The textile industry will have to shift up a gear if it=20 is to cope against foreign competition, reports Jacques=20
THE scrapping of import surcharges in last week’s Budget=20 tolls the death knell for protectionism and import=20 substitution, destroying a complacent way of life for=20 South African industrialists and manufacturers alike.
While the scrapping of import surcharges on luxury items=20 affects few individuals in South Africa, it does herald a=20 new, more competitive age for business and highlights a=20 crucial question: can industry cope against foreign=20 invaders, who are used to low profit margins, long hours,=20 crippling schedules and objectives and no government=20
Of particular concern is the textile industry. Despite=20 repeated shouts for continued protection, the industry=20 now claims (in the Textile Federation’s submission to the=20 government) that it “embraces the General Agreement on=20 Trade and Tariffs (Gatt) and the philosophy of trade=20
The document states: “The industry has accepted the=20 challenge to become efficient and competitive and is=20 gearing up to fundamentally remodel itself … for=20 international competition by committing to the reduction=20 of duty levels faster, and to lower final levels, than=20 the international community and Gatt require.”
Is the textile industry actually prepared to face=20 international competition, particularly without=20 substantial tax breaks or the government propping up the=20
Initial indications are that the industry has been=20 preparing for this event since 1990, taking a number of=20 steps to tackle competition head-on. These steps include=20 shifting operating equipment to more technologically=20 advanced looms, moving into niche markets and improving=20 worker relations.
Yet, numerous analysts agree that these changes are not=20 enough. Mike Howarth, industrial analyst at Silvis=20 Barnard Jacobs Mellet, says: “Our guys still provide a=20 broad range of goods, with not much depth. Without=20 developing skills in niche markets, we will get murdered=20 when real competition arrives in South Africa.
“Being able to manufacture great volumes will not enable=20 the textile industry to survive,” he says, adding that=20 the quality of overseas products “may not be as good as=20 ours, but they are good enough to attract buyers,=20 especially at 30 percent lower prices.”
During a Barlows presentation a point was made that many=20 South African manufacturers are uncompetitive. It was=20 said that Turkey could export a fridge to South Africa=20 for less than it would cost a local manufacturer to buy=20 the raw materials to produce an item of similar quality.
“Our textile industry is totally uncompetitive,” says=20 Arthur Thompson, head of research at EW Balderson. “Our=20 labour is unproductive, we have old equipment and small=20 production runs,” he adds.
In fact, some analysts are more pessimistic and say that=20 the textile industry is in a mess. “How big a mess the=20 industry is in, is anybody’s guess,” says Thompson.
As if to confirm this statement, the Textile Federation – – after “embracing Gatt” — has told the government that=20 “10 years is considered the minimum duty phase-down=20 period which is viable.”
Industry experts are appalled at such demands. “Ten years=20 is practically two technological life times,” says=20 Howarth. Half that period would be more appropriate, so=20 that companies can migrate to specific high-grade areas,=20 where they will have a competitive advantage.”
International experience is that some countries accept=20 Gatt only to impose other forms of trade restrictions.=20 These include import quotas, production and export=20 subsidies, standards purporting to maintain the quality=20 of imports, and complex administrative procedures.
Yet, in the end the textile industry has no choice but to=20 change — and change quickly — if they are to survive.=20 Ultimately, the battle lines are becoming clearer. On the=20 one hand, they are faced with dying protectionism and on- coming competition and on the other hand they hold the=20 reins of an important industry which the government=20 cannot ignore.
Not only is it the sixth largest employer in our=20 manufacturing sector and the eleventh largest exporter of=20 manufactured goods, but its production is roughly=20 equivalent to two-thirds of the chemical industry and a=20 third of South Africa’s agricultural production.
And, after the mines, it is the second largest user of=20 Eskom electricity and the second highest payer of rates=20 and taxes in towns and cities in which it is located.
The textile industry employs 80 000 people directly and a=20 further 200 000 indirectly in industries, such as=20 transport and packaging. If the 80 000 jobs linked to=20 cotton farms are added to this total, then 360 000 South=20 Africans depend on the textile industry for a livelihood.=20
In addition, the industry’s local sales are R7,7-billion=20 and its exports are R1,1-billion a year. Its contribution=20 to balance of payments — at an average duty of 10,5=20 percent — is therefore R8,1-billion annually.
The Competition Board’s Pierre Brooks sums up the=20 problem: “Market forces will hold sway in the long term.=20 The longer it takes the industry to change and to channel=20 its resources to where it can be more competitive, the=20 more traumatic it will be for them.”