Johann Baard. Picture: HETTY ZANTMAN

Johann Baard: Reduce risk for those who play by the rules. Picture: HETTY ZANTMAN

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If there was ever any doubt that a trade-off exists between higher wages and employment, the destruction of livelihoods in the Newcastle clothing industry over the past few years should dispel it.

It’s been five years since government and labour’s offensive to close down Chinese clothing factories paying below the minimum wage in Newcastle, one of the poorer parts of the country.

At the time, there were several hundred clothing factories and about 10 000 low-wage jobs were on the line. About 60 factories remain, though at least half are recent arrivals from QwaQwa — the rump of that town’s once-vibrant clothing industry. None of the current firms employs more than 300 workers. In 2010 many employed double that number.

Some of the original factories relocated to Lesotho, but many kept a small toe-hold in Newcastle to hedge their risk. Others have become co-operatives, or have shrunk to employing fewer than five workers. One has switched to making shoes, which is more capital-intensive so requires fewer workers.

"There is still a clothing industry in Newcastle, but it’s less vibrant and there are many more empty factories," says Prof Nicoli Nattrass of the University of Cape Town (UCT). "The Chinese have regrouped but it is more like a last stand. They are able to operate because they are not being pursued by the bargaining council — for now."

From 2010, the SA Clothing & Textile Workers’ Union (Sactwu) waged a campaign to force the Newcastle firms to pay the legislated minimum wage or face closure.

At its annual congress in September that year, Sactwu branded Chinese employers in Newcastle "the worst employers" in SA and undertook to deliver the award (a broken brick) to the Chinese Chamber of Commerce in the town.

"The union’s national congress was very concerned about job losses, but emphasised that employment creation in the clothing industry cannot be based on slave wages," said Sactwu at the time.

It alleged chamber members were paying machinists R180-R280/week against the legislated minimum wage of R479/week that prevailed at the time.

The showdown garnered huge media attention. It went to the heart of the "decent wage" debate. Many argued that it was unfair for unions, representing those with jobs, to insist that workers in marginalised areas with few other job opportunities be paid a decent wage or have no wage at all.

"Is it fair to the masses of unemployed work-seekers that they should remain idle until decent work at the unrealistically inflated prescribed wage somehow magically becomes available to them?" asked Accountability Now director Paul Hoffman, on the NGO’s website. "The hell in which they live may well freeze over before any decent work appears."

It was also a test case on whether jobs were being lost because of the policy of allowing central bargaining agreements — struck between big unions and big, formal employers in the cities — to be extended to small firms in rural areas.

Whether SA firms could compete on price against other low-wage destinations such as Vietnam and Bangladesh while complying with SA’s labour laws was another facet of the case.

In the end, government allowed hundreds of low-wage jobs to be destroyed by the National Clothing Bargaining Council (NCBC) at the insistence of Sactwu in a sector that had haemorrhaged jobs over the previous decade — largely due to cut-price competition from the East.

But in March 2013, the Pietermaritzburg high court ruled in favour of the Chinese employers on the basis that the NCBC, in which the minimum wage agreement was struck, was not properly representative of all parties, as required by the Labour Relations Act (LRA).

It was a pyrrhic victory for the Chinese factories, however. The following year the minister of labour used a different part of the LRA to extend the subsequent wage agreement to the Chinese firms, one that did not require the NCBC to be representative.

But today non-compliance remains as big a problem as ever. Official figures show that just over 80% of registered non-metro KwaZulu-Natal clothing firms are not paying the prescribed minimum wage.

According to the Chinese chamber, the going wage in Newcastle for a qualified clothing machinist is about R500-R600/week. From September 1, the official applicable minimum wage was R838.50/week.

"The NCBC’s compliance campaign has been less than successful. Some employers in the council regard it as a total failure," says Johann Baard, executive director of the Apparel Manufacturers of SA. "The compliance drive did not achieve compliance."

Ironically, during the recent local government election, a Durban businessman contracted numerous cut-make-and-trim (CMT) operators in Newcastle to make 1m ANC T-shirts for between R1.80 and R2.50 each. The normal CMT price for a T-shirt is about R3.50-R4.

Most of the factories that filled the order are micro-sized, with 10-30 workers, says the Chinese chamber’s chair, Alex Liu. They were willing to accept the work due to the size of the order, as this guaranteed them several months of continuous work without production changes.

This suggests SA firms can compete on price when left to their own devices. However, the low-cost structure of non-compliant firms has meant that formal retailers have allegedly started to source from these firms at prices that compliant firms could never match, prejudicing the latter.

"There are little Chinas within our borders competing directly with our [compliant] firms who are closing their doors and no-one seems to complain about that," says Baard. "There is no morality or logic in putting workers in compliant factories out on the street in order to keep non-compliant firms in business."

Given the job losses and firm closures that followed the compliance drive, Sactwu and the NCBC have backed off from prosecuting non-compliant firms. Instead, an attempt is being made to find a more constructive way for the two parts of the industry to co-exist.

In terms of the 2016/2018 substantive agreement between the majority employer associations and Sactwu, signed a few weeks ago, companies who pay between 80% and 100% of the minimum wage may apply to the NCBC for a level B compliance certification. Compliant firms and retailers may then contract as much work as they like to these firms without falling foul of council regulations.

But if a company subcontracts to a non-compliant firm without a level B certification, the contractor and sub-contractor can be held jointly and severally liable for the assessed wage underpayment.

"We are throwing them a lifeline to create some form of co-existence," explains Baard. "We want to find some formula at a reasonable level of remuneration (80%) to legitimise and draw in a lot of firms into level B and thereby reduce the risk and prejudice to those who play by the rules."

Labour’s willingness to compromise is remarkable, given the energy with which it led the compliance drive five years ago.

Some believe part of the reason for Sactwu’s change of heart is that it has now organised in Newcastle much more effectively than five years ago and so has a much greater stake in the survival of firms there.

Prof Jeremy Seekings, director of the Centre for Social Science Research at UCT, says: "Nicoli [Nattrass] and I were told by the former compliance manager of the bargaining council (before he died) that the union’s general secretary would phone him to plead with him that he should desist if he and his inspectors ever threatened to shut down a factory where Sactwu had members.

"If it is true that Sactwu has now organised more thoroughly in Newcastle, and is now protecting the jobs of the union’s new members, then this is surely a good thing."

Numerous attempts to obtain comment from Sactwu general secretary Andre Kriel were unsuccessful.