A Must Read: Staring into the dark cave of ideology

By Donald Mackay

So many of SA’s policies are deliberately formulated on a lean diet devoid of facts

In exciting news last week trade, industry & competition minister Ebrahim Patel announced that “[t]he master plan for the clothing, textile, footwear and leather (CTFL) industry had turned around the industry’s fortunes and created [20,000] jobs since the plan’s launch five years ago” (“Patel says master plan has improved fortunes of clothing and textile sector”, May 2).

“The sector now employs more than 500,000 workers, including 250,000 manufacturing jobs and more than 280,000 retail jobs,” Patel said. Amazing. But what if, instead, the sector had shed jobs over that period and in fact employed a fraction of what was stated by the minister? Would we then consider the master plan a failure? Would the plan be discarded?

On the contrary, we would likely see a doubling down, because in the harsh light of data the tendency is to flee into the dark cave of ideology. So many of SA’s policies are deliberately formulated on a lean diet devoid of facts, but laden with anecdotes.

Much of SA’s economic policy is based on industrial policy and a cornerstone of our industrial policy is a series of master plans, so what happens in the master plan space is really important. 

The retail CTFL master plan attempts to develop the industry through an incredibly complicated set of steps. If offers clothing manufacturers lower import duties on imported textiles in return for them committing to a minimum purchase quota of textiles made by SA textile mills. In turn they can sell this clothing only to local retailers who have signed up to the master plan.

Manufacturers in the other SA Customs Union states cannot benefit from this dispensation outside their own country. So, a manufacturer in Lesotho can sell only to retailers in Lesotho and so on. Of course, you also need to be a bargaining council member to benefit.

Were 20,000 jobs in fact created in CTFL manufacturing? According to Stats SA’s employment survey, employment in the sector dropped by 15% from 88,983 jobs at the start of 2019 to 75, 196 jobs at the end of 2023. The master plan was signed in November 2019.

Perhaps the jobs were created in the clothing retail sector instead? Possibly, but this doesn’t require domestic production. Retail jobs grow based purely on demand, not on the source of that demand. No master plan is required for that. The data in Patel’s slide deck matches the Quarterly Labour Force Survey data, so clearly the real position is understood. It follows then that the number of people employed in CTFL manufacturing is overstated by a factor of three to take us to 250,000.

According to the minister, R3.1bn of textiles was imported under the rebate noted above. The duty on textiles averages 22.5%, injecting R700m of duty relief to the master plan signatories to help improve their competitiveness. An additional R1.9bn in subsidies was allocated to the sector, R1.8bn of which was distributed.

This R2.5bn in benefit does not appear to have created a single job in CTFL manufacturing. The master plan aims to increase employment by 121,000 new jobs to take total employment in the sector to 330,000 by 2030. Manufacturing employment, specifically, aims to add 70,000 new jobs to take CTFL employment to 160,000 in 2030. So either we’ve blown the lights out and have already created 200,000 jobs more than targeted by 2030, or the information is wrong, and we’re instead headed in the opposite direction.

In fairness to the minister, he does give the correct employment numbers in his slide deck, but then gets it wrong in the media release. On the jobs front, there is nothing to celebrate in this master plan, but if you’re one of the beneficiaries of a slice of the R2.5bn in subsidies, then pop the cork and celebrate like an oligarch.

If the net effect of our master plans is simply to shift value from the public to a small number of businesses, we will see no economic growth. An economy only grows when it solves problems for consumers and they buy more of the solution. No growth happens when value is shifted from the consumer to a producer without that producer offering them any additional value. None of our master plans deal with this reality. They are myopically focused on redistribution rather than innovation, and this way lies the road to poverty.

When innovation does occur in the clothing sector, such as what TFG is trying to do (competition does wonders!), it runs into the stone wall of trade unions. TFG needs to change the structure of the work week to allow its factories to run more efficiently for seven days a week, but this will require the SA Clothing & Textile Workers Union to concede to work over weekends without overtime pay.

Jobs can be created, but as always the unions are more concerned about their current paid up members than the potentially thousands of new jobs such an initiative could create. I hope I’m wrong, but I suspect they will remain intransigent, and this wonderful idea will not achieve all it could. 

Rather than slide decks, I’d like to see data on each master plan. The stories of jobs saved at a micro level through industrial policy interventions leave a bitter taste in the mouth when compared to the relentless rise of macro unemployment. 

Donald Mackay is the Chief Executive Officer of XA Global Trade Advisors.