FDI, AGOA And Manufactured Exports From A Land-Locked, Least- Developed African Economy: Lesotho

Lesotho, a small, mountainous and resource poor country inside South Africa, has emerged as the largest and fastest growing exporter of apparel from Sub-Saharan Africa to the US. Its rapid manufacturing growth has been driven by inflows of export-oriented foreign direct investment. This paper explores this unusual experience against the setting of the dismal record of industrial growth and competitiveness in Sub-Saharan Africa. It traces the origins of apparel-based FDI in Lesotho and the critical role of trade preferences in stimulating its exports and notes the limited integration of foreign affiliates into the local economy. The recent export spurt reflects first mover advantages in apparel manufacture, but long-term prospects, after trade preferences, remain dubious unless there is a significant improvement in skills and productivity. The experience has important policy lessons for the Lesotho government, foreign investors and international community in terms of stimulating competitive industrial development in Africa.