Some positive news to lift the gloom in this time of uncertainty: one of the remedies President Cyril Ramaphosa proposed in his 2020 State of the Nation speech (SONA) to curb our high unemployment rate was to promote the purchase of locally manufactured goods. This is not a pipe dream but a tangible reality, especially in the local footwear and clothing industries.
Even before his speech, years of extensive research and consulting culminated in a Retail — Clothing, Textile, Footwear and Leather Masterplan (R-CTFL MP), which was signed on the 6th November 2019.
According to the Statistics SA September 2019 Quarterly Employment Survey (covering the period to 30 June 2019) 87 000 people were formally employed in Clothing Textile Footwear Leather (CTFL) manufacturing — 44 700 in clothing, 26 000 textile, 9 100 in footwear and 5 300 in leather jobs. If informal manufacturing is added, the number of jobs in CTFL grow to 235 000. The CTFL retail sector add about another 120 000 jobs.
In the foreword to the R-CTFL MP Minister of Trade and Industry Ebrahim Patel estimated that if local manufacturing could grow 5.5% per year until 2030, employment in the value chain can grow by 121 016 jobs to 333 162 — with manufacturing accounting for 73 549 of these new jobs. It is envisaged that this local content growth could be achieved by increased government procurement, and by technical niche markets, workwear, corporate clothing and retail sales.
In 2016 CTFL retailers purchased about R70-bn worth of goods, of which the bulk (R43-bn) was clothing, followed by R12.7-bn worth of textiles, R11.6-bn footwear and R2.6-bn leather products. More than half (55%) the value of these purchases, namely R39-bn, came from imports. Footwear was the category with the highest percentage of imports (61%), followed by textiles (56%) and clothing (54%).
The target for retailers would be to increase their local footwear and clothing content from the current 28% to 66% over the next ten years until 2030. That means increasing purchases of locally manufactured footwear and clothing to R69-bn, compared to R31-bn worth in 2016.
Is this a realistic target, especially in footwear? we asked Noel Whitehead, chairman of SAFLIA (South African Footwear Leather Industries Association).
It is doable, says Whitehead, but it is going to be a hard ask, because it will depend on factors like human capital, skills, as well as modern machinery. The growth in manufacturing volumes will have to be gradual, but if we can grow local footwear manufacturing by 2% per year, there can be significant changes. “If we can manufacture 5-m pairs more in a year and another 5-m over the following 2-3 years, it will have a massive impact,” he says.
SAFLIA estimated that approximately 40-m of the 210-m pairs currently imported could be manufactured locally, especially stuck-on, stitch-down and welted styles. (See an example). Certain categories, like athletic spikes, cheap slippers, or some styles for international athletic brands, cannot be made locally due to lack of local volumes or skills. Although some styles of an international brand like PUMA are manufactured locally.
We cannot expect to grow local manufacturing from the current 60-m pairs to 100-m pairs in a single year, cautions Whitehead. Or, if a big retailer suddenly wants 30 000 pairs of a style for all their stores, it cannot be done overnight.
Some of the biggest fashion retailers at the time — e.g. Edcon, Woolworths, TFG, Truworths and Mr Price — agreed to comply with the R-CTFL MP. For the buyers at these chains there will now be a different key performance indicator (kpi) to consider — instead of just looking at margin and the lowest price, one of the kpi’s going forward will be local content.
“What is exciting is that the Masterplan is not just a document,” says Whitehead. Government will establish a number of task teams to drive key interventions and establish a Programe Management Office (PMO) and an Executive Oversight Committee (EOC) to implement the plan. One of the tasks will be to hold quarterly meetings to track progress of local stock purchases.
While all the bigger fashion retailers agree that it is important to support local manufacturers, they all still compete in the market and don’t want to give away their competitive advantage. Information from retailers will therefore be collated and a consolidated overview given to the group, reporting the growth in local support from all the retailers, without them knowing who did what,” says Whitehead.
There have already been some positive moves, he says. “Some of the bigger retailers already approached us (at Bolton Footwear) to view our capabilities and find out what we are busy with.” Some of them have agreed to introduce locally made testers, which they’ll try out over the next few months and some of the retailers already gave positive feedback.
Government has a vested interest in the footwear manufacturing industry, and their support through the new R-CTFL MP with a vision for 2030, will assist our industry going forward, says Whitehead. The Production Incentive Programme (PIP), an initiative of the Department of Trade and Industry (DTI) has greatly assisted many manufacturers to renew and extend ageing infrastructure, and a new Footwear Leather Industry Cluster (FLIC) is up and running.
Further support from the government will be crucial for the successful implementation, for example, by stepping up the prevention of illegal imports. When several stores in rural towns all sell exactly the same cheap and illegal items, one can be sure that they bought it from the same under-invoiced container load, which Whitehead likens to an organised crime network.
A lot of work is being done at customs and by SARS to try and stop under-invoicing and false invoices, he explains. SAFLIA has assisted them by expanding the description of another 21 tariff subcodes. They have also been asked by SARS to assist with the training of customs and excise officers at ports.
To facilitate the clearing of containers, South African importers of legitimate brands in good standing can apply to SARS to be registered as a Preferred Trader. This means that the customs officials will have a list of the brands and goods for which you are the sole licensed importer and the clearance process will go much faster if the invoices and waybills tally.
SARS can also focus more on importers with a history of incorrect or under-invoicing. Likewise, it will be easier to spot illegal imports if brands and goods registered to a legitimate importer is found in a container destined for another company’s warehouse.
Since the Department of Trade and Industry (DTI) started stepping up the clampdown on under-invoiced or counterfeit goods in the middle of last year, the average price of imports — and duty paid – has also been increasing, says Whitehead.
South African retail chains also have a legitimate concern that they are expected to comply with local content percentages, but have to compete with international retailers like H&M, Decathlon, etc. who were allowed trading licenses to sell imported goods without constraint. This is an issue government can address over time, says Whitehead.
Organised labour will also be involved and they will be asked to be flexible by, for example, not work short time in May and June and then want to work overtime in October, November and December.
We must face it that the South African economy is going to be dismal during 2020-21 and “if the footwear industry as a whole is just going to look at trying to beat the economy, we’re going to be in trouble,” says Whitehead. Some out-of-the-box thinking would be required … which he suggests should include local sourcing.
About 9-m fewer pairs were manufactured locally in 2018 than in 2017 and the locally manufactured pairage will be even lower in 2019, he warns [see sidebar: Footwear manufacturing stats and facts]. This downturn over the past two years was across all categories and can be blamed on the weak economy that reduced consumer buying power.
People simply wear their shoes a bit longer and buy cheaper styles, which especially impacts on more expensive imported brands. This places strain on retailers who have expensive shoe styles and brands on their shelves, with the result that they will probably replace these with more affordable lines that might sell faster.
Effectively, over the past 3-4 years more footwear manufacturers closed down than new ones opened, which includes the significant impact of the closure of the Green Cross factory after 44 years in 2019. “The scary part is that at the same time the percentage of imports had grown even though the total volumes of footwear purchased dropped,” says Whitehead. These imports were mainly for the cheaper end of the market.
Load-shedding has had a severe impact on the footwear manufacturing industry, says Whitehead. While some manufacturers have generators, not all enjoy the benefit.
“If you have load-shedding in the middle of the day, the collective agreement says that you have to pay employees for the first hour, the second hour is short time. Workers therefore lose an hour, and the employer loses an hour.”
This is not good news for an industry under strain as all parties lose, but the unions have been open to suggestions for dealing with the situation. An obvious problem is when load-shedding occurs in the middle of the day, as factories can start earlier or work later if they know load-shedding will be in the morning or late afternoon.
Footwear manufacturing facts and stats
After a glimmer of hope amid growth in 2016, the past few years have not been good for footwear manufacturing. “The 2018 year under review was definitely worse than 2017 for various reasons,” Noel Whitehead said in his chairman’s message in the 2019 SAFLIA Annual Report.
He mentioned one of the longest and worst strikes in the industry’s history and the drop of 13% (8.7-m pairs) in production to 57-m pairs from 2017 to 2018.
In some factories productivity was down considerably in 2018 compared to the previous year, which could be a result of the month-long strike. For example, In 2018 the 18 South African factories with the capacity to produce more than 1-m pairs of shoes per year made about 34-m pairs — which is 3-m down from the 37-m produced in 17 factories during 2017. The 94 factories that make fewer than 50 000 pairs per year yielded 3.6-m pairs in 2018, which is also considerably less than the 4.7-m pairs produced by 78 factories in 2017.
But, good news amid the bad: by March 2019 formal employment in the footwear industry had increased by 2.2% (209) to 9 852 compared to March 2018. Unfortunately, the Green Cross factory closed later in the year and several other companies retrenched people.
Three factories in the country employ more than 500 workers — they employ 1 749 workers between them. Most factories (118) are, however, small, and employ fewer than 19 workers, but they provide work to 1 939 people.
However, what is of great concern is that while local production dropped by 8.7-m pairs in 2018, imports grew by 3.3-m pairs or 1.6%, adds SAFLIA Executive Director Jirka Vymetal. This followed a 1.7% drop in production in 2017 to 66-m pairs compared to 2016, when local production increased by 10% to 67-m pairs. The latter was the highest number of pairs produced locally since 1999.
In 2018 the number of pairs imported (211-m) was the highest since 2010, and represented 79% of total footwear available — although this percentage was considerably lower than the 83% that imported footwear represented of all footwear volumes in 2005.
“Another significant observation is that that the average ex-factory price per pair produced in South Africa is R101.23 and the average price per pair of imports is R56.46,” says Vymetal. “We are busy engaging with the DTI and ITAC to see if any trade remedies need to be, or can be, put in place.”
The highest number of footwear pairs imported (94.4-m) have outsoles and uppers of rubber or plastic (tariff code 64.02), followed by 91.4-m pairs with uppers of textile material (code 64.04). The latter represented the highest value for imports, R4.6-bn, followed by code 64.02 imports valued at R4.3-bn and then shoes with uppers of leather, which contributed R2.8-bn for the 14-m pairs imported at R200 per pair.
Since 2010 the percentage of footwear imports that came from China have also been reduced from 93% to 89% of imports. The price per pair imported from China (R40.51) is, however, the lowest from all ten import countries, with the value of the 189-m pairs representing R7.6-bn.
Imports from Vietnam has increased to 11-m in 2018 from 9.7-m in 2017, but the imports from Indonesia, the country with the third highest import volumes (4.3-m) remained the same.
Not surprisingly, the most expensive imported footwear (R495 per pair), come from Italy (4th highest imports). The 1.1-m pairs imported represent R548-m in value.
However, over the two years, exports picked up, namely the 4 402 pairs exported in 2016 grew by more than 400 in 2017 to 4 878, but then dropped down to 4 129 in 2018.
Interestingly, in 2018 the biggest local production category was for women and girls shoes (25-m pairs), in particular with synthetic uppers (12-m pairs) and with fabric uppers and running shoes (6-m). Shoes with leather uppers accounted for more than half (11.7-m pairs) of the 22.3-m pairs of men and boys shoes manufactured locally. Of the total number of footwear manufactured locally (57-m pairs), 21.4-m (37.5%) had synthetic uppers and 19-m leather uppers.
This means that a third (33%) of the shoes manufactured locally in 2018 had leather uppers, compared to ten years ago when leather uppers represented nearly half (48%) of the footwear manufactured. Over the past ten years fabric uppers grew from less than 1% to more than 13%.
Most (76.8%) of the total locally manufactured footwear is produced in Kwa-Zulu Natal, and stuck-on footwear represents the highest volume in all regions of the country.