The following research report contains market research, analysis, statistics and business intelligence relating to research on Agoa-Related Opportunities - Textiles/Clothing South Africa.

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ABSTRACT
The South African Textile industry comes from an era where there were high levels of job and tariff protection. In terms of The World Trade Organization (of which South Africa is a member) ruled that markets should be opened up and tariff protection be reduced. In the light of South Africa's WTO's obligations, the government was required to phase down tariff protection and was given 12 years to bring down its duties to a suitable level of protection. After investigation, the South African Government agreed to phase down its textile and clothing duties in 8 years. This process began in 1995 and will reach the final levels in September 2002.

The industry has gone through a very tough 2-year negative growth period with many mill and factory closures, resulting in job losses. This was due to the severe drop in local consumption of textile/clothing and the huge influx of cheap imports of exporting countries in the Far East. Since the textile industry contributed materially to the overall economy and the critical provision of employment, this problem has had to be addressed.
However, the S.A. textile industry has restructured itself in order to survive with the objectives and parameters of the government's economic policy in order to become a modern, dynamic, job creating and manufacturing sector. It appears that the industry has reached the turning point and is back on the road to recovery and eventual growth. The challenge for the local industry will be to compete internationally in a global environment as well as the local market, where duties are being phased down and markets are opening up.

Opportunities for U.S. companies exist in the spinning, weaving, dyeing and finishing capacity to serve the region as a whole. There is also a strong need for market-oriented management skills and training.

Other opportunities exist in the textile wet processing and cleaner textile operations - such as:
- Improvements in process routes, recipes and general wet applications.

- Chemical reduction: Reducing chemical inputs to the wet process, or substituting chemicals that cause excess wastes/effluent with less harmful ones.

- Recycling/ Re-use :This involves the investigation of various treatment technologies to recover water and chemicals for re-use. Certain waste streams may also be recycled for use in other processes.
The U.S.- Africa Growth and Opportunity Act *(AGOA) has been finalized and came into operation on October 1, 2000 which will be in effect until September 2008. AGOA provides for various opportunities, e.g. preferential tariff treatment for clothing, and the extension of the GSP (General Systems of Preference) for Africa. South Africa was granted eligibility status by the U.S. on 7 March 2001 as it complied with the various conditions. In terms of the preferential treatment of clothing, the USA will allow the duty-free and quota-free importation of clothing manufactured from fabrics and yarns produced in the USA. African clothing imports into the USA, made from regionally-produced fabrics and yarns, will be subject to a cap on volume of 1,5% rising to 3,5% of the total U.S. clothing imports over the 8 year period. * OF AGOA - The African Growth and Opportunities Act:

The Africa Bill is a non-reciprocal trade agreement between the U.S. and Sub-Saharan African Countries (SSA). Five years after its introduction in the U.S. Congress, the Africa Bill, now included in the Trade & Development Act of 2000, enacted by President Clinton on May 18, 2000, and came into force on October 1, 2000, assuming all eligibility requirements were met.

The Africa Bill opens the U.S. market for exports from 48 sub-Saharan African countries with preferential access for an initial period of 8 years.Congress will have the option to renew this trade agreement at the end of the 8-year period in 2008.

The trade agreement does not require the African countries to make any reciprocal arrangement. It does, however, require countries to meet two sets of conditions. The first condition is political, mandating that countries' must qualify for the Generalized Systems of Preferences (GSP) program. To qualify for this program, countries must meet certain human and worker's rights criteria. The three countries currently ineligible under this condidtion are Eritrea, Liberia and Sudan.
The second condition is economic, requiring countries to have in place a Customs Visa system officially approved by the U.S. Administration customs authorities to address trans-shipment risk. To date Mauritius, Kenya, Madagascar and South Africa have had their Visa systems approved. Lesotho is pending approval. When the Multi-Fiber Agreement (MFA) ends in January2007, the provisions of the African Growth and Opportunities Act will remain in force ensuring U.S. market access for Sub-Saharan countries.
MARKET OVERVIEW

South Africa is a large country - about twice the size of Texas - with a population of around 44 million. It has severe unemployment, officially listed at 35%, but most recognize it at between 45-50%. The country's previous apartheid situation and the sanctions imposed by many countries on South Africa forced its economy to become inwardly-focused. This led industries, including its domestic textile and apparel industry, to be dependent on domestic consumers (primarily Woolworths - equivalent to Marks & Spencers in the U.K.) until sanctions were lifted some 10 years ago.

With new economic freedom, South African retailers began sourcing worldwide to increase its ability in competing with a large influx of commodity-type imported apparel from Asia. When S.A. retailers began looking for a more competitive supply base outside the country, the domestic textile and apparel industries were, in turn, forced to begin to try to compete on a global basis after years of protectionism. Overstaffing at mills and a management mind set remaining from the past made this process a huge challenge. While reducing the number of company employees was necessary to increase competitiveness, this has proved difficult in a country with strong unions and an exceptionally high unemployment rate.

Employment in South Africa is governed by a minimum wage of R200 per week (US$28) or $112/month minimum. However, most textile workers receive wages between $200-250 per month. Wages, working conditions and workers' rights are closely guarded by strong unions operating mostly in the urban areas. Some companies, i.e. small entrepreneurial companies and foreign investors are setting up operations in *decentralized zones to take advantage of the lack of union activity in these areas, thereby giving employers a chance to negotiate wage rates.
(* Dencentralized Zones - have been set up by the South African government in rural districts to encourage development outside of major urban areas. These Zones are not governed by the unions.)

The general business cycle, to a large extent, determines conditions in the textile industry as the sector is closely linked to both industrial activity and consumer demand. The clothing industry is the main consumer of textiles, but the motor industry (seat covers and mats), the mining industry (rope) and the building and construction industry (carpets) are also important buyers of textile products. In addition, final products such as carpets, knitted clothing and bedding are supplied to consumers.

South African textile industry is well developed - not only in the traditional activities of clothing, textiles and home textiles, but also in the modern sub-sector of technical textiles. Textiles are South Africa's sixth largest employer in the manufacturing sector and the eleventh largest exporter of manufactured goods. After the mining industry, the textile industry is the second largest user of electricity from Eskom and the second largest payer of rates and taxes in towns and cities across South Africa.

The industry currently employs approximately 56,000 workers in the textile sector and 11,700 in the knitting sector, while another 200,000 workers are indirectly employed in dependant industries, such as transport and packaging. The Industrial Development Corporation (IDC) calculated that for every worker in the textile industry, 2,5 jobs are generated in related industries. In total, from cotton farming to garment manufacturing, approximately 300,000 persons are employed in the industry - 140,000 - Apparel; 60,000 - Textiles; 100,000 - cotton production.

The manufacturing sector is divided into seven sub-sectors:

- spinning, weaving, dying, printing and finishing of textiles
- manufacture of made-up textile goods, except clothing
- garment and hosiery knitting mills
- manufacture of carpets and rugs
- cordage, rope and twine industries, and
- manufacture of textiles - referred to as 'other textiles.'

Spinning and weaving is the largest sub-sector of the textile division, contributing nearly half to total textiles output. The activities included are the preparation of fibers for spinning, the manufacturing of yarns and fabrics from animal and vegetable fiber as well as weaving from materials such as plastic, glass fiber and glasswool.

The bulk of this sub-sector's products are sold as intermediate inputs to the clothing industry (19% of total sales) and other sub-sectors. The export tendency of spinning and weaving was 22% in 1999. Exports were mostly directed towards the United Kingdom, Italy, France, Taiwan and Japan and mainly comprised of wool and fine or coarse animal hair; synthetic filament, braids and woven fabrics of cotton. The new legislation (AGOA - see in Summary below) in the U.S. regarding market access could be the key to major export opportunities for South African manufacturers. The reduction of U.S. import duties will potentially be a huge boost to the South African industry all round.

For the most part, the industry is concentrated in the coastal areas - i.e. Kwa-Zulu Natal, Eastern and Western Cape. The local market is characterized by a few large firms, with a number of smaller concerns. The major producers are :

-South Africa Fine Worsted -Aranda -Da Gama -Frame -De Nim, and -S B H Cotton Mills.

Important weavers of household textiles:

- Berg River Textiles
- Da Gama
- Frame Raw Materials
Wool: Wool is produced in most parts of South Africa under various conditions. South Africa produces high quality, environmentally sound apparel wool, which is predominantly the Merino clip. South Africa has approximately 21 million sheep with a production of about 52,8 million kgs and an average yield of 63,2 per cent. There are roughly about 26,000 wool producers currently employing about 35,000 workers.
More than 90% of the clip is sold through the auction system, centralized in Port Elizabeth, Eastern Cape. The wool is warehoused in all four major Ports, i.e. Port Elizabeth, Durban, Cape Town and East London. Most of the local wool clip is marketed overseas. Sales for 1999/2000 were $70million while the local consumption of wool fibers during 2000 was approximately 11 million kgs.
Mohair: The Eastern Cape is the world leader in mohair production. Currently, more than 60% of the world's mohair production is generated in South Africa. Advanced breeding and farming techniques in the country ensure consistent availability and fine quality.

Cotton: South Africa produces both dry-land and irrigated cotton, averaging about 175,000 bales over the past five years, 240,000 bales in 1999/2000. The balance is supplemented by imports of 138,000 bales from Zimbabwe, Zambia and Mozambique. At this point, the industry is uncertain about cotton supply from the political and farming disruption in Zimbabwe. Total cotton fiber consumption is estimated at 345,000 bales. South African mills are compelled to buy S.A. fiber first and can import cotton with a permit only once that supply has become exhausted. Yarn capacity in South Africa is 66,000 MT, about 2/3 cotton and the remaining third poly/cotton blend. The 1999 fabric production was about 165 million sq. meters of synthetic fabrics (spun). South Africa imported less than 8,000 MT of woven cotton fabrics in 1999.
Sisal: The local sisal fiber is of a high quality and is well received on world markets. The quality of South African grown sisal is graded according to International Sisal Grading Regulations, which are universally
accepted.
The production of Sisal is categorized into two major lines, namely a) line fiber, for the production of ropes and twines; and b) fiber - used as padding material in mattresses and for the reinforcing of concrete products. With labor uncertainty in recent years, the local production has dropped to approximately 1,000 tons per annum.
Man-Made Fibers: South Africa is a major producer of man-made fibers such as polyester, polyamide (nylon) and acrylic. During 2000, the man-made fiber consumption was approximately 67% of the total South African fiber market.

Sasol Fibers, situated in Durban, is Africa's only acrylic fiber producer and specializes in the production of made-to-order, producer-dyed acrylic fibers. A large part of its production is exported.

SANS Fibers, situated in Cape Town, is the major producer - and exporter - of filament and monofilament nylon and polyester yarns.

Hoechst Fibers (German company) is the main producer of polyester staple fibers, while SAPY, situated in Kwa-Zulu Natal, is the major producer and exporter of multi-filament polypropylene yarns.
MARKET TRENDS

The textile industry has been hampered by low productivity that has greatly contributed to the lack of competitiveness. It has experienced difficulties in the past regarding timeous provision of the correct raw materials. Apart from possible management weaknesses which developed of the past inward-focussed environment, the relatively high average age of plant and machinery, unfavorable trade-off between labor cost and productivity, and the lack of specialization has contributed towards these problems.
The industry began to show a slight improvement from 1998 onwards. The improved competitiveness was the result of the upgrading of certain technology . Besides technology upgrading, producers started to focus on fewer product ranges leading to benefits from economies of scale, but in the quest for improved competitiveness, the industry has shed job opportunities.

During 2000, the textile industry's index of volume production was 2,5% higher than the previous year, while the apparel index decreased by approximately 6%. The value of ex-factory sales of the spinning, weaving and finishing sector increased by 2%, while the value of sales of other textiles increased by 7%. The ex-factory sales value for the knitting mills (fabric and garments) decreased by 10%.
Total imports of textiles for 2000 was 15,7% higher than in 1999, whereas exports of textiles was 10% higher than the previous year. The textile sector had a negative trade balance of US$ million in 2000 compared to a negative trade balance of US$ million in 1999.

Outlook

Despite adverse market conditions in the past and the threat of competitive imports, the South African textile industry has restructured itself in order to survive and develop within the parameters and objectives of the Government's economic policy in order to become a modern, dynamic, job-creating, exporting manufacturing sector.

Productions of textiles during the first quarter of 2000 showed a better picture than the same period in the previous year, although it appears as if imports are also increasing. However, there is optimism in theindustry and it is expected that during 2001/2002 will show signs of recovery.
IMPORT MARKET

Imports satisfy a significant 32% share of local demand for the products of the spinning and weaving industry. Import competition increased from 1995 to 1999 with import growth of around 2,0% per annum. Imports mainly originate from Taiwan, South Korea, Hong Kong, China, India, Germany and a little from the U.S., and consists of cotton, woven fabrics of synthetic filament yarn, woven fabrics or artificial staple fibers, and woven fabrics of cotton. Domestic consumption will continue to substitute locally produced products for imported products as a result of the reduction of import tariffs. The industry is more competitive in higher value-added products and less in lower value-added goods, especially against the low-cost Asian producers in countries such as China, Taiwan, Hong Kong and India. STATISTICAL DATA
Projected Avg.
Last Current
Next Annual Growth
Year
Year Year Rate for Following
(2000) (2001) (2002) 2 Years
*(Jan-Sept) *(Est)
Import Market 553m 562m
579m 3%

Local Production 1,17bn
1,23bn 1,32bn 5%

Exports 342m 353m
381m 8%

Total Market 1,55bn
1,61bn 1,69bn 5%

Imports from the U.S. 39,68m 40,47m
42,14m 2-3%

Exchange Rates:

Estimated Future Inflation Rate: 7-8%

*Note: 2001 figures are based on data for 9 months.
2002 figures are based on unofficial estimates.

Source: Textile Federation and various independent research companies.

Customs Duties:
The following ad valorem levels will apply in 2002 on imports:

Clothing: 40%; Household textiles: 30%; Fabrics: 22%; Yarns: 15%; and Fibers: 7,5%.

SALES PROSPECTS / OPPORTUNITIES

a) Spinning for the yarn industry
b) Technical textiles - e.g. automotive industry
c) Importing of cotton fibers, cotton yarn and fabric, filament yarn and filament fabric
d) Finishing of the fabrics - i.e. dyeing and printing of the fabrics ready for the garment manufacturers e) Demand for training skills and market-oriented management skills. f) Environmental products and services for the textile industry - (See Summary, Page 1)

There is scope for foreign exports as well as joint ventures with South African manufacturers, interested in a greater import share. South Africa is already importing silk yarn, cotton fibers, cotton yarn and cotton fabric, filament yarn and filament fabric from the U.S. American upholstery fabric is imported for the upper end of the market only, and generally South Africans have high regard for U.S. products.

**To attract foreign investment in the textile sector, spinning in particular, would likely necessitate a more market-oriented approach to the fiber supply and purchasing. In addition there is a strong need for change of mentality among mills and manufacturers.
B. COMPETITION

Imports are predominantly from the East, notably, Malaysia, Indonesia, China, India, Taiwan, Thailand. Other imports come from Portugal and Turkey, and a lesser amount from the U.S., France, Italy, and the United Kingdom. There appears to be very little importing from neighbouring countries, largely because of quality problems associated with such imports. It was noted, however, that some local manufacturers do have factories in Lesotho and Mozambique, and possibly other neighbouring countries.

During the last two years, because the local industry has been characterized by closures of a number of companies, factories and warehouses stand empty. Asian companies using Asian management have bought and set up textile manufacturing concerns in the Eastern Cape region.
APPAREL

The industry has 1,300 apparel companies presently operating in South Africa, plus nearly 2,000 small emerging companies based in the *decentralized zones for access to low cost labor. Total apparel production was officially estimated at 200 million units in 1999, although industry experts believe that this figure is substantially higher.

The manufacturers are finding it difficult to compete with imports of large quantities of "commodity" type products at low price points. Further cheap supplies, from Asia in particular, make it hard for South African companies to compete in the export market. Even within the Sub-Saharan region, South African companies are finding it difficult to compete in getting export orders since companies in Lesotho and Mauritius have greater capacities and productivity.

On average, apparel manufacturers have less than 100 employees, therefore making it hard for them to achieve economies of scale for commodity garments. South Africa recognizes that they will need to focus their marketing efforts on securing orders from medium-sized companies and orders for more specialty garments.

It is clear from the interviews at the retail chains that legal imports are undeniably growing. On average imports stand at 19%, with the lowest level of imports being none (followed by 4%), and the highest 43%. Price seems to be the leading reason for retailers to source offshore, with the phasing out of import tariffs of critical importance in making imports more attractive to retailers. Garments that are particularly labour intensive are the most likely to be imported. At the same time, certain products are imported simply because they cannot be sourced locally. This generally refers to some knitwear, and to fabric types that require particular machinery or skills to deal with.

South African apparel companies can be characterized in one of the following 4 categories:

a) Medium-Sized, urban-based companies with organized labor:

These companies are heavily dependent on domestic customers but have the longest experience in exporting. Despite the devaluation of the Rand in recent years, wage increases have outpaced devaluation, increasing their cost of production. On the plus side, these companies are the most responsible apparel production (RAP) compliant and most technologically modern.

b) Larger-scale urban-based with organized labor for large-scale production:

Capacities make these companies most likely to meet the U.S. volume requirements. They have a more collaborative approach to labor relations and customer relations, giving them a source of strength.

c) Small entrepreneurial companies working outside formal labor and tax structures:

Generally, these companies are seen as assets to the industry with a cost-effective labor resource. The challenge seen by the industry is how to capitalize on these companies without spoiling them.

d) Transnational companies:

These companies are largely Hong-Kong and Taiwanese owned, and based in the decentralized regions to take advantage of low-cost labor. Working practices include payment on piecework basis. Wages in these areas are typically 50% of those in the industrial areas of Cape Town, Durban and Johannesburg.
The Pluses an Minuses in the South African Apparel Industry

Pluses
- Many companies have a great product diversity in their range
- RAP (responsible apparel production) is widespread
- Abundant labor force, although unskilled
- Sophisticated and established infrastructure
- Political stability
- Relatively strong textile manufacturing infrastructure

Minuses
- Widespread Unemployment
- High relative wage, enforced by unions in urban areas
- Low productivity - (22-24 minutes to make a pair of 5-pocket western jeans, compared to 11-12 minutes in Asia)
- Lack of productivity incentive for workers. Wages are on a flat rate; unions prevent introduction of piecework - Lack of marketing skills, technical, financial and labor management
- High incident of AIDS.
Steps to Establishing an office in South Africa

The Companies Act of 1973, which is administeredby the Registrar of Companies, regulates the formation, conduct of affairs, and liquidation of all companies. The act makes no distinction between locally-owned or foreign-owned companies. Companies may be either private or public. Foreign companies establishing subsidiaries in South Africa must register the subsidiary in accordance with the act. The South African Government contact is the Registrar of Companies.

Registrar of Companies
PO Box 429
Pretoria 0001, South Africa.
Tel: 27 12 310-9791; Fax: 27 12 328-3051

Industrial Participation Program (IPP)

All government and parastatal purchases and contracts (goods, equipment or services) with a minimum imported content of USD 10-million, are subject to an Industrial Participation Obligation. The Industrial Participation (IP) became obligatory in, September 1, 1997. All industrial Participation Projects/Business Proposals must be based on the principles of mutual benefit and business sense.
The Industrial Participation (IP) program was designed to encourage foreign suppliers of major government contracts to seriously evaluate the South African market as a potential business location. The South African Cabinet endorsed the IP Policy and its operating guidelines on April 1997 and the program became obligatory on September 1, 1997 Objectives of the IP Program include:

- Sustainable economic growth;
- Establishment of new trading partners;
- Foreign investment into South Africa;
- Exports of South African "value added" goods and services
- R&D collaboration in South Africa;
- Job creation;
- Human resource development
- Technology transfer
- Economic advantages for previously disadvantaged communities.
Upcoming Trade Shows

Clothing & Textile Trade Exhibition of Southern Africa

Organizers: Kagiso Exhibitions -(Headquarters based in Johannesburg.)
Private Bag X383 CRESTA 2118

Tel: 27 11 670-2000
Fax: 27 11 670-2061
Contact: Linda McDermott - Johannesburg e-mail: aesshow@infodordor.co.za

Cape Town:

Kagiso Exhibitions, Cape
The Village Beach Crescent, Hout Bay, 7806 Western Cape
Tel: 27 21 790 7816 Fax: 27 21 790 7528
Contact: Deidre Hart
E-mail: deidre@kagisoexpo.co.za

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

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For the 2008 Edition

Published: 2006 August
Market: Mens Womens Childrens
Region: South Africa
Industry: Textiles
Pages: 45
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