Where next for KwaZulu-Natal’s CTLF Sector? A review of South Africa's Clothing Sector

A review of a conference on the clothing sector in South AfricaBy: Renato Palmi - The ReDress Consultancy-SADid the 2009 KwaZulu-Natal Economic Recovery and Jobs Summit deliver any concrete response plans for the province’s clothing and textile sectors?Labour, compliance, cheap imports, technology upgrading, the role of government and the dominance of the retailers in the apparel value-chain – these were the issues raised in the Summit’s session on the clothing, textile, leather and footwear sector. While several panellists presented some interesting proposals on these concerns, recovery and growth will depend on how these are formulated in ongoing consultation with stakeholders and whether they can be implemented in a fair and transparent manner.KZN local government has allocated R70-million for rejuvenation of the apparel sector, but the panellists of industry representatives forfeited this valuable opportunity for the industry collectively to devise policy usage, management and accountability of this funding. Another gap in the dialogue resulted from the omission of KZN’s Department of Economic Development and Tourism in the panel profile, so these links were not explored in the discussions.The objectives of regional policy development are to identify mechanisms for improving economic conditions within a specified geographical locality to enhance the overall economic development of a country.[1] To understand the context of these aims in relation to KZN’s apparel sector, a historical perspective is useful:From 1960 to 1970, the rate of employment in the clothing sector equated to 6,7% per annum, exceeding the annual growth rate of 6,2% in the manufacturing sector for the same period. Natal (now KZN) reflected one of the highest employment growth areas during these years. By 1970, white workers in this sector decreased, with black weekly paid employees making up 29%, coloureds 47%, and Indians 19.[2]During the 1989-93 recession, job losses amounted to some 420 000, while the South African Clothing and Textile Workers’ Union reported a loss of 17 700 jobs during the period September 1995 to February 1996.[3] In 1995, approximately 420 firms (300 being CMTs) were found in the metropolitan area of Durban.In a study of the clothing industry on the KwaZulu-Natal South Coast in 1995 the issue of illegal imports was reported. Subsequent research shows that illegal imports have persisted as a major threat to the local apparel industry.In his opening address to the Summit, the MEC for Economic Development and Tourism, Mike Mabuyakhulu, said that KZN had been hardest hit by the recession, with 117 000 jobs lost in the first quarter of 2009, and a further 57 000 in the second quarter of this year. A more encouraging statistic was the increase in jobs within the manufacturing sector during the second quarter, from 389 000 to 415 000. The MEC challenged the unions, saying that the future of their members depended on the choices and sacrifices they make in the present and urging unions and civil society to work closely with business leadership towards keeping companies afloat.Nimrod Zalk, Chief Director of Industrial Policy-Department of Trade spoke on the role of tariffs in growing local industry capacities, and emphasised that KZN should engage with national programmes. Since Elaine Smith’s appointment as Director of the DTI’s apparel sector communications and momentum have been visibly energised, and it appears that the long awaited Customised Sector Programme (CSP) is starting to show some results in its implementation phase. Zalk put forward an admirable proposal for a national technology audit within the CTLF sectors so as to provide an industry baseline for upgrades, and to define which textiles South African can produce cost-effectively. This would inform new and highly beneficial trade policy development.Zalk, said the immediate goal of government was to arrest the evaporation of jobs, but there is a perception in industry that its survival rests with the DTI. “This is not the case,” he said. “There needs to be a collective buy-in from all quarters.” He stated that the IDC has allocated R6-billion to rejuvenate the industry over the next two years. Other response plans include: increasing duties on specific clothing imports, reducing tariffs for textiles, dealing with illegal imports in collaboration with SARS, and providing incentives for companies to upgrade. Companies experiencing cash-flow difficulties would also be assisted, procurement issues - such as BEE fronting (and the role of co-operatives in this context) would be addressed, and solutions to strengthen the value-chain of local industry would be sought.A policy brief issued at the Summit described procurement as an important mechanism to “support local companies in distress”. The document specifies the need to support SMME’s, co-operatives and BBBEE firms, to assist companies “contemplating the retrenchment of more than 50 workers”, and to ensure that fair labour standards are upheld. Relating specifically to the CTFL and fashion sector, the brief assures that South Africa would not be allowed to become “a dumping ground for low quality products from other countries.” A key policy principle involves “all clothing, textiles and footwear procured by provincial and local government and government institutions [being] manufactured locally [and] retailers should [be] encouraged to buy locally.”Such statements are honourable and worthy of pursuing, but there is nothing new here - the industry has been trying to deal with these issues for many years.The President of the Durban Chamber of Commerce and Industry, Clive Manci, stressed that BBBEE policies should not be abused. It is important for local government, particularly the Department of Economic Development,to be transparent in their policy formulations. This would entail ensuring the competence of staff tasked to make recommendations and implement these policies, in order to eradicate any coercion and bias that favours one sector and or a group of individuals and companies.Zet Luzipho, COSATU’s KZN Provincial Secretary, believes that 50 000 jobs could be created as envisaged by President Jacob Zuma. The high level of corruption was slated, especially around procurement. “Workers are facing an economic death penalty ... and we must own up what we have and have not done,” he said.KZN Premier, Dr. Zweli Mkhize, noted that industrial response plans must be clear and focused, and that businesses should look within to prevent job losses. His assurance that government is prepared to fight any form of corruption is welcomed: direction from within government will eradicate the perception that there is favouritism taking place with the CTLF and fashion sectors around tenders and facilitation of policy implementation.Ebrahim Patel, Minister of Economic Development, said there were far too many people dependent on survival jobs and that government is committed to broad-based development for sectors that provide labour growth and manufacturing. He outlined a new six-point action plan, some elements of which affect the apparel sector, such as a job fund for retrenched workers, the role of SETAs in skills development, a crackdown on illegal imports, and support for distressed industry sectors.Michael Lawrence, Executive Director of SA’s National Clothing Retail Federation, spoke elegantly about the retailers’ role in the value-chain, noting that smaller retailers were more vulnerable than larger retailers. He observed that these small operations might not have institutional memory of a global recession, and that they might not have contingency plans for an economic downturn. I frequently advocate that smaller retailers and independent designers should be in a position to respond more rapidly than larger institutions in terms of supply and demand; a typical weakness in this stratum is the tendency to waste capital on unnecessary expenditures when business is vibrant.Lawrence said that the “big five” retailers did not make up 50% of retail sales, as there is a large informal sector that is unaccounted for. He observed that price is not the only factor governing support of local suppliers: retailers consider consistent quality, sustainability, capacity to supply to deadline, and clear understanding of current market dynamics. He said that most manufacturers had not “upped their game” to take advantage of geographical proximity to retailers. The discount market consists of roughly 80% of the entire market; South Africa’s demographics as linked to income distribution drive consumers to prioritise price as in their purchasing decisions. Style, colour, print type, touch/feel, and sizing are subsidiary considerations for consumers.Lawrence identified delivery delays as a serious problem for retailers seeking to buy from local suppliers, with only 63% of delivery deadlines being met. He also cited the lack of flexibility as a stumbling block, and I endorse that this is a persistent challenge faced by our designers when trying to find local CMTs; I believe that SACTWU and the Bargaining Council could play a role in identifying and facilitating linkages between designers and CMTs to relieve this. Lawrence noted that relationships with suppliers are crucial to resolving this, acknowledging that retailers sometimes place enormous strain on the value-chain and suppliers. He urged suppliers to be pragmatic in communicating to retailers about what can and cannot be done, as only through open dialogue could the flow-through in the value-chain be enhanced. I reiterated this point, saying that no time should be lost in adopting a relational approach to sustainable and supportive production in the apparel sector.John Comley, CEO of Eddels Footwear, gave an inspiring talk that tracked the success of his business. This had entailed recalibrating the company’s systems for rapid response, quality control, and flexible process. While he recognised the challenges faced by companies around wages, he felt it was inappropriate to compare South African labour conditions with the low wages paid in China: many Chinese apparel workers live on site, whereas our employees have to cover high travel expenses. Noting that the apparel and footwear sectors are labour-intensive and very crucial for both the provincial and national economy, he urged all role-players to invest in invigorating these industries.SACTWU’s Deputy General Secretary, Andrew Kriel, pointed out that these industry sectors currently employed about 200 000 people, with KZN making up about 40% of this figure. He said the industry generated some R41-billion in annual sales and that women made up nearly 70% of the workforce. The Union monitors job losses and factory closures on a daily basis, and 65 companies (24 in KZN) had closed since the onset of the economic crisis. The loss of a further 10 000 to 15 000 jobs in the clothing and textile sector can be anticipated if current economic conditions prevail. “There is no way that we can compete with a country like China which subsidises its industry,” he said, adding that the unrelenting loss of jobs is extremely detrimental to South Africa’s social fabric of the country, and that the industry’s demise cannot be contemplated. In regard to illegal imports, the Union is focusing on eradicating this scourge and is highly supportive of the actions taken by SARS and the DTI to this end.Kriel revealed a disturbing feature of the growth in apparel co-operatives, many of which have been found to be formed so that business owners can manoeuvre around registration and labour laws. He said the law will be changed to stop this abuse of labour legislation and exploitation of employees.Len Smart, ED of Natal Clothing Manufacturers Association, observed that the industry had shrunk considerably since 1994 due to the high volume of imports and the low support of local suppliers. In 1990, KZN had employed 65 000 people in the industry and roughly 55 000 of these were located in the Durban Metro; there are now 24 500 people in the Metro area, resulting from the migration of companies to non-Metro areas. A startling statistic showed that more people were employed in Lesotho’s clothing sector than in South Africa.Smart noted that buyers have continued to drive down prices. In 2000, for example, the production price demanded for a standard garment was R9.50, while the same garment in 2009 was forced to be produced at R4.50. He said that even if companies did meet the unrealistic prices demanded by buyers in the retail sector, the industry could not realise volumes in orders as labour and management were not adequately skilled to monitor and implement quick response production measures. “It is imperative for the industry to get to 60 and 70 days’ turn-around to meet the demands of retailers if we want them to buy local and if we are to compete with foreign companies,” he said.Labour is the highest cost in production, and unregistered operations in the informal sector accounts for a large sector of the industry, yet policies being formulated and implemented by the Department of Trade and Industry pertain only to registered companies. Does this not provide an incentive for companies to register and comply with the Bargaining Council standards? Smart confirmed that the issue of co-operative registration within the apparel sector was very disturbing and that in KZN, 57 companies have taken this route. Within KZN, the percentage of registered clothing firms was minuscule compared with the number of unregistered companies operating in both the formal and informal sectors.On the issue of illegal imports, Smart presented recent statistics showing that goods valued at about R16.5-billion had been imported into the country, but only R6-billion had been declared. “There are jeans coming into this country being declared for under R2.00,” he said. This problem was discussed at length, and one delegate asked Nimrod Zalk why illegal importers were not being disclosed to the industry. Zalk responded that procedures for this would need to be followed and that “even the DTI is not privy to such information.” Delegates then questioned how retailers would be able to monitor their supplier base without access to such information; there was agreement that naming these companies should be integrated into the legal process so that retailers could react appropriately to ensure that their supply chain is ethically managed.Conclusions and RecommendationsThe Summit generated significant information-sharing, which was valuable, but many of the issues have languished on the shelf of ineptitude and friction for too long. The CTFL sector will remain endangered unless the following survival tactics are deployed:The industry needs to see that there are capable people within government institutions that are responsible for implementing policies.We need to deal quickly and effectively with the abuse of legislation being perpetrated by co-operatives. The impression was that the development and creation of co-operatives was a central focus for the KZN Department of Economic Development and Tourism. We cannot afford the discord arising from government pushing for co-operative formulation, while the unions and industry see such organisations undermining the sector.There seems to be discrimination against smaller operatives that are not compliant whereas non-compliant larger companies have the capital resources to contest the Bargaining Council in the courts. There is an urgent need for the Bargaining Council and smaller CMT operatives to find the middle ground in their dispute relating to unnecessary harassment and compliance.Instead of strike action that would do more harm to the industry and their members, unions should find alternative mechanisms for dealing with their grievances.I propose that the industry unites to conduct a two-day workshop to review the issues discussed at this Summit, and other lingering problems that were not addressed during the session, so as to formulate a response plan that can be understood and implemented by all. This would indicate industry’s commitment to action, and would go some way towards obviating the current fragmented and selective approach to sectoral policy development.This Industry Indaba should also cover the following specific concerns raised by delegates at the Summit session:1. Action against illegal imports.2. Action relating to tax breaks at provincial and local level.3. Action on incentives to increase competitiveness (especially for the footwear industry).4. Sufficient representation on the KZN Advisory Council.5. Review and amend the incentives in the CTCIP relating to value, time period, and cost-sharing percentages.6. Enforce the buy-local campaign for CTFL goods at all levels of government (officials to lead the way by wearing clothing designed and made in South Africa).7. Fund the CTF clusters to the equivalent Rand values of the budget for co-ops.8. Clarify how the IDC rescue package for struggling firms will be operationalised and how it is to be integrated into the total restructuring framework for the CTFL sector.9. Immediately remove the legislative obstructions currently preventing the IDC from offering effective assistance – in other words, change the Act which is causing delays and inefficiencies; or alternatively, if this is a long and convoluted process, government should look to provide alternative funding mechanisms in the short term.10. Ensure fast-tracking of processes designed to provide rescue funding.11. Review the current tariff review process.12. Implement proposed skills development initiatives and increase the funding sources over and above the CTFL SETA contribution.13. Develop a training provision infrastructure to cope with the demands of the sector and the retrenchment package proposal by government. This specifically refers to technical skills provision, especially in textiles.14. Record and follow up on the additional issues raised by SACTWU in their submission to the Summit.[1] Trevor Bell ‘South African Regional Industrial Development Policy: Critical Issues,’ Transformation, 32 (1997), 1-30 (p.2).[2] National Productivity Institute, ‘ Summary of Findings’, Productivity of the Women’s and Girls’ Clothing Industry in South Africa (South Africa NPI, 1971)[3] Simon Roberts ‘Monetary policy Within Macroeconomic Policy: An Appraisal in the Context of Reconstruction and Development,’ Transformation, 32 (1997) 54-78 (p.55).Written and researched by Renato Palmi@ 14 August 2009