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Patchwork deal does not pay off

The results of the much-trumpeted deal reached last year in the bargaining council for the clothing industry, in terms of which new employees could start on wages 30% lower than the previously agreed norms, have been disappointing: only a few hundred new employees were employed under the scheme nationally.

The deal between employers compliant with the bargaining council and the South African Clothing and Textile Workers’ Union (Sactwu) became effective on September 1. According to the agreement, the reduction will fall away if 5000 jobs are not created in the industry in three years – and based on the results of the first six months it seems likely to happen.

Johann Baard, executive director of the Apparel Manufacturers’ Association of South Africa (Amsa), said the scheme had “not lived up to expectations. It has been a disappointment so far.”

Baard said there were also many reports from factories that within a few weeks of new employees starting work on the lower wage rate, they achieved the same productivity as established employees. They then complained to management about their lower wages and accused them of exploitation. Management then had a choice – to pay them the 100% rate or to let them go.

“But the main factor in the disappointment is that we haven’t seen, in the past year, the expected repatriations by South African retailers of orders from the Far East,” Baard said. He believed it was because of lower clothing supply prices in the Far East and the lack of confidence of South African retailers in the stability of the local industry.

Compliant jobs
Referring to the agreement, the union’s general secretary, André Kriel, said: “We agreed to the lower entry rate. In return, employers have committed to grow compliant jobs … they have failed to do so. We expect them to stick to their part of the agreement by resolving the management difficulties they face in implementation.

“We are not surprised [about their difficulties]. These matters were ventilated when the provision was negotiated last year and employers were confident that they would not be insurmountable.”

The apparent initial failure of the scheme will be bad news for employers in other sectors who have been putting pressure on unions for similar deals.

Baard said the 30% deal was a “second choice” for clothing industry employers during the wage negotiations last year – they never expected it to solve the competitiveness problems of the industry.

The deal is different to the government’s proposed youth employment subsidy, which would not lead to lower wages. Employers would also be subsidised by the state. But the R5-billion subsidy announced by Finance Minister Pravin Gordhan in his 2011 budget speech has not been introduced because of Cosatu’s opposition to it.

New total dispensation
According to Gordhan’s proposal, the government will subsidise, for two years, the wages of newly hired full-time workers aged between 18 and 29 who earn less than the tax threshold of R60 000 a year. The subsidy will apply in the formal sector and cover up to R12 000 in the first year and R6 000 in the second for each qualifying employee.

Asked whether the clothing industry’s experience with the 30% deal held any lessons for the proposed subsidy, Baard said that the general lesson was that “you have to have demand for a particular product in the sector, and the mere fact that labour is cheaper will not mean that more people are employed”.

What industry really wanted was a “new total dispensation”, involving a lower general basic wage rate with workable productivity incentives, he said. But the union is totally opposed to it and claims that it is tantamount to piecework, despite the structure having been highly successful in Mauritius and other countries.

The union has assisted in setting up state incentives and other structures that encourage employment in the industry. It also says there is an existing productivity incentive scheme, although Kriel admitted that it was applied by few companies because employers complained it was in addition to a basic wage that was too high.

Baard said: “International experience is that, ultimately, the market trumps policy – that clothing factories migrate from high labour cost economies to lower labour cost economies, no matter what subsidies are offered.

Protective tariff barriers
“For instance, factories in China are currently migrating from the coastal areas, where wages are rising, to the rural north.

“In South Africa the market is telling us that we have outpriced ourselves. The high extent of non-compliance by factories [to bargaining council wages] in South Africa is confirming this.”

Kriel said: “Behind the incorrect public pronouncements that wages are too high, for a long time clothing employers have lamented their inability to compete against countries which subsidise their industries. That is precisely why the industry demanded such support from the state.

“Baard was recently quoted as saying that the South African industry had not been ‘out-competed’ but ‘out-subsidised’ – that it doesn’t seek protective tariff barriers, but it wants equal treatment.

“Baard is factually wrong about the industry productivity incentive scheme. It does not require employers to add any additional monies because the scheme clearly states that existing rates can be rearranged to allow for a component thereof to be diverted as compensation for productivity improvements,” Kriel said.

Filibustered and delayed
But Baard said the productivity incentive agreement allowed by the union was only for 0.5% of an increase in wages, with the agreement of the workers, which was too trivial to have any real effect.  Attempts to implement it had also been “filibustered and delayed” by shop stewards.

The union recently claimed that South African clothing workers had become significantly more productive over the past few years, although each year they earned less per garment they produced.

“Recent data compiled by Productivity SA shows that, between 2005 and 2010, labour productivity for the sector has increased by 73%, far outstripping the 54% growth in real earnings over the same period,” it said.

Baard said the productivity increase figures quoted were “multifactor” and not just for labour and therefore were a misrepresentation.

But Kriel responded that “the statistics we have quoted are most definitely not for multifactor productivity, they are for labour productivity … The problem is that multifactor productivity has been held back by another constituent productivity factor, capital productivity, because employers have not sufficiently modernised their capital equipment. In other words, productivity has been rising predominantly because of the efforts of workers, not employers.”

Baard said Amsa had asked the union for a copy of the Productivity SA report, to no avail, and it had been unable to find it on the internet.

Numbers from Statistics South Africa for 2008 indicated that the textile, clothing, leather and footwear cluster had the lowest profit margin of all manufacturing industries, at 1.4%, although it did have the potential to create many jobs.
None of the parties in the industry deny that wages in the clothing industry are pitifully low. The dispute between them is fundamentally about whether a competitive clothing industry can survive in South Africa if higher wages are paid.

Closure of competitors
Employers who are compliant with the bargaining council wage rates are insisting in this year’s wage negotiations that the 450 noncompliant factories must be closed down to create a level playing field, but the union now appears to be less keen on doing that than in the past.

The noncompliant factories known to the bargaining council provide about 40% of the employment in the industry. With those not known to the council – often small operations – it probably means that the large majority of employees in the industry are paid wages below bargaining council rates.

Baard said that, given the union’s refusal to consider a fundamental change in the wage structure, the compliant employers would insist that noncompliant factories had to be shut down. Although a deal to phase in compliance to full bargaining council wage rates by April this year was in place, it had not been enforced, despite writs being issued for the closure of about 450 noncompliant factories. Baard said the union had obstructed the execution of these writs.

The closure of these factories and other noncompliant operations could lead to more than 30000 job losses, mainly in KwaZulu-Natal.

Earlier this month Amsa walked out of the first round of this year’s wage negotiations between compliant employers and the union, which was seeking a 13% wage increase.

Baard said the move was unprecedented.

Execution of the writs
“Employers are angry and will not countenance any wage increase unless the union comes on board so that level playing fields are created.”

Ahmed Paruk, head of the United Clothing and Textile Association, which represents 128 noncompliant clothing manufacturers in KwaZulu-Natal, said he had information that the union was holding back on the execution of the writs.

“Noncompliant companies have over the years refused to go along with the wage increases and, even though compliant companies now agree that wage levels are unsustainable, they then insisted that the bargaining council must close noncompliant companies,” Paruk said.

But Kriel said the union did not support noncompliance.

“We are painfully aware of the brutalities of such employment. Nevertheless, although the union believes noncompliant companies should be closed, such action is not our first preference. We have been at pains to seek alternatives, such as a phase-in programme to compliance allowing incentives to promote compliance.

“It is not true that compliant employers have suffered increased prejudice due to noncompliance. There is a range of support and other measures which helps to mitigate the effect of non-compliance.

“For instance, only compliant employers have access to the lower entry wage rates and to government incentives.”

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