A Strategic Assessment of the South African Clothing Sector

1. Overview of sector trends
TIPS data, as presented in Table 1, shows that the South African clothing sector has performed poorly. By comparing the average of the indicators for the period 1994-8 with the average for the period 1999-2003, it is clear that the sector’s performance has deteriorated. In particular, there has been deterioration in r
eal value added at basic prices (10.4%), real exports (4.4%), employment (0.6%), output per employee (11.9%), remuneration per
employee (6.8%) and gross mark-up (7.8%). Interestingly, both exports and employment increased (by 1.8% and 1.1% per annum respec
tively) from 1994 to 1998, but declined (by 8.0% and 1.1%) from 1999 to 2003, while real value added declined consistently over the two periods. Real output per employee declined from R67,935 to R60,716 between the two periods, whilst remuneration per employee also fell (from R18,935 to R17,224).

In contrast, there has been an improvement in the GDFI output ratio, the fixed capital stock output ratio and productivity indicators between the two periods. Although the GDFI output ratio grew by 50%, this growth in investment was from only 0.02% to 0.03% of output.

Average fixed capital stock similarly grew from an extremely low 0.11% to 0.13% of output (or 18.18%). Over the 1994 to 1998 period, the average productivity of labour, fixed capital and multi-factor productivity were all exceptionally low, with less than zero units of output produced by each. For the 1999 to 2003 period, the productivity index for each indicator was positive, although still low. Labour productivity reached an average of 0.67 units of output
per employee, fixed capital productivity rose to 0.6 units and multi-factor productivity improved to 0.58 units.  Regarding imports and exports, Table 1 shows an increase in the export-output ratio, import leakage (the amount that is imported to satisfy local demand) and the import minus domestic demand ratio (import penetration). The data show that exports increased from 11.27% to
19.97% of output over the 1994-8 to 1999-2003 period, whilst imports as a proportion of local demand declined from 10.26% to 9.11%. In summary, the performance of the sector over the two periods under review has been poor. Not only has real value added and real exports declined, so has employment.

These overall trends (although not the absolute values) are supported by additional statistics from Statistics South Africa and the dti database. According to these data sources nominal clothing sales increased from R10 billion in 1995 to R13 billion in 2003, but the real value of sales actually declined from R11.8 billion in 1998 to R10.4 billion in 2003, a 12% decline. Employment in the clothing industry has followed a volatile, negative trend, falling by 11.5%, from 125,181 employees in 1994 to 110,739 in mid-2004 – a loss of 14,442 jobs. However, it is important to note that official statistics are likely to underestimate total clothing industry employment due to the large number of informal, micro and home industries that are not captured. Based on the proportional breakdown of formal versus informal clothing sector employment in the September 2003 Labour Force Survey and then extrapolating this across to formal employment levels as indicated by Stats SA, we estimate total clothing employment to be 158,879. In contrast to the data presented in Table 1, output per employee levels calculated using Stats SA data also provides a higher average of R80,001 per employee for the 1999 to 2003 period, and an annual average growth of 3.48%, reflecting a positive trend.  The clothing sector performs well in terms of capacity utilisation, with average utilisation rates of 85% over the 1990-2003 period. Nevertheless, capital expenditure on new assets has been exceptionally low at an average 1.4% of sales from 1992 to 2002 3 . Although the clothing sector is labour-intensive, it is still necessary to invest in capital, technology and innovation to become internationally competitive, especially in light of the constantly changing global environment. Lastly, there has been an increase in the export propensity of firms, as well as an increase in import penetration. Although the industry’s export performance has improved since the early 1990s, it remains modest, reaching 1.4% of total manufactured exports in 2003. Additionally, the demand for clothing is price elastic and therefore the recent appreciation of the Rand has resulted in a loss in export volumes. With regards to imports, the nominal value of clothing imports nearly tripled from 2000 to 2004, reaching R3.9 billion 4 .