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Exploring the Role of Industrial Policy and the Minerals Energy Complex in the

Decline of South African Textiles and Clothing

Lotta Takala-Greenish31/10/2008

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Core questions

What factors have contributed to the decline in SA textiles and clothing?

How does this decline link to developments in industrial policy?

How does the dominance of the minerals-energy-complex (defined as a broad set of mining/energy associated capital-intensive sectors) relate to this decline?

Pieces of a puzzle but missing a link? Textiles and clothing continued to decline despite ongoing (though

reduced) protection from competition?– tariffs in Clothing down from 30% in 1994 to 17.8% in 2004– tariffs in Textiles down from 73.7% in 1993 to 33.2% in 2004

The textiles and clothing decline is traditionally linked to:– Poor competitiveness / legacy of ISI and protectionism– Trade liberalisation, small domestic market, global competition– Low investment / dependence on imported technology and know-how

Industry perception is dominated by:– Low-cost imports from China– Volatility of Rand reflects minerals prices rather than low-skill labour– Exporting (important but should be based on developing production

capabilities learnt through supplying the domestic market)

Source: Quantech RSA Standardised Industry Data accessed Sept 2008

Source: Quantec RSA Standardised Industry Data accessed Sept 2008

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T&C constraints No real linkages to MEC, large conglomerates unbundling, listing

abroad, disinvestment from domestic manufacturing Not successful in developing globally competitive products despite X

focus Not a major revenue generating sector – instead employment of low-

skill L Split between T and C makes industry organisation more difficult Changes in value-chain (buyer driven, fashion fluctuations) mean T

and C would need to coordinate better to lobby government High labour costs and lower quality (relative) make global competition

difficult

Increased outsourcing and casualisation of employment has shifted the focus away from quality and links between T&C and towards (low) price

Small domestic market increases exposure to global competition

SA Textile Exports by Value ($)HS50-60,63

0

200000000

400000000

600000000

800000000

1000000000

1200000000

1400000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WorldEUChinaUnited States

SA Textiles Imports Value ($) HS61,62

0

500000000

1000000000

1500000000

2000000000

2500000000

3000000000

3500000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WorldEUChinaUnited States

Source: SADC TIPS Data accessed Sept 2008

Clothing Exports by Value ($) HS61,62

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WorldEUChinaUnited States

Clothing Imports by Value ($) HS61,62

0

200000000

400000000

600000000

800000000

1000000000

1200000000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WorldEUChinaUnited States

Source: SADC TIPS Data accessed Sept 2008

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Industrial Policy Debate Problematic State vs Market split does not reflect specifics of SA

– Functional, horizontal or cross sector, selective policies - Wade (1990), Lall (2004), Barnes et al. (2006)

– Narrow vs broad industrial policy - Chang (1998), Soludo et al (2004)

– Categorisation of SA policy into limited protectionism vs liberalisation, and equating ndustrial policy with trade reform - Jones (2002), Davis (1994)

Perceived separation of sectors (e.g. MEC) from other manufacturing (esp. sectors - Fine & Rustomjee (1996)

Setup and support for large state-owned enterprises, limited diversification and little support to SME's

Policy ownership is split between multiple agencies - broad-type industrial policy coordination elusive

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Capital accumulation around the MEC not T&C

Debate around the concept of the minerals-energy complex is heated but useful in that it highlights the difficulty in defining the exact influence of the capital-intensive set of interconnected sectors on the economy as well as policy.

The capital accumulation that has taken place around the MEC is clearly aided by policy though this link is not easily delineated (e.g investment, financialisation – links exist but difficult to pinpoint/quantify)

The complexity of the role of the MEC is what has made parts of the SA economy successful but this dominant structure has also disadvantaged other parts.

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0

20000000

40000000

60000000

80000000

100000000

120000000Total Manufacturing

Basic iron and steel, non-ferrous metal products, metal products and machinery

Motor vehicles, parts and accessories and other transport equipment

Basic chemicals

Textiles, clothing, leather and footwear

Other manufacturing divisions

Other manufacturing groups

Value of manufacturing sales

A more robust picture T&C decline linked to increased dominance of price mechanism

and capital accumulation:– Industry restructuring – casualisation of labour and price

focus/bias– Shift in power to the retailer (global and domestic)– Limited success in linking very different textiles and clothing in

higher value-added / quality niche product pipeline (diverse producers difficulty to organise)

– Absence of an overall industrial policy with understanding of integrated sector needs/challenges has contributed to 'getting prices right' (exporting follows rather than leads diversification)

– Changes in policy space as a result of both domestic (structure and policy) and global factors (trade and finance)

– Continuity in structures of capital accumulation and distribution

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Thank you

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3 Hypotheses H1: South African development in the 1970-2005 period

does not fit under existing industrial policy theorising and definitions

H2: The minerals energy complex (MEC) continues to dominate the economy. This structure constrains development/policy in other (unrelated) sectors

H3: Textiles and clothing decline is due to various external factors (global and domestic) but also closely linked to the internal structural change in the sector

SA Economic Transformation: Alternative Views

Typical explanations classify SA pre>post-apartheid as a shift from a state-led economic structure characterised by import substitution and protectionism to a market-led economic liberalisation - see Fallon & Pereira da Silva (1994), Davis (1995), Hayter, Reinecke, Torres (2001), Jones (2002)

Though there was a shift from a more protected to an increasingly open and market-led economy, this does not represent the full picture. Alternative views focus on the relationship between the political change and the continued dominance of the minerals energy complex – see Fine & Rustomjee (1996), Marais (1998), Carmody (2002), Padayachee (2006), Hirsch (2005)

Textiles Clothing

• Capital intensive in comparison to clothing

• Inferior quality product from SA in comparison to imported fabric (using fabric damage indicators).

• Two main production streams: yarn production and knitting of yarn for fabric production

• Production is dominated by a small number of firms despite large total number.

• Exporting is important but this should be based on developing production capabilities learnt through supplying the domestic market.

• Labour-intensive in comparison to textiles (1.8% of overall employment in SA)

• Low-skilled workforce (82.2% semi and unskilled workers, 13.4% mid-level skill occupations, 4.4% high-level skills)

• Need to improve skills (esp. middle to upper management), declining employment, global value chains controlled by buyers in developed countries, need to improve responsiveness in meeting buyers demands

• Shortage of domestically produced fabrics (single most important input accounting for 33% - 48%), long lead times, poor delivery reliability, deteriorating quality performance

• High labour costs and less flexible labour arrangements (relative to other producer countries) due to strong trade union

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What lies behind the hypothesis T&C decline and developments documented

extensively by Barnes (2004, 2005), Vlok (2006), Roberts & Thoburn (2001,2002), Theron, Salm (2002)

Industrial policy overviews by Bezuidenhout (2002), Fine (1996, 1997), Mohamed & Roberts (2006), Padayachee (2006)

MEC as a concept controversial / debated, see Hirsch (2005), Reed, Lewis, Teljeur (2004), Bell & Farrell (1997)

The role of mining and energy and associated downstream industries in economy widely accepted