The inroads made by Chinese and Indian textiles, inadequate access to finance and slow technological advancement are among the factors international credit insurer Coface identifies as hampering progress of the South African textile sector despite millions being spent on modernising and upgrading factories since 1994.
The industry’s problems are compounded by issues such as striking workers, while technological advancements overseas and global competition have hampered growth.
Nevertheless, South Africa is known for its fast turnaround times and good service delivery, and many developed nations have opted to invest locally.
“The industry has always faced challenges of a competitive nature, especially with China and India being the monopoly in the global market. Many jobs have been lost over the years, but the industry has recently managed to stabilise and continues to contribute significantly to the country’s gross domestic product and job creation,” Coface says.
The weakening rand may also assist local producers.
In its review of the local textiles and footwear industry, the insurer says textiles and clothing together account for about 14 percent of manufacturing employment and represent a large source of tax revenue, but, it points out, textile mills are particularly vulnerable to the Chinese incursion.
“Already adversely affected by the robust trade in second-hand clothing from wealthier countries, clothmakers now face significantly more competition from their Chinese and Indian counterparts.”
While highlighting the fact that many businesses say they are in a difficult position due to the extremely robust competition, Coface reflects the optimism of firms that believe the worst phase in the cycle has passed and that the industry is looking forward to a recovery in the wake of the 2008 global economic recession.
Currently the US, the EU and Japan are the largest consumers of textiles and apparel. The majority of clothing and textiles bought in these countries are imported.
The Japan Textile Importers Association estimates that 87 percent of clothes on sale in Japan are imported, while the American Apparel and Footwear Association estimates that 89 percent of US clothing is imported.
However, in the South African market 78 percent of textiles manufactured are kept within the country and only 20 percent are exported.
State intervention and assistance with grants has enabled the industry to grow marginally over the past 10 years.
But Coface says South Africa will never be able to compete against the powerhouses of China and India.
In regional terms, Coface says South Africa is one of the largest manufacturers on the continent. But the outlook is challenging, with minimum wages increasing and global competition continuing to rise. Businesses are likely to continue trimming back because operational costs are rising faster than inflation.
The industry directly employs 230 000 people and another 200 000 work in dependent industries such as transport and packaging.
The Industrial Development Corporation has calculated that for every worker in the textile industry 2.5 jobs are generated in related industries.
From 2005 to 2012 the sector contracted markedly, with total production output down by 19.5 percent. However, in this period footwear manufacturing grew by 6.2 percent.
Textiles, clothing, leather and footwear make up 4.9 percent of total manufacturing output. Exports bring in R1.4 billion for apparel and R2.5bn for textiles, mostly from the US and Europe. Back in 2001, South Africa experienced the biggest boom in exports with a 61 percent increase.
Exports overseas are holding up well, driven primarily by the benefits offered under the US’s African Growth and Opportunity Act (Agoa) which provides for duty-free imports of apparel produced in South Africa. However, over the past 10 years overall exports have decreased because of India and China’s monopoly.
A recent World Trade Organisation study concluded that China and India would dominate global textile and clothing production, with China capturing 50 percent of a market valued at more than $340bn (R3 trillion) a year.
Coface says technology is another stumbling block.
“The majority of the machinery used in South African textile, clothing and footwear manufacturing is over 10 years old, which indicates that South Africa has not kept up to date with technological advancements,” it says.
Large and medium-sized enterprises account for 85 percent of the sector’s income and employ the vast majority of workers. Small and micro enterprises garner only 15 percent of the total income.
Entrepreneurs looking to open new businesses face challenges competing with the dominant larger enterprises.
Employment numbers are volatile. After 2003 the workforce contracted sharply, but is now almost back at 2003 levels. It is feared that the same cycle may repeat itself in future.
Overall, Coface is not optimistic and sees continued competitiveness challenges.