This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 PRETORIA 003823 
 
SIPDIS 
 
DEPT FOR EB/TPP/ABT/EHEARTNEY, AF/EPS, AF/S 
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA COMMERCE ALSO FOR 
4510/ITA/IEP/ANESA/OA/JDIEMOND 
DEPT PASS USTR FOR PCOLEMAN AND AHEYLIGER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX SF
SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS 
AND PROJECTION OF FUTURE COMPETITIVENESS 
 
REF: (A) STATE 146213 (B) Pretoria 2238 (C) Pretoria 
 
448 
 
SUMMARY 
------- 
 
¶1. (U) This cable provides statistical data to the extent 
currently available and other information on South 
Africa's textile and apparel sector as requested in ref A 
for the calendar year 2004 and mid-2005.  Answers to 
questions posed in Ref A are based on interviews with 
major players in the South African textile and apparel 
industry, as well as government documents and officials. 
While production figures for 2004 and 2005 do not seem to 
reflect yet what we are being told, it is clear from our 
interviews that the tide has clearly turned. 
Increasingly, industry is unable to price competitively 
in either the local or the international market.  The 
industry is under severe pressure and many operations are 
closing down.  More background on recent developments in 
the South Africa may also be found in Refs B and C.  End 
Summary. 
 
Industry Statistics 
------------------- 
 
¶2. (U) Data on the textile and apparel industry in South 
Africa as requested by Ref A for the calendar year 2004 
and for midyear 2005 to the extent currently available 
may be found in the table below.  [Note: Post arrived at 
the USD values by using the average rand/dollar exchange 
rate of 6.45 for 2004 and 6.20 for 2005 (to mid-year). 
 
                                             Mid-year 
                                2004          2005 
                               ----------------------- 
Total industrial production    $38.2bn       $20.3bn 
Textile, Apparel & leather         n/a          n/a 
    goods production 
Total Industrial sales        $120.7bn      $64.5bn 
Textile, apparel & leather      $5.7bn       $3.2bn 
    goods sales 
Textile & Apparel share          3.31%        3.20% 
    of imports 
Textile & Apparel share          1.67%        1.39% 
    of exports 
Total manufacturing          1,279,000    1,222,000 
    employment 
Total textile employment        51,456       45,319 
Total apparel employment       112,031       97,454 
 
 
[Note: The 2005 employment statistics are only for the 
first quarter.] 
 
[Note: Statistics South Africa advised that the final 
production figures for 2004 for textiles, clothing and 
leather goods would only be available in a few months.] 
 
Answers to Specific Questions 
----------------------------- 
 
¶3. (U) Answers to the following ref A questions are based 
on interviews with major players in the South African 
textile and apparel industry, as well as government 
officials.  Questions and answers appear in paragraphs 4- 
¶12. 
 
¶4. (U) Are host country producers receiving lower prices 
due to heightened international competition? 
 
-- Both textile and apparel producers tell us that they 
are receiving lower prices because of extreme competition 
from China.  The apparel industry complains that 
retailers press local manufacturers to reduce prices and 
frequently use examples of offers of cheaper imports to 
exert further downward pressure. 
 
¶5. (U) Have the manufacturers received more, less, or the 
same number of orders as in the past? 
 
-- The Textile Federation (Texfed) indicated that the 
textile industry has received almost the same number of 
orders in the first 6 months of 2005 as it did during 
same period in 2004.  Jack Kipling, President of the 
Export Council for the Clothing Industry in South Africa, 
indicated that the clothing industry on the other hand 
received fewer orders during the same period. 
¶6. (U) Have foreign investors, including Asian investors, 
closed factories or otherwise pulled out of local 
production? 
 
-- The South African apparel industry reported the 
closure of 43 clothing factories and 37,000 job losses in 
South Africa from January 2003 to June 2005.  According 
to Jack Kipling the two largest clothing manufacturers 
that closed their doors were China Garments (Taiwan) in 
the Eastern Cape Province, which employed about 2,000 
workers, and Nove Clothing (Taiwan) in KwaZulu-Natal, 
which employed about 1,200 workers.  For those clothing 
factories that continued to operate, most underwent 
substantial downsizing. 
 
-- According to the South African textile industry, 11 
spinning, weaving and knitting mills closed down during 
2003 and 2004.  Two more mills closed down between 
January 2005 and August 2005. 
 
¶7. (U) Have the United States safeguards or the European 
Union agreement with China affected the export prospects 
for your host country manufacturers? 
 
-- The local clothing and textile industry are not aware 
of any obvious change in exports to the European Union 
and United States as a result of the implementation of 
safeguards. 
 
¶8. (U) Has your host government implemented or been 
considering safeguards or other measures to reduce the 
growth of imports of Chinese textiles and apparel 
products into the host country? 
 
-- In June 2005, the Clothing Trade Council of South 
Africa (Clotrade) petitioned the International Trade 
Administration Commission for safeguard protection.  The 
industry wants safeguards on all products covered in 
Chapters 61 and 62 of the Harmonized Tariff Schedule 
(HTS). 
 
-- The South African Textile Federation (Texfed) is in 
the process of finalizing its petition for safeguards 
protection on bed linen products and ready-made curtains 
from woven fabrics. 
 
¶9. (U) Has increased global competition affected local 
labor conditions by causing employers to reduce wages, 
seek flexibility from government required minimum wages, 
or adversely affected union organizing? 
 
-- Thus far the local industry has not experienced a 
reduction in wages nor has the government shown 
flexibility regarding minimum wages or labor regulations. 
However, at the ruling party's National General 
Conference in June, a document entitled "Development and 
Underdevelopment" was discussed that contained proposals 
to provide greater wage flexibility in labor intensive 
industries such as textiles and apparel. 
 
-- Labor unions reported a loss of 16,250 jobs in 2004 
and 16,830 jobs for the period January 2005 to August 
2005 in the clothing and textile industry.  In an effort 
to save the industry from shedding more jobs, the 
Congress of South African Trade Unions (COSATU) has 
shifted its focus to the South African retailers.  COSATU 
wants South African retailers to sell clothing with an 
average of 75% local content.  Major clothing retailers 
Foschini, Truworths, Woolworths, and Edgars Consolidated 
issued a statement in May rejecting this proposal.  They 
criticized COSATU's initiative for constituting gross 
interference in the competitive dynamics of the supply 
chain, and for potentially having a negative affect on 
consumers, retail business, and the South African economy 
as a whole.  COSATU has also marched on the central bank 
in favor of lower interest rates and, thus, a weaker 
rand.  To ensure the competitiveness of the local 
industry in international markets, COSATU believes that 
the rand should be trading at between R9 and R10 to the 
U.S. dollar, as opposed to the R6 to R7 that it is 
trading at now. 
 
¶10. (U) Has the government or private industry taken 
action to increase host country competitiveness, such as 
improving infrastructure, reducing bureaucratic 
requirements, developing the textiles industry, moving to 
higher value-added goods, or identifying niche markets? 
 
-- The South African government has indicated that it was 
searching for a lasting solution to cheap imports and the 
country's lack of competitiveness to enable industry to 
transform into a competitive world player.  The Minister 
of Trade and Industry appointed a Technical Task Team in 
2004 to investigate and find solutions to the problems in 
the industry.  The final report has not been released. 
In the absence of such a report, analysis of the South 
African government's position on the clothing and textile 
situation is difficult. 
 
-- Reflecting its strong trade union orientation, the 
Department of Trade and Industry has criticized 
management for not adapting to changing market conditions 
and exploring niche products.  The Minister of Trade and 
Industry, in an effort to reduce and eliminate illegal 
imports and transshipment, published regulations that 
prohibit the importation into or the sale of textiles, 
clothing, shoes, and leather goods in South Africa unless 
the country of origin is clearly labeled.  These 
regulations came into force on May 23, 2005.  This was 
part of a national control system created to monitor 
compliance with country-of-origin rules. 
 
¶11. If your host government is a partner in a free trade 
agreement or beneficiaries of a preference program such 
as AGOA, CBTPA, or ATPDEA, will this be sufficient for 
the country to remain competitive? 
 
-- The South African apparel industry is not convinced 
that the current preferential access to U.S. markets 
under the African Growth and Opportunity Act (AGOA) is 
sufficient to compensate for the strength of the rand and 
the close of the 1974 Multi-Fiber Arrangement and 
subsequent Agreement on Textiles and Clothing.  The 
clothing industry asked for a review of the special AGOA 
rule on apparel.  South African manufacturers complain 
that the rule restricts them from sourcing cheap yarn and 
fabric from Asian countries, thus affecting their 
international competitiveness.  A further constraint to 
the clothing industry is the limited variety and 
quantities of domestically produced fabrics.  These 
factors inhibit the ability of firms to meet the rules of 
origin requirements for exports under AGOA. 
 
¶12. Overall, can South Africa be competitive in textiles 
and apparel exports with the end of global textiles and 
apparel quotas? 
 
-- The South African textile and apparel industry is not 
optimistic about its future competitiveness unless 
concrete actions are taken to support the South African 
industry.  Texfed stated in its July 2005 Economic Review 
that in view of the general economic conditions, decline 
in exports, increased low priced imports and decline in 
local production, the South African textile industry will 
not be able to recover in future.  Jack Kipling, 
President of the Export Council for the Clothing Industry 
of South Africa, believes that the situation in which the 
clothing industry in South Africa finds itself is due to 
the effects of globalization and trade liberalization. 
He argues that the clothing industry is the most global 
of all manufacturing sectors, with low margins and high 
price sensitivity.  Therefore, it is the first sector to 
feel the effects of globalization. 
 
-- The bleak picture of the textile and apparel industry 
in South Africa can be attributed to the inability of the 
industry to price competitively in both local and 
international markets.  Before January 1, 2005, industry 
competitiveness was adversely affected by the rapidly 
strengthening rand.  South African imports of Chinese 
apparel and textile products increased by 76% and 35%, 
respectively, in 2004.  Today, China currently holds 86% 
of the apparel market for imports in South Africa.  After 
January 1, 2005, industry competitiveness has been 
adversely affected by the lifting of international import 
quotas and the subsequent sharp increase in exports 
coming out of China and India to the major export 
markets. 
 
TEITELBAUM