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Transcript: Interview with SACTUW’s Etienne Vlok about the retail and textile masterplan

by | Jun 8, 2020

On Wednesday, 3 June, editor-in-chief of Twyg Magazine, Jackie May was in conversation with SACTWU’s National Industrial Policy Officer, Etienne Vlok to discuss the retail, clothing, textile, footwear and leather (R-CTFL) masterplan which was signed by major CTFL retailers, manufacturers, labour unions and the government at the 2nd Presidential Investment Conference in Sandton, Gauteng on 8 November, 2019. The R-CTFL masterplan aims to lay a firm basis for future growth and sustainability of the industry. The piece below has been transcribed from the interview which took place on Instagram Live. Below we’ve attached the final version of the masterplan. 

Jackie May: Could you give us a run-down of what the masterplan is and why it’s important?

Etienne Vlok: We believe that in the case of clothing and textiles, the sector is especially important in terms of job creation. It is the labour intensity that makes it so crucial. Within the industry, if you look at clothing, four out of every five workers are women so if you grow the sector, it also has a disproportionate impact on the empowerment of women and on getting wages into women’s pockets.

In addition, it [the clothing manufacturing industry] also has a different aspect that very few other manufacturing sectors have and that is that you are able to create jobs in peri-urban and rural areas. For that reason it is important and so what the government did was set up a process to negotiate a masterplan.

JM: Has there been something like this masterplan in the past and has it achieved any success?

EV: The main one for our sector was probably 13 or 14 years ago, there was what we called a “customise sector programme” negotiated for the clothing and textile sector. What it managed to do was set the tone for the government support that we saw in the early 2000s. If you look back at the history of our industry, there were a lot of job losses in the 90s and in the early 2000s when imports started to flow into the country at great speed. In the early 2010s, for the first time we started to see governments slowly start to put some money into the industry especially to help companies buy new machines and in that way, start to improve competition with imports from other countries. That was due mainly to the customise sector programme. Around the same time, we also started to see government doing something about customs fraud and illegal imports.

We think this plan [customise sector programme] achieved some successes. There were however gaps in the programme. While we managed to stabilise the industry, the industry stagnated – it was not growing. We need to find a new plan that will ensure growth in the industry and not just stabilise it. At the moment we are in the second phase of industrial policy, us and autos are at the forefront now. Both have been agreed upon and adopted but it is now the case of implementation that is absolutely crucial.

JM: The outlay of the policy is really exciting so I think now we are approaching the implementation phase so how is this going to happen and who is going to be responsible for driving that and who does the industry talk and go to for advice?

EV: Before negotiations and deciding on the plan itself one of the first things we did was set up an implementation body. In South Africa we area notoriously good at making plans but not always so good as following through. So, we set up an implementation secretariat and body that would ensure that whatever was agreed upon in this masterplan would be implemented and that there would be regular monitoring of the implementation process and progress.

The structure of the implementation and secretariat body works as follows: On the top, you have an executive oversight committee where the Minister of Trade, Industry and Competition sits and chairs. It is then made up of trade union leaders from our union, SACTWU but also the leather workers union. It is made up of CEOs of retailers, MDs and CEOs of clothing, textiles, and footwear manufacturers. Then there are other government officials involved as well. This body is supposed to monitor what exactly goes on with the implementation on a quarterly basis of the masterplan.

In between all of this you have a team that has been set up that meets more regularly to drive the implementation. So the executive oversight committee monitors it and then you’ve also got teams which consists of the different social partners and their intention is to implement it.

The department of trade, Industry and competition has set up a special R-CTFL masterplan desk at the DTFI that has staff and whose day-to-day is to run the implementation. The importance of the masterplan is not the signing of it, not the agreement, not the ceremony, it is the crucial, non-negotiable implementation of the masterplan that is what is at the fore of importance.

JM: So if I wanted to ask a question and get a fact today who would I email?

EV: The head of the project at the department of Trade, Industry and Competition offices, his name is Mahendra Shunmoogam.

JM: Could you elaborate on the current size of the industry and how you would want to expand that size by 2030 in terms of income-generation and also in terms of job creation?

EV: If you look at the formal sector, there are probably about 90,000 clothing, footwear, leather and textile workers. We would like to grow that number to 160,000 manufacturing workers. With the addition of the retail sector, we would like to grow that from about 210,000 to about 330,000 workers. These aims have been set out in the masterplan which is largely underpinned by increased local procurement of garments and finished textiles and shoes and leather goods especially from the retailers for them to purchase and replace more of the imports with local manufacturing – as they grow to not grow more overseas but more in South Africa – that is the general plan to deal with growth in employment.

Then, the second aspect for growth comes from dealing with customs fraud and illegal imports. If we are able to stop more of that, we would be able to ensure that we grow more jobs locally.

JM: With a potential push from retailers to buy more locally, do the manufacturers have the capacity for this? In the retail plan I would imagine there is policy to support the manufacturers to grow their capacity in providing that need from the retailers with job provision as one of the main goals?

EV: Yes. We can’t just wish for retailers to buy more locally. We need to ensure that the local industry is in fact able to produce more locally. So the masterplan looks at two things in great detail. First, programmes on the demand side which involves getting the retailers to buy more locally, stopping illegal imports and under-invoiced imports and in that way it means there is more demand for the local industry. In an industrial policy programme you cannot only deal with demand and think that it is going to solve your problems. If you as a manufacturing sector are not ready to deal with the demand, it really means nothing.

Then, the supply side programmes – The government has committed that for three more years it will have its incentive programme that will be running. This incentive programme has been going since the early 2010s. The flagship programme is the ‘production incentive’ which is an incentive where manufacturers can earn credit when they manufacture and produce local goods which they can offset when they improve their production, upskill their workers, and when they bring in engineers to improve their manufacturing processes and capabilities. This means manufacturers can know that there is still money and assistance available for them to improve what they’re doing. There is also a ‘skills development programme’. We recognise that it is crucial for us to have very skilled workers, managers, and technical staff in order to deal with greater demand.

The third leg is something that monitors production cycles and looks to ensure that the industry is better aligned with retail. If you look at the retail cycle, there is much greater demand in the second half of the year when we head into Spring / Summer and less demand in the first half of the year. So we need to study how to align the design, production, and manufacturing sectors with the retail sector so that there is a better service that is provided by manufacturing.

Now, all of this needs to be underpinned by decent work. This is absolutely crucial to the plan. What we have made very clear in the masterplan is that it has to be a sustainable industry. It cannot be one that supports growth through sweatshops, underpaying workers, and stripping them of their rights. We are saying that we are going to build this house on a foundation of decent work and we are going to recognise the contribution of workers, they will be paid the minimum wages that have been set in the industry, and tat the skills they acquire will be recognised and at the same time to ensure that they are skilled further to perform tasks better.

JM: In terms of how much we are importing, could you expand on illegal imports and the under-invoicing, how this happens, and the effects it has on the industry?

EV: While the masterplan has calculated that 56% of goods are imported, if you had to filter illegal imports out of that number there would be a much higher percentage than the one we have come to. But, because of the rampant customs fraud, it is difficult to come to the right data to make those correct calculations.

On that note, customs fraud is a huge issue in South Africa and it happens in so many different ways. One of the most common way is as follows: A t-shirt is imported. Because you pay a duty that is based on the value of that t-shirt, the t-shirt’s value will be under-declared when it reaches the harbour. So now instead of giving the correct value for the t-shirt, (say R35.00) and pay 45% duty on R35.00, you get to the harbour and you tell customs (which often don’t know or can’t prove the true value of said t-shirt) that the t-shirt is actually worth R1 so then you get away with paying 45% duty on R1 instead of 45% duty on R35.00.

This has severe knock-on effects mainly around protection of the industry and tax channels. The intended protection by the state is undermined. Instead of showing that you have a high threshold for imports to come into the country and making it more expensive, by undervaluing the products, you take that threshold away and makes goods much easier to come in and that undermines local employment, local factories, and local producers.

It also means that much less tax is collected. The government collects less money which means, for example, it builds fewer houses than it could have, employ fewer nurses, pay out less grants…

But what happens if you get stopped? Well, when the customs office actually challenges the claims, the person receiving the t-shirts from overseas calls up their imports partner in the country from whence the items have come and asks him to make out two invoices. One that says the container is filled with t-shirts worth R1.00 for customs but on the other invoice make the real value and later find a way to get money out of the country to pay them. Often this is linked to something called “elicit financial flows” where money that should be staying in our country and shouldn’t be leaving as easily as it does, is exiting our country.

Elicit financial flows is an especially big problem in Africa because we generate a lot of wealth through mining and infrastructure and through manufacturing. But contrary to many other continents and countries that are better at keeping their money locally and taxing it, in Africa, the money is flowing out of the continent and governments aren’t able to collect as much tax as they need to and so these same governments aren’t able to provide much needed services to their countries.

Other customs fraud includes smuggling where a container is misrepresented. For example, it is claimed that it is a product that doesn’t collect tax like some kind of technical equipment or soap but meanwhile it is clothing.

Another way is through a technique known as ‘roundtripping’ – we [South Africa] have preferential trade agreements with certain countries where they pay less tax or import duties than others. So instead of disclosing that the product comes from India where the import duties are 45%, they claim it comes from Mauritius where the duty is much lower. So you see, we have very creative people in this sector and I’m not talking about creative designers but rather creative importers who find loopholes to defraud the state and bring garments in illegally.

JM: What would a healthy ratio of locally produced goods vs imported goods be?

EV: So the threshold we have set in the masterplan is just above 40% and the idea is to get to 65% local by 2030. Just think how many jobs could be created if we increase just by the first 10%.

JM: Twyg works a lot with independent designers, creatives and small CMTs. The big retailers would hopefully be interested in the work that they’re [the small CMTs and local designers] creating and their studios so do you see this being of great importance to their work as well?

EV: I think so. It has several benefits for smaller businesses and designers. The commitment by retailer to buy more locally is not only from large and medium-sized manufacturers, it is for South African manufacturers and for us, small designers and small business absolutely form part of that. So this is an opportunity for designers to say to retailers this is the kind of commitment that you’ve made so how are you implementing that in terms of design.

The other crucial part is that the more we are able to stop higher-valued imports coming into South Africa at prices that claim to be much lower, the more space we are also creating for designers who often sell goods that may be more expensive than the average good in South Africa. So our intention and hope is dealing with customs fraud for instance is not just something that will assist large factories but also smaller designers.

JM: If we talk about textiles: cotton growing, ginning, milling and spinning…what does it look like as a scope for the textile industry?

EV: We had a large, healthy textile sector in the early 90s which was able to make a very large scope of fabrics. I have colleagues that used to work at huge textile mills in KwaZulu-Natal and Gauteng and surrounds that were very famous for their quality. Johan Deitz Shirts for instance and over the years these closed their doors as more and more fabric was being imported.

This masterplan puts a focus on the revival of that once thriving industry. The reason this is important is because, if we are going to supply to local retailers, if we import all the fabric that we use, the value of the rand against the dollar starts to have a huge impact on us. Like with what is happening now. When the COVID-19 pandemic hit, India locks down the industry and we can’t get fabric as easily as before which means we sit and wait and lose money which in turn leads to job losses and closing down of factories. We’re looking for a much stronger textile industry that can supply local products to local manufactures and in that way make sure we’re less dependent on imports.

There is also a special focus on trying to identify which of the fabrics we are not making locally and moving those textile mills into those areas so that they can produce more of those. Having said that, it is also recognised that this will be something that will not happen over night but is instead planned for the medium-term. It is an age-old problem once again and that’s the thing of duties having to be paid on fabrics that are imported and that cannot be made locally.

Had we had this interview five years ago I would have said exactly what I am saying now and that is that we are trying to solve this problem everyday but we think we are getting closer now. There is more understanding of what the possible mechanism is in order to tackle the issue. So for example, if a manufacturer wants to use a certain chiffon that is not made in South Africa, that at least they will be able to import it without paying duties.

It is a tough problem that we have tried to sink our teeth into. Ensuring how do we not destroy the last remaining mills in South Africa and trying to find that balance is not easy.

JM: Do you have statistics on the types of textiles that are most used by the manufacturers locally and what textile would we [South Africa] be interested in building up?

EV: Generally, our knitting sector and mills are much stronger than our weaving sector and mills. Our problem is the wovens. We make some standard wovens here – those used in government procurement, in uniforms like school or corporate, however, the woven fabrics we don’t really make are those that would be used in fashion garments. There was a factory in KZN called ‘David Whiteheads’ which was famous for making johan deitz shirting and we don’t have proper capacity for johan deitz shirting anymore. While we do woolen fabric, it is mainly lower-quality wool that is used in school jackets and in school trousers for instance but not in high-end jackets / fashion.

But you know, it is expensive to establish capacity. And those factories that have closed over the years, you don’t just lose jobs, you lose the industrial capacity and the investment that went into it as well.

JM: What has happened to those closed factories?

EV: Sometimes the equipment gets auctioned off to other countries. I’m sure between you, myself, and those listening in we’d be able to name dozens of mills that have closed over the years. Those mills are quite possibly making fabric somewhere else which we are now importing, ironically.

JM: Would there be plans to partner with leading textile manufactures to set up mills in South Africa?

EV: There are absolutely plans like that. Currently, we are channeling some of our energy into a textile mill that is due to go up in Worcester in the Western Cape called “Hextex”. Over the years, the retail market has moved on and has largely continued to make similar fabric to what it used to make years ago. So we are always looking for partners who can bring in technological ideas or new ideas of the type of things that should be made or could be made by those existing machines that are still there. We are looking for people who have ideas on what the best way to improve production is for example. A lot of production methods are old and unsustainable. So at the moment we are working with the CSIR to see if there are ways to clean up production. It doesn’t help to start making new products that are dirty in terms of their carbon footprint. So we have to find a way to balance keeping up with what retail wants but it must also produce clean textiles which is what retailers and designers want now. So there is lots of space for partnering.

JM: What has happened in the last seven months since the masterplan was signed? Any signs of progress?

EV: I think the most important thing is that we have seen SARS start to act which is crucial. In the early 2010s we saw some promising movement by SARS. There were lots of goods confiscated and increase in declared prices at the harbour which is always a good indication that there is actually something going on. We saw the value of goods being confiscated increase drastically.

During the State Capture years when Tom Moyane was the SARS commissioner it basically fell flat. There was very little done by SARS at the time and that you could see interestingly from their own records that they presented to parliament. Painting a picture of the tremendous collapse in confiscations at the harbours.

Recently we have seen a revival of SARS. One of the problems we had in the past was with illegal imports coming in, for instance a shirt, if I catch you I don’t even take the garment and you have an opportunity ‘to restate the price’. It’s like if your TV gets stolen and you find the culprits, they give you back your TV but they go free.

The other hopeful is that the government is continuing with its incentive programme which is crucial to manufacturers. We are not there yet. There hasn’t been as much progress as we would have wanted to see in seven months but there have been some important developments.

JM: Will there be regular updates and press releases coming out so that we can keep up to date with the process and progress?

EV: That is crucial yes. It is not just about those inside the system that need to hold it to account, it is also those on the outside. I think that’s a point that should even be raised with the Department of Trade, Industry and Competition.

JM: Thank you so much for your time, is there anything you’d like to add?

EV: I think for us, the fact that the retailers have committed to increasing their local procurement is crucial. It is something that was missing from the strategy 14 years ago. At that stage there were a lot of plans to deal with the supply and demand side and now for the first time, we have a plan where retailers are committing to buy local and that is a big positive but they are also committed to market their locally made goods. So that’s exciting because if we are able to highlight those as well, telling those stories will help across the board.

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