Two major policy interventions envisaged to help the ailing industry in the past have been in disarray for years. The first is the hapless customised sector strategy, which has never been implemented. But it is the second — an export incentive called the duty credit certificate scheme (DCCS) — that gives an inkling of the incoherence of state policy.
The scheme compensates exporters of textiles and clothing with rebates on import duty, which means they can import inputs cheaper, giving them a competitive edge. Not many manufacturers in SA are competitive enough to export, but some local ones, and many in Lesotho and Swaziland, benefited greatly from the scheme in the past.
But export incentives are against World Trade Organisation (WTO) rules, so the programme needs to be made WTO-compliant. Despite having known about the problem for years, the Southern African Customs Union (Sacu) has made no progress concluding the DCCS review. Instead, the DCCS is renewed every year, keeping it shrouded in uncertainty and providing exporters no room to plan ahead. The result? Exporters in SA are abandoning export markets in droves, while many in Lesotho and Swaziland are shutting up shop, taking precious jobs with them.
Looking beyond SA, India — a country with which SA has forged close ties and whose industrial policies SA keenly advocates — recently announced plans to prop up its exporters, including clothing, textiles and leather manufacturers — a booming sector before the crisis. Its tool? Export incentives.
The programme is opportunistic, blatantly flouting WTO rules. But it will run for only six months, and with WTO challenges taking on average six months, the programme will expire before India can be ordered to stop it. Rather neat.
India's plan broadly resembles the DCCS. So it is staggering that India is emulating our industrial policy model to help its exporters, while the local industry has been languishing in the face of government inaction long before the slump. It also speaks volumes about the speed with which the Indian state is moving to help industry, in stark contrast with the ponderous pace of Sacu. What is more, the new Indian incentive may contribute to eroding Sacu exporters' global market share. But local exporters are not even waiting for the Indian onslaught. The policy paralysis has already spurred exporters to abandon export markets and sell locally.
Anomalously, this means they are not feeling the pain as much as their exporting counterparts elsewhere. But there is a downside. The situation is complicating the lives of manufacturers geared to the local market, because they are losing market share to exporters that are far more efficient. So the state's inaction is actually making things worse for an industry it had earmarked for aid. Moreover, growing exports are at the heart of the government's growth plans. But the government seems to be killing precisely the goose that could lay golden eggs — and steady jobs.
This lack of policy progress is in glaring contrast, of course, with the incentive scheme for the automotive sector, which was extensively reviewed. What is more, the Department of Trade and Industry recently met car and component manufacturers again to discuss additional help for the industry.
From the way SA's rescue plan is playing out, it seems that those with the biggest clout and lobbying power are progressing fastest towards the bail-out stage.
The need is for a Midas touch. The clothing and textile industry, however, is being sucked into a black hole of bureaucratic incompetence and apathy. If the government's handling of this one sector is anything to go by, spare us its efforts to help to steady the economy at large.
Source: Business Day
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