Textile sector hinges on new blueprint
Mbongeni Mguni | Monday March 3, 2014 10:15
The surviving manufacturers in the country’s troubled textile sector are pinning their hopes on legislative approval of a raft of incentives, including tax holidays and statutory procurement quotas, contained in a new blueprint.
The Textile and Clothing Sector strategy launched last week is a government sanctioned blueprint for resuscitating the local textile sector, increasing its domestic, regional and international market share and also ensuring its optimal contribution to economic diversification.
While the strategy itself is understood to be generally accepted at senior government levels, its proposed incentives, including preference margins, procurement quotas and others, are due for legislative assessment and Executive approval.
This week, BusinessWeek learnt that key incentives industry players are pushing for include tax holidays for the sector, subsidies or grants for replacement of machinery and the establishment of an institution for the development of tertiary level skills.
Local manufacturers are also hoping lawmakers will grant a 15% procurement quota from private chain stores while also expanding the Economic Diversification Drive (EDD) benefits to include all Botswana-based producers.
Presently, the EDD - a government procurement programme - only applies to citizen-owned enterprises both manufacturers and suppliers, while most textile manufacturers are locally-based but foreign owned.
Industry insiders said the incentive packages proposed were in place in one form or the other across the world, benefiting rival textile industries. Textile manufacturers in Mozambique presently enjoy total tax exemption for the first 10 years of operation and 50% discount for the next five. “South Africa spent R2.1 billion on incentives for its industry between 2012 and 2013,” an industry insider said.
“These are not hand-outs; the industry through the strategy is demonstrating its potential benefit to the economy in the long-term.”
Local textile and apparel sector players have been eagerly awaiting the strategy’s production, as government has stated that it would model its future interventions for the sector around the strategy. Last February, trade and industry minister, Dorcas Makgato-Malesu said a P500 million bailout request from the industry to Cabinet would need to wait the strategy.
Besides the incentives it proposes, the blueprint also gives the first official figures of textile sector employment in recent years. According to the strategy, the sector’s employment, which is generally 85% female, peaked in 2006 at 10,529, before slumping to 4,138 as at the last recorded period being March 2011.
The strategy says high operational costs, low productivity, quality and service levels, inadequate skills, lack of facilitative infrastructure, as well as reinvestment, are generally behind the industry woes. Additional challenges stemmed from the global financial crisis, stiff competition from Asian giants, as well as the removal of several key regional trade provisions.
The strategy notes that the P38 million bailout extended by government to textile manufacturers between 2009 and 2011 had mixed results in terms of employment.
“The offering of the special support fund did not increase employment or increase productivity or result in sustainability of employment because companies started to retrench as soon as the programme was terminated,” the strategy notes.
“Therefore, industrialisation should not be holistically promoted through over-subsidising labour intensive activities for the strategy, but rather through products that have a market appeal, even if it means focusing on those that require higher skills and higher value added activities.” The chairman of the Botswana Exporters and Manufacturers Association textile sub-sector, Fazul Zahir told BusinessWeek that the strategy was critical for the industry’s long-term survival.
Zahir said the strategy, developed by government and private sector stakeholders including legislators, had been an exhaustive two year affair during which there were fears more players could close before the blueprint was finalised.
“While we were formulating it, we found that with the end of the 2009 - 2011 support programme, the industry could collapse before the strategy was even out,” he said in an interview.
“Government was then asked to assist and they extended their support from November 2013 to November 2014, but only for manufacturers with a minimum of 10 workers.
“The way forward now is the implementation of the strategy and its roll-out, to have it in place before November 2014 so that when the support programme ends, the industry is able to stand on its own feet. “It’s an eagerly anticipated document.” Zahir expressed hope that the strategy would open opportunities for local manufacturers in the domestic, regional and international market. “The local market is very small, but very important,” he said.
“That’s the backbone of the industry and everywhere in the world, manufacturers have to fill its capacity first.
“The local private sector is not supportive and while they are mainly South African brands, they also are locally based legal entities. They are continuously buying from South Africa instead of buying cheaper locally and we are hoping there can be an enforcement so that part of the procurement is local.”
Zahir stressed that quality was not an issue in the local procurement woes, saying some of the imports being bought were far worse. In addition, local manufacturers are also exporting to the US, Europe, Taiwan and elsewhere in Africa.
“The strategy also looks at how to improve quality by emphasising the need for local manufacturers to get product and process certification,” he said. “This will help the industry to stay above and compete with any manufacturer in the world. A recent BOBS meeting was also urging manufacturers to secure certification so that public and private sector buyers don’t use that as an excuse to import.” The national strategy notes that textiles used to be the third leading merchandise exports after diamonds and base metals, contributing a peak of nine percent of total export earnings in 2007 and four percent of GDP.