Mediterranean Textile Mills has invested R100 million in new equipment over the past three years to increase production capacity to meet the demand generated by the African Growth and Opportunities Act (Agoa), which has become redundant because of the strengthening of the rand.

Cliff Harvey, the managing director of the Hammarsdale-based mill that employs 400 people, said yesterday that the strengthening of the rand over the past 18 months had cost Mediterranean its US customer, Ltd, which last year accounted for 20 percent of the company's total turnover.

Mediterranean is just one of many companies that have jumped on to the investment bandwagon to take advantage of Agoa, which only a few years ago was vaunted as the answer to Africa's development needs.

"Everyone in the industry is feeling very discouraged," he said. "We still have excellent relationships with the Americans but it is impossible to compete with the Chinese, whose labour rates are an eighth of what we pay in South Africa."

Labour accounts for about 25 percent of direct costs and 25 percent of indirect costs.

Harvey said Mediterranean had been largely cushioned from the effects of the rand last year because it had been insulated by the benefits provided by Ltd.

"However, with Ltd gone, our margins are 40 percent lower this year," he said.

Meanwhile, Marcus Varoli, the company's chairman and owner, slated finance minister Trevor Manuel for his claims that the local clothing, textile and footwear industries should rise to the Chinese challenge by investing in state of the art technology, creating niche markets and looking towards branding possibilities.

"Many textile mills have invested hundreds of millions of rands recently and to this end have to service these loans at approximately 10 percent interest and repay the capital over about seven years," he said.

"But what is South Africa supposed to specialise in when Asia competes across the board in manufacturing and services both in low-end and hi-tech jobs?"

Varoli pointed out that China continued to protect certain strategic industries under the rationale that it was a developing nation.

"The argument that it could become a substantive customer of manufactured goods from South Africa is, therefore, naive," he said.

"Nigeria is taking major steps to curb the inflow from China, yet our authorities believe in the 'tough love' approach, further aggravating the situation by awarding government tenders to foreign companies."

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