TRALAC - Trade Law Centre

Strong Currency Squeezes SA's Clothing Industry

Friday, 08 August 2003

Source: Cape Argus (Independent Newspapers)

The current strength of the rand is good news for most businesses and consumers, but the clothing and textile industries are bearing the brunt of the stronger currency.

The rand's volatility and its current strength against the US dollar is worrying exporters in the clothing industry.

Chairman of the Export Council for the Clothing Industry in South Africa, Jack Kipling, said exports of clothing are expected to decline this year, and could lead to job losses.

"International buyers are able to exercise wide choice in sourcing product from various competitor countries. This is a risk that needs to be borne in mind at all times," Kipling said.

He said exporters of apparel recognised that the clothing industry worldwide is characterised by cyclical fluctuations brought about by a number of factors, such as rises and falls in consumer confidence and the shifts in international competitiveness due to currency fluctuations and input costs.

He said accepting the challenges of becoming a global player required companies to have strategies that were focused on medium and longer terms.

"Boom and bust mentality has no place in developing globally competitive manufacturing companies as they tend to impact negatively on investment decisions required to maintain international competitiveness

Kipling said South Africa was still in the process of becoming an export-driven economy. "Consequently we may not have yet reached the level of sophistication needed to ensure that the currency remains fairly stable, a pre-requisite for successfully retaining and building market share in the global economy.

"We have not achieved this and we will pay the price. All export-oriented industries will feel the pinch," he said.

Kipling said the manufacturing industries, which are basically assemblers of foreign imported components, are less affected by a strong rand as the cost of inputs are reduced.

Exports within the clothing industry, on the other hand, are largely based on local inputs, which, whilst being positive for the South African economy on the whole, means that clothing exports from South Africa bear the full brunt of the strong currency.

He said exports of clothing may decline during the remainder of this year.

Kipling said that for the period January to May this year exports of clothing had still been showing a modest growth of 2%, but that it was reasonable to expect international buyers to shift away from South Africa.