||Robbins, Glen (2004) Firms at the crossroads: The Newcastle Madadeni clothing sector and recommendations on policy responses. School of Development Studies Research Report 61: 1-55.
||Purpose of report
This report outlines findings and recommendations arising from an investigation into clothing firms in the Newcastle Municipal area with a particular focus on Newcastle and Madadeni.
The report is the product of a process of investigation that was launched by the KwaZulu-Natal (KZN) Department of Economic Development and Tourism (DEDT) and the Newcastle Municipality, through the local Newcastle-Madadeni Project Steering Committee (PSC).
The project involved sourcing of material from existing documentation; sourcing and analysis of data; and a series of key informant interviews and mini-workshops.
· The report documents the turmoil in the global garments sector and how this has impacted on dynamics in South Africa and more specifically in KZN and Newcastle-Madadeni. Processes of globalisation have reinforced the commodity characteristics of apparel items with persistent downward pressure on end market prices and continuous cycles of cost reductions being forced down on input providers.
· South Africa-based clothing production has witnessed considerable changes in the operating environment in the past ten years, including: rapid tariff reduction; currency instability; growth in import competition; and the opening up of new trading opportunities. These changes have been matched by more rigorous enforcement of internationally accepted labour standards and formalisation of institutionalised corporatist arrangements facilitated by government policy involving labour and capital. In an environment of increasing macro-economic stability, the environment, under these processes, has been far from consistent for clothing producers. Many thousands of jobs have been lost and the sector is characterised by a range of processes of restructuring including informalisation, sub-contracting as well as the strengthening of the market positioning of some firms and the weakening of others.
· In domestic market terms the increasing access of buyers to imports has placed enormous price pressures on domestic producers. The South African domestic market remains one characterised by middle-to-low end goods and does not carry value attributes that are generally associated with the low-run, high product variety - characteristics that predominate amongst South African-based firms.
· The export performance of South African-based firms has improved markedly since the early 1990s but has declined from the highs of the early Africa Growth and Opportunities Act (AGOA)-impact period of the past few years as currency adjustments made domestically produced goods less price competitive in the international market. Much uncertainty characterises the prospects of the export market, both in terms of currency-related effects and in terms of the nature of domestic and international policy considerations. This has tended to see firms take a much more jaded view of future export potential as many firms that took maximum advantage of Africa Growth and Opportunities Act (AGOA)-related opportunities have suffered the most in terms of loss of orders and consequent labour lay-offs.
· In this environment, the impact of these changes on the Newcastle-Madadeni area, has been significant as the local government had a long and successful track-record of attracting Taiwanese (and recently, Chinese) garment and knitwear firms to the location. Today, despite the instability of the sector, clothing remains a crucial employer to both Newcastle-Madadeni and KZN Province as a whole. The developmental potential of the sector to create employment in an employment-scarce environment has been a major driver of this interest in this sector. The region was able to capitalise on considerable statutory wage differentials and limited regulatory enforcement to position itself as a cheap labour location.
· Production activities in the clothing-related sector in Newcastle-Madadeni are relatively diversified, ranging from a handful of exporting firms to domestic market producers providing product for informal, formal low-end and formal-higher end retailers. Firms established and managed by foreign investors (Taiwanese and Chinese) predominate as only a handful of firms owned and managed by South Africans continue to operate (although these happen to be the largest employers at present).
· Whilst accurate figures of numbers of firms and employment are difficult to come by it is clear that the past few years (since 2000) have seen the loss of about 3000 jobs from large firms and the closure of a number of smaller firms. Firms attribute this variously to the impact of the currency, cheap imports, and rapid rises in labour cost. This instability has further contributed to an environment of labour-employer tensions which cannot be divorced from past exploitative practises that were both directly and indirectly supported by government programmes under apartheid. In this context the escalating presence of government as a regulator has perhaps had a disproportionate impact, although it is one which closely mirrors global standards that are increasingly becoming relevant in major foreign and domestic market segments.
· Firms and related institutions - such as Sector Education and Training Authorities (SETAs) - show little evidence of interaction and social cohesion in the area. Foreign-operated businesses display considerable levels of mistrust in domestic institutions and appear to have little cooperation with one another. Relations between South African run firms also appear limited as are relations between South African and foreign-operated firms. This undermines the potential of collective action amongst key role players in the same way that has enabled other locations under threat to adjust and respond to new competitive pressures through inter-firm and firm-institution networking.
A series of recommendations have been made in the report. These recommendations are relatively high-level preliminary proposals as they move from the perspective that conditions in the region do not allow for more ambitious exercises at this juncture. The issues and assumptions behind the recommendations are discussed more fully in the main report.
Short term interventions with a focus on the clothing sector
Appoint a part-time clothing project facilitator for the Project Steering Committee
The brief of the appointed individual would be to carry out the viability studies and business planning relating to the creation of a Newcastle-Madadeni Clothing Business Development Centre. The notion of a pro-active business resource centre was widely proposed and has precedent in similar developmental environments. The facilitator would, in parallel to the above-mentioned business planning process, organise a series of dedicated 2-3 day “clinics” for relevant entities to come to the region to disseminate information on their activities and assist with firm and other stakeholder requirements. Possible candidates for the “clinics” would include: the Textiles, Clothing, Footwear and Leather Sector Education and Training Authority, the Department of Trade and Industry (DTI), the Department of Labour (DOL), the South African Revenue Service (SARS), the Bargaining Council, Proudly South African and Buy SA. A particular effort should be made to include emerging black-owned business in these processes.
Facilitate behind the scenes resolution of bargaining council dispute
A range of stakeholders indicated that the present dispute between some clothing employer and the bargaining council (as well as the DOL) was contributing to tensions and could escalate further to impair the region’s already damaged reputation. Resolution of this in a manner which positions the Newcastle region as an area where stakeholders commit themselves to negotiated processes is important. The potential exists to turn around a negative scenario into a positive one where the regions reputation and that of key members of its community is enhanced.
Initiate high-level partnership (KZN-wide) interaction with the DTI via Member of an Executive Council (MEC)-Minister processes on national clothing sector dynamics
Key issues that need to be raised in this process include the low likelihood of a common plan between clothing and textile representatives, duty credit certificates scheme (DCCS), AGOA, incentive schemes, differential labour rates.
Medium term interventions with a broader focus (6-24 months)
It is important to recognise that collective processes envisaged in some of the recommendations are likely to take some time to yield benefits and in some cases considerable preliminary work would need to be done to ensure ultimate progress. The following proposals fall into the category of issues that need immediate planning, but are only likely to make a difference in the medium term.
Funding and establishment of Clothing Business Development Centre
The business planning process proposed in the short term actions category would determine the likely focus and viability issues around such a centre. However, as was previously mentioned, the majority of stakeholders expressed the need for some type of industry resource at a local level to deal with information provision, communication and technical support issues. It is also clear that should the government stakeholders wish to support the further development of black owned enterprises in the sector, some form of dedicated resource would be necessary.
“Newcastle Responsible Production” grading process
An independent accredited entity would work with local stakeholders to develop a series of levels of accreditation in line with domestic and international standards processes. Firms would then be offered diagnostic support (in no way connected to regulatory processes) which would in turn give them a set of requirements they would have to meet for levels of accreditation. The accreditation would need to carry the weight of acceptance with a critical mass of relevant bodies and could therefore be a branded substitute for other forms of accreditation.
Re-evaluation of investment marketing processes
A number of options would need to be assessed for a renewed focus. Consideration should be given to the TIK Business Retention and Expansion project which could enable a repositioning around providing services to existing firms in order to assist with their future development.
Newcastle-Madadeni – Northern KZN’s Service Hub: a repositioning / diversification strategy
Analysis suggests that the past decade has seen rapid, perhaps unprecedented growth in Newcastle of service and retail activities – such that Newcastle’s position as Northern KZN’s Service Hub is being increasingly recognised by both the private and public sectors. It is important that there be an active drive to reinforce this.
The decision to establish an Amajuba Business Centre (ABC) in the region is a welcome one and would fill an obvious gap. However, it is critical the relevant stakeholders are informed of the process and at present it appears some sectors of the business community are not fully informed of the programme which could result in governance and operational problems in future. The potential does exist to consider alignment of specialist clothing support with the development of the ABC. Further attention should be given to the provision of much needed support to emerging black-owned firms.
Ladysmith-Ezakheni and Newcastle-Madadeni Co-operation
Whilst the two centres have a history of competition it is likely that they would share some issues in common – particularly when it comes to the clothing and textiles sector. Developing some shared perspectives and joint activities could reduce costs and risks and present benefits to all stakeholders (for example on the training front with colleges and SETAs).
Independent research work and input from the stakeholders has identified this as an important area for government attention. HIV/AIDS issues are impacting on the workforce and the investment environment. Firms in the area appear to have little in terms of active strategies to deal with the consequences.
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