This record is a partial extract of the original cable. The full text of the original cable is not available. UNCLAS SECTION 01 OF 04 PRETORIA 003823
DEPT FOR EB/TPP/ABT/EHEARTNEY, AF/EPS, AF/S
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA COMMERCE ALSO FOR
DEPT PASS USTR FOR PCOLEMAN AND AHEYLIGER
E.O. 12958: N/A
SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS
AND PROJECTION OF FUTURE COMPETITIVENESS
REF: (A) STATE 146213 (B) Pretoria 2238 (C) Pretoria
1. (U) This cable provides statistical data to the extent
currently available and other information on South
Africa's textile and apparel sector as requested in ref A
for the calendar year 2004 and mid-2005. Answers to
questions posed in Ref A are based on interviews with
major players in the South African textile and apparel
industry, as well as government documents and officials.
While production figures for 2004 and 2005 do not seem to
reflect yet what we are being told, it is clear from our
interviews that the tide has clearly turned.
Increasingly, industry is unable to price competitively
in either the local or the international market. The
industry is under severe pressure and many operations are
closing down. More background on recent developments in
the South Africa may also be found in Refs B and C. End
2. (U) Data on the textile and apparel industry in South
Africa as requested by Ref A for the calendar year 2004
and for midyear 2005 to the extent currently available
may be found in the table below. [Note: Post arrived at
the USD values by using the average rand/dollar exchange
rate of 6.45 for 2004 and 6.20 for 2005 (to mid-year).
Total industrial production $38.2bn $20.3bn
Textile, Apparel & leather n/a n/a
Total Industrial sales $120.7bn $64.5bn
Textile, apparel & leather $5.7bn $3.2bn
Textile & Apparel share 3.31% 3.20%
Textile & Apparel share 1.67% 1.39%
Total manufacturing 1,279,000 1,222,000
Total textile employment 51,456 45,319
Total apparel employment 112,031 97,454
[Note: The 2005 employment statistics are only for the
[Note: Statistics South Africa advised that the final
production figures for 2004 for textiles, clothing and
leather goods would only be available in a few months.]
Answers to Specific Questions
3. (U) Answers to the following ref A questions are based
on interviews with major players in the South African
textile and apparel industry, as well as government
officials. Questions and answers appear in paragraphs 4-
4. (U) Are host country producers receiving lower prices
due to heightened international competition?
-- Both textile and apparel producers tell us that they
are receiving lower prices because of extreme competition
from China. The apparel industry complains that
retailers press local manufacturers to reduce prices and
frequently use examples of offers of cheaper imports to
exert further downward pressure.
5. (U) Have the manufacturers received more, less, or the
same number of orders as in the past?
-- The Textile Federation (Texfed) indicated that the
textile industry has received almost the same number of
orders in the first 6 months of 2005 as it did during
same period in 2004. Jack Kipling, President of the
Export Council for the Clothing Industry in South Africa,
indicated that the clothing industry on the other hand
received fewer orders during the same period.
6. (U) Have foreign investors, including Asian investors,
closed factories or otherwise pulled out of local
-- The South African apparel industry reported the
closure of 43 clothing factories and 37,000 job losses in
South Africa from January 2003 to June 2005. According
to Jack Kipling the two largest clothing manufacturers
that closed their doors were China Garments (Taiwan) in
the Eastern Cape Province, which employed about 2,000
workers, and Nove Clothing (Taiwan) in KwaZulu-Natal,
which employed about 1,200 workers. For those clothing
factories that continued to operate, most underwent
-- According to the South African textile industry, 11
spinning, weaving and knitting mills closed down during
2003 and 2004. Two more mills closed down between
January 2005 and August 2005.
7. (U) Have the United States safeguards or the European
Union agreement with China affected the export prospects
for your host country manufacturers?
-- The local clothing and textile industry are not aware
of any obvious change in exports to the European Union
and United States as a result of the implementation of
8. (U) Has your host government implemented or been
considering safeguards or other measures to reduce the
growth of imports of Chinese textiles and apparel
products into the host country?
-- In June 2005, the Clothing Trade Council of South
Africa (Clotrade) petitioned the International Trade
Administration Commission for safeguard protection. The
industry wants safeguards on all products covered in
Chapters 61 and 62 of the Harmonized Tariff Schedule
-- The South African Textile Federation (Texfed) is in
the process of finalizing its petition for safeguards
protection on bed linen products and ready-made curtains
from woven fabrics.
9. (U) Has increased global competition affected local
labor conditions by causing employers to reduce wages,
seek flexibility from government required minimum wages,
or adversely affected union organizing?
-- Thus far the local industry has not experienced a
reduction in wages nor has the government shown
flexibility regarding minimum wages or labor regulations.
However, at the ruling party's National General
Conference in June, a document entitled "Development and
Underdevelopment" was discussed that contained proposals
to provide greater wage flexibility in labor intensive
industries such as textiles and apparel.
-- Labor unions reported a loss of 16,250 jobs in 2004
and 16,830 jobs for the period January 2005 to August
2005 in the clothing and textile industry. In an effort
to save the industry from shedding more jobs, the
Congress of South African Trade Unions (COSATU) has
shifted its focus to the South African retailers. COSATU
wants South African retailers to sell clothing with an
average of 75% local content. Major clothing retailers
Foschini, Truworths, Woolworths, and Edgars Consolidated
issued a statement in May rejecting this proposal. They
criticized COSATU's initiative for constituting gross
interference in the competitive dynamics of the supply
chain, and for potentially having a negative affect on
consumers, retail business, and the South African economy
as a whole. COSATU has also marched on the central bank
in favor of lower interest rates and, thus, a weaker
rand. To ensure the competitiveness of the local
industry in international markets, COSATU believes that
the rand should be trading at between R9 and R10 to the
U.S. dollar, as opposed to the R6 to R7 that it is
trading at now.
10. (U) Has the government or private industry taken
action to increase host country competitiveness, such as
improving infrastructure, reducing bureaucratic
requirements, developing the textiles industry, moving to
higher value-added goods, or identifying niche markets?
-- The South African government has indicated that it was
searching for a lasting solution to cheap imports and the
country's lack of competitiveness to enable industry to
transform into a competitive world player. The Minister
of Trade and Industry appointed a Technical Task Team in
2004 to investigate and find solutions to the problems in
the industry. The final report has not been released.
In the absence of such a report, analysis of the South
African government's position on the clothing and textile
situation is difficult.
-- Reflecting its strong trade union orientation, the
Department of Trade and Industry has criticized
management for not adapting to changing market conditions
and exploring niche products. The Minister of Trade and
Industry, in an effort to reduce and eliminate illegal
imports and transshipment, published regulations that
prohibit the importation into or the sale of textiles,
clothing, shoes, and leather goods in South Africa unless
the country of origin is clearly labeled. These
regulations came into force on May 23, 2005. This was
part of a national control system created to monitor
compliance with country-of-origin rules.
11. If your host government is a partner in a free trade
agreement or beneficiaries of a preference program such
as AGOA, CBTPA, or ATPDEA, will this be sufficient for
the country to remain competitive?
-- The South African apparel industry is not convinced
that the current preferential access to U.S. markets
under the African Growth and Opportunity Act (AGOA) is
sufficient to compensate for the strength of the rand and
the close of the 1974 Multi-Fiber Arrangement and
subsequent Agreement on Textiles and Clothing. The
clothing industry asked for a review of the special AGOA
rule on apparel. South African manufacturers complain
that the rule restricts them from sourcing cheap yarn and
fabric from Asian countries, thus affecting their
international competitiveness. A further constraint to
the clothing industry is the limited variety and
quantities of domestically produced fabrics. These
factors inhibit the ability of firms to meet the rules of
origin requirements for exports under AGOA.
12. Overall, can South Africa be competitive in textiles
and apparel exports with the end of global textiles and
-- The South African textile and apparel industry is not
optimistic about its future competitiveness unless
concrete actions are taken to support the South African
industry. Texfed stated in its July 2005 Economic Review
that in view of the general economic conditions, decline
in exports, increased low priced imports and decline in
local production, the South African textile industry will
not be able to recover in future. Jack Kipling,
President of the Export Council for the Clothing Industry
of South Africa, believes that the situation in which the
clothing industry in South Africa finds itself is due to
the effects of globalization and trade liberalization.
He argues that the clothing industry is the most global
of all manufacturing sectors, with low margins and high
price sensitivity. Therefore, it is the first sector to
feel the effects of globalization.
-- The bleak picture of the textile and apparel industry
in South Africa can be attributed to the inability of the
industry to price competitively in both local and
international markets. Before January 1, 2005, industry
competitiveness was adversely affected by the rapidly
strengthening rand. South African imports of Chinese
apparel and textile products increased by 76% and 35%,
respectively, in 2004. Today, China currently holds 86%
of the apparel market for imports in South Africa. After
January 1, 2005, industry competitiveness has been
adversely affected by the lifting of international import
quotas and the subsequent sharp increase in exports
coming out of China and India to the major export
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