Lesson for SA textiles sector in the fate of an American icon

Frame's Waverley brand literally blanketed the country — protected from competition by the high tariff walls and the policy of import substitution, which was the apartheid state's quid for Frame's quo of locating his factories in border areas designed to keep black labour far from the white heartland. In those times, there was little talk of trade liberalisation.

The Pontiac, a far more exotic sighting than a Frame blanket, fed schoolboy fantasies of American excess. The reality of SA was more accurately located in the satanic mills of the Frame Textile group, where in 1973 ultra-exploited black workers defied the law and organised a strike. Frame was unmoved. But the protest galvanised the formation, and ultimate legalisation, of modern trade unions in SA.

The irony

There are no end of ironies in the fact that today the South African Clothing and Textile Workers' Union (Sactwu) has, via its investment arm (nogal) a significant stake in Frame parent company Seardel, and thus in Frametex, as the fast-fading textile empire is today called. Philip Frame had access to the National Party government via his long-standing membership of the prime minister's economic advisory council. Sactwu's influence with today's government is even more direct. Its outgoing secretary-general, Ebrahim Patel, is now the minister for economic development.

He and Trade and Industry Minister Rob Davies appear eager to use Industrial Development Corporation (IDC) funds to bail out Frame, which is bleeding R30m a month, and will be closed unless it receives government life-support.

This is where the Pontiac comes in. This uncompetitive icon will cease to exist. It's part of the price the US government has extracted for its infinitely larger (perhaps ultimately R500bn) bail-out of the US car industries. At General Motors, CE Rick Wagoner was replaced; 13 factories will close by next year; 21000 jobs will be lost, and the powerful United Auto Workers Union has had to accept restrictions on employee entitlements. This stringent package was described by Michigan governor Jennifer Grenholm as “tough love”.

Tough love formula

Actually, “tough love” was the exact formula Trevor Manuel prescribed for the South African textile industry in 2004. He later told Parliament “the country cannot protect uncompetitive industries from destruction through global exposure”. Reserve Bank governor Tito Mboweni was even more hawkish. He opposed the three-year quota on cheap Chinese imports when it commenced in 2006. He told MPs there was not “a dog's chance” that the industry would become more competitive in the period, having failed to modernise or globalise in the preceding 12 years. Protection through quotas would simply raise consumer prices and fuel inflation.

Well, despite our government obliging the Chinese on the Dalai Lama, their government was decidedly disobliging last December when it declined to renew the quota restrictions on textile imports. The jobs massacre that followed and Frame's proposed closure proved the point made in a study on, of all things, a three pack of women's panties. The Chinese version retails in SA for 10 times less than the South African equivalent. But now Davies, a softer touch than Manuel, says there is “a strategic importance” in preventing local clothing manufacturers from being dependent on imports.

Conflicting interests

He did not elaborate on this curious proposition, and fed the impression of a policy being made on the hoof, in response to insider pressure. Leaving aside the glaring conflict of interest between Patel and Sactwu, the government is sitting with the Harvard report. It warns against an industrial policy which seeks to pick and predetermine “winners”. But if the government bails out Frame, despite the IDC finding no “economic merit” for doing so, it will be backing a loser. Of course, there are 1700 jobs to be considered and the retention of plant and capacity. But, as industry experts point out, there are 600 companies in the sector — all exhibiting the stress fractures and ailments consequent to the recession and the cheap imports. There has been a 46.7% rise in all corporate bankruptcies in the first quarter of this year, compared with last year. How will Davies and Patel determine which is “of strategic importance”, which are “too big to fail” and when does the government apply the laws of moral hazard? What about the most vexed issue of a bail-out: “privatising profit (for the company) and socialising losses (for the taxpayer)?”

A bail-out policy requires transparency, thought, and fairness. It needs to account for, and answer to, the whole of society — from workers, to consumers, to competitors and to our global commitments. It's a tall and difficult order. And some Pontiacs will get ditched in the process.

Source: Business Day

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