Cheap imports strip clothing sector naked

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Harare - Zimbabwe’s clothing and textiles industry buckling under the weight of cheap imports and a flailing domestic cotton value chain.

Smuggled second-hand clothes and cheap imports, which make their way to Zimbabwe via Botswana, Mozambique and South Africa, mostly from Asia, are sold on pavements and from car trunks.

Formal clothing retailers, who have to contend with the overheads of doing business, are struggling to compete.

At the same time, domestic clothing and textiles production are in decline due to falling cotton production and declining investment in machinery by traditional manufacturers.

The government banned importation of second-hand clothes as far back as 2005, but those restrictions were relaxed two years later following an outcry that thousands of livelihoods were dependent on the business.

Another ban was to come in 2015, but smugglers and consumers’ necessities have made a mockery of that.

Hardest hit by the informalisation of the sector is Edgars Zimbabwe. The clothing retail giant has 25 outlets countrywide and also operates 28 Jet stores. Edgars owns Carousel Garments, a textiles factory in the erstwhile industrial hub of Bulawayo.

Edgars Zimbabwe is 41 percent owned by South Africa-based Edcon.

It posted a 48,2 percent  decline in sales in the six month ending July 2020, with gross profit and profit before tax down 62,2 percent and 45,1 percent respectively.

“The clothing and apparel industry continues to face significant pressures emanating from roadside business and the emergence of a cheaper second-hand market. We note that the seasonality of the business traditionally warrants stronger earnings performance in the second half, but the erosion of disposable incomes has shifted consumer expenditure to essentials such as food,” notes stockbrokers Morgan & Co recently.

The South African shareholders of retail chain Powersales last year started retreating from the Zimbabwe market, selling about 800 percent of their stake to locals for US$3 million after incurring a US$4,2 million loss in 2019.

Economist Mr Victor Bhoroma says the government needs to create an environment conducive for operations by tax-paying manufacturers and retailers.

“The situation is quite complex because consumer buying power has been eroded by inflation, low incomes and high levels of unemployment which affects credit sales. The government needs to tighten border controls to limit smuggling of second-hand clothing.

“Further, it is necessary to review downwards import duty on raw materials used in clothing manufacturing. Finished clothes should attract higher customs and import duty than raw materials that are used in manufacturing clothes locally by established retailers.”

At the same time, textiles giants like David Whitehead, Modzone, Qualitex, ZimSpin, Merlin and Karina have either closed shop or are struggling to stay afloat.

At its prime, the industry employed about 24,000 people but less than 4,000 remain, according to the Zimbabwe Textiles Union.

According to Mr Bhoroma, the sector needs to boost e-commerce strategies to reduce overheads 

“The business looks depressed unless there is a spike in household incomes and sustained stability on inflation to improve consumer confidence. Local clothing companies will continue to implement cost cutting measures such as retrenchments, reducing retail footprint and floor space in current retail units. Foreign investors have already divested most of their local investments,” Mr Bhoroma says.

Research and investment analyst Mr Enock Rukarwa adds: “The industry has to be pragmatic through developing strategies that coherently respond to changed circumstances… The future of the clothing industry remains bright and opportunity pockets remain wide and untapped. What is key is timeous adaptation to changes in the operating environment.”

While retailers need to up their game even as they lobby for some form of protection from cheap imports and smuggled goods, the country’s cotton value chain is also in need of attention.

Following liberalisation in 1994, the cotton sector was run by a duopoly of Cottco and Cargill.

But high inputs costs and low producer prices mean the sector is not as viable as it once was, more so in the face of massive government subsidies in other cotton-producing countries.

Cotton production touched an all-time low of 32,000 tonnes in 2016 from a high of 353,000 tonnes in 2003.

From 2005, the government started providing free inputs to boost cotton production, which has benefitted nearly 400,000 farmers.

But in the absence of investment in manufacturing – and in the presence of cheap imports and smuggled goods – the white gold may take a long time to recover its lustre.

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