A few years ago Pastel Clothing’s Cape Town plant manufactured 240 000 designer T-shirts a month for international fashion houses Tommy Hilfiger and Express. It also produced for Timberland, Abercrombie and Fitch, British Home Stores, Nordstrom and other leading European and American retailers.
Today Hilfiger’s T-shirts come from Indonesia and Express’s from Vietnam. In May last year Pastel retrenched 650 workers. A month earlier Jordan and Company, a manufacturer of men’s and women’s footwear, retrenched more than 200 workers after retailers turned to foreign suppliers.
Pastel and Jordan are not unique. The sustained rally of the rand hammered the local clothing, textile, footwear and leather industries — identified at the Growth and Development Summit as priority sectors for employment and growth — by drastically reducing the competitiveness of South African exports.
At the same time imports became more attractive, not only because of the rand, but also because of continuing trade liberalisation. South Africa has reduced tariffs on imports faster and further than required by World Trade Organisation (WTO) agreements. Cheap Chinese imports are a key culprit.
The Southern African Clothing and Textile Workers’ Union (Sactwu) keeps a database of job losses through retrenchments, factory closures and liquidations in the industry. The union is not organised in all factories and uses a conservative formula to proportionally calculate uncaptured job losses.
After the rand’s dramatic appreciation last year Sactwu recorded almost 21 000 job losses, and a further 7 000 in the first half of this year. Given that one wage supports at least five people, 140 000 people were affected by textile, clothing, leather and footwear job losses in less than 18 months.
That most job losses are a result of the opening of our market and the strong rand is clear from trade data. Clothing and textile imports increased by 31% from 2002 to 2003 in United States dollar terms. The situation is similar for footwear and leather products, with a 38% increase from 2002 to 2003.
Much of the damage has been caused by clothing imports from China, which rose 111% in yuan terms to more than R1,5-billion over the period. Retailers have seized the opportunity to make large profits by importing cheap Chinese clothes rather than buying from local manufacturers. Chinese imports now constitute 75% of clothing imports.
Despite increases in previous years South Africa’s clothing and textile exports fell 13% and 16% respectively from 2002 to 2003, measured in rand terms at current prices. The record current account deficit of R49-billion — 3,7% of gross domestic product — for the second quarter of this year clearly illustrates that the rand’s current strength remains unsustainable.
China recently joined the WTO, and we are required to give it the same privileges as other members. But China’s accession agreement allows for temporary safeguard measures to protect South Africa’s domestic industries against severely disruptive import surges.
Clearly China gains competitiveness from its relatively low wages, often accompanied by severe exploitation of workers. Many live in factories and are forced to work six-day weeks in unsafe and repressive conditions without the right to organise or exercise other rights.
We should not undermine labour standards in South Africa by allowing China to use its violation of workers’ and human rights to undercut competitors. Our struggle should be in solidarity with Chinese workers, for basic labour standards.
At the same time Sactwu’s Buy Local Campaign deserves support. In December last year the union and retailers concluded a temporary agreement at the National Economic, Development and Labour Council, committing retailers to buying more from local clothing manufacturers. Negotiations continued on a permanent agreement.
But four of the biggest retailers — Truworths, Woolworths, Edcon and the Foschini Group — pulled out of the agreement after months of negotiations, as it was about to be signed. Woolworths recently announced an operating profit of more than R1-billion, up 19,6% from the previous financial year.
The monetary policy committee’s decision to reduce the repo rate by 50 basis points is welcome, as it signals the intention to allow the rand to depreciate to more manageable levels while simultaneously stimulating investment and growth. There is ample room for further depreciation.
Eduard Grebe is a researcher with the Southern African Labour Research Institute, based in Cape Town