The start of 2009 not good for South Africa's Clothing and Textile Sector

Not even one month of 2009 has passed and South Africa's clothing and textile has been hit with companies on the brink of shutting down while an other was closed due to financial fraud.
The ongoing question about the quotas and the lack of communication from South Africa's Department of Trade and Industry in communicating if the quotas has ended or not is not helping the industry.
The one good thing is it seems that South Africa's Revenue Services is acting decisively and with intent on illegal imports. I really hope they keep up the pressure. Companies and individuals caught defrauding not only the country but the clothing and textile sector must be named, shamed, fined and jailed.

Seardel: no quick fix
Jan 28 2009 13:25
Marc Hasenfuss
Cape Town - Seardel, the clothing and textile conglomerate, "came as close to bankruptcy as one would like without going bankrupt", chairperson Johnny Copelyn told shareholders at an annual general meeting AGM on Wednesday morning.
Late last year, Hosken Consolidated Investments (HCI) charged to the rescue of debt-laden Seardel by underwriting a R300m rescue rights issue. HCI's R250m participation in the rights issue (pitched at 50c/share) saw the empowerment investor taking control of Seardel.
Responding to questions from shareholder Allan Groll (a well-known Cape Town property personality), Copelyn stressed there was no quick fix for Seardel - which notched up huge operating losses in the year to end June 2008.
He conceded that the weakening in the rand against major currencies could help, but cautioned shareholders around expecting too much of an improvement at Seardel in the short term.
Copelyn did, however, sound an optimistic note around fashion retailers warming to the calls to buy more local merchandise.
"There's been a lot more openness by retailers to local clothing suppliers than when the rand was trading at around R6 to the dollar."
Seardel did not provide a detailed trading update to shareholders at the AGM as the group is in a closed period. A trading update is expected to be published shortly.
But Copelyn noted: "This company was in a very serious hole. To turn the company around it needs the financial support that it now has, as well as a certain amount of luck."
He said the turnaround also required Seardel to introduce highly skilled industrial engineers into the group to ensure operations used modern business techniques.
Fin24.com

SARS seizes huge haul of illicit imports
28/1/09
By Mathabo le Roux
THE South African Revenue Service (SARS) has confiscated more than 100 tons of clothing imports since the mid-December launch of a customs crackdown on goods imported illegally from the Far East. The value of the goods has not yet been established .
This seizure was in addition to 60 tons of goods confiscated in Sasolburg and the contents of an entire warehouse in Cape Town, seized at the start of the campaign .
It is understood that SARS has also made a “significant discovery of criminal intent” by a long- established agent in the industry.
The activity allegedly involved the illegal import of apparel from China that ended up on the shelves of major listed companies. Arrests are imminent in Durban and Cape Town, a source close to the investigation told Business Day.
Moreover, a SARS official has confirmed that SARS is looking into allegations that the buyers of certain listed retailers travel to the East with import agents, identify line items and leave it up to agents to import goods at predetermined prices, thereby putting pressure on importers to bypass import duties through under-invoicing.
SARS has apparently also unearthed evidence of the fraudulent use of duty credit certificates and is investigating importers in both KwaZulu-Natal and Western Cape. The duty credit certificate scheme is an incentive programme available to the industry that compensates exporters with rebates on import duty.
SARS launched its customs crackdown at the end of last year, and in a letter dated December 15 informed shipping companies of its plan to curb “noncompliance” through targeted interventions.
Since the launch of the campaign, customs monitoring has increased markedly, a shipping company confirmed on condition it was not named. Whereas an insignificant 2%-3% of consignments were checked by customs officials in the past, up to 15% of consignments are now examined.
This is bumping up costs by as much as R10000-R12000 a shipment, or up to R84000 a month — and increasing lead times on delivery by a week on average, the company said. These costs were passed on to importers and, ultimately, to consumers.
Another shipping firm, Saf- marine, also said it was aware that the cargo of several of its customers — notably those importing garments from the East — had been subjected to increased customs inspections. However, the shipping service between SA and the Far East had not been affected, as import cargo was inspected only once it had already been discharged from vessels, spokeswoman Debbie Owens said.
The customs crackdown resulted from the discovery of large-scale under-invoicing of imports that suggested fraud was being committed when clothing was imported from China to SA.Trade statistics showed that textiles and apparel worth R15,3bn were exported from China to SA last year. However, invoices reflected imports worth only R6,1bn, representing a 60% shortfall in invoicing, the trade and industry department said at the end of last year.

Rugby teams lose their shirt makers
With only six weeks to the start of the Super 14, the Lions and the Cheetahs have started to look at possible new kit sponsors following the shock news of the voluntary liquidation of the South African arm of apparel supplier Canterbury SA yesterday.
Empowerment company Brimstone manufactures kit for the Super 14 and Springboks under Fifth Element Marketing (Pty) Ltd — a clothing design and wholesale business that owns fashion and sportswear supplier Canterbury International SA (Pty) Ltd, plus surf wear and fashion brand, O’Neill SA.
Canterbury SA is also the kit supplier to the Sharks and the popular Varsity Cup competition, and its sudden collapse has left top rugby officials reeling.
“We have already received a substantial bulk of our supply and merchandise, but there is still a lot outstanding,” Free State president Harold Verster told The Times.
“We’re investigating our position, but we have a number of other kit suppliers who are willing to take over our account.
“Canterbury, though, have assured us that they will stick with us and help us out. It’s very uncertain at this stage, but they’re having board meetings over the next few days and there will be clarity soon .”
Lions president Jannie Ferreira said the collapse of Canterbury could cost his union about R2m.
“We’ve been pushing hard to get our playing kit over the past three weeks and we have received most of it,” Ferreira said. “But the fact of the matter is we are now waiting to see if the kit will be released, or whether they are going to stop manufacturing and delivering immediately.
“We are in limbo, but we have immediately embarked on looking for an alternative apparel sponsor. It’s still early days; some companies have shown interest.”
The Varsity Cup is due to start next week and could be seriously affected, as Canterbury supplies the competing teams. Most haven’t received a single item yet.
“We are currently investigating how this situation might affect us,” Varsity Cup managing director Duitser Bosman said.
The SA Rugby Union took a similar approach and said they would wait for the outcome of a Canterbury board meeting .
Should the Cheetahs and Lions secure a new sponsor before the Super 14 starts, it could raise some logistical issues over registering the playing strip in time for promotional material to be made .
“ I cannot see Sanzar turning us down if we need to change the strip slightly at this late stage,” Ferreira said. “We don’t intend deviating from our playing colours .”
Brimstone’s clothing manufacturing subsidiary, the House of Monatic, under which Fifth Element’s marketing falls, is apparently the target of an SA Revenue Service investigation into financial irregularities.
By: Craig Ray
The Times
29/1/09

Brimstone to liquidate subsidiary
Jan 27 2009 21:15
Marc Hasenfuss
Cape Town - Empowerment giant Brimstone Investment Corporation has applied to place its clothing brands subsidiary, Fifth Element, into liquidation.
In a statement released on Tuesday evening, Brimstone confirmed Fifth Element Marketing (Pty) Ltd - the clothing design and wholesale business which owns fashion and sportswear supplier Canterbury International SA (Pty) Ltd and surf wear and fashion brand, O'Neill SA.
Canterbury International owns the licensing rights to manufacture Canterbury sportswear, including the Springbok rugby jersey and jerseys for a variety of Super 14 and provincial rugby teams.
The liquidation of Fifth Element is a major setback for Brimstone, which was looking to build a fashion brand house around its 100% clothing-manufacturing subsidiary House of Monatic.
Brimstone initially acquired a 51% stake in Fifth Element in 2006 and recently upped its stake to 100%.
No alternative
Brimstone said evidence of possible financial irregularities perpetrated in the business were recently uncovered during an ongoing co-operative investigation by House of Monatic and the South African Revenue Services (SARS).
House of Monatic CEO Iqbal Khan said these irregularities could have been the cause of the current financial position in Fifth Element's liabilities exceeded its assets.
"House of Monatic has therefore been left with no alternative but to liquidate the entities concerned."
Khan said the findings of House of Monatic's preliminary investigations were of such a serious nature that the company needed to act firmly and responsibly.
Fifth Element, O'Neill and Canterbury collectively generated turnover of around R100m.
Khan said it was difficult to quantify the irregularities at the moment. "We have appointed a firm of forensic attorneys to pinpoint exactly where the possible irregularities lie in the businesses. It should not be too long before their preliminary findings are released."
Khan believed the wind down of the business would not have a material financial impact on the Brimstone balance sheet.
"Of concern, though, to the holding company are the impact and potential job losses to employees of Fifth Element and its subsidiaries. House of Monatic is actively seeking ways in which these jobs could potentially be saved."
Regarding the manufacturing of the Canterbury rugby jerseys, Khan said the position had been explained to Canterbury International.
"They will be holding a board meeting tomorrow, and then gives us their decision. They could opt to give the manufacturing licence to another manufacturer; or offer it to us again."
He stressed House of Monatic's day-to-day operations would not be affected by developments.
"Our manufacturing arm in Parow, that was being set up as a dedicated sportswear manufacturer - will lose a key customer though."
Khan said although the action would impact Brimstone's aspirations to build a fashion brand-house the company would refocus its energies on building the capabilities and growing the brands within House of Monatic.
"It has not diminished our mission of realising our values of being profitable, empowering and to have a positive social impact over the longer-term."
- Fin24.com


Brimstone hits back at DA
May 20 2008 10:07
Michael Hamlyn
Cape Town - Directors of Brimstone, the Cape Town based black empowerment investment company, hit back on Monday evening at Robin Carlisle of the Democratic Alliance, who earlier this month made a series of allegations about the way the company acquired Novell, a clothing company in Atlantis.
"No good deed goes unpunished," said Fred Robertson, a founder and executive deputy chairman of the company. He insisted that Brimstone had taken over the moribund clothing company as part of his firm's social and civic duty to save jobs in what would otherwise be an economic wasteland.
"We did that good deed, and we have been punished for it," he told Monday's annual shareholder meeting.
He said the company would like to debate with Carlisle, a Western Cape legislator, who raised vociferous objection to the sale.
Transaction fails to comply with law
The DA man drew attention to the report by the auditor general on the sale, in which he said the Western Cape investment and trade promotion agency (Wesgro), which bought the company from its foreign investors in order to prevent them from closing it, sold it to Brimstone in a transaction which failed to comply with applicable laws and which netted a loss which Carlisle put at R21m.
He said the provincial government had "unlawfully handed over to Brimstone R21m of taxpayers' money".
"We invited Mr Carlisle to be here tonight," Robertson told the shareholders. "But he has chosen not to pitch."
The board - unusually for a commercial company - was given backing from the floor by Tony Ehrenreich, Cosatu's provincial leader. He praised the "right course" the company took in relation to Novell and urged the directors to continue the good work and disregard what Carlisle was saying.
The ANC in business
Brimstone, however, is an unusual company. If the Church of England in Britain could be described as "the Tory Party at prayer", Brimstone could perhaps be described as the ANC in business.
Its chairman is Jakes Grewel, Nelson Mandela's cabinet secretary. Its directors include Yousuf Pahad, chairman of Wesgro, Alan Roberts, an adviser to premier Ebrahim Rasool and Mzwandile Hewu, head of the provincial department of social services and former manager of the ANC in parliament.
The latter two were re-elected to the board on Monday. Olive Shisana, former director general of the national department of health, was also elected to the board for the first time.
Present at Monday evening's AGM was Wallace Mgoqi, former Cape Town manager, who was removed from office with great difficulty when the DA took over the last year.
A letter to the Cape Times on Monday morning put the director's point of view on the sale and purchase of the factory. Takula Tapela wrote that having been prevailed upon by the workers and believing in their potential to break even, House of Monatic - a wholly owned subsidiary of Brimstone - made the offer to Wesgro based on the estimated value of the assets less the expected future losses.
"A valuation on the property was done at the time in an attempt to mortgage it and raise working capital, but no bank was willing to lend even a fraction of the property value as the factory is purpose-built and financial institutions did not believe that the business-purpose would be able to support the debt," Tapela said.
Shareholders at the AGM also heard that the profits for the year reported by the company were down on the previous year - a fact Mustaq Brey, the chief executive, explained as having been due to the previous year being counted over 21 months, thanks to the switch of the new international financial reporting standard.
They were however pleased to endorse the payment of a dividend which was double the previous year's.
- I-Net Bridge

South Africa's clothing and textile policy is a stitch-up

Have the quotas on Chinese imports been lifted or not? It seems that South Africa's Department of Trade and Industry is incapable of communicating a simple message to the industry. South Africa's apparel sector says the cheap Chinese imports are the fundamental cause for job losses and market loss. I think we should also add the incompetence of the Department of Trade and Industry as a reason for this shambolic situation.

In December 2008, Trade and Industry Director-General Tshediso Matona said there had been no "formal application [for an extension] by one of the stakeholders … [therefore] the quotas would terminate at the end of the month." However he did leave open a door by indicating that the Department of Trade and Industry could "enfor[ce] an extension through a bilateral agreement."[1] There were rumours in the industry that government would come to some bilateral agreement with China to extend the quotas. Extension or no extension is not going to make any difference to the South African apparel industry.

On January 2, 2009, a news paper report indicated that the quotas had been lifted. "The Department of Trade and Industry chose not to renew restrictions on imports of Chinese clothing and textiles which had been in place since late 2006 and were no longer in effect as of yesterday."[2]

We are now informed that there has been no decision from the Department of Trade and Industry to lift or extend the quotas[3]. A month has nearly gone since the quotas were officially to end. What does this mean? Are the quotas still in place or not? Here we have the same department contradicting themselves. In December the Trade and Industry Director-General said the quotas would end on 1 January 2009, twenty-three days later the same department cannot clarify anything.

The Department of Trade and Industry must communicate decisively in a clear and in an unambiguous way a simple message. The quotas on Chinese imports are lifted or not. If they are not and there are secret negotiations taking place with the Chinese to extend the quotas due to pressure from Cosatu and the South African Clothing and Textile Union (remember this is an election year for South Africa) hence the inability for government to clarify their position on the quotas they must say so.
Fore more on the quota debate click here

Written by Renato Palmi

[1] Business Day "Concern as Chinese clothing quotas expire" 4 Dec 08
[2] The Mercury "Quotas on China imports lifted" 2 Jan 09
[3] Fin 24.com " Textile quotas hurt business" 23 Jan 09

Cheaper not better

Chinese shops selling everything from t-shirts to shoes are not uncommon in the South African retail landscape, they offer you a pair of look-a-like Nike's at half the price and a fake Puma cap to go with your shoes at even less. The untrained eye wouldn't be able to spot the difference right away, but on closer inspection you would notice the spelling mistakes in the name (to avoid legal action) and the poor quality of workmanship.
It is true that we all love a bargain, there is nothing wrong with that, but when your bargain takes away from the local economy it becomes a problem. Smaller textile companies had to close down and it has left more than 60 000 people without jobs since 2005.
Ever since South Africa imposed restrictions on imports from the Chinese markets in 2006, not much has changed. Evidence even suggests that the crisis has deepened, this in part due to the general economic down turn.
A recent study done by Professor Mike Morris and Lyn Reed of the School of Economics at the University of Cape Town found that although the sanctions have caused a slight decrease in the Chinese imports, it also caused some industry players to import from countries that offer merchandise at even cheaper.
During 2007, Renato Palmi - a researcher and development specialist in the clothing, textile and fashion sector, undertook research for the Durban Fashion Council and stumbled upon some shocking rumours. These rumours cannot be confirmed as true but in interviews done with retailers in the Durban area they admitted that they know of other companies buying Chinese imports and rerouting them through India, were a 'made in India' label is added and a button or collar. However, these rumours are hard to prove as mentioned earlier.
Chinese imports are still flooding in from our neighbours as they do not have any trade agreements with China, customs is trying to stop these garments coming in through the borders, but to be really effective it has to be stopped at the source.
Two years have passed since the trade agreement was set in motion and it has run a substantial part of its lifetime without achieving any of its purported aims. How long will it take for the Department of Trade and Industry to acknowledge this and try and rectify it?
Written by Annali Smith
Published: ie Driven by Design
Dec 08 –Feb 09

Schools uniforms need to be cooler

South Africa
THEY may be completely unsuitable for our climates, but South African schools are still holding on to the English blazer and tie uniform model adopted sometime in the 19th century. Omeshnie Naidoo takes a look at some alternatives.

PARENTS are feeling the pinch this year as the cost of school uniforms and other back-to-school gear takes a huge chunk out of household budgets already under strain in a tough economic climate.From uniforms to sports gear, the shoes, the bags, books and badges, school kits require cash. Some uniforms are so elaborate that one wonders if it's worth it in a climate where children would prefer wearing as little as possible.Although in 2006 the South African government promulgated into policy (Notice 173 of 2006) the National Guidelines on School Uniforms with the aim of making uniforms more affordable for the wider South African populace, the implementation of the guidelines has not resulted in more affordable school uniforms.
This is according to a survey undertaken in 2007 by the Alliance for Children's Entitlement to Social Security. According to the report by the alliance kitting out a pupil then would costR2 000 at Grade 1 level. Some of the parents we chatted to this year spent far more.Kim Snowball, whose daughter Demi is in Grade 8 at Maris Stella, joked that the uniform costs were reasonable in comparison with the school fees. She paid R180 per dress. However, she said one has to look at it in perspective as the dresses were worn the whole year. Snowball said she didn't mind paying for something that her daughter was comfortable in, but she would prefer to buy sandals for her daughter in summer instead of the prescribed socks and shoes.
Thuh Ndaba, whose daughter Nompilo is in Grade 6 at Newcastle Senior Primary, said there were many unnecessary items in her daughter's school uniform. She said it was compulsory for her daughter to wear a blazer to school everyday and that, above all else, it was the comfort factor she was concerned about as summer temperatures soared.Adding another dimension was Rajen Arumugan, whose son Volan has to wear basic grey pants and a white shirt to school. "Even if last year's item is fine, our children want new things to wear to school and they want brands as well. If the school requires black shoes you know they're going to ask for a costly label. There is an element of competition because children want to be in style, even in school."

Fashion consultant Renato Palmi said streamlining the style of school uniforms will help cut costs and ensure comfort.. He said, "It will have positive spin-offs for poorer communities and households as well as positive outcomes for the local design and apparel manufacturing sector." Palmi's suggestion is a standard design and style of school uniforms which will have the individual school's emblem on each item. The emblem would be detachable so that it would eradicate the need to buy a new set of uniforms if the pupil changed schools."

Larger South African retailers have also come out in support of a standard school uniform. Ackermans, Edcon Group, PEP, Pick n Pay, Checkers and Woolworths said they would support a customised SA school uniform. Such support by the retailers can only have positive implications for the clothing industry," says Palmi.Prestigious schools are bound to be the most reluctant to give in to the idea.

Lynne Neilson, marketing director for Durban Girl's College, said they already have a comfortable uniform, having taken into consideration. the school environment.. She said the school's uniform, which includes v-neck dresses and floppy hats, was designed for Durban's climate. "The idea of the exact same uniform for all schools is bound to come into contention with the notion of a school's identity as a school retains its distinctiveness by retaining its uniform," said Neilson.

Pauline Rosseau, principal at Maris Stella, said a common uniform for all schools would take away those schools' identities. `A sense of belonging is a very real need in society and uniforms offer that to our pupils. It is important for us to maintain a tradition of 110 years and it's something we live and is instantly visible in the attire of our pupils.""A distinctive uniform also helps the school with discipline as we are able to identify our pupils. I think when people see a child in uniform they associate that child's behaviour with the school and find themselves judging the school. It's important that our pupils understand that responsibility."

Rosseau said they have a privately run shop on the school premises and are constantly negotiating for good prices. She said comfort was factored in as red dresses in summer were worn only with blazers from May to August. While girls wear short white socks and black shoes for now, on the agenda - particularly for the younger set - were sandals in summer.

A school that has shifted away from traditional uniforms is Crawford College. "It's about comfort," said Crawford's marketing manager David Shevil. "We don't have blazers and ties. The basic uniform is black jeans and white golf shirts with the Crawford badge on. There are guidelines, but the uniform is not rigid. The belief behind it is really that we want children to enjoy getting dressed for school and they are able to learn and study because they look and feel relaxed. The last thing we would want is for them to be resentful of an elaborate uniform."

We asked fashion students at Linea Academy in Mayville for their ideas. Suheena Singh made a valid point that Durban and other parts of KwaZulu-Natal experience humidity and high temperatures uncommon to the rest of the country and therefore our uniform should be common to the province."Stuffy neck ties, formal blazers and confining button-up shirts are symbols of an era that has long passed. "We can maintain the look of neatness and order by updating fabrics and cuts, for example children could wear lightweight, semi-lined jackets in water proof fabrics instead of a blazers and pumps for girls instead of socks and shoes. Fabrics should be cotton blends as natural fibres absorb perspiration and aid in cooling the body"

Singh suggested ditching the one piece dress for cotton culottes suitable for the classroom and the sports field as well as elastic and velcro fastening around the waist so uniforms may be worn for longer.Stephanie Bax suggested a unisex sandal for summer as well as similar uniforms for boys and girls as well as round neck, capped sleeve shirts with khaki shorts that are loose-fitting to accommodate all body shapes. The fashion students ideas are proof that there is room for improvement, but also that there is far more than one way of looking at things.

THE Mercury: January 19, 2009

China's Clothing and Textile Sector Hurts

South Africa
It seems that the great Chinese dragon[1] is wounded and its shadow over the global apparel and textile industries (T & A) has diminished albeit only slightly. Injured in the collective repercussions of the economic turmoil the world is experiencing it will retreat, develop new strategies and incentives to reappear once again in the hope of retaking through its new found power and manipulation diminished markets to feed its nation and avert any social unrest due to massive job losses in its export orientated industries.[2]

The Chinese National Bureau of Statistics reflects a decline in its textile profit for 2008 by nearly 2% compared to the same period for 2007. According to statistical data this is the first time the industry has show a negative profit growth in ten years. A collective decrease in garment and textile exports had dropped by 30%.[3] A Reuters report in January 2009 stated "Chinese factories [had] slashed output and workers at a record pace in December 2008."

In 2007 exports in textile and apparel reached US$171.17 Billion. The same report states factory output grew just under 6% from January to November 2008 and that the Chinese economy is close to "technical recession." [4] Further statistics reflect a down-turn in China's textile and apparel market showing that the mighty dragon is hurting. Between January to February 2008 production of "large-scale textile enterprises" was 16.55% an 8.05 percentage point loss for the same month in 2007. For the first ten months of 2008 total textile production was 14.73% the "sharpest contraction in five year."

Textile and garment exports between January to October 2008 were $157.413 billion a growth of 8.43% which is 12.09% lower than 2007. Textile exports for the same period Jan-Oct 2008 was $59.146 billion an increase of 2.94% from 2007 while garment exports dropped by 20.1 % for the same period equating to $98.267 billion.[5] While the global market is in a slum many textile and garment businesses in China have begun to look inward with domestic sales equating to 76.50% of China's total textile sales.

The depreciation of China's Renminbi is an added burden on the industry so is the increased cost in labour.[6] In response the Chinese government has lifted the tax rebate for both textiles and clothing enterprises twice during 2008 from 11% to 14%. It is expected the clothing export tax rebate of 17% will come into effect early this year. China will also be implementing numerous policies to reinvigorate the textile sector such as technical innovation in the early part of 2009. Industry trade specialist say the first half of 2009 will be a critical period for the textile and clothing sector to regroup. These industries will be looking for alternative markets. At the moment the sector is still very dependent on America the European Union and Japan for exports[7].

A study of the operating margin of textile operations in China indicates that two-thirds of textile companies operate on a 0.62% margin and have a direct influence on the livelihood of 15 million people. It is estimated that there are more than 20 million workers in the (C & T) industry sectors with 13 million rural migrant workers making up the bulk of the labour force. The China National Textile and Apparel Council (CNTAC) is extremely concerned about factory closures, and the ability to absorb job losses mostly among the migrant workers.[8] Official figures in 2008 indicate that there are 40,000 textile companies in China with annual sales higher than US$660.000 and there are hundreds of thousands of smaller operations.[9]

Like South Africa the US is also concerned about the possible re-flooding of apparel imports as certain quota limitations have also expired. The American apparel industry faces a threat of more job losses at a time when America cannot afford such retrenchments. In 2005 when China flooded the market nearly 55,000 jobs were lost in one year. The Chief Executive Director of the American Manufacturing Trade Action Coalition said the industry could face another 50,000 lost jobs during 2009. Between 2002 and 2008 there was a 33% "decrease in textile and apparel jobs."[10] American manufacturers said that the industry has recalibrated to compete on an even footing with China considering their low wages but could not compete when the Chinese government subsidises the industry to such an extent that China can "sell finished products for less than the fibre costs in the US."

While the Chinese dragon is licking its wounds the textile and clothing industry in Vietnam has grown. In 2007 the Vietnam industry grew by 33.4% to become in 2008 the USA's second largest foreign suppliers of textiles and clothing. China still maintains their position of the largest exporter to America. Exports from Vietnam to the European Union have also grown. In the first six months of 2008 exports to the EU grew by 8.4%. Chinese exports to the EU during the same period increased by 5.1%.

The Indonesian market saw a moderate increase in exports during the first six months of 2008, with domestic demand growing. The Malaysian textile and clothing industry saw a 3.2% decrease in 2007 while the Philippines faced heavy competition from China. Thailand's industry grew during the same period during 2008 in comparison to the same period for 2007. Bangladesh clothing exports for the financial year 2007-June 2008 rose by 16.2% and India's textile exports saw a 16.7% increase between 2007/08 while clothing exports only grew by 6.8%. The industry in Sri Lanka saw an increase of 8.5% in exports. In 2007 global fibre production increased by 6.0% the growth rate stemmed from an 8.5% increase in global man-made fibre mostly from China and India. Natural fibres saw a 2.6% growth during 2007.[11]

During the period of South Africa's quotas on Chinese imports[12] Mauritius, Malaysia and Bangladesh increased their exports to South Africa by at least 345%, 680% and 2076% respectively. Imports from Vietnam equated to 388%, Thailand by 39% and [13]Myanmar 197%.[14] The now open South African market could result in a mini trade war between China wanting to recapture market loss during the quota period and some of the countries who gained market share during the same period. The result may see even cheaper clothing enter South Africa of which South African cash-strapped consumers will benefit at the detriment of the local clothing and textile sector as South African retailers exploit the competition between foreign apparel and textile suppliers.

Written by Renato Palmi

[1] The Chinese dragon is recognised as a powerful symbol of auspicious power.
[2] Zhejiang Jianglong-China's largest textile dye company with four factories, 4000 employees and US$110 million in sales for 2007 closed in October 2008. In early 2008 The Wall Street Journal indicated that over 6000 Hong Kong-owned companies in China's Pearl River Delta would close during 2008.
[3] Xinhuanet January 1, 2009
[4] www.nakedcapitalism.com
[5] http://www.ccpittex.com Source: CNTEX: 6/1/09
[6] Labour Contract Law which took effective on Jan 1, 2008
[7] http://en.puworld.com/news_article.asp?ArticleID=69998700

[8] http://EzineArticles.com/?expert=Face_Zhang
[9] Ministry of Commerce of China and China National Textile and Apparel Council (CNTAC).

[10] U.S. import limits on some Chinese textiles end Thursday. By LISA ZAGAROLI ; McClatchy Newspapers.
December 29th 2008.
[11] http://www.textilesintelligence.com

[12] The quotas official ended on 31 December 2008.
[13] The industry in Myanmar and its market share in South Africa suffered due to a report by this author.
For more click here.
[14] Import figures: January 2005-2006 compared to January 2008 to June 2008. Stats calculated from
SARS and World Trade Atlas.

South African Revenue Service and Clothing/Textiles

SARS - CLOTHING & TEXTILE CAMPAIGN

A letter from SARS
The Clothing & Textile Industry in South Africa has over the past years suffered significant setbacks as a result of under valued importations, especially from the Far East, and abuse of rebate and other trade schemes. This has lead to the closing down of numerous manufacturers and traders within this industry, and sequential to this a huge number of job losses.

As much as the impact from an industry and labour perspective is serious and has reached alarming proportions, so is the effect on the economy and it is believed that significant revenue losses has harmed the fiscus due to non compliance. In an attempt to curb such non compliance, SARS Customs has embarked on a clothing and textile campaign which will result in periodical targeted interventions.

A critical decision that will impact on your compliance is that all targeted consignments will be examined at the first port of entry regardless of the place where clearance has been processed. In light of this, you are hereby advised that clearances processed at Gauteng for goods landed in Durban will be examined at Durban in the event of the consignment being stopped.

You are duly advised to ensure that these stopped consignments are placed in a Durban depot for examination by the Durban Team. The Durban office will facilitate the movement of all documents with the Gauteng offices. In the event that stopped consignments are removed without the examination being conducted in Durban, you are hereby advised that such consignment will be required to be returned to Durban for the exam. This will also apply for rail consignments.

15 December 2008
Enquiries
Ashika Pillay (Customs) /
Patrick Tshikosi
Telephone
(031) 328 7000/
(011) 225 9000


Comments on SARS actions by Mark Bennett
While there is a need to stop smuggling of textile and apparel goods, stopping containers for inspection it may disrupt factory production – especially if it is demanded that a container wait in Durban (or the port where it first entered the Customs Union) for inspection for a considerable period of time! Extensive delays in inspecting containers which contain fabrics (and trims) could result in many workers being placed on short time as their factories wait for and this would result in them losing substantial amounts of pay. In worst case scenarios delays in getting fabrics will result in delays in getting orders made-up which may result in delays in finished goods being received by the US/EU based retailer or brand – this may lead to orders being cancelled or the retailer dropping Southern Africa as a destination from which to source goods (causing job loss).

I do not know what the implications will be for containers of fabrics and trims destined for Lesotho, or Swaziland or Botswana which may get stopped for inspection. But I should imagine that they may get stopped too. I have a fear that SARS may could adopt a rather pedantic approach to inspections and may look for minor discrepancies between what the documentation accompanying the container states and what is in the container. I have heard that SARS may be fining some companies who are transiting goods through the SA for export to destinations outside of SACU on the basis that documentation states that there will be 1 500 boxes in a consignment (in a container) and they find that that there are 1 502 boxes.

If goods consigned to the BLNS are affected it will be necessary for your local Revenue Authority to ask SARS as to how long these inspections may take – and to get an undertaking from SARS that inspection times will be kept to a minimum. SARS should be asked to allocate significant additional human resources so that containers can be expeditiously unpacked and then repacked and then sent on their way.
Mark Bennett
Southern African Trade & Industry Specialist


Information from SARS
Duties that are levied on imported goods
Three kinds of duties are levied on imported goods:
customs duties (including additional ad valorem duties on certain luxury or non-essential items);
anti-dumping and countervailing duties; and VAT (which is also collected on goods imported and cleared for home consumption).
Customs duty
Customs duty is levied on imported goods and is usually calculated as a percentage on the value of the goods (set in the schedules to the Customs and Excise Act). However meat, fish, tea, certain textile products and certain firearms attract rates of duty calculated either as a percentage of the value or as cents per unit (for example, per kilogram or metre). Additional ad valorem customs duties are levied on a wide range of luxury or non-essential items such as perfumes, firearms and arcade games.
For more see the Reference guide to ad valorem excise duty.
Anti-dumping and countervailing duty
Anti-dumping and countervailing duties are levied:
on goods considered to be "dumped" in South Africa; and
on subsidised imported goods.
These goods are the subject of investigations into pricing and export incentives in the country of origin; the rate imposed will depend on the result of the investigations. These duties are either levied on an ad valorem basis (as a percentage of the value of the goods) or as a specific duty (as cents per unit).
The amount and type of duty imposed on a product is determined by the following main criteria:
the value of the goods (the customs value);
the volume or quantity of the goods; and
the tariff classification of the goods (the tariff heading).
Value-Added Tax
Section 7(1)(b) of the Value-Added Tax Act 89 of 1991 levies VAT at a rate of 14% on the importation of goods into South Africa from export countries - including Botswana, Lesotho, Namibia and Swaziland. However, certain goods imported into South Africa are – under Section 13(3) read with Schedule 1 - exempt from VAT on importation.
Section 13(2)(a) of the VAT Act sets the value to be placed on the importation of goods into South Africa. The value is deemed to be: the value of goods for customs duty purposes; plus any duty the Customs and Excise Act levies on the importation; plus 10% of that value.
However, Section 13(2)(b) provides that the value is not increased by the factor of 10% if the goods have their origin in Botswana, Lesotho, Namibia or Swaziland.
Determining customs values
Customs values are set by the General Agreement on Tariffs and Trade (GATT) valuation code, which involves six valuation methods.
The majority of goods are valued using method one, which is the actual price paid or payable by the buyer of the goods. The "free on board" price forms the basis for the value, but allows for certain deductions (such as interest charged on extended payment terms) and additions (such as certain royalties).
Customs officials pay particular attention to:
the relationship between the buyer and seller;
payments outside of the normal transactions (such as royalties and licence fees); and
restrictions that have been placed on the buyer.
These factors can result in the price being increased for the purpose of determining customs value, directly affecting the duty payable.
For more information see the Customs valuation guide.
Customs declarations
A declaration made to Customs on a bill of entry at the time of importation and exportation must be accurate and correct. Acceptance of the bill of entry by Customs does not mean that the information provided has been accepted as being correct.
These bills of entry and related documents must normally be retained for five years. If errors are detected by Customs - whether duties were payable or not - the Act provides for penalties of up to three times the value of the goods, in addition to the forfeiture of the goods.
Importers importing commercial goods into South Africa, and exporters exporting commercial consignments from South Africa, must register with SARS. Non-commercial consignments are, however, excluded from registration, provided that this is limited to three importations per year.
Rebates
Certain rebates, such as industrial rebates, are available on goods that meet specific criteria and have been imported for a specific industry. General rebates may apply if goods have been imported:
temporarily;
for repair;
as passengers’ baggage; or
for local manufacturing destined for the export market only.

South Africa Lifts Chinese Clothing Quotas

South Africa

It has been reported in the South African news that the controversial quotas on Chinese apparel and textile imports have been lifted. South African retailers will welcome this development whilst the South African Clothing and Textiles Union will be somewhat devastated. The union said that the quotas have helped the local industry saving jobs but these claims could not be confirmed with quantifiable data. During the course of the quota period numerous apparel companies were shut down.

The lifting of the quotas will place further pressure on our local designers and fashion industry who are trying to capture market space in an already difficult economic environment. The absolute silence from this sector of South Africa's textile and apparel industry is appalling. This sector will have no right to bemoan the renewed threat of Chinese imports or the prevailing conditions they will have to operate under as the industry restructures itself for a post-quota period.

The effects of lifting of the quotas will not be seen immediately as I do not think retailers will rush back to China as labour cost have increased. However, having said that it was reported that "profitable Chinese textile firms saw a 1.77% annual slide in profits for the first 11 months of 2008. The Reuters report said there was "concern that textile exports [from china] could fall by 30% in the first quarter of this year." Now that the quotas have been lifted China may offer various incentives for South African retailers in the hope of capturing the market they lost during the quota period.

I am certain that the debate about the "good and the bad" of the quotas will continue. In the meantime, SARS must continue to monitor illegal imports and both the suppliers and retailers must be held accountable for such behavior. The Department of Trade and Industry need to release urgently the much awaited CSP report relating to the restructuring of the industry.

For more on the debate around the quotes click here.