The Masterplan – South Africa’s Value Chain Incentive Schemes

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Review the existing programmes first then develop an Industry Development Plan

 

Part -1 The Production Incentive Programme

The “Masterplan” consultants make recommendations related to a number of existing government value chain support (i.e. incentive) interventions that are funded with huge resources emanating from the public purse (in excess of R3.5bn (US$234.5m). They make, in their most recent PowerPoint presentation, comments about these interventions and they offer some suggestions as to what they think should be done to improve their working.

It seems incredulous that they do this when these interventions, to my knowledge, have never been subject to comprehensive independent reviews. These reviews would have been able to provide verifiable data as to how successful (or not) these schemes have been, and would have been able to advise if the incentives should be completely revised, tweaked, or dumped.

Of course this is hardly the fault of the consultants. It’s clearly the fault of the South African Department of Trade & Industry (DTI) – for if they had been doing their job properly, they would have ensured that annual mini-reviews were undertaken; and then comprehensive independent reviews were done at least every four/five years. The recent “review” of incentive schemes released by the DTI in September 2018 is clearly not good enough (Read More) (see: “2017/18 Annual Incentive Report”).

That these independent, publicly available, reviews most probably do not exist does not surprise me though – for the DTI was never the brightest show in town. In my experience (and I have worked with them from the early 1990s) it has generally not managed its textile and apparel portfolio that well.

However I must admit that under Minister Davies (the current trade and industry minister) things have improved markedly compared with the regimes of his predecessors. I guess though that the Davies’ improvement bump was, in part, also spurred on by the impassioned interventions of Economic Development Minister – the hardworking Ebrahim Patel (he was a long time trade unionist in the Southern African Clothing & Textile Workers Union (SACTWU)).

It does surprise me that South Africa’s Finance Ministry also never asked for independent reviews of these taxpayer funded interventions – given the billions of Rands that it channeled, via the DTI, into the textile and apparel value chain. Do they give money out without ever checking, in detail, the efficacy of their handouts?

The best we have related to the Production Incentive Programme (PIP) element of the Clothing & Textiles Competitiveness Programme (CTCP) are ten “puff piece” firm profile “success stories” (Read More) – infact they are so “puff” it could be a dating site! The same CTCP website (which I presume is managed by the Industrial Development Corporation (IDC)) has space for “Annual Reports” – but its blank; … no annual reports are listed – is this an oversight? or do they not exist?

According to the Industrial Development Corporation (IDC) – the managers of the PIP programme (Read More) – the: “PIP aims to help the industry upgrade its processes, products and people. The programme is expected to move the industry up the value chain to activities that are far more sustainable than competing against “sweatshop” labour practices and pervasive government subsidisation in other developing countries. The PIP is meant to encourage and support upgrading and competitiveness improvement programmes in the sector. The PIP consists of an Upgrade Grant Facility, which is meant to focus on competitiveness improvement. The PIP is a market-neutral incentive offered to the sub-sectors listed below, resulting in an incentive benefit equal to 7.5% for the year based on a company’s Manufacturing Value Addition.”

The PIP is available to the following: clothing manufacturers; textile manufacturers; cut, make & trim (CMT) operators; footwear manufacturers; leather goods manufacturers; leather processors (specifically for leather goods and footwear industries); and, design houses (provided the design house partners with one or more CMTs).

In their August 2018 PowerPoint presentation the “Masterplan” consultants observe that there is uncertainty in the industry as to the continuation of the programme, and then they recommend that it runs for a further 3 years (1 April 2019 to 31 March 2022) whereupon the PIP should be reviewed.

I have no doubt the DTI’S CTCP PIP incentive has done much good … but prior to extending the programme again it MUST first be independently reviewed. The independent consultants (with no ties to the “Masterplan” consultants) should also be required to make recommendations as to how the incentive scheme can be refocused. The amount of funds allocated for the review should be substantial. The views of the consultants should then be deliberated upon by government policy officials, together with stakeholders (retail, industry and trade unions). The final report should be given to the “Masterplan” consultants.

Given the amount of public money involved its disappointing that the PIP is now the subject of proposal that amounts to little more than “road side repairs”. To extend a publicly funded incentive programme without a full independent review is illogical; to commit to a “Masterplan” without a thorough understanding of the successes or otherwise of a core incentive initiative would be similarly illogical. Taxpayer funds are sure to be wasted.

In my view the elements of an independent review of the PIP would include:

Collecting a range of core data

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In pursuit of transparency – a redacted (company identifiers excluded) version of the review should be released to the public

 

Part II – The Competitiveness Improvement Programme

According to the IDC (Read More) the CIP aims, through the cluster approach, to create a group of globally competitive companies in the qualifying sectors that would ensure a sustainable business environment able to retain and grow employment levels in South Africa. The CIP aims to build and improve capacity and competitiveness in manufacturers and designers through related value chains to effectively supply their customers locally and internationally. The CIP understands competitiveness to encompass issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate. Competitiveness improvement interventions should thus include innovative activities related to people, products, processes and market development.

Competitiveness improvement should focus on achieving higher levels of productivity through industrial and/or process engineering and management activities. Interventions to promote improvement should be based on a thorough benchmarking process, wherein cluster and member performance and processes are compared to “best practice” both locally and internationally. Proposed interventions are required to address the performance gaps identified through the benchmarking analysis. Interventions can include direct shop-floor interventions emphasising the need to improve people, product and processes within the production environment as well as assistance given to the cluster as a whole to improve member’s competitiveness capabilities. Competitiveness improvement should also focus on market development in order to find and grow markets for members’ manufactured products.

Three types of clusters are envisaged:

The CIP offers National Clusters and their supporting Subnational Clusters an initial investment grant of 100% of the approved qualifying expenditure for the first year, where after it becomes a cost sharing grant of 95% from the CIP in year 2, 90% from the CIP in year 3, 80% from the CIP in year 4 and 70% from the CIP in year 5. The balance of funding needs to be raised from cluster participants.

In their August 2018 PowerPoint presentation the “Masterplan” consultants make the following observations about the CIP:

The “Masterplan” consultants then recommend that the CIP to be extended for 3 more years – but with tighter qualification criteria.

“Extended”! Astounding! … especially in the context that it is more than likely that no thorough independent reviews have been conducted of the performance of all/most of the CIP’s cluster interventions. Its must be mentioned that the “Masterplan” consultants also supply “cluster facilitation services” to two of the larger, perhaps more successful, CIP supported cluster programmes – the KwaZulu-Natal, and the Western Cape textile and apparel clusters. Their views on the successes (or otherwise) of all CIP cluster programmes is valuable – but they are not independent views!

As I said with regards the DTI’S CTCP PIP incentive I have no doubt that it must have done some good … but prior to extending the PIP it MUST first be independently reviewed. I will say this now – before more public funds are allocated to any of the DTI’s CTCP CIP clusters – they MUST also be independently reviewed. A review will allow the public funds to be used more effectively.

If it must be said I agree with clustering efforts – I think that they are good ways in which industry stakeholders can develop their own plants and their value chains. I remember (and with my age this is difficult) being very angry with South Africa’s DTI when they pulled the plug on an ambitious (“Michael Porter” orientated) cluster programe developed by staff within their department in the 1990s.

In my view each of the activities of the following cluster should be reviewed:

And while these are being reviewed the DTI may also want to look at the Technical Textiles Cluster. If I have left any state-funded value chain CIP cluster kindly let me know.

In my view the elements of an independent CIP review would include:

Of course, any changes in firm competitiveness must be disaggregated from the positive changes that may have been induced by the PIP incentive or any other government support intervention (e.g. the Black Industrialists scheme; financial support from the IDC’s own resources; funds accessed from the Sectoral Education Training Authority; funding from municipalities and provincial government; etc).

On the basis of a review of each cluster the CIP review consultants (who should be allocated substantial funds to undertake the review) should make some recommendations as to how the CIP:

  • may be better administered (there is always room for improvement!) in order to ensure that financial failures are reduced, and the programme’s objectives are met
  • rules may be tweaked / completely reworked in order to ensure a more successful value chain

The final report should be given to the “Masterplan” consultants. The views of the consultants should then be deliberated upon by government policy officials, together with stakeholders (retail, industry and trade unions) so as to properly inform the “Masterplan”. In the pursuit of transparency the review report should also be released to the public.

And what are some of the things that really interest me about some of the activities of the clusters – aside from whether they really improved firm / value chain competitiveness? Here are some issues:

  • SASTAC apparently spent about R32m (US$2.23m) to develop a software programme that would enable consumers to trace the cotton in their garments from the farm where it was grown; to the cotton gin where the seed was separated from the lint; to the spinning and weaving/knitting mills where the textiles were made; to the garment factory where an item of clothing was stitched. Was this amount really spent? Who now owns this software? I assume that this software has now been fully developed – if so … is it now being commercially used by those that promoted its development? (In other words how many garments have thus far had a tracking code attached to them?)
  • Is it true that all South African cotton ginners (I think there are seven of them) are now being asked to jointly contribute about R400k (US$28k) a month in order that they can use the tracability software? Are other value chain stakeholders (e.g. textile and apparel manufacturers, apparel retailers, cotton farmers, Cotton SA, the trade union, etc) also going to make a contribution? Has any calculation being done as to by how much full traceability, using the developed software programme, will contribute to adding value to garments produced? How much more money will cotton ginners be paid for the cotton that they gin if that cotton leaves their gin with a traceability certificate?
  • What are all the reasons for the National Footwear & Leather Cluster, that was established at Vaal University of Technology, being closed? Apparently there is a replacement footwear and leather cluster but the DTI is reluctant to sign off on support for the new cluster. Why is this the case?
  • Apparently an audit of South African value chain factories is underway. Was this funded by one of the CIP funded clusters? If so which one? What is the purpose of this audit? How much did this cost to develop – including its software, the website, and the collection of company data used to populate the data base? What are the average fees charged by the consultant for a “C6 Audit”? What is the long term sustainability plan for the directory – in otherwords how will it be updated without state support?
    See: www.textiledirectory.co.za.
  • The “Masterplan” consultants refer to “pockets of inappropriate expenditure” – what on earth does this mean or refer to?

And while we are on the subject of reviews perhaps its time the training funded by South Africa’s Sector Education Training Authority (SETA) for the textile-apparel value chain – the Fibre Processing & Manufacturing (FPM-SETA – Read More) – should be independently reviewed. The independent review should look at a range of issues, including … the cost to train a sewing machinist; and the efficacy of that training!


About the Guest Author

Mark S Bennett

Editor, The African Cotton, Textiles & Apparel Monitor

He has 28 years of experience working on USAID, DFID, Tanzania Cotton Board, ComMark Lesotho, IDC, SACU programmes; prefers long-term, in-country, consultancy positions.
Mark specialises in creating practical development interventions and programmes that drive private sector development thereby contributing to the alleviation of poverty.


This article is purely based on Mark’s point of view about South Africa’s value chain strategy development.

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