SA clothing sector missing the gap

South Africa

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, [of The ReDress Consultancy] 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". 

Reference: The Mail and Guardian

Written by TEAGUE PAYNE

22 July 2011

An entrepreneur's fight to survive

Alex Liu's parents came from Taiwan to Newcastle in 1989 and set up a toy factory. Ten years later they invested in the Win-Cool clothing factory.

 Liu himself came to South Africa in 1993. Today he speaks English fluently and fast, but with a strong Chinese accent. The factory his parents set up was a good idea for only a short time … in the past three months Liu has been involved in three court cases against the bargaining council and the union. Like other Chinese-origin factory owners in Newcastle, he has been under tremendous pressure to say he will at least comply with the "70% to 100%" minimum-wage regime. To read the entire article click here. 

Reference: The Mail and Guardian, 22 July 2011

The great carve-up

It is the deal on which South Africa’s peaceful transition to democracy was founded, but the pact among the ANC, big business and organised labour at the heart of the post-apartheid order now ranks with corruption and mismanagement as one of the main threats to economic and social progress … the petty bourgeois unions for teachers, nurses and clerks that now dominate Cosatu are capturing an ever-larger slice of national resources because of their power in the tripartite alliance and President Jacob Zuma’s insistence on playing political defence … nowhere is this dynamic more obvious than in Newcastle, where the Southern African Clothing and Textile Workers’ Union (Sactwu) is using government to force higher wages on small firms because of worker protests. Factories have already begun to close as a result.

That Sactwu’s investment arm has shares in a heavily subsidised and protected clothing company, Seardel, which could never compete on pure economic merit, illustrates with clarity the structural conflict of interest … linked political and policy failures allow this carve-up to continue.  To read the entire article click here.  Reference: The Mail and Guardian, 22 July 2011