The South African Clothing and Textile Workers’ Union (Sactwu) has found itself between a rock and a hard place after this week’s announcement by the country’s largest clothing and textile manufacturer, Seardel, that it is closing one of its subsidiaries, Frame Textiles.

The decision, which will result in 1 400 job losses, forms part of the restructuring process by Hosken Consolidated Investment (HCI), which holds 70% shares in Seardel, aimed at turning it into a profitable company. HCI bought the shares in Seardel in June last year for R250-million.

Sactwu is a major shareholder in HCI and holds 25% of Seardel.

The decision to close parts of Frame Textiles, which include spinning, weaving, finishing and denim, raises serious questions of conflict of interest on the part of Sactwu, which had to choose whether to act in the interests of workers by saving jobs or in the interest of the company’s profitability.

Sactwu deputy general secretary André Kriel says the union has been advised by the management of the Seardel Group that the company’s monthly losses in the textile division were so significant that they placed the future of the whole group at risk.

But Kriel denies that the union’s dual role as worker representative and employer amounts to a conflict of interest. “Sactwu did not nominate board members [of Seardel] to avoid any conflict of interest.

We believe that our primazy responsibility as a union is to protect the jobs, living standards and socioeconomic interests of our members,”he says.

HCI chief executive and Seardel non executive director Johnny Copelyn told the Mail & Guardian this week that the decision to close sections of Frame Textiles was an element of the company’s efforts to turn it into a profitable entity.

“We run the company in the best interest of shareholders, including Sactwu. Business needs to have logic. There is no way you can keep business afloat while losing more than R10-mfflion a month. I don’t see how a company can run like that. If you are a director you have to run business honestly. You can’t steal money from other subsidiaries to fund a loss-making entity,” says Copelyn.

Both Copelyn and Kriel blamed the government’s reluctance to provide financial assistance to Frame Textiles for the company’s demise. They warn that if government does not change its trade policy the industry is likely to experience more job losses in the near future.

Since 2003 the clothing and textile industry has shed more than 88 000 jobs because of subsidised goods in peer markets such as China and the increasing flood of imported material.

Copelyn and Kriel believe more active industrial policy measures are needed to rebuild the industry into a competitive, focused sector that can thrive in a rapidly changing producer market.

“The company [Seardel] cannot take national responsibility to save jobs while the government is sitting on its fingers,” says Copelyn.

“We exhausted all possibilities to try to prevent the company [from closing]. But if you compete against people who are being subsidised there is no way you will remain in business. The only way we can save the textile industry and avoid further job losses in the country is if we cast have a different industrial strategy. ft’s a matter of time before people in the local industry give up on their business.”

Kriel says he was disappointed about the Industrial Development Corporation’s (IDC) unwillingness to bail out Frame Textiles,

“It is apparent to us that the IDC appetite for risk is very low and that it acts more like a normal commercial bank or private-equity company than a public-development corporation.

“Its mandate should be more focused on saving jobs than on large capital-intensive developments or on financing crony BEE deals. We believe the IDC should have [worked] and should now work with the company to address any concerns regarding the business plan that should be the basis for an intervention by the IDC, instead of simply walking away from the company,” says Kriel.

IDC chief executive Geoffrey Qhena told Business Day this week that the corporation had had lengthy talks with Seardel about how to help the company, but the parties could not come up with a workable solution.

“We tried different permutations. We have said that we would help companies that are going through difficult times during the downturn. But the problem [with Frame] goes deeper than that. Businesses have to have economic merit in the long term for us to put money in. Unfortunately, in this instance that did not seem to be the case. The intention for us is not 1 to inherit things that are not going to work” Qhena was quoted saying.

Kriel says that if Frame Textiles is to survive it needs government to provide it with competitiveness grants and working capital.

These should be complemented by two additional initiatives, namely urgent trade measures to provide a shield to local companies during the global economic crisis and real and substantial resources from the trade and industry department for the competitiveness plan developed by the industry.

The closure of Frame Textiles will result in government losing R150-million in annual taxes, according to Copelyn. “It does not make sense tome why the government cannot help us. I feel somewhere there is an opportunity for the government to save the company and further job losses,” he says.

Frame’s closure is likely to affect a number of small busineses in the industry which supply goods to nd buy goods from the company, Copelyn says.

“The company used to give small businesses goods on three months’ credit Now they will have a hard time because they will need to have letters of credit from banks to buy goods. All of this is very damaging.”

Source: Mail & Guardian – Matuma Letsoalo