Wednesday, July 27, 2011

South African Clothing Sector Missing the Gap

SA clothing sector missing the gap

Jul 22 2011 00:00

The textile and clothing industry urgently needs "to get over this narrow-minded dispute around wages so that it can take advantage of what is taking place in China". So says Renato Palmi, a Durban-based researcher and consultant to the industry.

He says foreign companies sourcing from China have to deal with labour shortages, power-supply problems, increasing wages and longer lead times.

"Internationally, many companies are now looking at alternative suppliers," Palmi says. "This offers some opportunity for South African suppliers to capture more of the local market, but to do so the industry must operate from a platform of stability in order for its customers to have confidence in the abilities of the local apparel sector. This is not currently the case.

"If we cannot create this space the market will seek to grow its supplier base in countries such as Bangladesh, Vietnam and Cambodia, where wages are 50% to 80% lower than in China.

"But relocation to these countries is fraught with difficulty. They do not have the logistical road systems and infrastructure to meet the delivery requirements demanded by international clients. These countries have seen a spate of labour unrest and demands for wage increases. We have an opportunity to grow local demand if the stakeholders within our sector are prepared to be visionaries and implement a new discourse," Palmi says. "Overseas, unions have moved on to a much less confrontational and more integrational model, which sustains rather than destroys industries."

Palmi says the focus on the Chinese-owned factories in Newcastle is unfair -- most of the other non-compliant factories in the industry are not Chinese owned but are standing on the sidelines, often intimidated but facing the same problems as the Newcastle companies.

Many of them are CMT (cut, make and trim) factories. This means they receive materials and specifications from retailers and operate on low margins. But many retailers are now placing fewer orders with these non-compliant factories because they believe the factories may close down and their consignment materials will be trapped in insolvency situations - they therefore prefer to import more.

Currently, says Alex Liu of Newcastle's Win-Cool clothing factory, South African retailers buy only 12% to 15% of their clothing requirements from South African factories.

In the short term, Liu and a fraction of the non-compliant clothing companies (most don't want to stick their heads above the parapets) are having one last crack at extending the survival of their factories by bringing a court case against the minister of labour and the bargaining council.

The case challenges the application of the 70% to 100% minimum wage "agreement" to non-parties. They say the minister acted unlawfully and unfairly in extending minimum wages to non-parties. The case challenges the minister on the reasonableness of requiring unsustainable wages in an industry that is in rapid decline. A court date has yet to be set.

Palmi says: "Even if the bargaining council wins, it will be a hollow victory. More factories will be closed and the industry will be more fractured. The irony is that if all the factories became compliant tomorrow, it wouldn't increase output or exports or help with skills development. The whole focus is on wages and not on the sustainability of the industry."

Even as the Southern African Clothing and Textile Workers' Union (Sactwu) continues to lose members because of closures, officials can be consoled by its huge investment fund, built up from compulsory contributions by employers such as Liu.

The investment fund, started in 1993 to create new funding for the union, has grown tremendously, though its success has recently been severely tainted by the disappearance of R100-million or more in alleged crony and dishonest transactions.

The fund today controls (with a 42% share) the listed investment company HCI -- a share worth more than R450-million.

The portfolio managers of HCI have avoided investment in unionised, labour-intensive manufacturing industries in South Africa. HCI's portfolio is weighted towards media and entertainment, gaming, financial services and liquor.

It has one big investment in a South African clothing maker -- a 70% share in Seardel, the subsidiaries of which are among the "compliant companies" that earn big government subsidies. Seardel also has production facilities in Lesotho, where minimum wages are far below those Sactwu demands in South Africa.

A recent report by the Centre for Development and Enterprise states that "events in the Newcastle clothing industry should be seen as a model for a new industrial structure rather an affront to South Africa's self-image as a producer of high-value goods".

Strike fever has once again hit South Africa with fuel employees, metal and chemical workers among others promising to cripple the country's economy if their demands are not met. For more news click here.

Source: Mail & Guardian Online
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