buyers
Lynda Loxton
While most clothing companies look to the government to help them promote exports, a Cape Town company is relying on its quality products and the weaker rand to boost export earnings.
Pals Holdings Limited has ploughed millions of rand into new equipment and staff training in recent years to improve productivity, and to provide better and more consistent quality and marketing.
At the same time, it has refrained from joining the chorus of despair about plans to phase out the general export incentive scheme (Geis) and relied instead on the continued weakening of the rand against the British pound to increase export earnings.
In his latest annual report, chairman Selwyn Kagan said that critics who said the clothing exporters would not be able to survive without Geis had got it completely wrong.
“The depreciating rand will open more opportunities for exports with high added- value production, such as men’s and ladies’ outerwear,” Kagan said.
BoE NatWest Securities analyst Syd Vianello agreed: “The only way that you make money out of exports is to have value-added production.”
And if the companies had been paid in sterling, which had moved from a rate of R5,70 in September 1995 to around R7,90 now, their returns would have “increased dramatically”, he said.
“I wish more were moving into high value- added, but they are not.”
This message has been coming through very strongly from the Department of Trade and Industry in the past few years, but the industry still generally continues to call for more and better cash incentives from the government.
Bernard Richards, Clothing Federation of South Africa chairman and managing director of Seardel Investment, urged the government in November to implement a wide range of promised export incentives which he claimed could double clothing exports in two years.
But most of the so-called “supply-side” measures concentrate on training and improving productivity rather than the tax- based incentives most companies would prefer.
Vianello said it was highly unlikely that tax-based incentives would ever be offered.
“They [the government] are saying: the currency is where you will make your money. The currency will fall to a level where your exports become competitive,” he said.
Kagan has no problem with this line of argument, but he still wishes the government could provide some better incentives.
“The problem with the present incentives is that they are linked to training and productivity,” he said.
“We need to become competitive worldwide as an industry. In order to do that, we need the right equipment and labour force. The equipment is only a matter of money. The labour force is another thing altogether. It is all very well to say that we are going to train people, but it is very difficult to instil a work ethic.”
Kagan said the work ethic in South Africa did not compare well with that of its major competitors.
He added that the existing supply-side export incentives were also cumbersome and “you have to wait too long to get them”.