Implementation of the Retail Clothing, Textiles, Footwear and Leather Value Chain Master Plan: engagement with stakeholders and Minister

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Trade, Industry and Competition

07 June 2022
Chairperson: Ms J Hermans (ANC)
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Meeting Summary

The Portfolio Committee on Trade and Industry met on a virtual platform to receive a briefing from the Minister of Trade, Industry and Competition and relevant stakeholders on the progress made in the implementation of the Retail Clothing, Textiles, Footwear and Leather Value Chain Master Plan which had been adopted in 2019 before several crises hit the country and the industry.

The Master Plan aimed to sustain a value chain that offered consumers value products and was invested in growing local capabilities and employment by 2030 by implementing a social compact with retailers, manufacturers, government and labour. The Minister was joined by a number of high-level stakeholders from retail, manufacturers and labour in both the presentation to the Committee and in responding to the questions put by Members of the Committee. Reference was made to the General Agreement on Tariffs and Trade (GATT) in Uruguay where SA, represented by the National Party Government, had made commitments to make deep cuts in tariffs on both consumer and capital goods in 1993, just as the country was transitioning to democracy. Soon thereafter China joined the World Trade Organisation and by 2000-2008, between 10 000 to 15 000 jobs were being lost annually, with a large number of factory closures. Following the adoption of the Master Plan in October 2019, the industry faced the Covid-19 pandemic and lockdown, floods, unrest and the war in Ukraine. Critical activities included actively engaging retailers in raising the levels of localisation commitments and increasing the speed of reaching localisation targets. The Minister presented a number of specific case studies. He also indicated what was being done to speed up implementation and address new challenges and opportunities in the industry, including actively engaging retailers in raising the levels of localisation commitments and increasing the speed of reaching localisation targets, while also engaging international retailers in establishing local sourcing. The Department, together with retailers and manufacturers, was developing a legal response to second-hand clothing imports. In addition, the National Consumer Council was reviewing its labelling guidelines to respond to industry calls for simplification. Mechanisms would be developed to increase the reliability of industry employment data and an assessment would be undertaken of the impact of the woven fabric rebate on the textile industry. The South African Revenue Service was using new technology as well as data and interventions to more effectively combat illegal imports and illicit trade. It had, that very day, enjoyed success in a longstanding Supreme Court case of under-invoicing, illicit imports and illicit trade. The Department of Trade, Industry and Competition was developing a legal response to second-hand clothing imports. Plans were in place to meet the Fourth Industrial Revolution in a positive and productive manner. The Minister highlighted progress in eight areas: dealing with Covid-19; stronger sourcing from South African producers; improving the competitiveness of the local supply base; beneficiating South African inputs to create jobs and opportunities; protecting manufacturers and retailers from illegal imports; addressing the damage caused by the July 2021 unrest; improving opportunities for SMMEs and strengthening ownership and black industrialists. Despite the blows experienced over the past couple of years, all industry players reported a positive upswing and were optimistic about transformation, increased jobs and structural change in the value chain.

Members engaged deeply with the presentation, appreciating that the Retail Clothing, Textiles, Footwear and Leather Value Chain Master Plan was one of the more detailed and more thoughtful Master Plans that existed within government, although it lay on problematic foundations. Members asked what part of manufacturing the Master Plan intended to focus on specifically as the key point. Could the Master Plan be achieved or not? Why were imported fabrics being heavily weighted with import duties when there was a shortage of most types of fabric in the country? Could SA grow the quality of cotton required by the big retailers? What were some of the low-hanging fruits for beneficiation, especially in the leather industry? How much of the cotton used in South Africa was local and what support was given to local producers? What was the overall GDP for the industry?

Could the South African Revenue Service and the criminal justice system do more about curbing under-invoicing of imports that robbed the country of jobs and tax revenue? How many SMMEs had experienced growth and had access to markets locally as a result of the Master Plan? How did one balance localisation with the need to keep costs low for consumers? Would the big retailers take stock from Drip, MaXhosa, David Tlale? How far was the creation of trade liberalisation with government’s policy to address the contradiction of class, gender and race, especially in respect of unfair trade?

Members also sought specific details. What was the target for growing local industry, and by when? What was the target for local procurement? How much was lost through the illegal importing of goods? What was the target date for transformation? What was the deadline for the task teams? How was the Minister going to increase sales to R250 billion? Was it through private sector money or was it through industrialisation? How far had the stakeholder commitments been implemented? How did one mitigate the Fourth Industrial Revolution?

Meeting report

Opening Remarks
The Chairperson noted that the Committee would be receiving an update on the implementation and successes of the Retail Clothing, Textiles, Footwear and Leather Value Chain Master Plan adopted 2019.
It was an important part of the SA economy with the retail sector playing a much larger role than just the manufacturing sector.

The Master Plan aimed to sustain a value chain that offered consumers value products and was invested in growing local capabilities and employment by 2030 by implementing a social compact with retailers, manufacturers, government and labour. The Committee would be engaging with stakeholders to determine the progress and the outcomes of the implementation of the Master Plan.

The Chairperson welcomed Minister Ebrahim Patel, Minister of Trade, Industry and Competition.

Opening remarks by the Minister of Trade, Industry and Competition
Minister Patel expressed his gratitude to the stakeholders who were present – their attendance far exceeded his expectations. He went through the names of most of the many industry stakeholders in attendance. (A total of 80 participants were on the platform, many of whom were stakeholders). He informed the Committee that he would be inviting a range of stakeholder representatives to make a few remarks.

Presentation on the Retail Clothing, Textiles, Footwear and Leather Master Plan Value Chain (R-CTFL MP)
The Minister began by briefly recalling the background to the Master Plan. He began with the history of the clothing and textile industry.

In 1986, trade negotiations under the General Agreement on Tariffs and Trade (GATT) began in Uruguay with SA represented by the National Party Government, which made commitments to deep cuts in tariffs applicable to both consumer and capital goods. The talks culminated in a settlement in 1993 that required SA to reduce its import tariffs very significantly, just as the country was transitioning to democracy. An even greater challenge came when, in 2001, China joined the World Trade Organisation (WTO) as a member, bringing vast additional productive capacity into the global economy, with particularly large clothing, textile and footwear industrial production.

By the period 2000-2008, between 10 000 to 15 000 jobs were being lost annually, with a large number of factory closures. In response, import duties were increased from 40% to 45%, a competitiveness package was introduced by dtic and the Industrial Development Corporation (IDC) and the introduction of the R-CTFL (Retail, Clothing, Textiles, Footwear and Leather) Masterplan aimed at encouraging structural change in the value chain.

Following the adoption of the Master Plan in October 2019, five unanticipated ‘shocks’ confronted the industry:
•In March 2020, four months after the adoption of the Master Plan, South Africa was confronted with the Covid-19 pandemic that had a devastating impact on the clothing industry.
• In July 2021, unrest in parts of KZN and Gauteng caused very significant damage to factories and retail stores in the value-chain.
• From February 2022, the war in Ukraine had caused a spike in the price of fuel (directly affecting the industry) and in food prices (which might affect consumer spending on clothing and footwear).
• In April 2022, the floods on the eastern seaboard resulted in damage to some establishments in the sector.
• Throughout the period, global supply-lines were disrupted on an unprecedented scale, affecting supplies of raw material and shipping capacity.
In addition to the above, CTFL household consumption was adversely affected by Covid-19 and during lockdown annual CTFL retail sales declined by 19% with a knock-on effect on manufacturing.

Responding to the blows to the sector, Customs began a strong focus on confiscating illegally imported goods, such as blankets, which were then donated to the victims of the April flood. However, global supply chain disruptions continued with large increases in commodity prices over 2020 and 2021 and global supply chains were further disrupted by war in Ukraine.

In the 31 months since the adoption of the Master Plan, the focus has been on translating the vision into effective implementation, whilst being flexible enough to address new challenges. The Minister highlighted progress in eight areas: dealing with Covid-19; stronger sourcing from SA producers; improving the competitiveness of the local supply base; beneficiating SA inputs to create jobs and opportunities; protecting manufacturers and retailers from illegal imports; addressing the damage caused by the July 2021 unrest; improving opportunities for SMMEs and strengthening ownership and black industrialists.

The Minister noted that there were wide disagreements over labour numbers in the industry and figures ranged from 130 000 to 69 000, while the informal industry was said to support 200 000. The dtic had commenced research into the actual numbers.

The Minister presented a number of specific case studies. He also indicated what was being done to speed up implementation and address new challenges and opportunities in the R-CFTL, including actively engaging retailers on raising the levels of localisation commitments and increasing the speed of reaching localisation targets, while also engaging international retailers in establishing local sourcing. The Department would identify greater efficiencies in the CTFLGP programme in the light of over-subscription of the programme and research would be conducted into the role of certain e-Commerce platforms on the facilitation of under-declared or mis-invoiced CTFL imports. SARS was using new technology as well as data and interventions to more effectively combat illegal imports and illicit trade. The Department, together with retailers and manufacturers, was developing a legal response to second-hand clothing imports. In addition, the National Consumer Council (NCC) was reviewing its labelling guidelines to respond to industry calls for simplification. Mechanisms would be developed to increase the reliability of CTFL employment data and an assessment would be undertaken of the impact of the woven fabric rebate on the textile industry.

Stakeholders input
Mr Manie Maritz, CEO, Woolworths Fashion Home & Beauty, stated that Woolworths was fully committed to the Master Plan and to growing its local manufacturing component from 29% to 40% over the next three years with a particular focus on growing its black-owned suppliers. Currently they p,roduced just over 30 million units and the target would take them to just over 40 million units, thereby creating a number of jobs. Woolworths worked exclusively with seven suppliers that produced just about half of the units and had an excellent working relationship with them. Woolworths was in a process of driving an import replacement programme, developing centres of excellence, e.g. bras where local procurement had grown by 25% over the past year. The company provided mentorship programmes for SMMEs and R80 million funding for the local manufacturers which took the form of fabric procurement and other funding in the environment. The company understood the role that Woolworths should be playing and intended to grow that role. He had been encouraged by the improved working relationship with the government over the past few years and he encouraged more companies to work together to create the additional jobs that were required in SA.

Mr Johann Baard, Executive Director at the Apparel Manufacturers of South Africa, also spoke on behalf of the Apparel and Textile Association of SA. Jointly the associations represented the majority of clothing manufacturers in SA. He referred to developments in the first few weeks of the Covid-19 hard lockdown. Members would be aware of the controversy about kiddies wear and winter wear being classified as essential goods and he wished to explain how it had come about because the public had largely misunderstood. In order to prepare hospitals for the influx of Covid patients, and thinking was there would be a massive shutdown of factories, the industry had suggested that infant wear, baby wear and winter wear be classified as essential goods and service.  He stressed that the decision to classify those goods as essential goods was instigated and driven by industry and not by the Minister. Public criticism had been ill-informed as the decision was driven by the need to keep families warm during winter. It was an ethical and commercial proposal so that people had warm clothing and jobs were available to put food on the table.

Mr Rajen Naicker, Executive Director, Apparel and Textile Association of SA, said that he had been covered by Mr Baard. With the advent of the Master Plan, and the opportunities that it created, especially for the transformation narrative in the SMME sector, his Association was deeply encouraged by the Master Plan and the opportunities it could provide.

Mr Graham Choice, MD: Merchandise Supply Chain, TFG (The Foschini Group) said that the Master Plan had allowed the industry to engage, for the first time in many, many decades, in a national development plan for the CMT (Cut, Make and Trim) industry, one that had been developed by agreement and in which government had become a fully-fledged partner to the industry. There were some early movers but all retailers were committed to developing the industry. The Master Plan led to greater collaboration and a united approach. He commended the courage and tenacity shown by industry players who had rebuilt their companies after each of the seismic events of the past two years, including the July insurrection in KwaZulu-Natal, and had even grown their businesses. TFG and its owned, and even non-owned, factories were committed to growing the supply chain. The CEO had made a commitment to growth and TFG had grown by 2 000 jobs in the previous year, 1 100 through the acquisition of companies about to close and 900 new jobs, including 400 jobs that went to the unemployable youths that had received learnerships. The CEO had committed to further increases in jobs from the original commitment of 5 000 jobs to a total of 11 000 jobs by 2026. It was time for all to take up the challenge to do what was critically necessary for the country and the value chain.

Mr John Comely, CEO, Eddels Shoes/ Celrose Clothing, was in the clothing and textile industry through Celrose clothing operation and in the footwear industry through Eddels Shoes. His companies had been afforded the support necessary to be able to purchase machinery, etc., to help productivity. The Ministry and government had done his business a good service, but the Edcon demise had had a hugely negative impact on his business. However, despite that and the negative effects of the three black swans that had hit the country, the industry had, through the Master Plan initiative, managed to attract good sales from the SA retail industry and there was no doubt that the retail industry had supported the clothing industry, not only via promises to the government but it could be seen by orders coming into the factory. Celrose had recovered the R300 million lost in the Edcon debacle and had managed to double in size. He thanked his colleagues in the industry but cautioned that higher fuel prices and the impact of Chinese raw material supply had to be watched.

Mr Comely added that the footwear challenge was more difficult. Footwear was a more complex industry and relied on a wide and diverse set of components and was absolutely reliant on volume to be competitive. The devastating effects of Covid could be seen in footwear.  66 million pairs of footwear in 2019 declined to 44 million pairs by 2020. Although it had recovered to 55 million pairs in 2021, that was way below optimum. The footwear industry needed a rethink but it was pleasing to see the Minister’s presentation on the amount of work done by the SA Revenue Service on cross-referencing and curtailing fraudulent under-invoicing of imports. He applauded the initiative, but it required a lot of work. The footwear industry would need a special intervention but he was confident that with the current approach, it could be restored to the volumes attained prior to Covid. Vigorous investment and close work with the entire value chain were necessary but the Master Plan was bearing fruit.

Ms Makale Ngwenya, Researcher, Southern African Clothing and Textile Workers' Union (SACTWU), stated that the Master Plan was underpinned by three objectives. The Master Plan represented a new element of industrialisation in which industry players and value chain partners with different challenges could come together to share insights and find ways to resolve issues using the collective power of different value chain partners and networks. There was less inter-value chain conflict. The industry would also now share best practices. The Master Plan, importantly, allowed the industry to work with social partners. During the unrest, the Union had collectively identified factories at risk and had jointly sought assistance for those in need. It was sometimes funding, other times machinery or even identifying partners where workers needed assistance. [The sound quality for Ms Ngwenya was not good.]

Discussion
Mr D Macpherson (DA) stated that R-CTFL was one of the more detailed and more thoughtful Master Plans that existed within government, but it lay on problematic foundations. It relied on many other government departments to do their job, sometimes well and sometimes not so well. It did not address the action or inaction of SARS and customs and how the textile industry was viewed. If the sole purpose was to grow manufacturing, that was all good and well, but what part of manufacturing specifically? Was it CMT of garments or footwear or was it manufacturing of fabric or both? SA had some competency in CMT but the manufacturing of yarn had dissipated over the years. Mr Macpherson said the Minister probably believed it was a result of de-industrialisation because of trade liberalisation, but he believed that it was the result of cost competitiveness because of input costs, but that was not the argument for the day.

He said that if the focus was to be on CMT, the government had to look at the duty structure on imported fabrics because most could not and would not be produced in SA because the demand was not there. He had raised the issue for many years, even with former Minister Davies. There seemed to be a willingness to have the discussion, but it never went any further. He did not know if there was an idea that somehow SA would be able to create fabric. If a fabric could not be made in SA, it made no sense to duty weight it because it just cost the SA consumer more. It would be different if a particular fabric were made in SA and it was being protected against importation. What did the Master Plan want to focus on as the key point? If it was not about the manufacture of fabrics, why were imported fabrics being heavily weighted with import duties?

Mr Macpherson addressed the under-invoicing. He believed that he and the Minister agreed on the hideous matter of under-invoicing of goods which were brought into SA. It really did devastate the textile industry. He did not believe SARS was doing a good enough job and yet if they captured companies doing it, the importers just got a fine and they did it again and again. Some retailers were aware of the practice but continued to buy those imports. There had to be stronger enforcement of the under-invoicing. Alongside that, the source of garments and fabrics also had to be addressed. That continued to be a huge problem. It was a double-edged sword because, at the same time, there was an unrealistic expectation by the Consumer Commission that things like undyed fabric or spun yarn should have a wash-care label or a source of origin label on it and as the Minister knew with his background in the textile industry, it was ludicrous to expect that. Nevertheless, customs were holding up imports because there was no label on a piece of yarn.

He asked if the purpose of the Master Plan was to grow the cotton industry, the Minister had to understand SA could not grow the quality of cotton required by the big retailers and that would just make it more expensive to put clothes on people’s backs. SA was not a major grower of cotton and 90% was probably imported because SA cotton missed the required specifications.

Mr Macpherson drew attention to the  uge problem in the administration costs and the inefficiency of ports in SA which had a huge bearing on the textile industry. It had to be addressed by the Minister and Cabinet.

Mr Macpherson could not understand the contribution of Mr Johann Baard who had tried to defend the indefensible, saying that it was not the Minister’s fault but the industry’s fault for declaring certain clothing essential services. He encouraged Mr Baard to read the SA Journal of Science article: How to do social distancing in a shack: COVID-19 in the South African context by Jonathan Jansen and Shabir A. Madhi, which demonstrated that lockdowns and interventions in SA failed to prevent Covid. It was foolhardy to admit to that episode that had embarrassed the government and had done nothing to prevent any infections. His advice was for Mr Baard to walk away from it.

Mr W Thring (ACDP) said the argument was whether SA should consider the aspect of saving jobs versus the lower cost of goods via cheaper imports. The argument was that there was a focus on saving jobs through localisation and increased import tariffs but if some imports were permitted, they could provide a huge relief to consumers as a result of the lower costs. How did one balance the situation? He requested a response to that argument.

The ACDP welcomed the beneficiation that the Minister had alluded to in the Master Plan. Beneficiation was important in the minerals and mines sector but what were some of the low-hanging fruits of beneficiation in the R-CFTL sector? Within the leather sector, animal skins from cattle, sheep, goats, were sometimes discarded. Could they be utilised as one of the low-hanging fruits? What were the other low-hanging fruits?

Mr Thring asked about the trade balance in the sector. What was the balance of payments in the sector? He noted that there was an uptick, which was encouraging, but was it sustainable? He added that there would obviously be a large focus on the Fourth Industrial Revolution (4IR) and becoming capital intensive as opposed to labour intensive, but how did one mitigate the 4IR?

He said that the ACDP viewed under-invoicing as a double whammy which robbed the country of jobs and tax revenue. More had to be done by SARS and the criminal justice system in that regard.

Mr C Malematja (ANC) commented that the background on the Master Plan was informative as usually, the plans seemed to come from nowhere, but it also showed that a number of agreements had been signed prior to democratisation and now SA was paying the price.

He noted that the issue of gender was a problem amongst the stakeholders because they were all males and he did not know how they had arrived there and whether it was at the expense of women. For every action, there was a reaction. The CEO of Woolworths said that it was good to support the Master Plan but whenever he visited the shelves of Woolworths, they had no space for upcoming entrepreneurs. Harvest Fresh was a middleman and there were no locally produced uniforms which would assist the Master Plan.

Locally produced products assisted the government deal with the high unemployment rate which caused his people to be dependent on grants. He believed that local produce and products had to be heavily subsidised so that when people were encouraged to buy local, they could do so at a cheaper price. People had to earn the money to buy and the only way to earn was when there was job creation.  

He asked how beneficial the Master Plan had been to SMMEs. How many SMMEs had experienced growth and had access to markets locally? His people produced good things but when they went to the local markets, the barriers were too great so they had to sell things cheaply just to get rid of them, even though they were stronger fabrics than imported ones and they washed and dry cleaned better. What had been the growth in terms of locally manufactured goods?

Dr M Tshwaku (EFF) did not know how the Chairperson would get a response to the critical question on
local retailers, especially as the Woolworths CEO was present. How many units came from black suppliers? There were a lot of barriers if one wanted to supply Woolworths, Foschini, etc. In that retail market, it was all white – as one could see from the stakeholders.

He appreciated the Minister staying after the presentation. His concern was that the Master Plan did not give targets and deadlines for transformation. He wanted to know if the Master Plan could be achieved or not. The sector was not transformed. What criteria were used to invite stakeholders? Where were the stakeholders who had not been supported and were crying outside of Parliament? He asked Woolworths and the Foschini Groups of the world whether they would take stock from Drip (he hoped they knew who Drip was), MaXhosa, David Tlale?

Dr Tshwaku wanted a list of black retailers who had been supported by dtic. The Minister said the Department had supported black industrialists. He wanted a list of white-owned industries that were supported by the Department. What was the target for growing the local industry, and by when? What was the target for local procurement? How much was lost through the illegal importing of goods? What was the target date for transformation?

He referred to the seven task teams that the Minister had put in place for the Master Plan. He wanted a list of the task teams, the names of individuals and the credentials of the task teams. What was the deadline for the task teams as they would just get a life of their own? The Minister was obviously spending a lot of money on advisors. How was the Minister going to increase sales to R250 billion? Was it through private sector money or was it through industrialisation? The private sector only wanted to make profits and to do so most of the workforce would be replaced by machines in the 4IR.

Dr Tshwaku said that the problems had started when SA was misrepresented by the Nationalist Government in Uruguay. SA was also misrepresented in 1994 because the representatives should have re-negotiated the tariffs. The import duties were too low and SA had lost a lot of the clothing industry in Woodstock. The Minister was a Marxist but he believed in Science which told him that one should be able to re-negotiate tariffs. If one could buy local sneakers for R50 cheaper than an import from China, then people would buy local. Proudly SA was just a wish list as one could not beg people to buy local. How was the Minister going to be able to increase tariffs so that people were forced to buy local? That was the scientific way. One could not wait for the Holy Spirit to touch people’s hearts and then they would buy local. People were not patriotic with money. Increasing tariffs would create re-industrialisation and that was only way to create jobs. It had to be a state intervention.

He wanted a list of the black-owned suppliers to Woolworths and the Rand value of their suppliers as well as a list of SMMEs supplying Woolworths and a list of SMMEs being supported by Woolworths. What percentage of goods were being imported by Woolworths and The Foschini Group? Dr Tshwaku wanted to check if the retailers were ProudlySA themselves.

Prince Z Burns-Ncamashe (ANC) noted that the government was doing the right thing in addressing historical imbalances in the economy so that his people were involved in building the economy that had survived the catastrophes of the past two years. The presentation by the Minister gave expression to the strategic objectives, i.e. industrialisation and localisation, for which one needed a capable and ethical state. What was being done to prevent the illegal import of goods into the country? One did not have to be too scientific to see it happening. How many jobs had been created since the creation of the Master Plan, taking into account the latest quarterly survey? He wanted to know about jobs that had actually been created, not proposed jobs.

The optimal functioning of the sector would rely on input from the agricultural sector which meant input at the level of primary production, so what support was being given to farmers in communal areas and what investment was there in those farmers? The conglomerates had to contribute through CSI, but they also had to give the labour force a stake in terms of ownership.

Regarding primary production, to what extent was local content promoted in the tannery industry? SA was one of the biggest producers of sheep, cattle, goats and ostriches. What was the quantum of local hide versus the hide that was imported? He wanted statistics. At the level of processing, how did SA measure success to ensure that local farmers and even cotton and wool farmers benefitted? Wool production was a South African strength. The Agricultural Research Institute would assist in finding that footprint in a number of provinces. He noted that cotton was a summer crop, i.e., from September to April. How much of the cotton used by the industry was local and what support was given to local producers? What was the overall GDP for the industry?

Looking into local procurement, Prince Burns-Ncamashe asked to what extent that had been beneficial for SMMEs. He wanted exact figures because SMMEs formed the Committee’s main area of interest because the SMMEs had to fit into the second level of the value chain.

Mr W Cuthbert (DA) had been covered by Mr Macpherson but he expressed concern that every Master Plan was a copy of the British Labour Party Master Plans with the same language of social compacts and the same protectionism. The Mail and Guardian had argued in a recent article that Minister Patel was running a protection racket. The Minister applied tariffs in return for creating jobs, even though it was not necessarily aligned with prevailing economics. There was a short-term benefit, but what happened in the long term when prices rose? The consumers would have to pay for it. A word of caution: even if businesses tried to contort themselves to fit in with the government’s latest fad, it was not going to end well. At the end of the day, the government would be blamed when they were part and parcel of a process linked to the demise of the industry. The industry should be more activist. Ultimately they would find that they had backed the wrong horse. He warned that concentration between big business and government through social compacts locked other people out.

Mr S Mbuyane (ANC) noted that several commitments had been made by stakeholders in the industry: how far had those commitments been implemented? What progress had been made to end the production incentive programme?

He said that during their engagement with the Select Committee, the dtic had noted some reluctance by retailers to drive localisation. Why was that so when it was key to growing the industry and had been agreed upon by retailers in the drafting of the Master Plan? Since the launch of the Master Plan had any businesses in that industry been supported by the Black Industrialist Programme? What support was there for transformation in the Master Plan?

He asked for specifics regarding the financial resources of the Master Plan which had been made available by the private sector. Could the Minister provide clarity on the dumping of goods and the flooding of the market on a large scale and at a low price? What could the Department do in order to reduce the border tariffs and create a new model? Some Members spoke of the polarisation of free trade versus the protectionist approach. What was the Department’s position? Did the Department protect SMMEs or were they just left to be taken over by the network? How far was the creation of trade liberalisation with the government’s policy to address the contradiction of class, gender and race, especially in respect of unfair trade?

Mr Mbuyane noted that, in Mpumalanga, there was a farm producing cotton. To what extent was the IDC assisting the farm? How could the government broaden the scale of localisation by producing cotton in the country?

The Chairperson noted the various references to catastrophic events, seismic events and three black swans that had challenged the industry. She asked, of all the partners, what the specific challenges were in the implementation of the Master Plan. Regarding localisation, was it beneficial for the production of cheaper goods? If goods were not cheaper than imports, how was the government going to address that challenge as consumers would go for the cheaper goods?

The Chairperson noted that the Master Plan had generated much discussion.

Responses by the Minister and stakeholders
Minister Patel noted that the questions revolved around some big themes including policy, implementation matters such as illegal imports and ports of entry, localisation and competitiveness and how to promote sustainable transformation and how to create employment for black, and white, young people.

The Members’ comments and questions had given the Minister lots of food for thought. Mr Macpherson’s comments all deserved consideration but he was especially delighted at the overall positive tone. The first specific issue related to the question of which part of industry the Master Plan should be backing: a clothing or textile or clothing and textile, or a cotton growing growth plan? Life was always about trade-offs as one could not always have the best of all worlds. He asked one of the textile producers, Adriaan Verhagen, Ninian & Lester, to say why a more open fabric regime might not be the path. He asked Tanya Aucamp from CottonSA to add a comment on cotton.

Mr Adrian Verhagen, Group CEO, Ninian & Lester, agreed that a wide range of fabrics was not produced in SA and yet high tariffs were placed on imported fabrics. Illegal imports were the reason that the industry had been against the summary withdrawal of all import duties on fabrics. It was necessary to split fabrics into knitted fabrics and non-knitted fabrics. He represented a group that manufactured knitted fabrics. There was a significant knitted fabric industry in SA. They sourced the raw material mainly from local producers and it was necessary for them to protect themselves from the imported competition. There were a few weaving manufacturers in SA. He pointed out that the rebate system allows manufacturers to import woven fabrics while still protecting those few weaving manufacturers. It was a complicated problem that needed to be dealt with and the lowering of import duties had to be addressed together with the under-invoicing and illegal import of fabrics.

Ms Tanya Aucamp, Independent, Communication Manager, Cotton SA, responded to the “sweeping statement about cotton”. She acknowledged that SA was not a global role player in terms of the quantity produced but the industry had celebrated an 800% growth in hectares in 2019 through a programme that was supported by the dtic. Unfortunately, external factors also impacted the cotton industry and it had shown a decrease of 60% over the past two years. Cotton in SA was a volume issue, not a quality issue. Owing to its high quality, the majority of cotton was pre-committed for export prior to planting the cotton. She invited Mr Macpherson or anyone else in the meeting to visit Cotton SA which was an industry regulator. Her organisation graded cotton bale by bale in an internationally accredited laboratory. The spinning capability was a factor in restricting cotton, as was fast fashion and other factors. SA’s spinning capability had been reduced from 22 spinners to four spinners. The scope also went with price, timing, etc.

She stated that cotton had had amazing stories with Woolworths, Edcon and so on. She appreciated the support of Prince Burns-Ncamashe and others for farming, particularly cotton farming. Without the farm, one would not have a natural fibre story. [Connectivity break.] Cotton SA needed political support to enable SA to import the right cultivar with the changes in climate. With the changes in weather patterns, cotton was now planted up to December.

Ms Aucamp stated that she was taking a Mr Price delegation on a farm visit the following week. She invited Members and any of the stakeholders to visit Cotton SA and to go on a farm visit.

Minister Patel suggested that Ms Aucamp should invite the Portfolio Committee to undertake an oversight visit to look at the value chain. He also suggested that Mr Macpherson and Johan Baard have a coffee together to explore their issues.

The Minister explained that there were two problems relating to the reduction of the duty structure on fabric not made locally to zero percent. It was not that it should never be done. The first challenge was the substitution effect which meant that consumers could possibly substitute cotton with polycotton or polyester, which actually harmed the industry. If there was a tariff on cotton and not polycotton, then consumers would simply buy a cheaply imported polycotton garment. Secondly, there were thousands of possible ways in which products could be described and tariff headings for fabric at 8 digit level ran into over a thousand different descriptions and all those descriptions had to be applied at customs. It was very difficult for customs officials to identify each description and the slightest change in fabric content could have a big impact. Fabric rebate provided a more carefully thought-through way of enabling the import of fabrics but it was about careful balancing to ensure one policy goal did not undermine another policy goal.

The Minister responded to comments on illegal imports by four Members. He asked a SARS representative to add some detail.

Mr Patrick Tshikosi, Executive: Border Control Operations and International Customs, SARS, explained that duty was between 40 to 50% on fabric plus VAT of 15%. SARS was working on control of the borders by tackling fraud and under-valuation in the past three years. SARS had started with reference pricing three years previously, setting a target to reduce the difference between the declared price and the reference price. Over a two-year period, SARS had pushed the actual value declared from 36% under reference pricing to the current under invoicing that was up at 80% of the reference price boundaries.  The intention was to move that to at least 90%. SARS had ensured that all legal instruments were available, e.g. scanners which also caught smuggled goods. SARS had introduced Advanced Import Permits. On that system, the organisation could see all brokers that were registered with SARS on eFiling. Now SARS interfaced with all commercial banks and the Reserve Bank regarding all invoices paid abroad. That detected illicit financial flows. SARS was contemplating a new system that would move it away from the customs database. There was new technology that could assist the customs officer with the volumes that passed through customs. It was a machine learning system that could look at the value chain from the factory to customs and could detect illicit financial flows while reducing the number of people required at the borders.

Mr Tshikosi said that SARS was pursuing criminal cases against those who were under-invoicing. The organisation had appealed the Dragon Freight case of 19 containers of illicit clothing imports in the Supreme Court of Appeal. SARS had obtained a positive result that very morning and that result would enable SARS to push boundaries even further. That would enable SARS to deal with non-compliance. The current focus was on licences and illicit imports which resulted in the suspension of a company’s trading licence. Because the directors just opened up a new business when they were caught, SARS now looked at directorships via CIPC. It was also looking at corporate tax, VAT, etc. and was working with the National Prosecuting Authority (NPA). SARS was monitoring over 200 items as agreed with the industry forum.

The Minister focused on the court case. He had not commented on the matter before the courts but, while he had been presenting, the Bloemfontein Supreme Court of Appeal had issued a judgement. A couple of years ago SARS had seized goods that it said were under-declared. The importers took SARS to court and the dtic had joined the case but SARS and the government had lost the case with the North Gauteng High Court saying the declared value should be taken at face value. So SARS and the ministry had appealed and the Gauteng judgement had just been overturned. The judgement stated that there was no credible explanation for the low cost of the goods. The Court had welcomed the evidence provided by a dtic expert who had shown that the declared prices were unrealistic and unattainable. The Minister noted that it was an important judgement for SARS as it had provided useful guidelines for the implementation of laws. He said, secondly, as Patrick had said, it was important to get to the point of laying criminal charges. Tens of thousands of jobs could be created by accurate declarations, and it created a level playing field for retailers.

The Minister referred to the question on beneficiation, local shelf space, cotton farmers, successes on localisation and specifics of procurement from black suppliers. He asked Michael Lawrence to respond as the National Clothing Retail Federation was working on the value chain and identifying specific products that retailers could look at localising and procuring from black suppliers. He referred Mr Malematja to slides 20 and 29 which provided details relating to black suppliers and small businesses. The dtic had supported 44 applications for business support, four women-owned and 14 youth-owned businesses as well as additional Black Industrialists who were supported by the Industrial Development Corporation (IDC). It would be useful to profile some of the black suppliers and he could do that in a similar way to that in which he had previously presented the 60 or 70 names of Black Industrialists and their stories. He had heard some fascinating stories from Woolworths about their black suppliers that he would love to share.

Mr Michael Lawrence, Executive Director, National Clothing Retail Federation, said the R-CTFL industry was a very competitive industry and had a highly robust retail sector that made everyone’s lives difficult, even the Minister found himself in the same environment, and it was certainly not a honeymoon-based relationship. Mr Lawrence’s organisation was responsible for looking at the demand side of retail in the value chain and he recognised that the SA consumer was under enormous pressure and so the consumer could not be offered anything other than an economically viable solution in terms of sustainability. The objective was to make sure that the SA consumer got the best product at the best price on a continuous basis, but that could support localisation objectives in a number of ways. The question asked about the contributions of the retailers could be answered by the dtic which knew that the retailers had co-funded the Master Plan because they had wanted skin in the game and to show their seriousness about the process.

Regarding illegal imports, SARS and the World Customs Organisation had a programme called Authorised Economic Operators (AEO) that linked to the Preferred Trader programme. It was about having accountable and responsible traders, both as importers and exporters. They had opened themselves up to a high level of accountability to SARS and were working with SARS on the new programme.  SARS had overcome its own challenges of a few years ago. The Supreme Court ruling was evidence that substantive solutions were now available.

He thought that perhaps he should brag about the achievements which were not put on display but it seemed from the comments of the Members that perhaps the industry was not yet doing enough. It had to be recognised that the industry had longer-term objectives, i.e. 2030 objectives. The longer-term goals were necessary because the industry had been hard hit by unexpected exogenous factors. They were aware of the need for transformation and were of the view that the large ship had to be moved quite quickly but the objectives were difficult but critical: transformation, bringing in young people, bringing in women-owned businesses. The question of transformation, along with the Fourth Industrial Revolution, would bring substantive changes to the industrial part of the value chain. The industry’s view was that if it took 10 workers to make 1000 shirts and the 4IR meant that only one worker was required to make 1000 shirts, then the response had to be to increase production to 10 000 shirts so that the ten workers were retained, and the retailers would have to find a way to sell the 10 000 shirts. That had downstream implications. He informed the Committee that he had been deployed to assist on the Cotton Board by the retailers because they took their responsibilities very seriously. They would also be looking at manufactured fabric.

Mr Lawrence agreed that a lot had to change. The skills approach would be changing, the approach to transformation and how they worked with each other was changing, but the relationship was real and it was about finding solutions, not about rubbing each other’s backs. He assured the Committee Members of the commitment of the retail sector to the Master Plan.

The Minister said that there was undoubtedly a robust relationship between government and the industry but what was needed, was a clearer set of numbers of what each sector of the value chain was worth and the impact of each one on localisation, the creation of jobs and transformation. He would ensure that was addressed.

He noted that Members had asked about opportunities. One area of opportunity was in hides and it was a significant industry. Some hides were exported, unprocessed or tanned, but the government encouraged a higher level of value-add so the production of footwear, leather goods and automotive seat covers, etc. was supported. Leather was covered quite comprehensively across the Auto and the R-CTFL Master Plans. Most local leather was tanned and used locally. Mohair was a significant sector in SA and, in the past, a programme had been put in place to stimulate the mohair industry. The textile industry had prepared material for suits but both factories in Maitland had closed as a result of the cheaper imports and the shift to other fabrics. However, the dtic looking to see what could be done in that regard. A careful balance was needed between what dtic could nudge and the need for demand and competitive prices. The Minister agreed he needed to quantify the beneficiation of cotton and hide.

Minister Patel stated that there was about a R40 billion trading deficit in clothing, textile, footwear, leather although SA did export clothing to stores elsewhere on the continent, e.g. Mr Price in Ghana, but that was a massive deficit that had to be managed. As the localisation programme improved, he hoped the balance would come down.

He responded to Mr Malematja, commenting that a year ago, the CEO for Woolworths Fashion Home & Beauty was Ms Zyda Ryland, who had moved to the food division. Regarding black suppliers, he promised to do some research and to tell some human stories. The Portfolio Committee could visit some of the factories. The government needed to make progress visible and admit where progress was not being made.

Minister Patel noted that he was going to be in trouble because Mr Cuthbert thought he was following British Labour Party policies while Dr Tshwaku had said he was a SA Communist Party member, but Dr Tshwaku made a good point that SA had been dealt a very bad hand in Uruguay. It was an historic injustice but the government was a successor and took all obligations of previous governments as well as the assets of the previous government. Currently, trade talks were on the go and his Department was represented in Geneva. What SA had asked for in the next round of the trade talks was that the concerns of developing countries that were not well attended to in the Uruguay round be put back onto the table for discussion. However, there was a lot of pushback and other countries were saying that it was not their problem. SA was playing its cards carefully but he did not believe that SA should rely on overly high tariffs. Even though one could almost force SAs to buy local by adding high tariffs, that was not sustainable nor fair on SA consumers as the consumers would have to pay more and more for their goods. He explained that economies of scale played a very important role. The point Michael Lawrence had made about economies of scale was important. Dr Tshwaku’s call for localisation was a good one as scale could bring down costs, but the Chairperson’s caution about prices rising was a real concern and so it could not just be on the back of tariffs as that would lead to high prices.

The Minister told Mr Macpherson that the clothing industry was the main driver of the Master Plan as there were a lot of women and small businesses in the industry but when the country did not a local textile industry, it was not easy to respond, quickly, to fashion demands and the industry could not be sufficiently flexible. The range of textiles was so large that it was impossible for SA to offer the entire range and have sufficiently long textile runs. However, the AfCFTA would create a large enough market for SA to push local production of fabrics. China had a massive local market which gave it huge price advantages when selling across the world. He said that Africa should give SA the same advantages of scale and so industrialisation and African regional integration went side by side. It was about commerce as much as about Africanism.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
He asked stakeholders to speak on job numbers and the difficulties in that regard. Minister Patel referred to Mr Cuthbert’s characterisation of what he was doing in respect of tariffs, as per a media house, as a protection racket. He explained that when an industry needed protection for that industry to survive and for jobs to be retained, the industry went to ITAC which undertook an investigation and then they approached him. He also looked at prices for consumers and so he needed a commitment that the industry would not shoot up prices if certain tariffs were applied. The government wanted to protect jobs, but also to protect consumers. The way to do it was to invest in new machinery that was more modern and more efficient.

He said that Mr Cuthbert had raised a legitimate concern regarding tariffs leading to high prices. Industry always came with cost concerns but the government had to marry the two concerns of jobs and industrial capacity and consumers and price increases. One of the retailers in the room sold chocolates made in SA and he hoped Mr Cuthbert would send him a box of SA chocolates for trying to marry the two concerns.

He agreed with Mr Cuthbert that the government needed to balance the economy both in the short and in the long term. Increased tariffs, to the maximum, could remove the spur of competition to do better. The Master Plan was not a free lunch. Michael Lawrence recognised that he was doing his job as Minister when he put them under pressure, even as the industry put him under pressure to address illicit imports and so on and they both put labour under pressure but one had to note how labour had made enormous contributions to the industry, even under pressure. He acknowledged that if the economy were closed, it would do fine for a couple of years and then it would destroy the economy. So, finding the balance was crucial.

Minister Patel told Mr Mbuyane that there was quite a bit of the information that he had asked for in the presentation, but perhaps it should have been drawn out and made clearer.

Mr Andre Kriel, General Secretary, SACTWU, said the trade union kept a careful eye on the SMMEs as part of the social compact. There was an allegation that employers association represented only big business but out of 601 companies represented on the Bargaining Council, 84% were SMMEs. 76% of SACTU members were employed in SMME companies that were members of the association. It was not a club of big business – nothing could be further from the truth. He said that the Union produced powerful compacting, and an example of that was the Covid vaccine compact that had resulted in an 81% fully vaccinated rate.

Mr Etienne Vlok, National Industrial Policy Officer, SACTWU, addressed the employment data. For the trade union, the crucial thing about the Master Plan was the focus on jobs. Since the signing of the Master Plan, there had been several heavy blows to the industry, including Covid, the lockdowns, the floods and the July unrest.  There was no doubt jobs had been lost as a result of the events of the past two years. It was difficult for the Union to provide accurate employee numbers as different organisations provided different statistics. There was no person-to-person data collection at the moment. He thought that The Master Plan was building blocks to return to earlier employment levels, including the efforts to address customs fraud and procurement of fashion fabrics and so the Union wished to ensure greater adaptation of the industry to grow job numbers to above Covid levels.

The Minister addressed the social partnership question that Mr Cuthbert had raised. He had been teasing Mr Cuthbert but the facts were that the idea of working compacts between labour and government had an interesting international precedence, of which very little came from the UK. The UK had had a much more adversarial relationship between government and business and labour and there had been a large number of disputes and strikes in the UK. The Social Compacts came from Germany, the Nordic countries, Ireland and Japan where, after the destruction by the WWII bombing, the Japanese had come up with the concept of lifelong employment, i.e. salarymen, who would work hard to put the goals of the company at the fore in return for lifelong employment. He assured Members that that was not the intention but he wanted to sketch the background of where the idea of pacts had come from. Germany had been a society on its knees after the World War II carpet bombing of its industries when government, society and business had built partnerships. Scandinavian social compacts between business, labour and government had sought to improve the economy. The Scandinavian Government’s focus had been on retraining workers and engaging them in skills development. Similar social pacts in Holland and Ireland had powered those economies forward. There were very practical examples, but each country had to develop its own social pact. Each country had to adhere to its political economy. Already SA had gone from apartheid to democracy and the Constitution had framed common values. The Constitution was a participative model that fostered engagement and dialogue in many different ways.

Minister Patel said that Mr Macpherson had raised the issue of what had caused the lack of competitiveness. One of the issues was the input costs, such as energy, and those increases had been a challenge. He and Minister Gordhan had launched a forum to bring industrialists together to look at what could be done to bring down the price of SA steel. The wages came up as a consideration. The minimum wage was between R1000 and R1500 a week. His mother had been a garment worker and he knew how difficult it was to put bread on the table with a garment worker’s wages. He wanted worker skills development to create more flexibility on the shop floor. Graham Choice had got a significant increase in output in his factories without raising costs while promoting the dignity of work through better systems, better management and better work organisation. John Comely had also worked on improving productivity in such a way. The intention was to raise output without raising costs in appropriate working conditions. The Minister acknowledged that it was very difficult to compete with goods made under poor or unfair working conditions where very low wages were paid or prison labour was used. The global trading system had not dealt the country a good hand and consumers in SA had very tight budgets because SA was not a rich country and incomes were modest. He admitted that the team had elected difficult industries, such as clothing and poultry, for the Master Plans but those industries had been chosen because they could disappear unless they become more effective.

He thanked the Committee for their input, questions and ideas, which he appreciated.  He presented an industry which was very competitive and, while he knew there would be missteps because the government did not have the capacity to guarantee only good stories, each constituency had agreed to look at the long terms gains and not focus only on its own short-term goals. He was conscious that the process should not raise costs for consumers.

Minister Patel recalled the question regarding the 4IR as raised by Dr Tshwaku. He asked Simon Eppel, Researcher at SACTWU, to comment.

Mr Eppel stated that even before getting to the 4IR, SA needed to adopt some of the low barriers but much more advanced technology that was currently available and would definitely enhance competitiveness. For example, using solar thermal heating where one acknowledged the heat of the sun to heat water from an ambient temperature to a higher temperature, displacing the need to use energy and therefore becoming more competitive. There were other technologies such as waterless dyeing, etc. Those new forms of technology had to be adopted. The industry had space and the need to adopt some of those technologies.

Mr Eppel added that some companies had already moved into 4IR and were using interesting technologies. For example, data could be run from the factory floor and supervisors did not have to walk the factory floor but could identify problems from their consoles. That put pressure on workers, but it ensured the swift resolution of problems. Companies needed to look at the remedies for jobs that would be lost. 4IR was real but it did not mean that technology had to replace jobs. Where jobs could be displaced, one had to look at remedies, and there were some very easy remedies possible. The high-level issue was the need to prepare for the 4IR and the Union had already run workshops with the German Union to capacitate its structures. The industry could not run away but had to address the necessity of job creation.

The Minister recognised that he should ensure a better presentation of details in future and provide information in a way that Members could easily pick up the details, but he thanked Members and stakeholders for the engagement.

The Chairperson noted how important it was to focus on a discussion. It was rare that the Committee had the opportunity to engage so deeply with the issues. That particular group of lawmakers placed huge importance on such discussions. There was much work to be done. The Committee was looking for detail as articulated by Members, so that when they next engaged, the necessary level of detail could be addressed. She agreed with Dr Tshwaku that they also wanted to see the gaps on the other side of the coin and to consider how those gaps could be addressed. She thanked Stakeholders and the Minister for their time and engagement.

Closing Remarks
The Chairperson requested the Committee Secretary to take the Committee through the next meeting.

The Committee Secretary informed Members that the following meeting would be on Wednesday 8 June 2022: a deliberation on the proposed amendments to the Copyright Amendment Bill and the Performers Protection Bill. Copies of the C and D Bills would be sent to Members that afternoon. The Committee might also consider the First Draft of the dtic Report.

The meeting was adjourned.

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