TRALAC - Trade Law Centre

South Africa: Call to Improve Textile Incentives

Wednesday, 02 February 2005

Source: Business Report

Johannesburg - The ailing local textile and clothing industry has urged the department of trade and industry to modify an export incentive scheme to help manufacturers pay off interest on loans owed to government-owned finance agencies such as the Industrial Development Corporation.

South AfricaThe incentive scheme in question is the duty credit certificate scheme (DCCS), which is modelled on the highly successful motor industry development programme (MIDP).

It operates by giving local firms duty credit certificates for exporting. The certificates are then used to earn customs duty rebates on imported materials.

But Brian Brink, the executive director of the local textile federation, said the certificates should also be used to reduce interest payments.

"It [DCCS] has certainly assisted in promoting exports but it could be made to work better," said Brink. "At the moment, the scheme is used to offset import duties, but I think it should also be made to offset capital costs."

Lionel October, the department's director-general for enterprise and industry development, said that local players needed to improve their competitiveness and efficiency, as the DCCS export incentive was no panacea to the industry's problems.

"Clearly, the scheme has been partially successful in helping the textile and clothing industry when compared to the MIDP for the motor industry.

"This incentive is good, but it is not enough. The industry needs additional capabilities that can be acquired through improving skills and design capabilities."

At the moment, October said, about 30 percent of local firms were selling to overseas markets, up from a tiny figure of 10 percent prior to 1994.

The surge in exports has been achieved despite the fierce competition that local textile and clothing producers face from low-cost Asian manufacturers.

The strong rand, which appreciated by about 18 percent against the US dollar last year, has contributed to the woes of the industry as locally manufactured goods are priced out of contention on export markets.

According to Deloitte partner Duane Newman, local fashion retailers were the main beneficiaries of the DCCS scheme, rather than the manufacturers. He said manufacturers sold surplus credit certificates to retailers, making it easier for retailers to import cheap products from low-cost producers such as China and Taiwan.

"The scheme is not as effective as the MIDP in terms of boosting exports. In most cases, the benefit of the credit goes to the retailer. It is the retailer that drives the industry more than the manufacturers."

Jack Kipling, the president of the Clothing Trade Council of SA (CloTrade), said his organisation supported the extension of the scheme for another two years, but tighter controls were required to manage its usage.

"CloTrade strongly supports the need for strict controls on the issue and usage of DCCS and is encouraging greater transparency in this regard ...

"The DCCS remains the most valuable and most used department of trade and industry support measure available to the clothing industry."



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