South Africa – Could this be the Next Retail Buying Capital of the World?

Written by Melissa Twigg

The hot, dusty plains of the Eastern Cape are filled with abandoned cotton mills and warehouses that were once at the heart of South Africa’s manufacturing industry. Now the Johannesburg-based Centre for Development and Enterprise is hoping to turn the region into an international sourcing hub that will save jobs and rejuvenate domestic manufacturing and turn itself into a retail network of verified suppliers.

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Mass factory closures have blighted the region since cheap, efficient Chinese manufacturing decimated their competitors from the 1990s onwards. As a result, apparel industry jobs in South Africa fell from 220,000 in 2002 to 100,000 in 2011. Today, employment in the Eastern Cape is below 35 percent.

 

President Ramaphosa is now under pressure to find jobs for the millions of people who are currently out of work. The government is hoping that the solution to this lies with the Centre for Development and Enterprise, which is developing an export-only processing zone (EPZ) in the Eastern Cape that is set to launch in the next few years – although the exact date is still unspecified. The proposed zone would focus on low-skill manufacturing, particularly clothing and toys, by establishing employer-friendly market rules. This means workers could be hired on low wages and part-time, bypassing South Africa’s strict labour laws.

Businesses in the zone would have to export everything produced to ensure they weren’t competing with local manufacturers, who would still be obliged to pay the minimum wage —one that is, at R3,500 ($252) a month, higher than countries such as Cambodia and Ethiopia. This venture would, by law, only be open to new investments, ensuring firms do not relocate factories to the EPZ and destroy manufacturing in the rest of the country.

 

Politicians have suggested that if workers in the EPZ were paid the equivalent of $130 per month, the zone might be able to attract a large number of firms. Adding to the EPZ’s attractiveness is that nearby Nelson Mandela Bay offers two large ports and a thriving business community.

 

“All we need is a more flexible set of rules governing employment, since it is our labour market regime that helps price South African firms out of these markets,” says Ann Bernstein from the Centre for Development and Enterprise.

“[Once the EPZ is up and running] we would ensure there were national minimum standards governing health and safety, working conditions and plant safety, but firms locating in the EPZ need to be free to negotiate employment conditions and wages with workers,” she continues. “This would make it possible for them to engage in activities that absorb many unskilled workers by ensuring that the costs of employment were appropriate for the markets in which these firms competed.”

 

Natural resources add to South Africa’s attractiveness as a sourcing destination. It is already a cotton manufacturer and the world’s second-biggest producer of the wool variety, increasing used by retail buyers for clothes. South Africa’s wool exports look to surge by 50 percent to 75 million kilograms in the next three years.

In many respects, South Africa appears to be following the lead of Colombia. The South American country’s manufacturing industry was also severely impacted by the growth of China, but it has since become a key international powerhouse through duty free and flexible production quantities, as well as operating in the same time zone as many of its partners, and on 30 to 45-day lead times. South Africa, which in the same time zone as Europe, could easily follow their lead by lowering their tariffs and creating a fully integrated supply chain which could become the ultimate retail category management marketplace.

 

“Colombia is very similar to here in that the bulk of its domestic clothing manufacture was for local markets, but that its free trade zones around Medellin and Bogota, where firms pay no duty or VAT on imported raw material, have proved very lucrative,” says Paul Hillard, the CEO of the TCI Apparel Group.

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Colombia is now the top exporter of shape wear in the Americas, and the third largest in the world, and is an integral part of the retail supply chain for a number of global fashion brands. With the introduction of the EPZ and a few clever policies, South Africans could be on the same path to success as their cousins across the Atlantic Ocean. For more information on global, retail private label suppliers, line and range planning follow visit TradeBeyond, the ultimate retail marketplace.

Written by Melissa Twigg
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