But then came the most difficult part. Which specific beverages should he focus on and how would he do it?
He decided that he would focus on ciders. He realised that not many people in Lesotho were making ciders.
He started experimenting at home and realized how difficult the process was. He just couldn’t get it right. To worsen matters, he also did not have the right equipment.
But like most successful innovators, he just knew that he had to start his business right away.
Pule says he then learnt about other forms of beverages: the spirits. Spirits are very high in alcohol content. Here we are talking the likes of whiskey, vodka and brandy.
He was particularly interested in vodka. He went into one NUL laboratory and, with necessary permission, began testing a number of spirits and doing a lot of research about them.
He began saving some of the money he earned from the National Manpower Development Secretariat in the form of student allowance so he could buy equipment. Saving was not easy. The subsistence money was already not that much. Having to share it with a business was asking a little too much.
But Pule was so determined that he did it, bought equipment that allowed him to develop what he thought was “vodka”.
However, after buying the equipment he immediately realised that the equipment was to make brandy not vodka.
“Now I was forced to get into brandy by chance,” he said.
It was a mistake that he has never regretted having realised that there are very few individuals who were making brandy in Lesotho.
Pule had to throw himself fully into experiments. He read books about brandy production. He even enrolled for an online course on distillation.
In the end, he began to see some light.
“I began to feel some difference in the taste of my produce,” he said. “When I shared my produce with my lecturers, they were over the moon!”
With that encouragement, Pule began packaging his brandy and is now selling it to family and friends.
“My small equipment means that I can’t produce much. However, If I were to get bigger equipment, things would be much better.”
ROMA – ’MATUMANE Matela, a National University of Lesotho (NUL)-trained nutritionist, is an example of how a nutritionist should think and act.
Matela makes and sells ready-to-cook vegetables out of produce from her own farm or produce she preferably buys from local farms.
“When I make a dish, as a nutritionist, I make choices that ensure a typical package is packed with nutrition,” Matela said.
Today, we examine an interesting story of the lady who is determined to ensure that you eat healthy despite your busy schedule.
It started with her experiences in life.
She describes herself as an extremely busy woman.
She likes getting things done.
As the busy amongst us will say, the busier you become, the less you watch your diet.
She couldn’t escape the trap!
“My busy schedule meant that I ended up eating junk and I was gaining weight,” she said.
With time, she came to her senses.
As a nutritionist, she recalled that the best way to preach was to preach by example.
So, was she preaching what she practised?
Clearly, she wasn’t.
She had to find an option to maintain the busy schedule and eat healthy at the same time.
The beautiful thing about nutrition is that the healthiest foods are the closest to us: fruits and vegetables.
Some scientists even claim that our bodies seem to be designed to thrive on fruits and vegetables.
“Have you ever wondered why looking at a ripe raw peach on a tree is mouth-watering but looking at a fat cow isn’t?” asked one scientist.
Well, whether we were designed for fruits and vegetables or not, the truth is that they are good for our bodies.
That’s what good science tells us.
And we somehow “know it” too if you have heard about anything called intuition.
So one day she found herself increasingly eating fruits and vegetables.
It’s easier to change a religion than a diet, they say.
So it is commendable that she changed her diet at all.
“The idea was to chop as much vegetables as possible and put them in a fridge so that in future, I will just pull them out and cook.”
She wasn’t proposing something new.
Who amongst us doesn’t enjoy the convenience of just pulling up chopped frozen vegetables and cooking?
Little did she know that what she was doing was putting her on a path to a brilliant business.
It took a post on a social media to achieve just that.
“I took a pic of the chopped and packaged vegetables and posted them on my social media account. The reaction was swift. I began getting questions like, “how much?””
It immediately dawned on her that she could be sitting on a great business idea, after all.
So she gave it a try and started selling.
To her surprise, people started buying.
In fact, “I get orders for my products almost on a daily basis.”
That is how interested people really are.
This to an extent that her business now gets up to four irregular employees, she included, when the demand is high.
She said her training in Agriculture, Home Economics and Nutrition has helped her to give a thought into what she was doing.
For instance, where possible, she grows her own crops and sells them as first preference.
She has grown spinach, butternut, green pepper, onion, herbs and beans.
She is also in the process of renting more fields to grow more vegetables.
Then she empowers Basotho producers by requesting them to supply.
Going for foreign produce is the last resort.
Look at her packages and you realise something.
The “7 colours” proverb comes alive.
Those seven colours (several colours actually) may have been designed to appeal to your eyes but that is just the tip of the iceberg.
The colours of vegetables mean a lot in terms of nutrition.
Each colour gives you something different.
So, the more colours in one meal, the merrier.
To drive this home, let’s go a scientific route for a second.
Red, Blue and Purple: These vegetables contain substances that are good at reducing the risk of stroke, cancer and memory problems.
White: The likes of onion or garlic may help lower your risk of high blood pressure, high cholesterol, cancer and heart disease.
Orange and Yellow: Carrots immediately come to mind.
These vegetables contain substances called carotenoids which may help improve your immune system and help to improve the health of your eyes.
Basotho, it would appear, have long known a thing or two about the relationship between carrots and eyes.
Hence the famous saying, “o jele lihoete” (they ate carrots), often applied to good sportsmen or women with symbolically “good eyesight”.
Green: Green is life. Green vegetables come packed with chlorophyll, a chemical that scientists believe can boost your immune system, eliminate fungus in your body, clean your blood, lead to healthy intestines and give you boundless energy.
As a bonus, her Home Economics background is such that she is armed with a host of recipes for each of the packages she sells.
She has great dreams for the future.
“I want to see my products decorating the shelves of big supermarkets,” she said.
A new, co-operative chain store
ROMA – ’MAKUENA Lesiea is spearheading the creation of a cooperative chain store that will sell Lesotho products only.
The store is being developed under the National University of Lesotho (NUL) Innovation Hub and it will be incubated by the Hub.
“Have you seen it? Basotho are producing like never before,” Lesiea said.
“However, their products are hard to see in the markets. We want to change all that.”
The store, she said, will open branches in all districts of Lesotho, starting from Maseru.
Visit any supermarket in Lesotho and check the products on the shelves.
You will be shocked to realise that, in general, just one percent of them are made in Lesotho.
The other 99 percent comes from elsewhere.
Is it because Basotho are not producing or can’t produce at all?
“Having worked directly with the NUL Innovation Hub and the Tsa Mahlale TV programme under the Hub, I have travelled the depth and breadth of Lesotho and I was amazed at the amount of work Basotho are doing,” she said.
What is the problem?
Basotho products are not given sufficient platforms to prove themselves.
“Credit where it is due, some shops are beginning to accept and sell Basotho products,” she said.
“However, they are barely making a dent because Basotho products, being at their infancy, cannot receive full attention unless by a store that is designed to give them full attention.”
Such a store doesn’t exist.
She said the idea is not to compete with any of the existing stores because “we are getting into a new territory altogether, we are addressing a different market”.
So listen to Lesiea as she presents some features of the store that will surely persuade you to join the bandwagon:
- Customer and producer confidence: The store, she said, will achieve two things.
First, when they see masses of Lesotho-made products in one place, Basotho customers will slowly grow confidence in them.
The confidence will shoot to the roof when the customers experience that many of the products made in Lesotho are already way ahead of foreign competitors in terms of quality.
Secondly, the store will give Basotho producers an assurance that their products have, at least, one store that is willing to take them, dark or blue.
More production will come from such assurance.
- Selling “everything”: The store will sell everything from fruits and vegetables to processed foodstuffs to clothing and building materials (if Thabure car will be in production by then, it will be on the shelves too).
“Suppose what we want to sell is not locally made, we will never cross the border, any border, to find its equivalence. We will encourage Basotho to produce it until they do.”
- We mean business: whereas Basotho are beginning to produce, their products are still all over the place.
You bump across them in some few willing stores, in expos and trade shows, or as being sold by individual resellers. Those are good efforts, but they are not enough. In fact, many in Lesotho have come to see producing and selling as being more of an art, a hobby, a therapy or a hustling than a business, “so we are seriously moving away from such a casual approach, we mean business this time around.”
- Ownership: So when you enter this store, you could be purchasing a product made by you in a store owned by you. What a difference!
- Reasonable standards: the store will only demand reasonable standards. As a struggling Mosotho, try taking your products to some of the local shops and you are, at worst, turned away without reason or, at best, given a long list of standards you must meet before they can take your product.
“In our case, as long as your products are reasonably of good quality, you are in. NUL Innovation Hub is already testing many Basotho products. We won’t ignore quality, but we won’t use it as a way to prevent Basotho products from growing either.”
- A cooperative chainstore: From contributing as little as M50 per month, members will use a continuous financing model to ensure that the store doesn’t just end in Maseru but reaches the ten districts of Lesotho.
Each branch will start at a medium scale in order to grow along with Basotho products. We won’t ask for investors to come from anywhere, “we will be investors ourselves.”
- An export launch pad. “We are often told to export our produce. The obvious question is, if you haven’t convinced your own people to consume your own products, how can you convince people in other lands to do so? Why should they take you seriously?”
However, the store is not meant to be a local store forever.
It will be a means by which we export our products to other countries in the future.
When we export the store to Soweto, we export it along with products from Lesotho.
Don’t say no because we have seen Chinese shops and Indian shops and, of course, South African shops, filled to the brim with Chinese products and Indian products and South African products in many countries.
“If they can do it,” Lesiea ended, “so can we.”
“Because if it is there in some of us, it is there in all of us.”
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