Rescue for Frame spins complex web for IDC

Seardel announced Frame's closure last month after the IDC said it was economically unviable, and refused to assist it.

In a bid to avert closure, Trade and Industry Minister Rob Davies and Economic Development Minister Ebrahim Patel have asked the IDC to reconsider its decision and save Frame, SA's second biggest spinner of yarn.

It is understood Frame loses about R30m a month. Davies and Patel met the IDC and the embattled Seardel group last week, and a task team was formed to come up with a solution by today, 25 May 2009.

But the IDC already owns almost all of Prilla 2000, SA's biggest spinning mill. If it acquires a stake in Frame, the state will through the IDC effectively control all spinning capacity in the country, a situation likely to be frowned on by the competition authorities, who will have to approve the deal.

Not bailing Frame out would in any case leave the IDC — as owner of Prilla — with the only meaningful spinning capacity in the country, which would put it in a monopolistic position, and might raise questions about vested interests protecting Prilla if it turned Frame down. “There is no doubt that the IDC is in a Catch-22 situation. Whichever way the IDC goes, the state will effectively run our spinning industry,” an industry source said.

Questions abound on Prilla's ability to satisfy industry demand for yarn if Frame shuts down. As owner of Prilla, the state-owned IDC may have to supplement yarn supplies through imports.

But yarn imports attract import duties of 15%-22%. If the state maintains these duties it stands to gain at the expense of manufacturers, a situation in direct conflict with industrial policy objectives to lower input costs for clothing manufacturers to make them more competitive. Eliminating duties on yarn could also compromise the competitiveness of Prilla vis-à-vis imports.

It is believed that a trade policy report recommending a comprehensive review of textile import duties to help clothing manufacturers may have been the final straw that convinced Seardel to close Frame.

Even with import duties of up to 22%, the company could not compete with imports. Duty cuts would have been devastating for the company.

Patel's intervention on behalf of Frame, only 10 days after he took office, has raised eyebrows over a grave conflict of interest, as he is the former secretary-general of the South African Clothing and Textiles Union, which has a majority stake in the Seardel group.

But industry commentators believed Frame's strategic importance to the industry warranted efforts to save it. Industry consultant Justin Barnes said that in the context of attempts to build a vertically integrated value chain in SA, losing Frame would be a tragedy. “ It is a firm that has so much value. I have sympathy for (Patel's) position. In this instance saving Frame is the right thing to do.”

The IDC could not be reached for comment yesterday, but the head of the corporation's clothing and textiles unit, Willie Fourie, said last week that the IDC still believed there was no economic merit in assisting Frame.

Source: Business Day

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