Botswana:Govt acts to rescue ailing textiles industry

In a move aimed at saving jobs in the textiles industry, Government has announced a rescue plan for the crisis hit sector. The Botswana Exporters and Manufacturers Association (BEMA) has confirmed that the Ministry of Trade and Industry has taken steps to revive the sector by providing a short-term support programme. The support will be for a period of two years and the subsidy will be for citizen employees only.

Though the final modalities for the implementation of the short term support measures have not been finalised, some observers have already cast doubts on the accomplishment of the package.

BEMA has said the government has approved some of the stimulus package provisions that the textile industry requested for in order to save the industry as well as improve the competitiveness of the textile and clothing sector in order to retain jobs.

According to Government, the companies will be assessed on a case by case basis and will receive:
•    Provision of financial grant to companies that have re-employed citizens to enable them to retain their jobs;
•    Provision of subsidy for each re-employed worker based on the Ipelegeng rates of P18 per day; and
•    Provision of Government guarantee for CEDA loans for working capital and upgrading of machinery and equipment with property and equipment as collateral.

Most textile factories in Botswana were hard hit by global recession last year and have as a result closed shop or retrenched staff. Speaking in an interview last year Managing Director of Caratex Botswana said the setback was due to stiff competition from the Far East where labour costs were relatively low. He further lamented that the delay in the incentive scheme has also made conditions difficult for them. According to Craig Chow they were unable to compete with Chinese and Indian manufacturers for export because those countries have better efficiencies. China offers a 17 percent rebate for manufacturers to encourage exports; they have cheap labour and better work efficiencies.

For more than 10 years Caratex Botswana had been able to run a successful business because it enjoyed good incentives under the Duty Credit Certificate (DCC) which expired in April last year and up to today there has not been any new scheme coming. The objective of the Duty Credit Certificate Scheme (DCCS) was to influence and encourage textile and clothing manufacturers to compete internationally, independent of Government subsidies.

With the removal of the DCC the local textile industry has found it hard to compete in the global market.

Meanwhile, BEMA has hailed the stimulus package despite being a special short-term programme. The executive director, Evangelist Loago Raditedu, said it would encourage the industry to be competitive regionally and internationally. He said this has raised confidence in the players and that employment subsidies would cut down on overall costs. If there is a reduction in salary costs, the capital can be directed to transport or utilities. So yes this is a good development.

However the package by government has raised concern with local economists who feel the textile industry cannot be made competitive through subsidies and have said Government has erred as the programme is aimed at job retention. When contacted for comment independent economic consultant Dr Keith Jefferies declined to comment as he said he had not seen the plan and because the finer details on how it would work were not complete. He however mentioned that the ideal rescue package should have been aimed at restructuring the industry to change it and make it sustainable in the long term and eventually become competitive.

Economic observers have said the subsidies through government will be more of job creation than business undertakings. One economist said it is likely that the companies that take up the rescue package will likely face closure after the period of assistance, and said Government should aim to find lasting solutions that would help the companies formulate long term plans.
Drawing comparisons with the Financial Assistance Policy (FAP) grant he added that a lot of factories benefitted from the scheme but also ceased operations with the expiry of their incentive.

A study by the Botswana Institute of Development Policy Analysis (BIDP) titled Botswana Textile and Apparel Sub Sector Study and commissioned in 2004 has shown that the FAP attracted a significant number of investors to Botswana and its phasing out caused a large number to discontinue operations and relocate out of Botswana. There is an overhanging perspective that fly-by-night investors, both local and foreign, used the FAP unscrupulously and this reflects negatively on the textile and apparel industries particularly when new investors attempt to raise capital from funding institutions and commercial banks.

BIDPA said the primary threat to the industry was its lack of competitiveness in terms of factory efficiencies and while the industry may be able to survive without cash incentives, it will flourish only in an environment where the barriers to conducting business are low.