July/August 2014

A review of trade and industry policy: Clothing,

Textiles and Footwear

About the KZN CTCThe KZN Clothing and Textile Cluster (KZNCTC) is a not-for-profit, public-private sector partnership designed to enhance the competitiveness of ap-parel, textile, footwear and affiliated manufactur-ers in KwaZulu-Natal. The cluster has firm-level members, ranging from machine suppliers to de-sign/logistic houses, CMT’s, clothing manufactur-ers, textile mills and retailers. The member firms employ approximately 11 000 employees and our database extends to over 300 individuals repre-senting a diversity of companies and other stake-holders in the value chain.The structure of the cluster is such that it is gov-erned by an executive committee comprising rep-resentation from local and provincial government, tertiary education institutions, clothing associa-tions, other clusters or special purpose vehicles, manufacturers and retailers. The Cluster is funded through government grants, retailer donations and membership fees as well as manufacturer mem-bership fees. The Cluster is a registered compa-ny with directors and is run as a “by industry for industry entity”, focusing on competitiveness en-hancement and job creation/retention. The clus-ter runs programme content through three core programmes, namely World Class Manufacturing, Value Chain Alignment and Capacity Building. The KZNCTC is powered by B&M Analysts an organi-sation that provides high valued support services to advance industrial development.

About B&M AnalystsCluster facilitation services are provided by Benchmarking & Manufacturing Analysts SA (Pty) Ltd (B&M Analysts), an organisation that provides high value specialised support services to drive sustainable industrial development. Over the past 15 years, B&M Analysts has developed method-ologies and skill sets that allow it to play a unique role in relation to supporting the competitiveness of value chains and the growth of industrial sec-tors. These services are tailored to support the industrial development goals of government or-ganisations, private sector organisations and pub-lic-private partnerships (PPP). B&M Analysts is a verified Level 2 B-BBEE contributor under the Codes of Good Practice for Broad-Based Black Economic Empowerment (B-BBEE).For more information on B&M Analysts please visit www.bmanalysts.com.

ContentsAbout B&M Analysts 2About the KZN CTC 2Recent Events 4A review of trade and industry policy: Clothing, Textiles and Footwear 5

Upcoming Events 12Industry News 13

RECENT EVENTS

Date Event

9, 11, 22 May 2014Quick Response Retailing Training

27 May 2014 Total Quality Management Workshop29 May 2014 State of Logistics Workshop3 June 2014 Peer Review – Apparel Industries17 July 2014 Financial Planning and Management Executive Session and

Executive Committee Meeting22 July 2014 CMT BOOST – Financial Management and Costing Work-

shop

A review of trade and industry policy:

Clothing, Textiles and Footwear

By Shaun Gannon and John White

Feature Article

Feature Article

Post liberalisation of the South African economy the Clothing, Textiles and Footwear sector has not enjoyed the benefits of globalisa-tion but rather contract-ed significantly. In this challenging liberalised era, with varying de-grees of success, pol-icies and programmes

mechanisms have been put in place by gov-ernment to support the industry.

Detailed below are the current major trade and industrial development policies and pro-grammes of significance to the Clothing, Tex-tiles and Footwear sector in South Africa. To compare, China’s trade and industrial devel-opment policies and programmes are also list-ed.

Summary of South Africa’s major trade policies relating to the Clothing, Textile and Footwear Industries

Trade Policy Countries Involved Terms Products InvolvedCustoms and Excise Tariff South Africa and most of the

rest of the WorldClothing textiles and footwear predominantly at a rate of duty of 40%, unless specified below

All products

Southern African Customs Union (SACU)

South Africa, Botswana, Leso-tho, Namibia and Swaziland

Duty free movement of goods with a common external tariff on goods entering any of the countries from outside the SACU

All products

Southern African Develop-ment Community (SADC) Free Trade Agreement

Between 12 SADC Member State

A FTA, with significant du-ty-free trade

Most products

Trade, Development and Co-operation Agreement (TDCA) Free Trade Agreement

South Africa and the Europe-an Union (EU)

A FTA, with significant du-ty-free trade; clothing textiles and footwear predominantly at a SA rate of duty of 20% and EU rate of duty of 0%

Most products

Africa Growth and Opportuni-ty Act (AGOA)

Granted by the US to 39 Sub-Saharan African (SSA) countries

Preferential access to the US market through lower or no tariffs

Duty free access to the US market of approximately 7,000 product tariff lines.

source: the dti (www.thedti.gov.za)

Summary of South Africa’s major trade policies relating to the Clothing, Textile and Footwear Industries

Trade Policy Countries Involved Terms Products InvolvedCustoms and Excise Tariff South Africa and most of the

rest of the WorldClothing textiles and footwear predominantly at a rate of duty of 40%, unless specified below

All products

Southern African Customs Union (SACU)

South Africa, Botswana, Leso-tho, Namibia and Swaziland

Duty free movement of goods with a common external tariff on goods entering any of the countries from outside the SACU

All products

Southern African Develop-ment Community (SADC) Free Trade Agreement

Between 12 SADC Member State

A FTA, with significant du-ty-free trade

Most products

Trade, Development and Co-operation Agreement (TDCA) Free Trade Agreement

South Africa and the Europe-an Union (EU)

A FTA, with significant du-ty-free trade; clothing textiles and footwear predominantly at a SA rate of duty of 20% and EU rate of duty of 0%

Most products

Africa Growth and Opportuni-ty Act (AGOA)

Granted by the US to 39 Sub-Saharan African (SSA) countries

Preferential access to the US market through lower or no tariffs

Duty free access to the US market of approximately 7,000 product tariff lines.

source: the dti (www.thedti.gov.za)

CIP and PIP grants approved

Summary of South Africa’s main industrial development policies relating to the Clothing, Textile, and Footwear Industries

The Clothing and Textile Competitiveness Pro-gramme (CTCP) falls under the Industrial Poli-cy Action Plan (IPAP) and comprises two flag-ship programmes, namely the Competitiveness Improvement Project and Production Incentive Programme.

Competitiveness Improvement Project (CIP)

The CIP aims, through the cluster approach, to create a group of globally competitive compa-nies that would ensure a sustainable business environment able to retain and grow employ-ment levels.

Competitiveness improvement should focus on interventions to achieve higher levels of produc-tivity, including industrial, process engineering and management activities. Interventions to pro-mote improvement should be based on a thor-ough benchmarking process.

Competitiveness Improvement Project

Production Incentive Programme

Year Value ValueActual 2010 R 27 679 004.37

2011 R 72 602 060.95 R 635 231 117.502012 R 132 695 270.20 R 577 790 955.752013 R 139 647 449.00 R 599 531 286.272014 R 260 729 502.00 R 650 485 968.08

Forecast 2015 R 98 887 791.002016 R 74 940 273.202017 R 65 368 910.802018 R 33 826 902.00

Totals R 906 377 163.52 R 2 463 039 327.60

Source: the dti (www.thedti.gov.za)

CIP and PIP grants approved

Summary of South Africa’s main industrial development policies relating to the Clothing, Textile, and Footwear Industries

Competitiveness Improvement Project

Production Incentive Programme

Year Value ValueActual 2010 R 27 679 004.37

2011 R 72 602 060.95 R 635 231 117.502012 R 132 695 270.20 R 577 790 955.752013 R 139 647 449.00 R 599 531 286.272014 R 260 729 502.00 R 650 485 968.08

Forecast 2015 R 98 887 791.002016 R 74 940 273.202017 R 65 368 910.802018 R 33 826 902.00

Totals R 906 377 163.52 R 2 463 039 327.60

Production Incentive Programme (PIP)The main objective of the PIP is to assist the textile industry in upgrading processes, prod-ucts and people in order to be more competitive. It consists of an upgrade grant and a working capital facility. The incentive benefit is limited to a maximum of 7.5% of the companies’ man-ufacturing value add (MVA) on 31 March 2011. MVA = Sales less material input costs. This in-centive will run for a period of 5 years until 31 March 2015.

China’s main trade and industrial development policies relating to the Clothing, Textile, and Foot-wear Industries

These policies and programmes are drawn from a Request for Consultations by Mexico to the World Trade Organisation, dated 15 October 2012, entitled China – measures relating to the pro-duction and exportation of apparel and textile products.

Some of these measures are contingent on the use of Chinese goods and/or upon export perfor-mance.

1. Income tax exemptions, reductions, offsets, and refunds for certain groups of enterprises.2. Exemptions, refunds, and reductions of import duties and Value Added Tax (“VAT”) for

purchases of equipment by certain groups of enterprises and those located in desig-nated geographic regions such as economic development zones.

3. Exemptions from certain municipal taxes for certain enterprises.4. Low-cost loans, extended loan repayment periods, and debt forgiveness pro-

vided by state owned banks, including both policy banks and nominally com-mercial banks, to key industries and enterprises.

5. Policies that call for sub-national governments to provide guarantees and loan interest subsidies, the latter of which appear to be cash payments to enterprises intended to cover the interest expense of loans made in connec-tion with government policies.

6. Preferential prices for land use rights and refunds of associated fees for en-terprises that are located in designated geographic regions including special economic zones.

7. Discounted electricity rates for enterprises that are located in designated geo-graphic regions including certain special economic zones.

8. Support to cotton farmers, transporters, processors, millers, and spinners through tax breaks, cash payments, loans from state-owned banks, and the distortion of do-mestic supply volumes through the use of state-trading enterprises, tariff rate quotas, and other means. Producers and exporters of certain apparel and textile products benefit directly to the extent that their operations are integrated, and indirectly through the lower prices for raw materials in China that result from these measures.

9. Pursuant to government policies, state-owned producers sell chemical fibers in the Chinese market at below-market prices that constitute less than adequate remuneration.

China’s main trade and industrial development policies relating to the Clothing, Textile, and Foot-wear Industries

10. Cash payments from Chinese government agencies at all levels to enterprises active in desig-nated industries or undertaking activities encouraged by the government in its industrial policies for reasons including that they:

• Are owned at least in part by the Chinese government;• Operate in the apparel and textile industry;• Operate in an industry designated by China as “key,” have been designated as a “key”• enterprise, or make a “key” product, and upgrade technology;• Engage in research related to issues identified in China’s industrial planning documents;• Have a brand or product designated by China as “famous” or “well-known”; or• Export or otherwise “expand” into foreign markets.

In summary, South African trade and industry policy in support of clothing, textiles, and footwear is designed to boost competitiveness from a supply and demand per-

spective. In terms of supply, the focus of the CIP and PIP is to develop the inter-nal competitiveness of manufacturing firms, whilst also promoting inter-firm col-laboration and clustering. From the demand perspective, relatively high import duties on clothing and textiles coming into South Africa create artificial local price competitiveness.

In comparison to South Africa, Chinese trade and industry policy is far more interventionist. There is a clear focus on developing overall value chain align-ment (which South African policy makers could learn from), in developing local

technical ability and in creating a stable cost environment as the industry ma-tures. Having said this, the sustainability of some supply-side support, such as

cash grants and artificial discounting of raw material inputs, is questionable. The impression is that the industry is being used to drive the current phase of economic

development and global expansion, but is a means to an end.

Comparisons show that South Africa’s trade and industry policy is much simpler than that of the Chinese, making for policies which are easier for industry to understand fully, and enable com-prehensive implementation. China’s strategic focus on developing overall value chain alignment, especially in areas of the industry that are struggling, provide valuable lessons for South African policy makers and implementers.

18&19 August

Cape Best Practice

Tour

9 Sept

Peer Review

October

Executive Commit-

tee Session

John Whittle and Man-agement Training on Im-plementing Performance

Measurement Systems and an Online Benchmarking

Tutorial

Date TBC

UPCOMING EVENTS

INDUSTRY NEWS

Numerous wage negotiations have occurred across the clothing, footwear and textiles sector, with new agreements being made across all sectors. All increases have been made effective from 1st July 2014, with the settlement packages and the number of employees affected summarised in the table below.

Sector Settlement Package ReachClothing Various increases applied across

various professions and levels of experience. The government Ga-zette outlining these details can be downloaded here: http://goo.gl/yIuXqI

A New Agreement on mini-mum wages has been extend to every single clothing com-pany in the whole of South Africa.

Carpet Textiles 7.75% covering a wage increase and an improved service allow-ance.

Approximately 1000 workers from 4 factories, nationally, will benefit from this increase.

Footwear 8% covering a wage increase and an improved annual bonus.

Approximately 7000 workers employed in 163 footwear factories nationally will benefit from this settlement.

Woven and Crochet Tex-tiles

8% covering wages and an im-provement in family responsibility leave.

Approximately 1500 workers in 30 factories, nationally, will benefit from this increase.

Sector Settlement Package ReachLeather Tan-ning

a 7% upwards adjustment on prescribed minimum wages for the sector. In addition, workers in the non-auto tanning section will receive an increase in their an-nual bonus, of an additional one day’s pay.

Approximately 3100 workers employed in 32 tanning facto-ries nationally will benefit from this wage improvement in con-ditions of employment.

Wool & Mohair Textiles

The settlement package is a wage increase of 8% for the first year and another 8% wage increase in the second year. However, it was further agreed that an additional 0.5% wage increase will come into effect, during the second year, should CPI as at April 2015 exceed 8%

This is a regional bargain. Ap-proximately 103 workers in 3 factories, in the Eastern Cape, will benefit from this increase.

Canvas The settlement package is a wage increase of 7.5% during the first year (1 July 2014 to 30 June 2015). For the second year of the agreement (1 July 2015 to 30 June 2016), the package increase will be 7.5% on wages.

Approximately 900 workers in about 30 factories, nationally, will benefit from this increase

Non-woven Textiles

The settlement package is 7.75% covering wages and an improve-ment on annual bonus.

Approximately 1000 workers in 15 factories, nationally, will benefit from this increase.

Pepkor buys New Zealand clothing chain

By Zeenat Moorad

Retrieved from: http://goo.gl/gmtbBX

PEPKOR, the retail group 44% owned by its chairman, Christo Wiese, last week acquired New Zealand clothing chain Postie Plus Group from its administrators, PwC, for an undisclosed amount.

Pepkor made the acquisition via its wholly owned subsidiary, Roan.

New Zealand Stock Exchange-listed Postie Plus is one the country’s oldest retailers. Its custom-er numbers have been declining over the past three years as it struggled to adapt to a rapidly changing market and increased online competi-tion. It was placed in the hands of administrators PwC on June 3 after its lenders withdrew sup-port following the group’s continuing losses.

Administrator David Bridgman said “many” of the Postie Plus suppliers would be able to continue trading with Postie Plus under its new ownership with all of the Postie Plus Auckland-based head office staff and most of its retail staff offered em-ployment with Roan.

The Postie Plus sale involves the transfer of the Postie Plus Auckland head office and 64 retail stores located throughout New Zealand, with more than 530 of about 560 staff at Postie hav-ing accepted positions with Roan.

“The ability to conclude a sale of the Postie Plus business as a going concern was materially as-sisted by using the voluntary administration re-gime, given the moratorium on creditor claims and the ability to transfer leases on terms sat-isfactory to the purchaser. This has enabled a better outcome to be achieved for creditors than would have occurred had the company been placed in receivership,” Mr Bridgman said.

Reuters reported on Friday that Postie Plus was suspended from trading on the New Zea-land Stock Exchange at the end of May, when its shares last traded at 7.3 New Zealand cents, valuing the company at NZ$ 2.9m ($2.52m). It said in April it had bank debt of NZ$12.1m, with total liabilities of NZ$24.7m and assets worth NZ$29.6m.

Pepkor’s 3,573 stores span 11 countries in Af-rica, Australia, Poland, the Czech Republic and Slovakia, through brands such as Pep, Acker-mans, Best & Less and Harris Scarfe.

Pepkor, which left the JSE in 2004 via a private equity deal with Brait, reported a 21% rise in sales to R19.2bn for the first six months of its 2014 financial year. Profit after tax rose 25% to R1.3bn.

Earlier this year, Mr Wiese set up a shell com-pany in the UK, triggering speculation that the retail tycoon was inching closer to an acquisition in the country’s clothing market.

The new company — trading under the name Pepkor UK, after Mr Wiese’s retail investment group Pepkor — is headed by Andy Bond, the former CE of Walmart-owned Asda, and his business partner, Mark Elliott.Pepkor’s three southern African distribution centres and 13 transport hubs occupy more than 250,000m². Investors can access Pepkor only via investment company Brait, which holds 37.5%.

THANK YOU

Your Ideas

If you have any ideas for improvement or would just like to get in touch, please contact:

The KZN CTC 031 764 6100 (office)

kznctc@bmanalysts.com

www.kznctc.org.za