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Policy delay hits textile industry

Business Day, South Africa

Policy delay hits textile industry

Exporters in the dark over incentives

By Mathabo le Roux, Trade and Industry Editor

13 October 2008

Policy paralysis in the Southern African Customs Union (Sacu) is compounding problems for the region’s struggling clothing and textiles industry.

Sacu is yet to review the industry’s key industrial incentive - the duty credit certificate scheme (DCCS) - just five months before the programme expires in March. Like the Motor Industry Development Programme (MIDP), the scheme requires an overhaul to make it compatible with World Trade Organisation (WTO) rules. Continuing problems with the tradability of the certificates - a problem since the inception of the programme - must also be ironed out.

The scheme compensates manufacturers and exporters of textiles and clothing with rebates on import duty.

As with the motor industry programme, the form the support takes is expected to be changed to a production incentive.

Anton Faul, director of policy development and research at the Sacu secretariat, said the tender for the review of the scheme would be awarded within the next week, and projections are that the review would be completed within three months. However, Sacu members, who met in Windhoek two weeks ago, mooted a possible extension of the scheme if the review was not completed in time.

“Renewal can be an option, or the other option is to find an interim solution. Member states did instruct the task team to consider alternatives if, come March, there is no new programme. We realise we may run out of time so we are keeping our options open,” Faul said.

This will be cold comfort for exporters who rely on the scheme to export competitively.

The textile industry is seasonal, and orders are finalised six months in advance and the expected benefits of the scheme are factored into costing.

Some companies that rely on the scheme to export competitively have terminated export contracts over uncertainty about the content of the programme.

The review was coming too late, industry consultant Justin Barnes said. He argued for an extension of the existing scheme “if Sacu is serious about persisting with the incentive”.

“Sacu is looking to develop a long-term strategy with the DCCS as its cornerstone. The problem is the process. The terms of reference (of the review) calls for a five-month study. The best-case scenario is to have a report by the end of February, but manufacturers need certainty now.

“The timelines are all wrong. This is simply not possible. You cannot introduce the new policy in the month it needs to be implemented.

“You’ve got to do it like the MIDP. You have to give an indication of the content of the new programme at least six months before implementing it, as that is when retailers place orders,” Barnes said.

Explaining the delay, Faul said local consultants could not be found to conduct the review.

The tender then had to be extended and opened globally. Ten tenders were received and these were being adjudicated.

“The main issue is to get the policy compliant with WTO rules and to address all five Sacu members’ issues. So it is groundbreaking .... We are learning as we go along,” Faul said.

While the scheme’s effect on SA has been modest, the programme plays a significant role in the lives of SA’s neighbours.

The industries in Lesotho and Swaziland are heavily export-oriented. Lesotho exports 90% of its product and many companies rely on the scheme to do so profitably.

Clothing and textile manufacturers were also significant employers in these countries - in Lesotho, the biggest.

Faul said Lesotho had expressed strong views on the issue and ha d pressed for a speedy resolution.