The future of the embattled textile and clothing industry hangs in the balance as government procrastinates over a rescue package for the manufacturing sector, nine months after the expiry of a two-year P38 million rescue package approved in December 2009.
Thousands of workers are losing jobs as companies retrench to cut operating costs while a proposal for a stimulus package by Botswana Exporters and Manufacturers Association (BEMA) makes rounds somewhere between the Department of Industrial Affairs at the Ministry of Trade and Industry and Cabinet.
BEMA Executive Director (Acting) Sthembile Dube and BEMA President Loago Raditedu told Sunday Standard on Thursday that they are still awaiting the outcome of government internal processes after submitting a proposal to Ministry of Trade and Industry. Dube confirmed in an interview that they are also aware that some companies have started “downsizing staff because they are no longer protected (by the stimulus package)”.
“We continue to request companies to hold on to their workers (and continue operations) in the hope that government will approve the request for assistance soon,” she said, further noting that the previous package expired in December 2011.
Minister of Trade and Industry, Dorcas Makgato-Malesu, recently confirmed that cabinet was considering the proposal from the textile industry. Three months ago, a local textile industry leader Carapparel Botswana (Pty) Ltd, who used to operate two factories in Gaborone, pleaded with government for support to continue production. The Managing Director of Carapparel, a Mr Sam, said they were negotiating with government for a new deal to assist in paying duties for materials imported and accessories.
Carapparel is the only textile factory left in the Botswana market and the biggest exporter with huge orders from the massive US market. Sam revealed that due to financial challenges they have since been forced to reduce the labour force and close down the Gaborone West factory in order to arrest escalating operational costs and avoid total collapse.
This was largely attributed to the stoppage of benefits from government to the company, like the Duty Credit Certificate Scheme (DCCS) and salary subvention in Dec 2010. From 2004, Caratex, Carafashions and other companies have benefited from the (DCCS) refunds amounting to more than P1 billion. The DCCS was a SACU incentive programme that was intended to make SACU firms competitive in international markets. It operated on the basis of clothing and textiles manufacturers earning duty credit certificates for proven exports, which are then used to claim a remission of duties on imports. However, as a result of the 2008 global economic recession, some companies closed down due to increased competition from Far East, despite the utilisation of the DCCS.
Carapparel currently operates a 5000 square metre factory in Broadhurst Industrial equipped with 1500 industrial sewing machines where they manufacture knitted and woven garments for men, women and children for local consumption and export to USA market under African Growth and Opportunity Act (AGOA). AGOA was signed into law in May 2000 as title 1 of the Trade and Development Act of 2000. It offers tangible incentives for African countries to benefit from opportunities in the US market to continue their efforts to open their economies and build free markets.
US Secretary of State Hillary Clinton told the 11th African Growth and Opportunity Act (AGOA) Forum in Washington DC in June 2012 that the extension of Third Country Fabric Provision and AGOA beyond September 2012 and 2015, respectively, are currently a priority within the US Congress.
At the Forum, attended by Assistant Minister of Trade and Industry, Vincent Seretse, African ministers expressed concern over delays to extend the Third Country Fabric Provision, which expires on 30 September 2012 and AGOA beyond 2015 on a long term and sustainable basis to ensure predictability and restore investor confidence. Expressing US commitment to AGOA, Clinton revealed that imports from Africa increased six times more than they were 10 years ago promoting sectors like oil, value-added exports including apparel, manufactured goods, and agricultural products leading to new jobs and the rise of new business opportunities for people in eligible countries. To demonstrate commitment to the African region, President Barrack Obama recently signed a new presidential policy directive on Sub-Saharan Africa, the US Strategy Towards Sub-Saharan Africa, a strategy through which the US will partner with countries in the sub region to, amongst others, spur economic growth, trade and investment.
Though AGOA provides duty free quota free market access for about 6400 product lines in total, which include agriculture and other sectors identified in the National Export Strategy and the Economic Diversification Drive Strategy, which are geared towards diversification of the economy, uptake has been very low. In Botswana, the textile and clothing sector is the only notable beneficiary under this scheme. AGOA contributed immensely to increased clothing and apparel exports to the US since inception in 2000. Under the scheme Botswana exports to US rose from about US$2.2 million in 2001 to about US$16.6 million in 2008. Only one apparel company, Carapparel, continued to export under AGOA in 2011, registering significant export value of about US$14.9 million compared to US$6.4 million in 2010, an increase of 132.8 per cent.
The textile and clothing sub-sector remains a strategic non-extractive industry and the largest employer in the manufacturing sector with predominance of female employment for Botswana and the entire region.
Manufacturing contributes approximately 4 percent to the Gross Domestic Product in Botswana and holds a major opportunity for economic diversification. So far, Lesotho is the number one textile supplier to the USA market from the sub region. Botswana government has made commitment to assist the sector through incentive programmes locally, and others like the Industrial Upgrading Modernisation programme- a SADC initiative. Established in Botswana in 2003 through assistance from the then Botswana Export Development and Investment Authority (BEDIA) and Botswana government, Carapparel has enjoyed support in the form of subsidised rentals. Having started operations with 2000 employees the company announced in June 2012 that they were about to reduce staff by half to just 1000 workers.
On infrastructure, the AGOA forum, held under the theme ‘Enhancing Africa’s Infrastructure for Trade’, noted that the US has a good opportunity to invest in Africa’s infrastructure development programme, since the continent is one of the fastest growing regions in the world; home to six of the world’s 10 fastest growing economies. Most SSA countries have had challenges in taking full advantage of AGOA due to supply side constraints coupled with poor or inadequate infrastructure. More emphasis was placed on the need for both physical and regulatory infrastructure.
The Forum also acknowledged African Union’s Programme for Infrastructure Development in Africa (PIDA) which seeks to address infrastructure challenges in Africa. Sub regional cooperation between COMESA, EAC and SADC has encouraged partners to support regional infrastructure programmes such as the North-South Corridor initiative. The importance of PPP as a catalyst to attract investment on infrastructure development was emphasised, noting that financing for infrastructure and power projects is inadequate.
To monitor and ensure that other product lines are exploited under AGOA scheme the Ministry of Trade and Industry has said it is considering a number of options through the assistance of the African Trade Policy Centre (ATPC).
The textile and clothing industry employed 7 688 workers in 2004, a number reduced to just 1 460 by December 2009 after Caratex, Carafashions and Trubok closed shop leaving thousands of workers jobless. The shrinkage saw an estimated 6 228 employees losing their jobs at the end of 2009. On 23 December 2009 government approved short term measures to improve the competitiveness of the textile and clothing industry in order to retain jobs in the sector.
The stimulus package comprised financial grant to companies that have re-employed citizens to enable them to retain jobs. There was also a subsidy for each re-employed worker based on the Ipelegeng rate of P18.00 per day. Government further committed to provide guarantee for CEDA loans for working capital and upgrading of machinery and equipment with property and equipment as collateral. The stimulus package presented an opportunity for manufacturers to improve quality of their products and explore alternative markets and innovative ways of competing with highly productive but low cost producers such as China, India, Pakistan and Bangladesh. Botswana companies were challenged to improve labour productivity in order to become competitive.
The 2010 bailout request followed resolutions of a meeting held on 24 April 2009 as a follow up to the Sectoral High Level Consultative Council (HLCC) to clear issues surrounding the termination of the Genesis study commissioned to input to the study initiated by SACU to develop a long term strategy for the SACU textile and clothing sector. The meeting, attended by Tally Tshekiso and Craig Chow of Caratex, Kenneth Chalira of Rising Sun, M.S. Ghafoor of Western Apparels and T. Kumar of Dinesh Textiles, resolved that government should bail out the industry by among others Income tax exemptions, reduction of customs duty, wage compensation, an average encashment of 15% to be at par with international trends, a moratorium on CEDA loans and transport subsidy.
