TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS

UNCLAS SECTION 01 OF 04 PRETORIA 003823 SIPDIS DEPT FOR EB/TPP/ABT/EHEARTNEY, AF/EPS, AF/S COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA COMMERCE ALSO FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND DEPT PASS USTR FOR PCOLEMAN AND AHEYLIGER E.O. 12958: N/A TAGS: ECON ETRD KTEX SF SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS AND PROJECTION OF FUTURE COMPETITIVENESS REF: (A) STATE 146213 (B) Pretoria 2238 (C) Pretoria 448 SUMMARY -------------- ¶1. (U) This cable provides statistical data to the extent currently available and other information on South Africa's textile and apparel sector as requested in ref A for the calendar year 2004 and mid-2005. Answers to questions posed in Ref A are based on interviews with major players in the South African textile and apparel industry, as well as government documents and officials. While production figures for 2004 and 2005 do not seem to reflect yet what we are being told, it is clear from our interviews that the tide has clearly turned. Increasingly, industry is unable to price competitively in either the local or the international market. The industry is under severe pressure and many operations are closing down. More background on recent developments in the South Africa may also be found in Refs B and C. End Summary. Industry Statistics -------------- ¶2. (U) Data on the textile and apparel industry in South Africa as requested by Ref A for the calendar year 2004 and for midyear 2005 to the extent currently available may be found in the table below. [Note: Post arrived at the USD values by using the average rand/dollar exchange rate of 6.45 for 2004 and 6.20 for 2005 (to mid-year). Mid-year 2004 2005 -------------- Total industrial production $38.2bn $20.3bn Textile, Apparel & leather n/a n/a goods production Total Industrial sales $120.7bn $64.5bn Textile, apparel & leather $5.7bn $3.2bn goods sales Textile & Apparel share 3.31% 3.20% of imports Textile & Apparel share 1.67% 1.39% of exports Total manufacturing 1,279,000 1,222,000 employment Total textile employment 51,456 45,319 Total apparel employment 112,031 97,454 [Note: The 2005 employment statistics are only for the first quarter.] 
[Note: Statistics South Africa advised that the final production figures for 2004 for textiles, clothing and leather goods would only be available in a few months.] Answers to Specific Questions -------------- ¶3. (U) Answers to the following ref A questions are based on interviews with major players in the South African textile and apparel industry, as well as government officials. Questions and answers appear in paragraphs 4- ¶12. ¶4. (U) Are host country producers receiving lower prices due to heightened international competition? -- Both textile and apparel producers tell us that they are receiving lower prices because of extreme competition from China. The apparel industry complains that retailers press local manufacturers to reduce prices and frequently use examples of offers of cheaper imports to exert further downward pressure. ¶5. (U) Have the manufacturers received more, less, or the same number of orders as in the past? -- The Textile Federation (Texfed) indicated that the textile industry has received almost the same number of orders in the first 6 months of 2005 as it did during same period in 2004. Jack Kipling, President of the Export Council for the Clothing Industry in South Africa, indicated that the clothing industry on the other hand received fewer orders during the same period. ¶6. (U) Have foreign investors, including Asian investors, closed factories or otherwise pulled out of local production? -- The South African apparel industry reported the closure of 43 clothing factories and 37,000 job losses in South Africa from January 2003 to June 2005. According to Jack Kipling the two largest clothing manufacturers that closed their doors were China Garments (Taiwan) in the Eastern Cape Province, which employed about 2,000 workers, and Nove Clothing (Taiwan) in KwaZulu-Natal, which employed about 1,200 workers. For those clothing factories that continued to operate, most underwent substantial downsizing. -- According to the South African textile industry, 11 spinning, weaving and knitting mills closed down during 2003 and 2004. Two more mills closed down between January 2005 and August 2005. ¶7. (U) Have the United States safeguards or the European Union agreement with China affected the export prospects for your host country manufacturers? -- The local clothing and textile industry are not aware of any obvious change in exports to the European Union and United States as a result of the implementation of safeguards. ¶8. (U) Has your host government implemented or been considering safeguards or other measures to reduce the growth of imports of Chinese textiles and apparel products into the host country? -- In June 2005, the Clothing Trade Council of South Africa (Clotrade) petitioned the International Trade Administration Commission for safeguard protection. The industry wants safeguards on all products covered in Chapters 61 and 62 of the Harmonized Tariff Schedule (HTS). -- The South African Textile Federation (Texfed) is in the process of finalizing its petition for safeguards protection on bed linen products and ready-made curtains from woven fabrics. ¶9. (U) Has increased global competition affected local labor conditions by causing employers to reduce wages, seek flexibility from government required minimum wages, or adversely affected union organizing? -- Thus far the local industry has not experienced a reduction in wages nor has the government shown flexibility regarding minimum wages or labor regulations. However, at the ruling party's National General Conference in June, a document entitled "Development and Underdevelopment" was discussed that contained proposals to provide greater wage flexibility in labor intensive industries such as textiles and apparel. -- Labor unions reported a loss of 16,250 jobs in 2004 and 16,830 jobs for the period January 2005 to August 2005 in the clothing and textile industry. In an effort to save the industry from shedding more jobs, the Congress of South African Trade Unions (COSATU) has shifted its focus to the South African retailers. COSATU wants South African retailers to sell clothing with an average of 75% local content. Major clothing retailers Foschini, Truworths, Woolworths, and Edgars Consolidated issued a statement in May rejecting this proposal. They criticized COSATU's initiative for constituting gross interference in the competitive dynamics of the supply chain, and for potentially having a negative affect on consumers, retail business, and the South African economy as a whole. COSATU has also marched on the central bank in favor of lower interest rates and, thus, a weaker rand. To ensure the competitiveness of the local industry in international markets, COSATU believes that the rand should be trading at between R9 and R10 to the U.S. dollar, as opposed to the R6 to R7 that it is trading at now. ¶10. (U) Has the government or private industry taken action to increase host country competitiveness, such as improving infrastructure, reducing bureaucratic requirements, developing the textiles industry, moving to higher value-added goods, or identifying niche markets? -- The South African government has indicated that it was searching for a lasting solution to cheap imports and the country's lack of competitiveness to enable industry to transform into a competitive world player. The Minister of Trade and Industry appointed a Technical Task Team in 2004 to investigate and find solutions to the problems in the industry. The final report has not been released. In the absence of such a report, analysis of the South African government's position on the clothing and textile situation is difficult. -- Reflecting its strong trade union orientation, the Department of Trade and Industry has criticized management for not adapting to changing market conditions and exploring niche products. The Minister of Trade and Industry, in an effort to reduce and eliminate illegal imports and transshipment, published regulations that prohibit the importation into or the sale of textiles, clothing, shoes, and leather goods in South Africa unless the country of origin is clearly labeled. These regulations came into force on May 23, 2005. This was part of a national control system created to monitor compliance with country-of-origin rules. ¶11. If your host government is a partner in a free trade agreement or beneficiaries of a preference program such as AGOA, CBTPA, or ATPDEA, will this be sufficient for the country to remain competitive? -- The South African apparel industry is not convinced that the current preferential access to U.S. markets under the African Growth and Opportunity Act (AGOA) is sufficient to compensate for the strength of the rand and the close of the 1974 Multi-Fiber Arrangement and subsequent Agreement on Textiles and Clothing. The clothing industry asked for a review of the special AGOA rule on apparel. South African manufacturers complain that the rule restricts them from sourcing cheap yarn and fabric from Asian countries, thus affecting their international competitiveness. A further constraint to the clothing industry is the limited variety and quantities of domestically produced fabrics. These factors inhibit the ability of firms to meet the rules of origin requirements for exports under AGOA. ¶12. Overall, can South Africa be competitive in textiles and apparel exports with the end of global textiles and apparel quotas? -- The South African textile and apparel industry is not optimistic about its future competitiveness unless concrete actions are taken to support the South African industry. Texfed stated in its July 2005 Economic Review that in view of the general economic conditions, decline in exports, increased low priced imports and decline in local production, the South African textile industry will not be able to recover in future. Jack Kipling, President of the Export Council for the Clothing Industry of South Africa, believes that the situation in which the clothing industry in South Africa finds itself is due to the effects of globalization and trade liberalization. He argues that the clothing industry is the most global of all manufacturing sectors, with low margins and high price sensitivity. Therefore, it is the first sector to feel the effects of globalization. -- The bleak picture of the textile and apparel industry in South Africa can be attributed to the inability of the industry to price competitively in both local and international markets. Before January 1, 2005, industry competitiveness was adversely affected by the rapidly strengthening rand. South African imports of Chinese apparel and textile products increased by 76% and 35%, respectively, in 2004. Today, China currently holds 86% of the apparel market for imports in South Africa. After January 1, 2005, industry competitiveness has been adversely affected by the lifting of international import quotas and the subsequent sharp increase in exports coming out of China and India to the major export markets. TEITELBAUM