Chinese Factories in South Africa Shut Down Amid Wage Dispute

JOHANNESBURG — As clothing factories all over the country are shut down for noncompliance with new minimum wage directives imposed by the South African Department of Labor and the National Bargaining Council for the Clothing Industry, employers are fighting back with a lawsuit of their own. 

On Thursday, five factory owners, under the banner of the Newcastle Chinese Chamber of Commerce, filed an application with the Cape Town High Court against South Africa Minister of Labor Mildred Oliphant and the National Bargaining Council, alleging that the closures were illegal and unfair. 

The town of Newcastle, in the province of KwaZulu-Natal, has become a central focus for the clothing industry controversy. Many of the factories in Newcastle are Chinese- and Taiwanese-owned, lured to the area in the Eighties and Nineties by favorable government incentives. 

At the heart of the matter is a wage dispute. Talks between the unions, the National Bargaining Council and factory owners collapsed last year, and an April 1 deadline was imposed to compel employers to ensure that their workers were paid at least 70 percent of the minimum wage, which ranges from 489 rand to 734 rand, or $72.45 to $108.75 at current exchange, a week. The minimum wage is determined by the area in which the factory is located, whether metropolitan or nonmetropolitan. 

Citing noncompliance with the deadline, 140 factories employing close to 8,000 workers were slapped with writs ordering them to close. Another 36 factories, employing more than 1,600 people, chose to close voluntarily, claiming that they are unable to pay the minimum wages set by the government and remain viable. 

Last September, 85 of these Chinese-owned factories in Newcastle decided to cease operations following an impasse in wage negotiations. The South African Clothing and Textile Workers Union sued the factory owners, citing the closures as illegal. 

Renato Palmi, a textile industry analyst who runs the ReDress Consultancy and advises the Newcastle Chinese Chamber of Commerce, noted that apparel production on a global scale has increased but South Africa’s exports continue to dwindle. 

“We can link this to South Africa’s high unemployment figures, low productivity outputs and the misguided policy direction of collective bargaining,” Palmi said. “Newcastle and its Chinese community have become an economic experiment that could go horribly wrong for the wider community and more so for the outspoken Chinese factory owners.” 

Among the most outspoken of these factory owners is Alex Liu, chairman of the Newcastle Chinese Chamber of Commerce, who has insisted that with profits “already nearly nothing,” paying the minimum wage as mandated by the government in consultation with the unions and the National Bargaining Council was simply unaffordable. 

In an interview Thursday, Liu said, “The National Bargaining Council sent a sheriff to do inventory on four factories this morning. We don’t know what will happen after this, whether the factories will be forced to close or not.” 

According to Statistics SA, South African imports of clothing, textile, leather and footwear products increased 435 percent in dollar terms between 2002 and 2009. Yet South Africa’s clothing exports decreased 65 percent in the same period. 

Leon Deetlefs, national compliance manager for the NBC, said of the application filed by the Newcastle group, “We are co-respondents and we will be defending it.” He insisted that the Newcastle employers were not being singled out at all. 

As to allegations that the closures had no legal basis, Deetlefs said, “The NBC represents the majority of the clothing industry and reached an agreement with industry players, from unions representing the employees to associations representing the interests of the employers, and the minimum wage recommendations were sent to the Labor Minister for review. Once these have been published by the minister in the Government Gazette, they become law, and everybody must comply with it. In fact, the April 1 deadline for compliance gave everyone ample time to make the necessary wage adjustments, as well as pay outstanding levies.”

Reference by Bambina Wise

 Friday June 24, 2011

From WWD Issue 06/24/2011

WWD Copyright ©2010 Fairchild Fashion Group. All rights reserved.

South Africa
The Redress Consultancy comments:
Note the contradictions. Sactwu supports the closures because non-compliant companies create unfair competition. Amsa, that represents mostly larger compliant companies says most smaller companies cannot afford proposed wage increases nor the compliance regulations.  It seems the union has no interest in the loss of jobs as long as they continue with their drive to close down trouble makers.

Over 4,600 jobs lost after textile shutdowns

More than 4,600 workers in the clothing industry have lost their jobs since the National Bargaining Council started shutting factories after a deadline on minimum wages in April.

Factories have to comply with a December agreement that owners pay at least 70% of minimum wages from March. Factories should be fully compliant by early next year. Leon Deetlefs, compliance officer for the council, said 252 non-compliant factories have been identified so far after 523 factory inspections. 

So far 37 factories employing nearly 3000 people have been shut, while writs of execution have been served on another 102.

Deetlefs said 36 factories employing 1600 people had closed voluntarily since the compliance drive started. To comply with the 70% rule, factories have to pay qualified machinists R342 a week in non-metro areas and R518 a week in metro areas. Most factory closures have taken place in Durban, Newcastle, Qwa-Qwa, Isithebe and Ladysmith. The remaining non-compliant factories will be served with writs by mid-July.


While the Bargaining Council is shutting factories for non-payment of minimum wages, Sactwu is demanding wage increases of 14% in metro areas and 18.5% in non-metro areas, to be effective from September 1.

Andre Kriel, secretary general of Sactwu, said the union "supports the bargaining council's compliance drive. Non-compliance causes job losses at law-abiding companies that pay the legal wage". 

Kriel did not want to comment on the negotiations. When asked whether the wage increase demands are affordable for the industry, Kriel said: "Absolutely. Clothing workers are the lowest-paid workers in the whole of the manufacturing sector."

Baard said it was understandable that almost half of factories inspected "cannot even get to a 70% compliance level"." Factories cannot afford that, because we know what the retail price points are. If you pay wages above a particular level, you don't have a business." The industry body has said that a wage cut of about 30% is needed to ensure the industry remains sustainable. It also proposed a lower entry-wage for new employees, while other factory owners have asked for output-related pay to encourage productivity. Johann Baard, executive director of the Apparel Manufacturers of SA, which represents mostly large clothing manufacturers, said wage negotiations are continuing. 


The applicants argue that it is unconstitutional to extend Bargaining Council wage agreements to the applicants, who are not party to the wage negotiations. A group of five clothing factories from Newcastle and the United Clothing and Textiles Association has taken labour minister Mildred Oliphant and the Bargaining Council to court in Pietermaritzburg to fight the minimum wage rules. Only compliant companies can become members of the council, and membership fees are often unaffordable for small businesses. Oliphant and the council have yet to file opposing papers.

Reference; The Sunday Times, 26 June 2011

Did Sactwu know about pension funds?

South Africa

Yesterday, The Redress Consultancy established that the deputy general secretary of the clothing union Sactwu was one of the trustees of the dubious 2007 investment of  R420 million of pension funds belonging to members of the Southern African Clothing and Textile Workers’ Union (Sactwu). This has just being confirmed by the Mail & Guardian.

In a document addressed to members and employers, which, is titled “Textile Industry Provident Fund: Update on Fund Investments,” the deputy general secretary of the union is cited as a trustee. The letter to members and employers which is signed by the Chairman of Trustees has been written to, “clarify the Fund’s position on this matter, the action the Fund and its Trustees are taking to address the potential losses and also to clarify certain misconceptions that have been created by some of the press reports.”

In a recent report, [1]the general secretary of Sactwu stated, “Pension fund trustees took the decision about where to invest the money, not Sactwu.”  However, a report in today’s Mail & Guardian, [2] it was confirmed that the “spotlight had also fallen on Sactwu deputy general secretary Wayne van der Rheede,” as being the “principal officer of the Textile and Allied Workers’ provident Fund, one of the affected provident funds.” 

The article says union staff claimed that Van der Rheede had “not alter[ted] them to any problems or risky investment.”

In the same article Sactwu’s  general secretary said the union could not be held responsible … as investment “decisions were taken by the funds’ board of trustees [and] union structures were never party to the discussion on how they had reached these decisions.”   

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[1] “Murky Sactwu pension deal probed,” Mail & Guardian, 3 June 2011

[2] “Fears that pension fund consultant may flee,” Mail & Guardian, 24 June 2011

The Newcastle Clothing Uprising is an economic experiment

South Africa

Apparel production on a global scale has increased but South Africa’s exports dwindle. We can link this to South Africa’s high unemployment figures, low productivity outputs and the misguided policy direction of collective bargaining.

South African imports of Clothing, Textile, Leather and Footwear products have increased by 425% in US Dollar terms between the years 2002 and 2009 (Sats SA), South Africa’s clothing exports decreased by a whopping 65% in 2009 compared to 2002 figures.

South Africa’s clothing sector has the potential to absorb much needed employment, but its potential is being eroded, in-fact it is being decimated by the union who has taken the Newcastle Clothing Industry Uprising personally and will do everything in its power to crush the instigators.  Even though economist and labour market analysts are watching Newcastle, and seeing it as a potential to change the labour paradigm, Newcastle and its Chinese community have become an economic experiment that could go horribly wrong for both the wider community and more so for the outspoken Chinese factory owners.

Global Apparel Production

Global apparel production has grown by 6% in the first quarter of 2011 according to a report by UNIDO. Output in wearing apparel increased in developing countries by 12.8% compared to last year, whilst industrial countries output for the same product fell by 4.7%.  Global textile output was only 6.12%. Developing countries saw a 7.45% growth and developed countries only 3.4%. The report does not mention South Africa.

Global Manufacturing Output

The major contributor to the manufacturing output growth for developing countries was China. It’s output for the same period increased by 15%.

Turkey had a growth of 13.8%, Mexico 7.4% and India increased its manufacturing production output by 5.1%. Most European countries saw growth, whereas Greece saw a negative growth of 6.9%.  North Africa had negative growth.

Consumption in the global apparel industry is highly concentrated in three main regions: the United States, the European Union, and Japan. In 2008, the European Union (EU-27, including intra-EU-27 trade) accounted for nearly half (47.3%) of total world apparel imports of US$ 376 billion, while the United States accounted for 22%, Japan for 6.9%, and the Russian Federation for 5.7%.

Together, the United States, the EU-27, and Japan represented over three-quarters of world apparel imports in 2008, which is down from the 82.4% they accounted for in 1995. Particularly notable is the steady decline in the U.S. share of global apparel imports, which fell from a peak of 32.1% in 2000 to 22% in 2008, and Japan’s drop from 11.5% in 1995 to 6.9% in 2008.

By the end of 2009, the economic recession that hit the apparel retail markets of all the advanced industrial countries had rippled throughout the supply chain in developing economies as well. A striking trend is that the largest low-cost apparel producers in the developing world, such as China, India, Bangladesh, and Vietnam, have actually managed to increase their export shares in major global markets. This may reflect a substitution effect of the economic recession, in which the lowest cost suppliers gain market share vis-à-vis more expensive rivals.

China is the clear winner by far in the global apparel export race during the past 15 years. Between 1995 and 2008, China more than doubled its share of global apparel exports from 15.2% to 33.2 %, and it had a fivefold increase in the value of its apparel exports, from $24 billion to $120 billion. Other than the EU-27, which includes intra-European Union trade, the next six apparel exporters combined (Turkey, Bangladesh, India, Vietnam, Indonesia, and Mexico) account for less than half (15.4%) of China’s export total in 2008.[1]

South Africa

South Africa is facing an unemployment crisis.  According to a new report[2]  the number of unemployed is in the region of 25% or 41% of the population between 16 and 64 have “any kind of job,” either in the formal or informal economy.  This is 30 percentage points lower than China and 25 points lower than countries such Brazil and Indonesia.  The report says for South Africa to get to an employment rate of 60% nearly 19 million jobs would have to be created. It is estimated the South Africa’s economy would need to grow by 7 percent a year for the next 15 years if it were to raise employment figures to international levels.  

Economic growth over the past 10 years has been heavily reliant on government spending, and this, according to the report is unsustainable. What is needed is export growth to grow manufacturing and create space for employment in labour-intensive manufacturing sectors, however, because employment in this sector is dependent on labour cost and productivity output a more enticing labour regime is required.  The study says high labour cost (wages) can only be sustained if it equates to strong productivity output, but the competitiveness of South Africa’s labour is hindered by “agreements reached in wage bargaining councils by some employers and trade union [which are] extended to other business [in other words –non participative companies] in these industries.”  The study says, “centralized bargaining can sever the link between negotiations over pay and improved productivity.” 

The study states, “empirical research has found that firms covered by bargaining councils pay wages that are 10 to 21 per cent higher than those paid by similar firms in magisterial districts in which firms are not covered by bargaining councils. They also employ between 8 to 13 per cent fewer people. Those industrial sectors also tend to be more dominated by larger firms and to comprise fewer small firms and entrepreneurs.” This is no really the case in the clothing sector. However, it is the larger firms who are more dominant in policy and wage decisions.

“Three different arguments were made about the desirability and probable impact of significant reform of the labour market.

One view is that this would lower the cost of labour, boost employment, and provide a vital signal that government policy was becoming more business-friendly. This would help to raise business confidence, and boost investment levels. By raising the costs and ‘hassle factor’ of labour, the current labour market regime encouraged employers to hire smaller numbers of skilled workers. This works against the emergence of firms hiring large numbers of unskilled, inexperienced workers, making it more difficult to resolve the unemployment crisis.

A second view is that lowering the cost of labour would not measurably increase employment levels by very much and is undesirable because it jeopardises the incomes of millions of working South Africans.

A third group disputes this latter claim. Labour market reforms would not reduce the incomes of existing employees and this misconception makes reform a harder proposition to sell than it need be. Even though labour market regulations raised the cost of labour, existing businesses had compensated for this by selecting products and production methods that relied on skills and technology. These businesses were profitable, which means they have balanced relatively high wages with relatively high levels of productivity.

Therefore, labour market reforms that allowed firms to hire less skilled workers at lower wages need not lead to large-scale job losses at high-productivity/high-wage firms. While the effect would be to lower average wages, existing workers’ salaries need not be affected.”

The study goes further, “Some analysts argue that South Africa’s unemployment crisis can be explained by the reluctance of the unemployed to accept wages below a certain threshold – the ‘reservation wage’. Labour market surveys suggest that almost all jobless people say they are unemployed because they have not been offered any work, not because they have been offered work that pays too little.”

The study mentions Newcastle, which has become the central focal point of South Africa’s clothing sector. Unfortunately, the mere fact that the majority of clothing firms in this locality are owned by Chinese and have been the most vocal about the crisis facing South Africa’s clothing sector distorts the realities of the industry.  The clothing union, Sactwu, exploits this to create misrepresentation about the Chinese community and often this is fueled by media reportage on the industry.

Intelligence emanating from industry sources reveals that the Bargaining Council has stated that any factory (after 22 December 2010) who now decides to register with the Bargaining council will have to become 100% compliant and not have the space to meet the phase-in regulations. Further information received is that the union is extremely angered about the legal application lodged against the labour minister and the National Bargaining Council for the Clothing Sector by five Newcastle clothing companies. The union has hinted that they will use every means at their disposal to contest the case and exhort more pressure on the Newcastle troublemakers. This is an extremely worrying situation. There are going to be casualties, and it is going to be Newcastle factories that will be the casualties. They are being isolated, systematically targeted and are receiving no collective support from the wider industry. 

It is this very sector of the economy that has the potential to create the space to absorb unskilled workers and up-skill them so they can become productive members of the economy. However, it is these very same businesses that the clothing union is hell-bent on closing using the collective bargaining mandate.

The study says, “If South Africa is to build a more employment-intensive growth path, we need to rethink some key assumptions. The most pervasive of these is that the country should move progressively up the value chain, producing export goods with skilled labour and advanced technology rather than emphasizing goods made by large numbers of unskilled workers. Given the low skills and inexperience of most unemployed people, this approach will never create enough jobs. Instead, we should find and fill niches in the global supply chain for goods produced with more basic technology, and utilising relatively low-skilled workers.

These are opportunities being missed by the South African clothing sector. China’s clothing sector is undergoing major migration as companies are either relocating to their neighbors  or outsourcing to countries like Vietnam, while others are moving inland where labour is even cheaper. While labour cost may be increasing, it productivity is also increasing, and this is the difference between China and South Africa. Increased wages in South Africa does not equate to increase or proportional productivity increases. The Chinese government has indicated that wages could increase by 80% by the year 2015. Employment in China’s clothing sector increased by nearly 70% while its productivity out-put grew four-fold in value. China intends to double its existing clothing production output by the year 2015 without the need of increasing the work force.

South Africa needs to address the gap between the poor productivity of young, unskilled, inexperienced workers and their employment costs. This requires a fundamental re-examination of the labour market regime with a view to facilitating the emergence of lower-wage industries and businesses that have enabled other countries to drive high and sustained rates of economic growth, and employ very large numbers of people.

Labour market reforms of this kind would create opportunities for people who could not expect to find jobs in existing industries and firms. Without the development of low-wage companies, South Africa will not be able to create the millions of jobs we need, or achieve higher rates of economic growth. South Africa needs to learn the lessons presented by Newcastle’s clothing industry. In this town (with an unemployment rate of 60 per cent), workers have shown that they are willing to accept wages below the minimum levels prescribed by the industry’s bargaining council, and have attracted more clothing factories as a result. By allowing firms to offer these sorts of wages, and workers to accept them, we could create new enterprises and industries with low and intermediate levels of wages and productivity. 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 the report says.

Compiled by The ReDress Consultancy

21 June, 2010

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[1] “The Global Apparel Value Chain, Trade and the Crisis,” Gereffi,G & Federick,S, Policy Research Working Paper 5281, World Bank, April 2010.

[2] “A fresh look at unemployment-a conversation amongst experts,” The Centre for Development and Enterprise, South Africa, 2011

Missing Funds: Clothing workers and employers must stand together and demand answers

According to the M&G workers in the clothing and textile sector are “in a ferment over their unions failure to communicate with them about what exactly is going on.” Yet, the union demands wage increases, and closes factories because levies are not paid. However, the majority of business owners in this sector remain silent.  Why are we not hearing from them? This is an ideal opportunity for workers and owners to develop some solidarity and collectively demand answers from the clothing and textile union.

The company that lost R100 million in Southern African Clothing and Textile Workers Union (Sactwu) provident funds in a dubious loan to a BEE business wanted to bump up the failed business’s value by using more union funds.  This week, the Western Cape High Court ordered the provisional liquidation of Canyon Springs Investments 12 because it can’t repay at least R100m it owes the provident funds. The workers’ funds now face getting less than half their missing money back, while two Trilinear businesses are under investigation by the Financial Services Board. The Godongwanas have denied culpability in the loan scandal.  Canyon Springs is owned partly by Deputy Minister of Economic Development Enoch Godongwana and his wife Thandiwe. The directors of both Canyon Springs and PABS are Patel and Thandiwe Godongwana. He said the loan had been arranged and much of the money passed on to Canyon Springs before he and his wife were involved in the business. “We are still investigating stuff from even when we were there.”  (“Union million were under more threat,” Business Report, 17 June 2011).

Deputy Minister of Economic Development Enoch Godongwana has deepened the controversy about his role in the disappearance of millions of rands of workers' retirement money this week, insisting he did not know that the company he co-owns borrowed R93-million from clothing factory workers provident funds. This is despite the fact that Godongwana's family has a 50% stake in the company, Canyon Springs Investments 12, and that he was its chair at the time of some of the loans. In addition, papers submitted in court this week show that his name appeared on stationery as the company's chair between August 2008 and March 2009, when the company received R19.8-million that ultimately came from workers' provident funds. A total of R420-million from five provident funds in the clothing and textile industry may have gone up in smoke in various failed investments, potentially affecting the retirement benefits of more than 20000 workers.  Trilinear Capitals attorney, Chris Briston, told the Mail & Guardian Godongwana knew that the Canyon Springs loan came from clothing workers provident funds. The fact that Godongwana was involved in procuring the loan, and that his family trust had a stake in Canyon Springs, made the loan proposition more attractive to Trilinear Capital, Briston said. ("Godongwana and the missing union millions," M&G, 17 June, 2011) For more click here.

Trade union pension and provident funds control billions of rands, the oversight of which is too often carried out by small networks of political and business cronies who didnt struggle to be poor. The growing list of scandals involving the theft of workers' retirement savings reflects an apparent belief among union leaders and their corporate enablers that they are entitled to a little extra benefit, skimmed off the top of employee benefits. In some instances, this means simply collecting commissions from steering investments toward fund managers eager for this lucrative line of business. The result is investment choices that are not made with workers financial interests front and centre, and underperformance that slowly eats into their chances for dignified retirement.  More and more often, however, it is more blatant than that. The looting of close to R700-million intended for retired mineworkers and their wives and orphaned children in Fidentia Asset Management is the most prominent example, but it is far from unique.

Now a scandal of comparable scale is unfolding in the clothing and textile industries, where more than R400-million formerly held by five provident funds may have gone up in smoke. As we report in this edition, workers are in ferment over their unions failure to communicate with them about what exactly is going on. What is crystal clear is that with the say-so of the South African Clothing and Textile Workers Union, workers' savings were squandered in a series of failed investments by companies apparently set up to "empower" their owners. A fundamental rule with retirement money is that it should be conservatively invested in large, stable vehicles with a proven track record. Why did Sactwu breach its fiduciary responsibility to members by departing from this prudential rule? It beggars belief that Godongwana, whom we have always regarded as among the most credible of ANC policy leaders, did not know where the millions in loans to his company came from and Trilinear has publicly scoffed at the idea. As a former trade unionist himself, and now the deputy minister in a portfolio supposedly advancing workers' interests, he has a lot to answer for. (“Pension funds not a piggy bank,” M&G, 17 June, 2011). For more click here. 

Clothing companies launch legal application against Minister of Labour

South Africa
Breaking News: 15 June 2011

Clothing companies launch legal application against Minister of Labour

On the 6^th June, an application on behalf of five clothing companies and one industry body was launched against the Minister of Labour and The National Bargaining Council for the Clothing Manufacturing Industry at the KwaZulu-Natal High Court, Pietermaritzburg. The outcome of this unprecedented legal case, if successful, could rewrite the legalities of collective bargaining and have an enormous impact on the clothing sector.

   

It is extremely distressing that the crisis in the clothing sector has resulted in legal action having to be taken as a last resort. The ReDress Consultancy has for months advocated for all parties to find an amicable solution to the upheaval that has been taking place in this industry over the past year, and to stop the impending catastrophe facing this important sector.

The ReDress Consultancy has repeatdly argued that wages are just part of a larger problem facing the clothing sector. If we were to hypothetically say that every clothing company in South Africa were to meet the wage regulations would the industry see an increase in employment, productivity and exports? The answer is a definitive no.

PRESS RELEASE

Valuline CC & Others v The Minister of Labour & Another, case No. 5642/11

On 6 June 2011, an application was launched in the KwaZulu-Natal High Court, Pietermaritzburg, under case number 5642/11 against the Minister of Labour ("the Minister") and the National Bargaining Council for the Clothing Manufacturing Industry ("the Bargaining Council"). The applicants are five small clothing manufacturing businesses (Valuline CC, Africa HK Manufacturing (Pty) Ltd, Satcotrade (Pty) Ltd, JCR Clothing CC and Gold Shu-Lin Clothing CC) and the United Clothing and Textile Association ("UCTA"), an employer association representing at least 31 different clothing manufacturing businesses. 

The applicants have sought an order in terms of the provisions of the Promotion of Administrative Justice Act, 2000 ("PAJA"), reviewing and setting aside the decision of the Minister, taken on request of the Bargaining Council, to extend the National Main Collective Agreement of the Bargaining Council ("the Collective Agreement") to non-parties (which took effect on 3 January 2011) ("the Extension to Non-Parties"). The applicants also rely on the principle of legality, which is entrenched in section 1(c) of the Constitution of the Republic of South Africa, 1996 ("the Constitution"). 

When extending the Collective Agreement to non-parties, the Minister acted pursuant to section 32(2) of the Labour Relations Act, 1995 ("the LRA"). The applicants' challenge is primarily directed at the Minister's decision to impose a minimum wage, as agreed to in the Bargaining Council and contained in the Collective Agreement, to non-parties to the agreement. 

The applicants have raised three bases on which the Minister's decision to extend the Collective Agreement to non-parties should be reviewed and set aside.

1.        The Minister failed to comply with section 32(3)(c) of the LRA

In the first instance, the applicants allege that in extending the Collective Agreement to non-Parties, the Minister acted in breach of the law insofar as she failed to comply with section 32(3)(c) of the LRA. In terms of section 32(3)(c) of the LRA, the Minister must have satisfied herself that the members of the employers organisations that are party to the Bargaining Council, will, upon extension of the Collective Agreement to non-parties, be found to employ the majority of employees who fall within the Collective Agreement's scope. The total number of employees (employed formally and informally) in the clothing industry is 92 512. The employers organisations in the Bargaining Council together represent approximately 44 000 employees. There has therefore been a lack of compliance with section 32(3)(c) of the LRA in that the employer organisations in the Bargaining Council represent less than half the employees who fall within the Collective Agreement's scope. The Minister therefore acted unlawfully.

2.        The Minister acted procedurally unfairly

The applicants also allege that the Minister breached the requirements of procedural fairness insofar as she failed to provide non-parties, such as the five clothing manufacturing businesses and the members of UCTA, with, a reasonable opportunity to make representations to the Minister before she extended the Collective Agreement to non-parties. The Minister was well placed to have sought such comment at the end of 2010 when she was considering the extension of the Collective Agreement to non-parties (but failed to do so). Therefore the Minister extended the Collective Agreement procedurally unfairly and in breach of section 3(2)(b) of PAJA. 

3.        The Minister failed to have regard to relevant considerations, failure to act reasonably and/or rationally and failure to comply with section 32(3)(g) of the LRA.

The applicants also argue that the Minister acted unreasonably, irrationally, failed to have regard to relevant considerations and failed to comply with section 32(3)(g) of the LRA in that her decision to extend the Collective Agreement to non-parties was taken without regard to certain important considerations.

First, the Minister failed to consider the impact of extending the Collective Agreement in an industry, such as the clothing industry, which is rapidly declining (in the clothing industry production has decreased, exports have decreased and tens of thousands of jobs have been lost in the last 8 years).

She also failed to consider that extending the Collective Agreement to non-parties would result in the closure of the first to fifth applicants and/or retrenchments of employees at the factories of the first to fifth applicants (and at other factories which are in a similar position). Secondly, the Minister failed to act in accordance with section 32(3)(g) of the LRA in that she failed to satisfy herself that the Collective Agreement does not discriminate against non-parties, such as the applicants.

The Collective Agreement does not provide parties and non-parties an equal opportunity for applying for exemption from the provisions of the Collective Agreement.

Ends.

Walmart entry a mixed blessing

Walmart’s acquisition of a 51 percent stake in Massmart will be a mixed blessing for the clothing industry.

This is according to a survey by the Redress Consultancy, which found contrasting views among clothing producers on the benefits of the deal.

Walmart’s entry into South Africa will no doubt have an operational impact on the retail sector.

Edcon, the owners of Edgars and Jet, reportedly said that new entrants to the market could result in lower prices and margins or a decrease in its market share.

However, the consequences of the deal for the clothing sector is uncertain. 

Most respondents to the survey said South Africa’s clothing sector had the potential to entice more local procurement if it realigned itself to global productivity and delivery standards. But this could only be achieved through strengthening skills, productivity output and restructuring wages as has been proposed by clothing companies that don’t comply with minimum wage deals.

The industry is close to crisis with many firms saying they cannot afford the minimum wage, while the bargaining council is proceeding with writs of execution against firms that are not compliant.

Some of the respondents said the Walmart/Massmart deal might bring the industry, the union and the bargaining council closer to finding solutions that would make the sector more competitive.

One respondent argued that if Walmart did source from local clothing manufacturers, it would provide new opportunities for the industry and hopefully entice South African retailers to source more locally.

Job growth would escalate if the industry was able to become more competitive, but in order to do this both the industry and the union would need to revisit wages, the non-compliance issue and productivity.

Another respondent commented that if South Africa’s clothing sector was able to rejuvenate its productivity and competitiveness, “local retailers would resort to purchasing locally and the quicker turnaround and understanding of local conditions would give them an edge against the colossal giants like Walmart”.

But another said the competition between local retailers and Walmart could escalate into a price war that would have a negative impact on the clothing sector.

“I am not sure how much further down prices can go… they (Walmart) are very price sensitive and it would be an immense challenge for clothing manufacturers to meet their price points.”

Illegal imports are plaguing the clothing manufacturing sector as well.

One respondent summed up the industry’s view by saying: “If the authorities would apply the same vigour to limiting illegal imports as they did to investigating the Walmart proposal we might have a stronger value chain with broad-based benefits for South African workers and consumers.”

It is expected that the clothing merchandise stocked by Massmart stores will increase.

Asda, Walmart’s UK subsidiary, has a low-priced clothing label, George, which Walmart has rolled out in seven markets worldwide. It is expected to be launched in South Africa as well.

A report earlier this month on the Fibre2fashion website stated that George had announced joint sourcing with Walmart in order to moderate the increases in cotton prices and other input materials.

George and Walmart will jointly procure fabric, which accounts for 40 percent to 45 percent of the garment cost, and the clothing label is considering joint sourcing for garments as well.

George is evaluating its production units and is also considering options to bring manufacturing nearer home from southeast Asia. It has already started a production unit in Turkey and is procuring some fabrics from the UK. –

Reference: Business Report, Samantha Enslin-Payne

Date: 10 June 2011

Views from the clothing sector on Wal-Mart.

South Africa

A survey by The ReDress Consultancy.

The green-light for the entry of Wal-Mart into South Africa will no doubt have a negative and positive impact on the retail and clothing sector according to a survey conducted by The ReDress Consultancy.

  

The rigorous debates, arguments and public input are well documented.  The ReDress Consultancy undertook a snap survey with owners of clothing companies and an industry body to excavate if there were any commonalities in regard to the clothing industry’s view on Wal-Mart’s entry into South Africa.

Edcon stated,[1] new “entrants to the market could result in lower prices and margins, or a decrease in [its] market share.”  The lowing of prices may be beneficial to the consumer but this decrease in retail price points could be passed onto manufacturers who are already struggling to meet buyers demand for low costs. Some of the respondents indicated that it was time that South African retailers faced competition from the likes of Wal-Mart. “Using the most advanced systems of global outsourcing and stock management retailers have created sensational profits from making cheaply and selling expensively.” Another respondent conferred, “Our existing chain-stores are making huge profits for their investors and shareholders”, subsequently, Wal-Mart, will impact on this sector of the clothing value-chain.

One respondent said that each retailer would have “different views on the market share implications resulting from the Wal-Mart entry”, but reiterated what every respondent said when he succinctly articulated, “If the authorities would apply the same vigor to limiting illegal imports as they did to investigating the Wal-Mart proposal we might have a stronger value-chain with broad based benefits for South African workers and consumers.”

 

Another respondent said, “Leaders [are] hiding behind WTO rules and remain paralyzed in dealing with the illegal imports.” He went on to say instead of trying to “hammer it out at the Competition Board, [government] should be studying ways of curtailing illegal imports.”

There was mixed responses to the impact Wal-Mart would have on the clothing sector with a few respondents having encouraging expectations, while others, said inevitably it may bring the industry, union and bargaining council closer in finding amicable solutions that would make the sector more competitive.  A respondent said, the industry is already “destroyed at price levels [so there may have little] impact on the lower end of the market”, but due to South Africa’s wage structures in the clothing sector and the influence of the union, “bordering countries [may] benefit”, as Wal-Mart exercises its slick procurement systems in Southern Africa.

One respondent optimistically said if Wal-Mart does source from local clothing manufacturers it would provide new opportunities for clothing manufacturers and hopefully entice South African retailers to source more locally. The same respondent said job growth would escalate if the industry was able to become more competitive but in order to do this both industry and the union would need to revisit wages, the non-compliant issue and productivity. However, one respondent cautioned being blinded by the size of orders emanating from Wal-Mart.  Suppliers are “tempted by the order size, but [will] soon realize upon delivery of goods the discrepancies [will] wipe out any anticipated profit.” It is more important said the same respondent for South Africa’s clothing sector to compete on design, quality and productivity.

A further respondent echoed the sentiments for South Africa’s low productivity output by saying, “labour legislation [coupled] with a bureaucratic system has created a lackluster work ethic [resulting] in a culture of low productivity [which makes South Africa less competitive] than similar emerging markets.”  The same respondent reiterated the view that if South Africa’s clothing sector was able to rejuvenate its productivity and competitiveness, “local retailers would resort to purchasing locally and the quicker turn around and understanding of local conditions would give them an edge against the colossal giants like Wal-Mart.” However, one respondent indicated that competition between local retailers and Wal-Mart could escalate into a price war which will negatively impact on the clothing sector. ”I am not sure how further down prices can go … they [Wal-Mart] are very price sensitive and it would be an immense challenge for clothing manufacturers to meet their price-points.”

Most respondents said that the union and bargaining council would “have their hands full” dealing with Wal-Mart, while most felt that the union was focusing for too much on political issues rather than the welfare of it members and subsequently the clothing sector. “They [the union]”, said one respondent should be looking at “realistic labour regulation that is user friendly, and is void of antiquated ideals, as is being played out presently in Newcastle.”  Another respondent stated that South Africa cannot isolate itself from the “global village”, however; the current discourse in labour regulations and the actions of the Bargaining Council is not making South Africa’s clothing sector a viable contributor to job creation.

Evaluating the responses, it is clear that the entry of Wal-Mart will have an operational impact on the retail sector, however, the consequences of such an impact on the clothing sector is debatable with most respondents affirming that South Africa’s clothing sector has the potential to entice more local procurement if it realigns itself to global productivity and delivery standards but this can only be achieved through strengthening skills, productivity output and restructuring wages as has been promulgated by non-compliant clothing companies.

  

Written by Renato Palmi

The ReDress Consultancy, 6 June 2011

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[1] “Edcon raises alarm on Wal-Mart, Zara” , TimesLive, 6 June 2011

Why do clothing workers not protest against Sactwu?

Cosatu’s wrong focus

In the past few weeks we have had delegates from labour federation Cosatu fiercely opposing Walmart’s entry into the country despite the fact that the US firm would bring with it an investment of R16,5bn and create future jobs as the intention is to grow the businesses it is taking over.

In the past few weeks we have had delegates from labour federation Cosatu fiercely opposing Walmart’s entry into the country despite the fact that the US firm would bring with it an investment of R16,5bn and create future jobs as the intention is to grow the businesses it is taking over.

At the same time, the clothing and textile union, Sactwu, started an investigation into the disappearance of more than R100m from the pension fund of its 85000 members. We do not yet know whether the money was lost or squandered but it is a scandalous situation, leaving 85000 people to face a bleak future in retirement.

Surely Cosatu should be more concerned about the goings-on in its sixth- biggest union than the business practices of Walmart? Of greater concern is that the former general secretary of Sactwu, Economic Development Minister Ebrahim Patel, was one of three ministers to argue against Walmart at the Competition Tribunal hearings.

Now we have the spectacle of Patrick Craven of Cosatu appearing on TV and threatening mass mobilisation against Walmart. Does he not understand that the 85000 loyal union members who have been fleeced of their pensions represent the big problem and not the 28687 people who now have good jobs with Walmart?

It is time Cosatu got its own house in order. Its primary job is to look after the interests (and money) of its members and not to splurge its efforts on misguided economic campaigning likely to chase away foreign investment and destroy jobs.

Michael Bagraim

President of the Cape Chamber of Commerce

Reference: Business Day, 2 June 2011