Are the quotas working in South Africa? - A brief synopsis - Free Industry Articles - Fibre2fashion.com

South Africa

Renato Palmi of the ReDress Consultancy Reviews the Quotas

During the month of August, numerous fashion events have taken place in South Africa. Has the fashion sector seen any tangible benefits due the quotas system? According to the Trade and Industry Minister the quota system is working. He says, “Since the implementation of the quotas, jobs have been saved and new jobs have been created.” Yet, his department cannot provide specific data on employment figures relating to the quotas on Chinese imports. The government said that the quotas would create 50 000 new jobs. This equates to 2000 new jobs per month in the clothing and textile industries over a two year period.

The economic intent of the quota system is understandable but the process of implementing them became tainted with political appeasement creating an even wider rift between industry, government and the unions. The Chinese government after initially declining the South African government's suggestions of restricting imports eventually relented because they knew the returns from alternative economic sectors would far exceed the revenue lost from the import restrictions.

After all, the quotas are only for two years. The South African government rushed to implement the quotas to appease the unions – COSATU and SACTWU. In turn, SACTWU drove the implementation to conciliate their constituency where jobs were hemorrhaging at an unprecedented rate. According to the latest statistics, Chinese imports into South Africa fell by 34% in this first quarter of 2007. While there was a drop in imports from China, imports from other exporting countries has begun to grow, indicating that the retail-chains are beginning to implement their new procurement procedures. The impositions of the quotas are linked to developments both politically and economically that occurred more than ten years ago.

Going Back in Time

The challenges facing the clothing and textile sectors in the new post 1994 democracy was by extension a result of the previous regime's protectionist policy towards these industrial sectors. The new African National Congress (ANC) led government began to reduce tariffs faster than was required by the World Trade Organisation (WTO) and the General Agreement of Trade and Tariffs. The recommendations from these organisations said that the new ANC government should reduce the tariffs over a 12 year period but the ANC reclined saying such reductions should be done within eight years as this would integrate the South African industrial sector into the globalised economy quicker. Many clothing and in particular textile companies did not capitalize on this period to invest in technology updates or skills development and the repercussions are being felt now.

In March 2006, the Department of Trade and Industry outlined a new strategic vision for South Africa's clothing and textile sector that would last until 2014. The fundamentals of this strategic policy were the "upgrading of the value chains; the implementation of strategic initiatives and the development of skills. In the interim, the government has implemented a number of policies to assist these industrial sectors. Such as: the new label regulations; the renewal of the Duty-Credit certification Scheme; the extension of the National Bargaining Council for wages to cover non-metro areas and lately the quota restrictions on Chinese imports.

In reviewing the industry, the South African government says that there are opportunities for the industry at the "high-end of the value chain", yet many in the industry repudiate this analysis. Furthermore, the government says that the industry must create design intensive products that are geared for the "higher income markets", but they to do this the entire value chain must work in a collaborative manner. The government goes further in its policy analysis of the industry by saying that there are local opportunities that can counter the impact of cheaper imports as exporting countries cannot always meet the "quick turn around time needed by buyers." This maybe so by research indicates that many of our clothing and textile companies do not have the means to meet the demands dictated by fast fashion. The government says that with all these “positive steps” the industry is still “lacking creativity, entrepreneurship, vision and leadership.”

The Implementation of the Quota Restrictions

In September 2006, the Department of Trade and Industry announced plans to implement the quota restrictions but the reaction from retailers claiming that the implementation process was conducted in a none "transparent" manner resulted in the DTI relenting to the pressure from the retailers and moved the date for the implementation to 1 January 2007. In response to the quota implementation, the retailers said that they would begin to source their clothing from other exporting countries. The government responded by saying that such business tactics would constitute "treason and they [government] would not hesitate to take action against the retailers".

Interestingly, some of the alternative export countries have even cheaper labour than China. Research indicates that in 2006 workers in the Bangladesh clothing industry were earning 7 per month and in Cambodia workers in their garment industry earned 25-30 per month. When this author discovered that the South African retailer MrPrice was importing from Burma the retailer responded, by saying, "Other retailers were importing from Burma" and they gave assurance that the factories they used in Burma did not exploit their work force. My research showed that Burmese workers had to work 157 hours a month to earn $36.00. In countering the argument that the retailers are making huge profits via the hands of exploited workers in developing countries the retailers say that the availability of cheap clothing benefits the "poor" in South Africa.

Are the quotas working?

"Yes, they are … since the implementation of quotas jobs have been saved and new jobs have been created," says the Trade and Industry Minister. Yet, when pushed for details he cannot supply actual figures of employment growth. The government said that the quotas would create 50 000 new jobs equating to over 2000 new jobs per month over a two year period.

Recent research reflects differently.

Between July 2006 and May 2007, research showed (-120% loss) in employment in the clothing sector in KwaZulu-Natal alone. Thirty-two companies closed or moved into the unregistered informal sector. In this survey of KwaZulu-Natal based companies 68% did not foresee employing more people in the next six months, which gives a vivid indication of the precariousness of the industry, in that substantial growth in production is not expected. Eighty percent of respondents noted that they did not foresee purchasing any new equipment in the forthcoming six months. Eighty-four percent of the respondents replied that they are not producing any new lines, and 76% said they did not anticipate doing so. This indicates that KwaZulu-Natal's clothing manufacturers have yet to see the benefit of the quota restrictions through retailers purchasing from local suppliers.

Thirty-two percent of the respondents confirmed that they had seen an increase in orders since the implementation of quota restrictions on Chinese imports, which was implemented in January 2007. Among those companies that have seen an increase in orders, only 24% said they saw such growth as sustainable. Seventy-six percent of the respondents said that they did not think the growth could be sustained once the quotas ceased, or once retailers begin to source merchandise from other countries. In response to support for the imposition of the quota restrictions on 200 clothing and textile items, 56% said they did not support these measures, and felt that the policy would not alleviate job losses or contribute to the growth, development and sustainability of the industry.

An April 2007 report from the World Trade Organisation said, "low-cost Asian countries such as Bangladesh, Cambodia and Vietnam had seen an increase in exports to the EU and US markets while imports from Sub-Saharan Africa had over the last year fallen by 10%.

According to the latest statistics, Chinese imports into South Africa fell by 34% in this first quarter of 2007. While there was a drop in imports from China, imports from other Asian countries has begun to grow, indicating that the retail-chains are beginning to implement their new procurement procedures. Imports from Vietnam for the first quarter = R11 million. Imports from Malawi = R11.5 million and from Mauritius = R11.4 million. Furthermore, the countries that are seeing some benefits from the quota restrictions on Chinese imports will want to consolidate and sustain their recent market growth and will do anything to retain their market share. One of the mechanisms for them is to further reduce labour cost.

There are concerns that imports from China are still entering the country through "devious means." Until government can clarify the surge in employment and increase in production due to the quotas the actual benefits of this policy is still questionable. One of the proposed benefits of the quotas lauded by government was the opportunity for South African textile operators to upgrade their production facilities but this is not happening due to a number of reasons. Most so, the cost of upgrading textile plants is extremely expensive and with the industry still in a precarious state, the owners are reluctant to invest.

Of concern is the statement made at the SA Clothing and Textile Workers' Union's (SACTWU) 10th congress that took place in Durban in August 2007. The Minister of Trade and Industry said, "The industry needs to upgrade its capital equipment and that government needs to look for an appropriate incentive mechanism to help the industry." For the ministry to be still saying this and urging government to look for an "incentive mechanism" seven months later when the quotas were implemented is inductive that the government does not have a clear strategy to maximize the quota period for the development and sustainability of the clothing and textile sectors. Furthermore, there is still a lack of trust between the industry and the unions with the industry (retailers and manufacturers) saying that the unions are wilding for too much power in the negotiations to the take the industry forward.

For the fashion sector in particular, the quotas have presented an opportunity to forge ahead and promote local content but sadly, this sector is still so fragmented. If the fashion sector worked cohesively together and formulate their own collective way forward, I think this sector of our apparel industry could still exploit the quota period positively.

@ August 07

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