The DTI's Master Plan: Chains, manufacturers, labour and government 'must work together'

7-point plan to grow local manufacturing

A final version of the DTI-sponsored 'R-CTFL Value Chain Master Plan to 2030' is nearing completion, according to Dr Jaywant Irkhede, director: leather & footwear at the DTI.

Drawn up by Dr Justin Barnes of B&M Analysts for the DTI, the objectives are to, "by 2030, grow R-CTFL employment by at least 120 000 net new jobs to 330 000 workers through focused action that increases the share of local CTFL retail sales of locally manufactured clothing and footwear to 65% of total retail sales (2016: 44% by value); grow procurement by local retailers of locally manufactured CTFL products to at least R69 billion (in constant 2016 Rands) (2016: R31 billion); grow local CTFL manufacturing output per employee by at least R36 000 to R205 000; [and] deliver upstream formal manufacturing employment growth of 70 000 net new formal jobs to a total of 160 000".

The plan is aimed at the mainstream fashion market - "the clothing, textiles, footwear and leather (CTFL) value chain feeding into South Africa’s major CTFL retailers" - not at government procurement, safety- and work wear, or technical niche markets, and apparently without involvement by independent retailers, though they will be affected by it.

There are other objectives, too - some economic, others ideological: Improving competitiveness, technology, profitability and skills; 'transformation'; ethical and environmental responsibility; elimination of illegal imports and local production.

The report compares South Africa with Brazil, Colombia, Indonesia, Malaysia, Mexico, Morocco, Poland, Romania, Thailand, and Turkey, and the key findings include at least one surprise:

"Labour costs are not the primary reason for the decline of the South African CTFL value chain and the primary opportunity to develop the value chain does not lie in progressively lowering wages," it reads. "Turkey employs seven times more people in the value chain and has a substantially higher minimum wage. Poland and Romania have higher minimum wages and continue to perform strongly in the CTFL value chain, while Morocco and Colombia have similar minimum wages to SA."

It says CTFL value chain success "appears to be strongly correlated with market access advantages (domestic or international); the breadth and depth of their value chain capabilities; and the success of government CTFL policies and incentives".

It says South Africa’s maximum clothing tariff of 45% is higher than any of the other countries, whose average was 21.6%. SA's footwear and leather goods import tariff is 30%, while the average for the other countries was 18.1% for footwear and 15.1% for leather goods, and "only Brazil has higher tariffs than South Africa (for footwear, fabric and yarn)".

Yet they all have lower import levels. Some have controls other than tariffs, like registers of importers, reference prices for specific HS codes, and a restricted number of ports of entry.

 

                Progress since March 2019:

 

 

The first and second are meeting the ambitious targets set out above, by developing and marketing local brands, upgrading local design and manufacturing competitiveness, and extending buy local campaigns. The retailers' role in this is to develop “buy local” brands, and to have a minimum commitment to marketing of local brands. The manufacturers' role is to invest to upgrade local design, labour's is to lead 'buy local' campaigns, and government's is to enforce local procurement for government departments.

The third is to stem the flow of illegal imports, by upgrading SARS' enforcement capacity and capabilities. The private sector also has a role. Retail, manufacturing and labour, for example, are expected to second experts to support customs, while government is to implement a customs enforcement upgrading plan.

The fourth is the "strategic use of tariffs and rebates", where "stakeholders set a target to provide fair protection for domestic CTFL value-chain where local production capacity exists and/or will be developed, and the strategic use of rebates to support localization of manufacturing".

The fifth is to extend the Competitiveness Improvement Programme (CIP) and Production Incentive (PI) programme "in an appropriate format for 3 years".

The sixth is to "align production capacity to sales cycles". Part of this is making production more adaptable to cyclical demand, and its success depends on the buy-in of labour.

The seventh is "value chain transformation", with a particular focus on growing black-owned factories.

 

 

The campaign against illicit and illegal trade and manufacturing is interesting because it is aimed at illegal local manufacturing as well as illegal imports, where most attention is on illegal imports.

The plan also calls for the establishment of an 'executive oversight committee', with representatives from retail, manufacturing, labour and government, and chaired by the Minister of Trade & Industry, and an establishment of a small representative R-CTFL Masterplan Implementation Management Team to drive day-to-day implementation

Sign-off and launch of R-CTFL Masterplan is planned at the Investment Summit (5-7 November 2019).