Eskom shocks for the South African apparel industry

The load-shedding measures implemented by Eskom*described as a national emergency by Cabinet members constitute a severeimpediment for growth in South Africa's apparel sector.

In a survey of clothing manufacturers, fashion designers andfashion boutiques undertaken by The ReDress Consultancy-SA, the power cuts are impedingan industry already under pressure from cheaper imports, low profit margins anda decrease in retail turnover.

It is dispiriting that apparel representative bodies havebeen silent on the effects of power outages on the South African apparelsector. Despite the magnitude of stressors being experienced by the industry tobecome economically viable, it is still an important economic contributor. The textileindustry in KwaZulu-Natal contributes 15% of the provinces manufacturingsector, while clothing contributes 27%; in the Western Cape the apparel sectoris a major contributor to the provinces economy.

All respondents* to the survey indicated that thecosts of local apparel production will increase. There was unanimous agreementthat if the prevailing power shortage continues, job losses can be expected.We in KwaZulu-Natal are compelled to pay staff full wages for the first hourof power loss," said one respondent, whilst in other provinces, apparel employershave to pay full wages for the first two hours of work stoppage. Some of therespondents said that it was not only halted production and unutilized labourthat was a concern, but also the "damage to equipment when power is suddenlylost," as a mitigating factor when manufacturers calculate losses inrevenue due to load-shedding.

Most of the respondents said that they had alreadyexperienced a number of days of lost production to date this year. Themanufacturers said that if power outage occurs before 10h00, they have anopportunity to resume production, but if it occurs after 12h00, "staff aresent home."

A large KwaZulu-Natal manufacturer said that they hadexperienced 14 power-cuts in January in three of its factories, resulting innearly 30 hours of production downtime. The respondent said that it took over30 minutes to get the production lines up to speed after each stoppage, and confirmedthat if the power cuts exceed two hours, workers have to be sent home.

Another KwaZulu-Natal-based manufacturer said one of itsthree factories had so far been affected by load-shedding. The respondent saidthat they had installed a 500kva generator late in 2007 for this factory, andits running cost has impacted negatively on their overheads. The generator hadoperated for nearly 40 hours since its installation. Even though no retrenchmentor short-time has yet occurred at this site, the respondent said that they mayneed to offset the cost of using their own power for operations by eitherreducing staff shifts, or implementing retrenchments. At one factory where thecompany extrudes polypropylene, the respondent said that it could take up totwo days for the factory to return to full production after a power cut, whichaffects over 200 employees. The respondent observed that the entire value-chainof the apparel industry is threatened by these events and that the knock-oneffect from energy shortages will be considerable. "If our supplierscannot meet our demand, we will be forced to look for alternativesuppliers," said the respondent.

The job creation and sector development benefits intended bythe quotas on Chinese imports for the local industry are likely to beunravelled by the energy crisis in South Africa. One respondent said that theyhad plans to expand their manufacturing facility that would result in jobcreation, but because of the "introduction of electricity rationingsystems, these plans are on hold and we will look at sourcing productionoff-shore."

It was suggested by one respondent that Eskom or thegovernment should provide special financial assistance to labour-intensiveindustry sectors like the clothing and textile sectors, to enable companies to purchasegenerators "as the situation is not going to improve in the foreseeablefuture." "We are going to lose orders," said one respondent.

Another respondent felt that the major retail chains mightwell use the delivery delays incurred through local suppliers downtime as anexcuse to increase their imports from overseas suppliers, and this could resultin the closure of "smaller Cut Make and Trim operations that are dependenton these retail orders and operate on extremely small profit margins". Asit stands, imports from alternative foreign suppliers have increased since the implementationof quotas on Chinese imports. For the first four months of 2007, Malaysia, Sri Lanka, Myanmar, Vietnam and Cambodia increased their clothing exports to South Africa.

One supplier to retail chain stores said late deliveries are resulting in cancellations of orders. He said that most deliveries of garments this year have been late and the company is "losing credibility with the retail buyers." Fast fashion (rapid changes in fashion designs), which is the global norm, requires retailers to stock new designs in their shops quickly and effortlessly. If local producers cannot meet the narrow delivery times, there is no doubt that South Africa will see a rapid increase in imported apparel.

Even though retailers may source from foreign suppliers, the consequence of job losses - in every manufacturing sector - will result in a diminishing consumer base. With the added impact of interest rate increases and the limitations inherent in the new Credit Act, apparel retail turnover has already declined.

The power shortage will have a detrimental effect on South African fashion. The cost of local design-intensive clothing sold in private fashion boutiques will increase. With the majority of consumers spending less on clothing or seeking low-cost high-design apparel, national sales of clothing made by South African designers may decline rapidly.

A retailer based in KwaZulu-Natal reported in December 2007 that they had lost "many business hours. all plans for expansion had been halted and overhead reduction strategies were being devised to offset the added cost per garment due to late deliveries and the cost of running generators. The respondent reiterated the point that if the situation persists, the company will be forced to find foreign suppliers and it is already reducing their orders from local suppliers. The company had incurred a loss of nearly R2-million in sales during December and January due to the power shortages.

One manufacturer who also owns fashion boutiques said that she has had to restructure her production in line with Eskom's load-shedding schedules. She said that all her staff would have to learn how to do beading and other handwork during the power cuts to maintain productivity.

South Africas clothing, textile and fashion sectors are labour-intensive, employing mostly women who are often the sole breadwinners of households. The doubled stress of an electricity price-hike of just under 15% due in April is, literally and figuratively, a disconnect with the payment of R57-million in bonuses to Eskom's top management over the last three years. The consequences of Eskom's and the government's inept management for South Africa's apparel industry and all its affiliated small business operations will be both shredding and shedding.

* Eskom is the company that supplies South Africa's electricity.

* Respondents participated in the survey on condition of anonymity.

About the Author:

Renato Palmi
ReDress Consultancy-SA
Business Development, Research and Publishing
(Apparel Industries)

PO Box 52006 Berea Road 4007
Durban, KZN, South Africa
Web: http://redressconsultancy.blogspot.com