Newsletter No 06 / 18 February 2022                                 

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 Government’s job should be to turn SA into a giant exporter

By Peter Bruce

President Cyril Ramaphosa delivers his response to the debate on the state of the nation address at Cape Town City Hall on February 16 2022 in Cape Town. Picture: GALLO IMAGES/JEFFREY ABRAHAMS

I wish I lived in the same country as President Cyril Ramaphosa.

Both our countries have great potential and wonderful people. But in his country the government is charging ahead with progressive, finely-tuned policies that will transform us into a beacon for the mixed economy; a coherent state “crowding in” a dynamic private sector with which it is in close partnership and consensus.

Job creation is on steroids. Soon workers will sit on the boards of all SA companies and there will be harmony and limitless growth. No-one will be left behind.

In my country the president is busy promising his second economic compact in three years. Unemployment is at record levels. Industrial policy is centred on the delusion that we are China circa 1988, about to let loose the might of the market and smash poverty with a mighty right hook.

Ramaphosa was in parliament on Wednesday answering the debate on his state of the nation speech, which he famously started off by proclaiming that “like it or not, it is business, not government, that creates jobs”.

That was a big step for an ANC leader, even though, in interviews afterwards DA chief whip Natasha Mazzone complicated things a bit by telling a TV reporter it was business’s job to create jobs.

Actually, no-one thinks that. What Ramaphosa meant was pretty conventional — given sound and stable policy, the net effect of business investing and making profits was that more jobs are created as a secondary consequence in the swirl of activity, and the taxes those profits attract enable government to provide services to people who need them. Hence, no-one is left behind.

Still, Ramaphosa spent much of the week, yesterday included, dialling his business punt back. Little wonder. The business-not-government-creates-jobs thing drew quick fire from his political allies. So it was back to being a developmental state, partnering with the private sector. What was a statement of fact quietly became a “debate”. That’s as far as the ANC gets. Normality restored.

Ramaphosa kept trying though, and reached out yesterday to China, which under Deng Xiaoping became an industrial giant by setting the private sector and market economy free. The ANC likes China.

But we are not China 1988. Not now, not ever. China grew because of the sheer size of its internal market. Ours is tiny and possibly shrinking. Our private sector does not need to be set free — to an extent it always has been. At best it can be left alone and encouraged to make big profits that can be taxed. What needs wholeheartedly to change is ANC economic policy.

The current obsession with industrial localisation, an interference reinforced yesterday by Ramaphosa, who claimed it was generating jobs and investment, would be almost comical if the results did not threaten to be so tragic. There is no evidence there are net new jobs because of it.

Where companies are investing they are being protected by a stiff and protectionist import regime that will simultaneously drive jobs out of import sectors and raise prices for South Africans. Poultry, textiles and steel are cases in point. That Ramaphosa blithely repeats the story fed to him by his ministers does him no credit.

Localisation is nowhere near succeeding. What he should have done is to try to set the economy on an export drive. Set targets we can all follow and cheer. Hell, if you really want job creation, stop taxing local companies on the profits they make from exports. That’s how India became a pharmaceuticals power. You would make up for lost revenue from the cuts in welfare. He is going to ask business, again, “what do we do with the 11-million people now out of work?” Their answer, surely, has to be fewer rules, less interference, less government, less tax.

But we have no ambition. The almost certain failure of localisation to ignite re-industrialisation here will stain the Ramaphosa legacy much more than the slow pace of his political and institutional reforms. He should take a leaf out of the book of our most successful industrial activity, the manufacture of vehicles. It is a complex, high-end export sector, owned by foreigners. An example right here at home.

Think of any product. Can we get its best manufacturer to come and make it here too? Put simply, where we can we should be driving into export markets. Yes, the oranges to China. The chickens to Saudi, or wherever. Fabulous. A hundred more products and a hundred more markets to go.

And we have to accept that some people are going to be left behind. Michael Sachs, a former director of the budget office in the Treasury, just published an important paper on the proposed basic income grant in which he flatly calculates that “it seems sensible … to design social policy on the assumption that a large share of workers will remain permanently excluded from formal employment”.

That’s why you need your companies rolling in money. The taxes they pay and the taxes their employees pay keep the state on its feet, helping the poor get great schools and hospitals, great transport and clean water. But now I’m also dreaming…   BD

• Bruce is a former editor of Business Day and the Financial Mail.

Manufacturing dream must first overcome cold reality at factories

 By Ayabonga Cawe

Picture: Thapelp Morebudi

Enabling conditions for local manufacturing are “an important pillar of our economic reconstruction and recovery plan”, President Cyril Ramaphosa said in last week’s state of the nation address. But a few hours earlier Stats SA had released local manufacturing production and sales data that illustrated the difficulty of reconciling the ambition of such plans and the cold reality on the factory floor.

The data for the third quarter of 2021, which included the July unrest, revealed the consequences of the burning and looting of manufacturing facilities in apparel-producing parts of KwaZulu-Natal. The buildings that were torched included a combination of large retail players’ distribution facilities and the operations of smaller “cut, make and trim” players in places like Isithebe, eThekwini and Newcastle.

Apparel production between July and September declined to 57.5 index points, compared to 98.9 index points in the same quarter in 2016, with 2015 being the base year with a value of 100. In the same period, employment in the apparel sector declined from 40,452 workers in the third quarter of 2016 to 31,477 jobs in 2021.

According to the latest quarterly employment statistics, this subsector remains the largest employer in the textile, clothing and leather sector. But the July unrest shut down production in affected areas and limited the rebound of employment in the sector. It also enabled unfair competition from imports that in some cases do not pay their full due in taxes.

These factors have certainly contributed to the challenges faced by the sector. Yet as the retail clothing, textile, footwear and leather master plan correctly observes, in a buyer-driven value chain the purchasing decisions of large consumers (retailers and the government) can create the demand and scale that incentivises investment in cost, process and other forms of competitiveness.

Notwithstanding the glum employment and production picture, regional and local advantages remain, which with collaborative work between industry, labour and government can be explored to increase employment and investment in different parts of the value chain.

Take Lesotho and its export of cotton-based denim between 2017 and 2021: the mountain kingdom accounted for 65% of denim imports into SA, according to SA Revenue Service trade data. Much of this denim production, attributed to Taiwanese foreign direct investment into the sector, is destined for the US, where Basotho exports receive preferential access through the African Growth & Opportunity Act. The cotton comes from Malawi, Mozambique and other Southern African nations.

As the recent acquisition by Pepkor of Avenide, a Brazilian value apparel retailer, also shows, apparel production is a game of scale unrestrained by geographic boundaries. Yet there are seemingly novel competitive pressures from e-commerce and the legacy relationships between local retailers and their supply bases, as we saw in the factory list Woolworths released a few weeks ago.

Further, the advent of fast fashion in response to shifting consumer preferences and purchasing behaviour shortens the supply chain from factory to consumer. The popularity of Chinese online fast-fashion retailer Shein places competitive pressure on major budget retail chains by getting low-cost and comparatively similar ranges to consumers via an increasingly popular e-commerce platform.

This suggests that the choices on where SA will dedicate its resources, in value chain materials or design, product development or manufacturing, are critical. Without consideration of these and their interface with capabilities our neighbours on the continent may have or want to develop, we may lose sight of the opportunities our common market can yield.

Ideally we would want to see manufacturers in the East exporting to Southern Africa not only containers filled with apparel, but also capital equipment, machinery and know-how. In the context of the factory and port restrictions that now plague China and therefore global supply chains, Ramaphosa and his African peers will surely welcome seeing more Brazilian consumers wearing Pepkor goods, stitched together here at home, in our region and continent.   BL

• Cawe, a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.

Zimbabwe: Textile, Footwear Industries Gain Traction in Region

By Michael Tome

Trade promotion body ZimTrade says textile and footwear industries made momentous progress on the export front in 2021 as the country continued to make inroads into regional markets.

Statistics show that exports of these products in the first eight months of 2021 to August, grew to US$32,3 million in 2021 from US$17,7 million in 2020 which translates to an 85 percent surge.

According to ZimTrade, the growth trails an increased demand for Zimbabwean merchandise such as protective clothing in regional markets such as Zambia, and the Democratic Republic of Congo.

Traditionally Zimbabwe’s textile market sector exports products mainly to South Africa with an estimated export market share of 91,74 percent, Zambia (1,91 percent), Germany (0,34), Malawi with an exports contribution of 0,12 percent, and Mozambique.

“As more buyers are looking forward to source protective clothing from Zimbabwe based on the superior quality of local products and new markets are unlocked, projections are that exports from the sector will continue to grow,” said ZimTrade in its monthly publications.

Textile manufacturing was once an important industry in Zimbabwe but the sector came to halt when local clothing lines became uncompetitive in the face of cheap imports, which flooded the market.

The sector suffered a number of difficulties in the period 2000-2010 a position that saw companies closing shop and a number of people losing their jobs.

Currently a small number, less than 10 percent manufacture for export despite the growing regional market and inroads being made into Europe in the past few years.

On the flip side in the footwear production footwear industry is on a recovery path after taking a battering in the economically turbulent years between 2001-2008.

At its peak in the 1990s, the sector used to produce 8 million pairs of leather shoes and most shoe manufacturing factories in the country have over the years shut down.

According to ZimTrade, the leather and leather products sector has the potential to contribute to the Zimbabwean economy through employment creation and income generation.

Resultantly, the sector was prioritised for development in the National Trade Policy of 2012-2016 and Industrial Development Policy of 2012-2016.

Presently the National Development Strategy (NDS 2021-2022) has also identified the leather sector as one of the key-value chains.

Additionally, the Government has pledged to recapitalise the leather and footwear sub-sector so as to increase industrial capacity utilisation and boost exports through the production of value-added products such as finished leather, footwear, and other leather products.

Towards the end of 2021 Finance and Economic Development Minister, Professor Mthuli Ncube indicated that his office was targeting the cotton sector value chain, especially garment manufacturing and leather value chain as they are export-oriented, a vital cog in the stimulation of the country’s exports earnings.  The Herald Harare

The most talked about Oscars dresses of all time

Susan Sarandon, 1996

Something about the ’90s inspred celebs to wear sunglasses both indoors and at night, but Susan’s shades were the least of her problems in this shiny (and brown!) halter top.

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