State slow on clothing quota

The quotas, designed to give the local sector space to become more competitive, ended a year ago. “It worked in some areas, in (others) it didn't,” says Abisha Tembo, chief director for clothing, textile, footwear and leather at the Department of Trade and Industry.

The issue is crucial to the future of an industry that formally employs 114 000 people - and as many as 80 000 informally - and which shed 14 300 jobs last year.

Cheaper output

The industry, which contributed R38bn to the economy in sales, has long been struggling with the question of remaining viable against imports from China, where wages are less than half those in SA.

“Finished products land in SA at a price that is less than what raw material costs us,” says Etienne Vlok, director at the South African Textile Workers Union.

Stimulating competition

The quotas — which allowed for import restrictions on 31 product categories from January 2007 until December 2008 — in themselves were never going to make the industry competitive.

“The aim was to create a little bit of space through the quotas and fix the industry,” says Vlok.

They also had the additional aim of stimulating private investment and saving jobs.

Too little, too late

But that pause for breath came at the wrong time — at least as far as the remedial action was concerned. The department's customised sector programme — the plan to turn the industry around — only started as the two year quota window closed. “The department did not introduce that programme, they sat on it and only implemented it late in 2008 and only part of it,” Vlok says.

Tembo concedes the department was late. The programme “was designed before the quotas (with a view to be implemented in that two-year period) but it took some time to be implemented. It is being implemented right now.”

Vlok says although the programme will still work, it won't be as effective as it would have been during the quota period.

But the imposition of quotas was not without benefit. One achievement was a slight reduction in job losses. At the height of the surge in Chinese imports between 2005 and 2006, the industry lost 15000 16000 jobs a year. This dropped to 10500 after the quotas.

Limited local capacity

A separate issue is the response of retailers. Frustrated by the limited capacity of the local industry, they sourced imports from other low-cost countries such as Malaysia, Vietnam and Bangladesh, defeating the quotas' purpose.

“In certain categories, there were items that actually could not be made in this country, so we had no choice but to source elsewhere,” says Foschini CEO Doug Murray.

The local market is not geared to make items such as padded jackets, casual woven tops and bottoms with embellishment — generally anything that requires sophisticated washing and finishing.

“We had to find new suppliers because there wasn't enough capacity,” says Michael Lawrence, executive director of the National Clothing Retail Federation of SA. “There are some items, like baby clothing, which are virtually impossible to get done here. (The quotas) didn't make sense to us.”

Today, 70% of the clothing sold in SA has been imported.

The quotas also had a negative effect on retailers' profit. “There had to be an effect on the bottom line because we could no longer buy from our preferred source of supply and had to start new relationships with new suppliers — both local and offshore,” says Murray.

Need for skills

Tembo says the department is looking at skills development, and is working on illegal imports with tax authorities and on improving production levels. And the retailers are coming on board.

“There is a big change, a number of big retailers have started to use locally manufactured goods. They started with small percentages and are now building up.”

Source: Business Day