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EXECUTIVE SUMMARY
Hanging by a Thread
TEXTILES SECTOR CRISIS – THE DA’s 8-STEP SOLUTION
The government’s contradictory policies have plunged South Africa’s textiles, clothing and footwear industries into a precarious situation.
The government has implemented a trade liberalisation programme far more ambitious and rapid than the World Trade Organisation requires. At the same time, it has incongruously forced firms to resist the downward pressure on wages that a more competitive market exerts, and has implemented ultra-protectionist and unnecessarily complex labour laws. These pose a direct threat to the viability of textile firms in the global market and have compelled them to reduce their labour force or fold.
Thousands of jobs have been lost over the past ten years, and 35 500 were lost in 2004 alone. Twenty-four firms have closed since July 2002 and several others, such as the old and established factory, Rex Trueform, are currently threatened with closure. In the face of surging Chinese imports, production has stagnated and the output value of textile products has fallen.
In addition, government policies have caused South Africa to lose several of its largest and most important firms to countries where labour costs are lower and incentives to investors are more attractive, such as Botswana and Lesotho. One such firm was Africa’s largest blanket manufacturer, Waverly Blankets.
In response to the disdain with which the department of trade and industry has treated the textiles sector and government’s hopelessly inadequate – even negligent – response to this crisis, the Democratic Alliance undertook its own investigation of the problems facing the sector. We recommend that the following eight measures be implemented as a matter of urgency:
1.Government should offer textiles and clothing firms comprehensive adjustment packages designed to assist them to restructure and move into niche markets.
2.To promote investment in the textile sector by both foreign and South African investors, differential incentives that favour foreign investors should be removed and taxes reduced, so that the environment for investment becomes more attractive in general.
3.Government should protect our industries from foreign firms that are guilty of unfair trade practices by invoking World Trade Organisation safeguards against dumping. In addition, it should follow the precedent set by Brazil by setting a minimum value on all items of imported clothing. If import prices are below that minimum, government should demand a detailed explanatory report from the importing firm and only accept the import if it is proven that unfair labour and trade practices were not employed.
4.The annual increase in Chinese imports should be restricted to 7,5% of the previous year’s volume until 2008. In terms of World Trade Organisation rules, member countries can cut back the increase in Chinese imports provisionally if they pose a serious threat to the country’s entire market. It is absurd that SA has watched thousands of jobs being lost, but neglected to use this mechanism.
5.Government should level the playing fields and no longer restrict South African firms to buying cotton from the Southern African Development Community. Firms should not be forced to pay a 30% import duty on cotton imported from elsewhere. SADC cotton is currently far more expensive than cotton from the northern hemisphere, and is often not of as high a quality.
6.Government should allow firms to obtain partial labour law exemptions. It should create export processing zones (EPZs) in which firms can apply for exemptions from certain taxes and labour laws in order to produce cheap goods exclusively for export. EPZs in Mauritius, Nigeria, Vietnam and China, among others, have proven to expand production and provide employment opportunities to unskilled workers.
7.In line with the DA’s general policy on increasing employment, all firms should be encouraged to employ more workers through the provision of incentives, such as a tax deduction of 150% of the first R2000 per month of every new employee’s salary for the first five years.
8.Training should be improved through the provision of direct incentives to firms to develop the skills of their staff as they see fit. Government should fully reimburse firms for approved training.
The DA is in favour of trade liberalisation; however, it realises that the country’s textile firms were developed under a highly protectionist structure of tariffs and need to be given incentives to make the adjustments demanded by government’s policies.
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