Local embeddedness, upgrading and skill development global value chains and foreign direct investment in Lesotho’s apparel industry

Methodology

This paper relies on qualitative research and fieldwork to inform the case study approach.

Research Objective

This paper assesses the characteristics and dynamics of two distinct value chains and foreign investors, and the implications for upgrading prospects, local linkages and skills development in Lesotho’s apparel sector.

Synopsis

  • This paper looks at different sources of foreign direct investment within the same value chain in a country, and how different sources of FDI can influence value chains differently.
  • This paper also investigates the dynamics of aligning international labour standards while promoting competitiveness.
  • The paper starts with an overview of the related GVC literature, before looking at the characteristics of the textile and clothing value chain in Lesotho. Case studies of two different sources of FDI (international and regional) are investigated.
  • Research found that regional FDI has a higher likelihood of leading to greater participation of the investor due to proximity, and ultimately an incentive to relocate more production functions. Whereas global FDI is seen to exploit specific competitive advantages for a specific objective. Taiwanese (international) FDI was largely focussed on exploiting cheap labour in Lesotho to produce for mass-markets in the US, resulting in little skill and technology transfer, and little further investment. In contrast, South African (regional) FDI looked towards shifting production of clothing to Lesotho (due to unfavourable local conditions) and had greater incentive to make continues investments (financial, technical, etc.) in their Lesotho operations.

Policy Recommendations

  • Certain sources of FDI is merely rent-seeking – in the case of Lesotho’s apparel sector Taiwanese investment looked to take advantage of AGOA trade rents, with little incentive for further investment of skills development. Thus, further development is largely hindered by the foreign investor.
  • In the case of South Africa FDI in Lesotho, further development/investment was limited by local conditions – poor physical and institutional infrastructure, low productivity and limited local capabilities and skills.
  • While one type of FDI can lead to mere employment creation, with these opportunities lost if conditions changes, another type can be more sustainable. Being conscious of these dynamics will allow governments to formulate more strategic interventions.
  • In order to have deeper involvement from the private sector, the GoL should further investment in strategic capacity building and interventions (e.g. focussed industrial policy).