By  on June 30, 2009

JOHANNESBURG, South Africa — The South African government has instituted a multifaceted rescue package in an effort to boost its embattled textile industry that includes dropping tariffs on certain imported fabric.

The rescue package, termed the Customized Sector Program, comprises four components: support measures to improve manufacturers’ competitiveness; capital upgrade measures embodied in an enterprise investment program, in which clothing, textiles and footwear manufacturers will be able to obtain preferential loans through the Industrial Development Corporation at prime minus five percent; skills upgrades, and the elimination of import duties on imported textile inputs, including fabric.

The fabrics that fall under this category include georgettes, chiffons, velvets, velveteens, embroidered fabric, and cotton and cotton blend fabrics manufactured from yarns of different colors.

The package is aimed at increasing the competitiveness of textile manufacturers, who have complained the South African government has not acted more decisively to safeguard their interests. In December, a controversial quota agreement with China came to an end. The manufacturing sector and labor unions both objected to the agreement, claiming it was skewed in favor of China and local importers and retailers, and put the textile industry at an extreme disadvantage.

According to government statistics, the industry contributes 8 billion rand, or about $1 billion at current exchange, a year to the gross domestic product and employs about 200,000 workers.

The Clothing Trade Council of South Africa, also known as CloTrade, welcomed the government’s latest move. Jack Kipling, executive director of CloTrade, said the organization had been urging the Department of Trade & Industry to move toward this direction for some time, believing that “removing the duties on fabric not produced in commercial quantities in South Africa was the best way to improve the competitiveness of South African clothing manufacturers by reducing the costs of inputs.”

Duty on imported fabric is 22 percent. Fabric can make up as much as half the cost of a garment.

“The rebating of the duty has the potential to reduce the costs of locally manufactured products using these fabrics by approximately 10 percent,” Kipling said.

This would help local manufacturers, he said, allowing them to compete more effectively against imports. Most countries exporting to South Africa have policies in place that allow for the rebate of fabric on all export orders. This puts South African manufacturers at a distinct disadvantage, particularly in the case of imports from Mozambique, Malawi, Tanzania and Zambia with their duty free access on apparel into South Africa.

CloTrade’s stance has always been that “the main thrust of industrial policy should be directed to getting the costs of production down rather than providing subsidies to offset structural inefficiencies,” Kipling said. “Imposing duties on inputs not produced locally is a structural inefficiency that needs to be addressed with vigor.”

The rebates on textiles mean that in the long term, local textile mills and suppliers could benefit.

“Manufacturers of buttons, zips, interlinings and packaging all stand to benefit if clothing manufacturers can regain market share,” Kipling said.

Brian Brink, executive director of the Textile Federation, also known as Texfed, was less enthusiastic about the tariff cuts.

“We are very disappointed,” Brink said. “In May and June last year, we, together with representatives from labor unions and the manufacturing industry, had a series of discussions with government and the issue of rebates was raised. A list was drawn up with a set of fabrics that would be subject to the rebates, agreed to by all parties. Twelve months later, we find that what has been published is in fact much wider that what was agreed.”

Brink said this included fabric not used in apparel.

“It doesn’t quite make sense to me and we believe that it would place in jeopardy certain textile companies,” he said.

Brink pointed out that one particular fabric in question was actually used to manufacture tire cords and conveyor belting, which was erroneously described as a fancy lining fabric. Brink added he was perplexed as to how government believed this would create more jobs within the industry.

“It is aiming for a workforce of 500,000,” he said. “But how do you do that when you are starting at a negative balance? The logic simply evades me.”

Texfed has registered its complaints and pointed out errors in fabric designations in the law with the country’s International Trade Administration Commission. The commission said in response, “If there are going to be unintended consequences from the promulgation, we will relook at the matter. We will have to rigorously investigate and make a recommendation to the relevant ministers if some of the duty rebates need to be amended.”

It’s too early to tell what the effects of these new tariff cuts would be on retail, according to Michael Lawrence, executive director of the National Clothing Retail Federation, which represents several retailers including Edgars, one of the top national department store chains.

“We are not entirely clear as to whether the products will be cheaper for the end consumer, although it will make local manufacturers a lot more competitive,” he said.

Should that happen, “instead of buying from the East, we’re more likely to buy products manufactured here,” he said.

“Naturally, it would be more beneficial to the South African economy to keep the spend within the borders of the country.”

Lawrence said there is immense value in supporting locally produced clothing.

“There is the geographical advantage, of course,” he said, adding the supply chain would be simplified and better integrated. “It would also mean we would have better control over production. We would be in a better position to monitor output, quality and safety standards, and there would be shorter lead times, making it easier to reorder. In reality, this is a great opportunity for local manufacturers.”

Andrew Jennings, managing director of Woolworths, based in Cape Town, said, “We are encouraged that the decision has finally been taken to remove the current duty tariff of 22 percent on selected fabrics with immediate effect. We are also satisfied that the list of fabrics includes yarn dye cotton and cotton blends, and chiffons and georgettes. We are in discussion with our local suppliers to understand the benefit to them, retailers and consumers, as the process to claim duty relief is fairly complex. Once we have clarity on this process we hope that the benefit can be fully realized.”

Jennings said Woolworths will source significant amounts of women’s wear, lingerie, men’s wear and children’s wear from the local South African marketplace because “it is very important for us.”

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