The government is on a mission to confront global online retail platforms that use tariff loopholes in South Africa to undermine locally-produced goods and retail stores, says trade & industry minister Ebrahim Patel.
“The key principle is to ensure that everybody is treated equally, that South African retailers who have to pay full VAT and who have to pay full customs duties should not be disadvantaged against any other player, and that South African online retail platforms are not disadvantaged against those who operate abroad and that [our] manufacturers are not disadvantaged.
“We will be working through that in due course, and I think what all of us recognise is that this is a matter that needs to be addressed with some urgency,” Patel said at a meeting with textile workers at the TFG clothing factory in Cape Town.
Business Times reported last week on the growing popularity of Temu and Shein, online retailers originating in China, and how their aggressive business models imperil local competitors and brick-and-mortar clothing stores.
Concerns had been raised over the two companies taking advantage of import loopholes to bring in products in small quantities, said Christele Chokossa, a retail consultant at Euromonitor. Although South Africa imposes a 45% tariff on imported clothing, the e-commerce giants pass the tariff on to the customer when the shipped package arrives.
Patel said local textile’s biggest import-related challenge was getting to grips with the dominance of Temu and Shein.
“We’ve identified challenges that we need to deal with in the import space. The most significant one is to address the emergence of platforms like Temu and Shein and ensure that there is equality of treatment, that everybody is treated equally, that everyone has to pay the full customs duties and the full VAT, that South Africa is not left poorer as a result of any gaps in our regulatory environment.”
The past five years of collaboration between the government and the industry were very successful in saving an industry that was previously on its knees and was truly terminal due to a lack of investment.
— TFG Group CEO Anthony Thunström
Patel said the clothing, textile, footwear, and leather industry’s master plan had in five years transformed the textile manufacturing and retail industry, which was under siege from cheap imports, into an industry that supports more than 500,000 South African jobs.
“Over this period, we have been able to take an industry that has been decimated by high levels of imports and stabilise that sector. Retails have been able to expand local procurement by 51% in local units in a number of key products we have recognised as the ripest for localisation.”
The master plan entailed an increase in import tariffs from 40% to the World Trade Organisation's maximum rate of 45% on a number of clothing lines.
A competitiveness package administered by the department and the Industrial Development Corporation (IDC) was also introduced, allowing local manufacturers to acquire more and better machinery and modern technology.
The plan helped local manufacturers grow their share of the domestic market and increase purchases from domestic suppliers as part of enhancing their value chain competitiveness.
TFG Group CEO Anthony Thunström said the past five years of collaboration between the government and the industry were “very successful” in saving an industry that was previously “on its knees and was truly terminal due to a lack of investment”.
“We are very proud of the number of jobs it created as that is one of the biggest challenges we can face as a country if you look at it from a business lens. And, employment aside, it is good to get the best margins in South Africa and react much more quickly to international fashion trends.”
Trade Call Investments Apparel CEO and Apparel and Textile Association chair Herman Pillay said textile manufacturing had turned the corner in South Africa after facing import-related challenges.
“We have seen a huge improvement and a 51% increase in local manufacturing. The establishment of new companies, including black-owned companies, is also positive. Great support has come from retailers. We are seeing product promotion in a number of sectors and subsectors.
“The collaboration that exists under the master plan has been one that should be used as a case study to show that a concerted effort by government, labour, and business can really drive change in local procurement.”
South African Clothing and Textile Workers Union (Sactwu) president Susan Khumalo said while the master plan revived the sector, unions expected the industry to make more progress in improving working conditions and wages throughout the value chain.
Patel said while the level of imports by volume of clothing items had decreased by as much as 34%, the revenue from clothing imports had gone up, indicating that the authorities had improved revenue collection and were penalising exporters who dodged VAT and import duties.
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