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INDUSTRIAL POLICY CHALLENGE

THE CLOTHING AND TEXTILES industries are singled out in the ANC’s election manifesto for special attention save and grow jobs through policy action to help the sector. Both industries will probably be the biggest test for Government’s ambitious industrial policy.

Industrial policy is defined as Government intervention to stimulate specific sectors of the economy that leads to better outcomes than would be the case if the fate of the industries were left up to market forces alone.

The ANC’s manifesto as well as Government economic policy documents lay great store by industrial policy as a tool to ramp up economic growth and create and save jobs. In doing so, Government is hoping to emulate Asian successes such as Japan and South Korea.

Because It’s labour-intensive, the clothing/textiles sector is a priority for industrial policy attention. Trade & Industry Minister Mandisi Mpahlwa has described the sector as”sensitive” and his department is currently working on a package of measures to help support it.

One thing is clear: industrial policy attempts to save SA’s besieged clothing/textiles industries up until now have failed dismally. Probably the most high profile attempt at intervention came with the introduction of import quotas on clothing and textiles imports from China. The introduction of quotas followed a massive surge in imports from China that sent the sector reeling and led to huge job losses.

The two-year long quotas expired at the start of this year. Towards year-end 2008 there was some speculation that the quotas would be renewed, as some players — most notably the SA Clothing & Textiles Workers’ Union (Sactwu) — thought there hadn’t been enough time for the local industries to get their acts together.

However, Trade & Industry acting director-general Iqbal Sharma says there are no current plans to renew quotas. He says they can only be renewed if a formal application is received, and none has been. Although there were some calls to the Department of Trade & Industry (DTI) expressing an interest in extending the quotas, no formal procedure has been followed to achieve their extension.

Sactwu and the Textiles Federation of SA couldn’t be reached for comment. But the clothing manufacturers’ association — Clotrade — is now critical of the way quotas were implemented, although it still believes China competes unfairly. Clotrade executive director Jack Kipling says the quotas should have been introduced in 2004/2005, before 20 500 jobs had been lost in the clothing industry. Earlier implementation would have been more successful. Kipling also raises the fact that quotas on fabrics had been introduced, saying that did more harm than good. That seems to be a universal criticism.

Simply put, most of those companies couldn’t find the stamina or skill to fend off the influx of cheaper imports and sustain a shareholder base with meaningful returns.

Soon after the implementation of the quotas the Trade Law Centre for Southern Africa (Tralac) conducted an analysis of their initial impact. Tralac found that other Asian countries had taken the place of China in supplying SA with cheap clothing. Those were: Pakistan, Malaysia, Mauritius and Vietnam. More recently, a report by University of Cape Town academics Mike Morris and Lyn Reed found quotas had failed as an intervention intended to stimulate growth and employment in SA’s clothing industry.

Their report says: “Macroeconomic trade data shows that while quotas have effectively curtailed Chinese clothing imports, especially in quota lines, local firms continue to be challenged by competitors from emergent supplier locations, which are even cheaper than China.”

Report author Morris says: “One can’t save the clothing and textiles industries through artificial measures such as quotas. The only way they can be saved is through raising the competitiveness of individual firms and getting the players along the value chain to work effectively together. Co-operation with retailers is necessary, as they can assist local manufacturers to raise their competitiveness. Local industry has an advantage over importers, in that they’re closer to the market. They can also cut their lead times, increase their throughput and use flexibility and speed to cornpete.

Government’s plan to achieve those aims is a “cutomised sector programme” (CSP) for the industries that would see Government, labour and business work together on measures to improve competitiveness. According to media reports, concessional financing from SA’s Industrial Development Corporation, plus Government grants for investment in technology and upgrading, would form part of a government package to help the sector. Assistance with training workers is also reportedly a part of the package.

Sharma declined to provide details of the package, which has been long in the making. He referred Finweek to the chief director of industrial policy, Nimrod Zalk. He, in turn, asked that the media liaison officer of the DTI be contacted. At the time of writing there had been no response from the DTI. One can only conclude that working out an industrial policy plan for the clothing and textile industries is proving very challenging indeed.

Source: Finweek – Greta Steyn