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Rand's Surge Hits Clothing Exports

Published date:
Wednesday, 20 August 2003

Cape Town - The clothing industry is in a cyclical downturn driven by the strength of the rand, according to Jack Kipling, the president of the Clothing Trade Council of SA (Clotrade).

This followed four years of solid growth during which exports had risen at a compound rate of more than 35 percent a year while exports to the US had grown 151 percent in the past two years, Kipling said yesterday.

However, exports were now down and imports up due to the rand's appreciation and the cyclical downturn in the sector.

This downturn had to be seen in the broader context that the clothing industry was not the only manufacturing sector affected by the strong rand, Kipling noted. All companies in export were affected, he emphasised.

Clotrade and the Export Council for the Clothing Industry - two bodies that represented most professional clothing companies in the industry - recently presented proposals to grow the sector to the department of trade and industry. These included strategies to minimise the effects of cyclical downturns and were particularly aimed at maintaining employment levels.

The main challenges facing the industry were related to exports and imports, Kipling said. On the export side, the two factors affecting performance were rand volatility and fabric limitations placed on South Africa under the US's Africa Growth and Opportunity Act (Agoa).

From 1999 to June 2002 export growth was phenomenal. However, last July the industry warned of a slowdown in exports as a result of a shortage of fabrics that were eligible for Agoa and suitable for the US market.

To qualify under Agoa, South Africa is limited to using yarns and fabrics of southern African and US origin while surrounding Agoa-eligible countries had access to third country fabrics.

At the time, the local clothing industry warned that this requirement would seriously limit the growth potential of exports, which became a reality in 2002.

But Kipling pointed out that South Africa was currently in talks with the US over a proposed free trade agreement between the US and the Southern African Customs Union (Sacu).

If recommendations made by the clothing industry - to secure the same rules of origin for all Sacu countries - were accepted, the sector could be set for a revival, he believed.

Rand volatility was the other key issue affecting exports.

"An exchange rate of R9 to the US dollar would suit the industry. At that level exports are viable for wide ranges of products and companies and imports are balanced for strength," Kipling observed.

Clothing exports could decline in 2003, leading to some job losses, but should return to current levels in due course.

For the period January to May this year clothing exports still showed modest growth of 2 percent, with South Africa still featuring as a net clothing exporter.

Imports to the country were increasing - a natural consequence of South Africa having embraced globalisation.

"Imports themselves are not an evil," Kipling noted.

But the niggling point was that the extreme volatility of the rand over the past year had presented real challenges to the clothing industry, resulting in massive and rapid shifts in sourcing patterns among retailers.

The main reason for importing clothing into South Africa had been price. The industry had appealed to retailers to consider the long-term effect on their supply chain of dramatic switches in sourcing.

"It is the responsibility of the clothing industry to implement strategies that will ensure that their products are internationally competitive and meet the needs of local consumers better than imports," Kipling said.

He added that the industry had and would always take a strong stand against illegal imports and unfair trade practices.

Country-of-origin labelling regulations would soon be introduced, requiring all garments to bear a label indicating their origin.

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