Textile sector teeters on the brink

MBONGENI MGUNI
Staff Writer | Friday May 3, 2013 00:00

 

The situation has been made worse by the lack of a bailout from government. The Ministry of Trade and Industry is expected to resubmit a bailout proposal of P500 million over five years to cabinet after the initial effort was rejected last year. At the time, cabinet was understood to have questioned where the funds would be sourced from during fiscal consolidation and asked for further justification of the request.

This week, the Botswana Exporters and Manufacturers Association (BEMA) said its textile members are reporting that orders for June and beyond have dried up partly because they were uncertain whether they would fulfill them given their difficulties.Other industry sources say that while most factories had orders for winter which they were still processing, supply contracts for spring and summer were lean as their lack of competitiveness had priced them out of the running.

'Both exporting and local market companies have not taken up orders for June. Something needs to be done urgently. At present, we have not heard anything from the ministry except that the proposal has been taken to cabinet. We have held meetings with textile sector members and we are due to hold another before the month-ends,' said BEMA director, Sithembile Dube.

Trade and Industry Minister, Dorcas Makgato-Malesu was unavailable for comment at the time of going to press as cabinet went on a two-day recess after Labour Day. However, other textile sector players explained that while the industry had limped on since the expiry of the 2009-2011 bailout, its perennial challenges, including cash-flow difficulties and high operating costs had slowly resurfaced.

'Last year, we quoted low for orders locally and in South Africa, based on the promise of a new bailout, but instead, petrol prices rose by P1.50 and government also increased the minimum wage,' said one textile firm director, who requested anonymity.'We still had to supply the orders at a loss. This year, we had to quote our prices inclusive of the higher power tariffs and the fact that there may not be a subsidy as well as the chances of another increase in the minimum wage.

Together with our higher operating costs, the prices we quoted were uncompetitive and our orders for the period after winter are very minimal. We are in great uncertainty and confusion about what is going to happen,' he explained.  While most local firms target the South African clothing chains such as Edgars and Mr Price, they face stiff competition from manufacturers in China, India, Mauritius and Bangladesh.

'Governments in most of these countries subsidise their textile industries and they are thus able to undercut our quotes,' the director said.'Even the Nigerian government is supporting its textile sector. As a result of the lack of government support, we are unable to effectively compete for markets with them because the operating costs in Botswana are higher. We have explained to government that we need the subsidy to safeguard jobs and enhance our competitiveness.'

Since the expiry of the 2009-2011 bailout, several major textile firms have slashed their workforce, with one Gaborone-based factory axing 500 workers last May and another in Francistown shedding 300 staff. The P38 million rescue package which the  government pumped into the sector between 2009 and 2011, ultimately secured 5,591 citizen jobs through wage support. During the bailout years, textile exports averaged P1.45 billion, as the government support enabled factories to focus on arranging capital, rebuilding capacity and securing markets.

By comparison, full year 2012 textile exports amounted to P610 million. Makgato-Malesu previously revealed that plans were underway to resubmit the proposal for P500 million over five years to the textile sector. 'I went to cabinet with this proposal and they asked where the funds would come from and also how sustainable this was.

(As the ministry) we said, 'under the NEDC there's a textile strategy. Let's take what the strategy says and put it against this bailout proposal so that we can say this is how the sector will perform against the bailout amount. It should be that if government grants the bailout, in return the sector will produce these jobs and contribute in this way.

After the strategy is produced, that's when I can go back to Cabinet and say ''this is what we have,' she said in response to BusinessWeek questions recently.  Concerns have however been raised in certain government quarters on how sustainable running bailouts for the textile sector will be, particularly in an era when the state is tightening its expenditure ahead of expected lower revenues in the medium to long term.