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TRADE AND INDUSTRY PORTFOLIO COMMITTEE
19 October 2005
CLOTHING, TEXTILE, FOOTWEAR AND LEATHER SECTOR: HEARINGS
Chairperson: Mr B Martins (ANC)
Documents handed out:
TRADE AND INDUSTRY PORTFOLIO COMMITTEE
Brief Overview by Department of Trade and Industry
Submission by the CloTrade and Export Council for the Clothing Industry in South Africa
Submission by South African Textile Federation
Submission by South African Footwear and Leather Industries Association (SAFLIA)
CTFL SETA presentation
Crisis In The CTF Industry Public hearings on the Clothing, Textile and Footwear Industry
The Department of Trade and Industry (DTI) criticised the industry for not restructuring and adapting to trends in the global market. The DTI felt that this had been due to mismanagement, lack of vision and poor leadership in the sector. Industry submissions pointed to a sharp increase in foreign imports, and the strengthening of the rand, as being major threats to the local industry, and which resulted in South African products not being competitive. Illegal imports were also reported as being responsible for the decline in the industry. The Clothing, Textiles and Leather Sector Education and Training Authority (CTFL SETA) pointed out that more training was required on an annual basis, for which no funding currently existed, if South Africa industries expected to meet their targets. Labour organisations pointed out that the industry was one of the most labour intensive, and the lowest paid, despite large profits being made on the end product. A large number of job losses had been suffered by the industry in the previous decade.
The Committee asked what could be done to solve the training crisis. The SETA replied that at least an R50 million would be required to ensure an adequate amount of training. The Committee showed concern for the impact of Chinese imports on the industry and particularly, the lack of that country's human rights enforcement. The low wage of workers in the industry was discussed, with business pointing out that there were situations where partnerships had been formed between workers and owners, resulting in an increased wage and added responsibility for the workers.
Brief Overview, Department of Trade and Industry
Mr I Sharma, Deputy Director-General, Department of Trade and Industry gave a brief overview of the clothing, textile, footwear and leather industry in South Africa. He said the loss of jobs, affecting the most vulnerable segments of society, could not be tolerated. The industry faced challenges as a result of the economy that had been inherited from the previous regime. It was highly protected, heavily subsidised, inefficient and not competitive. The challenge was to restructure the economy to a manufacturing economy that would be able to confront the rapid changes that were taking place in the global economy. A collective effort on the part of all stakeholders was necessary. He criticised the industry for not having undergone any deep-seated restructuring and for not having adapted to global dynamics. This, he said, was due to mismanagement, lack of vision and poor leadership. The relationship between labour and management had to be revisited.
Submission by CloTrade and Export Council for the Clothing Industry in South Africa
Mr K Robson, Director (HR), said over one million South Africans depended on the industry for their livelihood. It was a key sector for job creation but this national asset was in danger of being destroyed by huge imports that had doubled in the previous two years to R3.5 billion. This, along with the strong rand, made South African clothing non-competitive. He criticised the Customised Sector Programme (CSP) that was intended to develop a five-year strategic plan for the sector but had still not been finalised. Mr A Jarvis, the Chief Executive Officer of an exporting company, then described the problem his company and other clothing manufacturers were encountering as a result of the termination of Duty Credit Certificates (DCC). The DCC was an offset scheme to compensate exporters for the high cost of production and raw material inputs. He was also concerned that the Interim Clothing and Textile Development Programme had not as yet been formally approved.
Submission by South African Textile Federation
Mr I Salie, Textile Federation President, said the key to economic development was an active industrial policy and that the WTO still permitted an activist trade policy. Growth, not deregulation, attracted foreign investment. He said illegal imports were a major threat to the industry and there had been a dramatic increase over the last 24 years. He said turnover for the industry was about R11 billion. Employer levels had come down from over 110,000 workers in the late 1980's to just over 50 000 in 2004. He said his organisation wanted to work with all stakeholders and government departments in finding solutions to the crisis in the industry.
Submission by the Clothing, Textile, Footwear and Leather SETA
Dr Rasool, Chief Executive Officer, said sustainability and growth depended on the quality of the national work force. The high cost of manufacturing in South Africa meant that the industry could not compete in the low cost, high volume sector and there was a need to move up the value chain. The level of skills in South Africa would not allow the industry to meet its targets. The sector had 200,000 workers and in order to become globally competitive, 30,000 workers needed to be trained annually. The SETA did not have the required funds due to the small levies that were received. The Department of Labour's prescriptive spending patterns that had to be complied with made it very difficult to concentrate on skills development that was critical to the industry. In particular he highlighted the need to concentrate on the CSP.
Submission by Southern African Footwear and Leather Industries' Association (SAFLIA)
Mr Comley said the Footwear and Leather Industries offered South Africa huge opportunities but the number of employees had dropped from 30,000 to 9,000 in the last 20 years. He highlighted the many ways in which retailers could benefit from purchasing locally manufactured goods as opposed to imports.
Submission by South African Clothing and Textile Workers Union
Mr Patel said the clothing, textile and footwear sector was the most labour intensive and yet the lowest paid despite the fact that retailers were making very high profits. 100,000 jobs had been lost in the last 9 years and 38,000 of theses losses occurred in the last two years. He said China did not provide the full explanation for the crisis in the industry but it was an important part. The trade balance between South Africa and China was a negative one and growing. It was mainly raw materials that were exported to China and the colonial mode of trade was in danger of being replicated with the African continent and China. Some of the problems he highlighted in the industry were weak investment, low skills development, limited attempts to integrate design and manufacturing, limited product innovation and world best supply chain management had not been achieved. He said the industry needed a combination of interventions to tackle the long-term structural challenges that the industry was facing.
Mr P Nefolovhodwe (ANC) said he was impressed with the Trade Union's submission because it gave suggestions as to what could be done to manage the crisis that the industry was experiencing. He said the Department's overview had been tough but had made a worthwhile case. He asked the Department what restructuring was needed to save the industry. Clotrade had mainly referred to the problem of Chinese imports and he enquired if there were factors relating to the industry that could be seen as problematic. Regarding the shortage of trained or skilled workers, he asked what funding Dr Rasool felt was necessary for the SETA to meet its targets.
Prof E Chang (IFP) said that importers who went into China to buy goods should be made aware of the human rights and environmental violations that affected the workers in factories there. South African importers should only buy from factories that had been approved in terms of human rights standards.
Any industry would not be viable without some government intervention. She enquired about transhipments that had since developed into what could be termed "smuggling".
Mr J Maake (ANC) said the number of workers that the SETA had the resources to train was shocking. He asked what the criteria were for the funding the SETA received, as it was clearly not related to what was needed in the industry. He asked what Dr Rasool's organisation was doing about it, as the problem would continue to compound itself. He referred to Mr Comley's presentation where he had provided a list of benefits retailers could experience if they bought from local manufacturers. He questioned why retailers were not making use of these advantages at the current time.
Ms B Ntuli (ANC) asked if the SETA could change the way in which they were training, as this was the most important part of development. If SETA's were not making progress, she suggested that the industry should look at the mandate that the SETA had been given. She questioned the difference between what Mr Patel had called "active industrial policy" and "strategy".
Mr M Moss (ANC) asked how many of those present were wearing South African clothing. He asked how one determined if items were made in South Africa because there was a good chance of the label identifying the product as South African, when it was not. The town of Atlantis used to be a vibrant manufacturing area but this was no longer the case. The statistics presented had been shocking. However, there appeared to be a missing question as people seemed to be involved in rectifying the problem and yet no one seemed to be succeeding. He questioned what processes were in place to save the industry.
Mr Moss said Mr Patel's presentation had given him a different view of trade unions from that he had received from the media. The Union could inform the Committee as to what was genuinely needed and he suggested meeting with them for some meaningful discussion.
The chairperson said the forum had not been the ideal place to discuss the issues involved. He had noted a great deal of frustration amongst stakeholders and the DTI and he would seek a process to deal with this through frank and open discussion.
Mr Robson from CloTrade said there had been heavy emphasis placed on China because import penetration from that country was creating an urgent crisis for the industry. He said it was true that another country would perhaps close the gap after 2012 but the immediate short- term problem needed to be addressed. He said there were other long-term structural changes that the industry was working on with the DTI such as the CSP, which he would like to see being fast-tracked. The industry did provide many other benefits to its workers, for example, sick funds that would otherwise be the responsibility of government. The SETA was also funded by the industry. The sector also consisted largely of previously and historically disadvantaged individuals. Mr Robson said the industry had lacked policy certainty in many areas, especially relating to exports.
Mr Sharma said the industry needed to do a self-evaluation. Firms in the sector needed to become more flexible and adaptable. He criticised the high management structures of many firms in South Africa. Directors were accustomed to huge perks and benefits. Labour should also not be treated as a commodity or a machine. He clarified his stance, stating that these criticisms did not apply to all firms, as there were many in which workers had been given the opportunity to buy into the business.
Another DTI spokesperson referred to the issue of the CSP. He said nothing had been lost in the revised document, but short-term issues that could be acted on immediately had been separated from the long-term issues. Work was still continuing on issues that had been left out.
Mr Comley said the Footwear and Leather Industry had introduced a number of activities for its labour force that were incentive based. The workers in his factory had a share of the business and were given individual responsibilities allowing them to take home an additional 50% of their salary per week (averaging R250 per week) because of increased productivity. He said there had been no growth in footwear manufacture but the throughputs had been shortened, some by 3 days. He encouraged retailers to buy goods with higher input cost and to manage their stock better instead of buying cheap goods and marking them up as high as possible. He said rapid stock turn was negated by the high value of the rand against the dollar and the relatively low interest rates.
The chairperson asked what the average wage was.
Mr Comley replied that the average was R550 to R650 per week and the R250 was an extra after tax.
Dr Rasool said, with regard to SETA training, that an additional R50 million from the National Skills Funds would begin to make an impact and an extra R75 million a year would make a significant impact.
Mr Nefolovhodwe interjected to ask what he meant by "significant impact".
Dr Rasool said between R7 500 and R15 000 per learner was needed for training. The industry paid around R72 million per year to SARS and received R60 million a year. 10% was used for administration and companies received R30 million in refunds for learnerships. The law required that 20% of the money was kept in a discretionary fund (approximately R12 million a year) and because not all companies claimed their refunds, the SETA had about R20 million to spend a year. This was not enough to sustain the industry and to skill the sector to the levels that were desired.
Dr Rasool said the skills environment in which the SETA operated were overly regulated and the flexibility which they needed did not exist.
Mr Patel said he appreciated Mr Nefolovhodwe’s comments. In response to the human rights question in China he said the issue had been raised with Woolworth's senior management. The company had been asked about branding itself as an ethical corporate citizen and yet sourcing their goods from China, a country that was not able to guarantee any basic labour rights contained in the South African Constitution. He said citizen advocacy groups should be raising more awareness of the issue. The industry had a long-term campaign to brand South Africa as an ethical supplier not only for domestic but for export markets. The industry was raising the issue because China had a competitive advantage as a result of these practices and that was the real problem. A beneficiation programme was needed because South Africa exported an abundance of raw materials. Regarding the smuggling problem, he said companies were benefiting from the smuggling. China must not be blamed for it, but rather those who became party to such practices.
He said the CSP included a significant increase in learnerships. Whereas 30,000 learnerships were needed, only 2000 were being created. The funding was coming only from the industry and R800 million over a three-year period was needed. With the advantage of volume, training costs could be brought down.
In response to Ms Ntuli's question he said industrial policy was the framework set by government together with business and labour, whereas strategy included all the elements involved, for example, product innovation.
Concerning South African products Mr Patel said garment labels must contain the local manufacturer's code and the importer's code. His organisation wanted the DTI to retain this regulation so that inspectors could identify items to see whether particular manufacturers had the capacity to produce these items. The label "Made in South Africa" would then have true integrity. His organisation wholeheartedly supported the view that labour was not a commodity. It was imperative to find a growth path that combined the dignity of workers and the competitiveness of an enterprise. Not all companies were guilty of paying low wages. Partnerships based on mutual respect were needed.
In conclusion, Mr Patel highlighted the actions that his Union felt needed to be taken:
1. Technology and machinery needed to be modernised in a number of companies.
2. Workers needed to be trained substantially in skills that would give them greater flexibility and
improved productivity that would allow them to respond to modern market needs.
3. New product development was needed particularly in textiles.
4. Design capacity needed to be built on.
5. Local brands must be developed.
6. Quality needed to be improved on.
7. Improved speed between production and distribution.
8. Export development was needed.
9. Raw materials should be beneficiated more.
10. A stronger buy local campaign was needed.
11.The China question had to be addressed.
12. Illegal imports had to be combated.
The chairperson said there was a common objective between all the stakeholders represented. He reiterated that the meeting had been the start of a process that provided a framework for open, critical and constructive discussion. He assured those present that ongoing meetings with the Department and stakeholders would be included in the programme for the following year.
The meeting was adjourned.
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