South Africa : Need For Textile Companies To Compete Globally

From several years the textiles industry of South Africa is the most highly protected and supported sectors in the country, but local textile companies have little to show for it.

In fact, the question has been raised as to whether the sector is more of a burden than a blessing on the domestic economy.

The R13bn-a-year sector enjoys a high level of protection from government in the form of 22% and 15% duties respectively on imported fabrics and yarns.

In addition, textile companies earn credits for products exported under government's duty credit certificate scheme. Exporters use these credits to offset between 10% and 15% of the cost of importing input materials.

Exporters also earn a rebate on about 400 imported products if they use these materials in their production processes.

Furthermore, the US's African Growth and Opportunity Act (Agoa) has proved a big boon for the sector. The sector benefits indirectly through increased opportunities for locally made clothing which qualifies for duty-free access into the US.

Agoa, along with the weak rand, has been given credit for good growth in the textile sector last year the most substantial growth the sector has recorded in more than five years. Turnover inched up marginally from R10,2bn in 2000 to R11,1bn in 2001, but jumped to R13,4bn last year.

But despite all the help, particularly on the export side, the industry's performance has not improved significantly. "The sector looks very much like it did 10 years ago," says economist Tony Twine.

SA is still a net importer of textiles, at R7bn last year. Textile exports, on the other hand, were worth only R4,5bn.

Twine says that if one looks at the hard, cold economic facts, the sector was likely to be more of a burden than a blessing to the country. He suggests, however, that there is a political decision not to allow the labour-intensive sector to collapse.

SA's Textile Federation, meanwhile, makes a good case for keeping up the effort to preserve the sector. For one thing, the industry, which employs 54500 people, would be unable to survive without the support and protection it is getting.

Clothing and textiles are among the most highly traded products in the world and, therefore, this makes it a highly competitive sector, says textile federation head Brian Brink.

It is not only SA, or even developing countries as a group, that are sensitive about the textile and clothing sectors, Brink says. Many developed countries support their textile and clothing sectors, and maintain high protection of these sectors. US duties on clothing range between 18% and 33%. Mauritius applies an 80% duty to imported clothing.

SA, says Brink, has also made much progress in lowering protection levels. SA's import duties on yarn, fabrics and clothing have been more than halved in the past few years, exceeding World Trade Organisation requirements. Clothing duty, for example, was now at 40% compared to 100% in 1995.

One of the reasons why SA and other countries are so protective of the textile and clothing industries is dirt-cheap production in China. Brink says cheap labour, an undervalued currency, subsidised transport and subsidised raw materials are among the factors that have placed China in a position where no other country can compete with it.

It is not all negative, however. Brink says SA can compete against countries such as the US, European Union countries, Australia, Brazil and others but not against China.

He says SA is in the mid-range in terms of cost of production, and costs could further be reduced through the wave of investment into new capital equipment. There has also been more foreign direct investment in the sector in recent years, although not enough.

Twine says protection should be dropped so that companies in these sectors can be forced to become more competitive.

He also says the lack of foreign ownership is one of the main reasons for the lack of competitiveness. Domestic producers are competing head-on with foreign producers, says Twine.

He says industry and government should come up with a plan that will attract investors who would offer domestic operations access to foreign markets.