Wages in the clothing industry in South Africa

The key issue missed in your summary is that the NBC is dominated by the larger and mostly urban firms, and that the minimum wages agreed by the firms and union represented in the NBC are then “extended” by the Minister of Labour to firms and workers throughout the country that had not been party to the NBC agreement. In other words, higher minimum wages are imposed on firms and workers in places like Newcastle, without their consent. This is the heart of the problem, because neither the Minister of Labour nor the NBC appears to care about the resulting job losses.

The NBC and the Minister of Labour are deliberately shutting down factories that produce basic clothes for retailers like Mr Price. They are taking away jobs (yes, at low wages, but these are still important for those who have them). This will also result in the price of basic clothes rising. The NBC and the Minister of Labour are prioritising the needs of skilled, better paid workers in urban areas—and of high income consumers—and are harming the poor.

The main cause of job losses in the clothing sector is not wages, but a range of other factors, primarily the fast-tracked tariff reduction regime introduced under GEAR in 1996, and the inappropriately low binding levels of those tariffs. This was compounded by high levels of illegal imports and serious instances of widespread under-invoicing at our ports of entries.

It is not correct that manufacturers are only represented by AMSA. They are also represented by the Natal Clothing Manufacturers Association (previously an AMSA member but now no longer so) and by the Coastal Clothing Manufacturers Association (CCMA). The CCMA mainly represents employers with companies in the non-metro area of the South Coast in KZN.

It is factually incorrect that about 450 companies employing nearly 17,000 workers are being targeted by the NBC. At last count (at the time when AMSA secured a Court order to enforce compliance), it was about 297 companies employing 5,500 workers. Even this, on closer scrutiny by SACTWU, was an overstatement due to, for example, duplicate records.

It is not true that government has been in support of factory closures. In fact, the record shows, when this very same matter arose about three years ago, that government had actively intervened to nudge the parties to find an alternative solution. An alternative was then found and these companies were given a reprieve. They chose to ignore the assistance that was offered.

One of the central themes of the research paper is the suggestion that Newcastle factories compete in a different market to companies in areas such as Cape Town, and that this is a factor in non-compliance. But this is just wrong, for at least the following reasons:

• There are very few manufacturers in South Africa still making high-end branded clothing. By-and-large manufacturers are overwhelmingly producing clothing for the same major retailers in the country, sometimes in-house branded clothing but certainly not high-end branded products. As a consequence, there is a significant amount of overlap between the products which are made by South African manufacturers across the country, including across metro and non-metro areas, and in places like Cape Town and Newcastle. They often compete for the same orders. For example, we have found the same retailer branded sportswear being produced in a non-compliant company in Madadeni in Newcastle that was also being manufactured in a compliant Cape Town company. So this supposed rigid dichotomy between metro areas and their products and non-metro and their products does not exist. Furthermore, even if one were to accept the (false) proposition that a rigid dichotomy does exist, it is clear that the fact of being non-metro and making these products does not structurally force companies to be non-compliant. There are many non-metro companies which compete for exactly the same orders as Newcastle, but these companies are compliant. For instance, small manufacturers in Port Shepstone (amongst other places) make the exact same baby-wear and children’s wear that are made in Newcastle, and are required to pay the same minimum wages, but they are compliant. In fact these companies manage to be compliant even while bleeding substantial orders to Newcastle companies, since Newcastle companies often out-compete them on price, by paying lower wages.
• It is not true that Newcastle companies are required to pay the same wage rate as that in urban areas. Prescribed urban wages are general higher than that in non-mtero, and this differential is accepted by the industry, including by the trade union.

It is important to note that the Labour Relations Act (LRA) gives the Minister of Labour the right to extend collective agreements in circumstances where the Minister believes the collective agreement has been developed through a sufficiently representative process. This is done as a measure to prevent non-party and non-compliant companies from undermining party and compliant companies, and to promote orderly collective bargaining.

The LRA is not a unilaterally imposed law; it was uniquely agreed to in the NEDLAC Social Dialogue process.

Chapter 1 of the LRA spells out the purpose of the Act as follows, in its introduction:

“The purpose of this Act is to advance economic development, social justice, labour peace and the democratization of the workplace…” . It further goes on, in summary, to state that it is to provide a framework within which “…employees and their trade unions, employers and employer’s organizations can … collectively bargain to determine wages, terms of conditions of employment and other matters of mutual interest.”

That is exactly what has happened in the case of the clothing industry.

In any event, it is a fiction that the NBC is dominated by larger companies. In fact, over 87% of clothing companies which are party to the Bargaining Council are small, medium and micro entrepreneurs. Many non-metro (compliant) companies are represented by their employer associations at the Council.

In addition, SACTWU represents more than 85% of the workers in the sector, located in both metro and non-metro areas, and in compliant as well as non-compliant companies. We are the legitimate voice of clothing workers in small companies. This diversity is brought to bear on negotiations at the bargaining council. The way it works is as follows: In the first few months of every year SACTWU members, whether they are in large, medium or small companies, or in rural or metro areas, or in compliant or non-compliant companies, begin to develop their proposals and mandates for sectoral negotiations. For instance, clothing workers within compliant and non-compliant companies in SACTWU’s Newcastle branch will discuss in their factories and their branch meetings what they think the main demands for negotiations must be that year. Positions such as this are eventually taken to the union’s National Bargaining Conference, which brings together workers from the union’s various sectors and regions, and from rural, metr, compliant and non-compliant companies. The process is not controlled by urban workers at all. Delegates meet and debate the various challenges (such as the balance between wage increases and job security) existing within their sectors, and try to reach consensus on the national positions they take on each issue. This consensus recognises the variation within the sectors, and provides multiple flexibilities in terms of wage rates etc. These positions are then tabled at the Council for negotiations.

This diversity (both within employer parties and in the union’s mandating procedures) informs the manner and nature of agreements forged at the NBC.

The United Clothing and Textile Association (UCTA), who claim to be the main champion of these non-compliant companies, have deliberately and voluntarily stayed out of this LRA-sanctioned collective bargaining process.

It is not true that the same wage for urban areas are imposed on no-metro areas such as Newcastle. There is a differential. In fact, there are at least 220 different prescribed wage rates nationally for the benchmark machinists job category, depending on geographic location, manufacturing processes and productivity incentives.

It is claimed that “there is a strong racial undercurrent in this debate.” Yet SACTWU has not made the non-compliance matter into a “Chinese” matter. In fact, we regard the way in which Newcastle factories have tried to highlight this supposed racial undercurrent as an inappropriate defensive strategy to divert attention from their wrongdoing and illegality and pretend that the problems raised about their employment practises are actually somehow just manifestations of xenophobia or racial persecution. It is simply not true. Apart from having Chinese worker-members in SACTWU, we are acutely aware that not all the companies in Newcastle are from mainland China, and that non-compliance is also practised by companies who have absolutely no connection to China or a broader Chinese heritage at all. Non-compliance is non-compliance.

We are arguing against the wage-setting machinery under which the Minister, together with some firms and some workers, imposes minimum wages on other firms and other workers. We are not arguing against the regulation of working conditions. This kind of abuse is obviously unacceptable. Appropriate action was taken against the factory owner.

Wage levels and conditions of work are related. When a worker is given little value, she is treated as having little value.

The regular occurrence of deaths and rapes in Bangladeshi clothing factories, where workers earn some of the lowest wages in the world, illustrates this well. The most recent fire there occurred on November 24th last year and killed over a hundred workers. In terms of rapes, it has been revealed that police reports from Bangladesh’s capital, Dhaka, show that female garment workers constitute 11% of reported rape cases, but only account for about 3% of the total population of women in the city—meaning that low-waged garment workers are more likely to be raped than other women in the city.

The same dirty link between low wages and working conditions is exposed in Newcastle, for clothing factories in the area generally pay the lowest wages in the country to clothing workers (usually far below the legal minimum) and also practice the most extensive and severe forms of worker abuse in the country, often akin to apartheid labour practices. The death of Nokuthula Hlatswayo’s children (the incident to which you refer above) is certainly not the only abuse which has occurred, even if it is the most well known. Workers have provided testimony-after-testimony to us in affidavits in which they describe being required to use off-cut rags for toilet paper, and of being strip searched by their managers. In one factory, in 2010 and 2011, workers were locked in the factory at night (their employer went home with the keys) and on two occasions fires started in the factory and workers were unable to escape.

These kinds of worker abuses are part of the Newcastle low-cost employment model.

Yes, all workers should be allowed and encouraged to unionize. SACTWU even has some members in non-compliant firms. But, overall, workers in non-compliant firms are not being given an adequate voice and say in wage negotiations. If the workers in places like Newcastle decide to demand higher wages even at the risk of losing their jobs, that is their right. It is not right that workers and firms in places like Cape Town are making that choice for them. The union should be going into the Newcastle firms, organising the workers, and helping them to negotiate a wage model that maximises their earnings without risking their jobs. The union should not be using the extension mechanism to impose higher wages when these result in job losses. We need a system, perhaps a set of regional bargaining councils, that gives all workers adequate voice in the important decisions over wages and the risk of job losses.

SACTWU’s demands for higher wages for Newcastle workers are not based on the demands of metro workers, as we have described earlier above. This shows a fundamental misunderstanding by the authors of the way in which mandate-taking is done within the union. The mandate-procedure we explained earlier is only possible on the basis that we have organized workers, and represent their aspirations to employers.

The fact is that workers in non-metro and non-compliant companies clearly support the drive to receive higher wages. In Newcastle, for instance, the union’s membership numbers have soared enormously over the past few years, as workers join the union driven by the need for better wages. Furthermore, workers in Newcastle and our Northern Natal branch have separately gathered in their thousands in the last few years and marched in demand of higher wages and against non-compliance. Late last year, for example, 3,000 clothing workers staged a one day strike against low wages in isiThebe. In Newcastle, in September last year, over 3,000 thousand clothing workers embarked on a two week strike in protest against their low wage levels. There can be little better evidence of the unhappiness of workers at non-compliant companies with their wages, and their support for the collective bargaining process.

We have repeatedly invited Newcastle employers to join the Bargaining Council, as this is the forum in which wage negotiations are conducted in the clothing sector. If they were in the bargaining council they would be able to represent their opinions and highlight their arguments in the forum in which such matters can best be dealt with. They might even be able to secure wage increases which they believe are more in their favour. But these companies simply refuse to do this, and have preferred to use a strategy of breaking the law, and by manufacturing a crisis. This is in contrast to other comparable small manufacturers, who have chosen to be compliant with the law and participate in the bargaining processes.

Having said that, it is ironic that while Nattrass and Seekings advocate the right to join unions, some of the Newcastle factories on whose behalf they speak regularly dismiss workers who join the union. Take for example Alex Liu, who arose in recent years as a spokesperson for some of these factories. He has morphed his company from one form into another in order to avoid being compliant, and to avoid unionization amongst his workers, despite the fact that we have fulle unionized his factory. There are many workers living in Osizweni and Madadeni who can tell you how Alex dismissed them when they joined SACTWU. In fact, SACTWU has been involved in lengthy ligitation concerning this specific matter alone, where workers have been denied their basic right to unionise.

The underlying issue is not non-compliance. It is the ‘extension’ procedure through which the Minister sets minimum wages at levels that many firms cannot afford to pay. We need to be clear about this. Most firms in Newcastle are paying wages that are higher than the minimum wage ten years ago, adjusting for inflation. They are compliant with the minimum wages of the past, but not the higher minimum wages that the Minister gazettes now. It is because the minimum wage in places like Newcastle has almost doubled (whilst import tariffs were reduced)—and this is in real terms, i.e. taking inflation into account—that non-compliance has become such a big issue. The answer is not to tolerate non-compliance, but rather to ensure that minimum wages in places like Newcastle are set at a level that is affordable so that jobs are not destroyed when employers are compelled to comply.

Your question is important nonetheless. If the minimum was much lower in Newcastle than in Cape Town, would there be a race to the bottom, as firms relocated from ‘expensive’ Cape Town to ‘cheap’ Newcastle? This is simplistic. The South African clothing industry has existed for almost 100 years on the basis of wage differentiation, with a mix of relatively high wage operations (generally producing fashionable items) and lower-wage operations (producing the more basic goods). High wage firms have always co-existed with low wage firms because they compete in different markets. If there was a slippery slope or race to the bottom, then every firm in the country would have moved to places like Newcastle.

Bear in mind also that wages paid by non-compliant firms in Newcastle are generally higher than the wages paid in Lesotho, which are higher than wages paid in Bangladesh. The fact that there are still firms in places like Newcastle shows that there is not an inexorable race to the bottom.

It is possible that changes to the wage setting model in South Africa would result in some pressure on wages at the top end of the industry—especially amongst the smaller firms in Cape Town and elsewhere, who have been struggling to pay the bargained minimum wage. The likelihood is that higher-productivity, top-end or niche production will remain in the higher-wage areas, and lower-productivity, more labour-intensive production of basic goods will concentrate in lower-wage areas.

It is wrong to pretend that non-compliance has been created by unfairly high wage increases determined by the bargaining council. In fact Newcastle employers have largely broken wage laws and other laws for more many years. For example, the wage level for Newcastle was not always determined at bargaining council level. It was for many years set by sectoral determination and not the bargaining council. The same employers failed to comply with even the very low sectoral determination set rates. This is a fact and it shows that non-compliance in Newcastle is not the making of the bargaining council. It is an inherited problem from the past, and it is part of the exploitative business practice of places like Newcastle.

The fact that it is illogical to suggest that the bargaining council wage agreements have created the problem of non-compliance in Newcastle is supported by the fact that other similar manufacturers (who produce exactly the same goods for exactly the same retailers, and who are situated in other areas relatively close to and in Newcastle, and who must pay exactly the same wage rates as Newcastle companies) manage to be compliant.

The threat of the race-to-the-bottom is very real.

We have described above how very many compliant manufacturers around the country, in both metro and non-metro areas including in places like Cape Town and Port Shepstone, have lost orders to non-compliant Newcastle companies as a result of being outcompeted by Newcastle’s illegal non-compliance. In this context, orders going to factories paying legal wages have been traded for orders going to factories which pay illegal wages.

While not all orders have diverted to low-wage non-compliant companies yet, this is partly precisely because these companies are currently non-compliant: it would be too risky for a retailer or retail agent to place too many orders with companies who break the law, in case there is action against such companies and the retail orders are compromised. But if the risk were gone and if non-compliance were no longer a factor and Newcastle factories succeeded in lowering their wage rates legally, we believe there is a strong likelihood that more-and-more orders will bleed from current compliant wage areas to current non-compliant wage areas like Newcastle.

Keep in mind that wage rates differ across South Africa, and that often areas which are geographically quite close together have different wages. So, for instance, wage rates differ between Cape Town and Caledon, as do those between Johannesburg and Bronkhorstspruit, and those between Durban, the South Coast, isiThebe and Ladysmith. If Newcastle employers are exempted from the bargaining council agreements, then what will stop employers in such locales (with lower wages than their immediate neighbours) from trying to be exempted too? Since they make similar products, it would certainly give them a better competitive edge against compliant wage companies. The threat also exists of manufacturing plants in higher wage areas relocating to lower wage areas in order to avoid losing orders. Unlike foundries, chemical factories or automotive plants, clothing machinery can be relatively easily transported and relocated, and factories can fairly easily reopen elsewhere. In this way, higher wages will be substituted for lower wages, and working class families in general will be poorer for it.

The question must be asked: how low is low enough? What wage do the researchers want workers to be paid? And how do they know that if this wage is granted to companies, those companies will not be undermined by new non-compliant companies in the short-to-medium term, and that the fight to lower the minimum wage will not start all over again?

In Newcastle, the currently applicable legally gazetted starting wage of an entry level machinist is R369 per week. That is already incredibly low. In fact, it is 30% lower than the R525 per week recently promulgated for farm workers, by sectoral determination. But in reality, many Newcastle companies pay below this R369 rate, and they even pay it to machinists who have very many years experience. Workers in Newcastle have brought us their payslips (if they even receive them) which often show them to earn between R200 to R300 per week.

We know from experience that there are a multitude of factors which affect the stability of the industry, and that wage-levels are not high up on this list. We have real-world experience of the ‘low-wage will create jobs’ fiction and know it is hollow. For example, at Frame Textiles and Union Spinning Mills, we agreed to a significant cut in workers’ total labour costs respectively. Similarly, in 2011, we agreed to a landmark 30% lower entry-level wage for clothing workers because employers assured us that lowering wages would allow them to birth at least 5,000 new jobs within three years. These low-wage/job growth experiments were monumental failures. Frame Textiles and Union Spinning Mills closed and workers lost their jobs; and the new-entry wage agreement is practically barren.

Amongst other things, when we drop wages, retailers learn about this and simply absorb the savings in a predatory manner.

If lowering wages will not necessarily retain or create jobs in the industry, we can at least be certain that it will contribute to the devastation of working class families. After all, the cost of being a clothing worker in Newcastle is high. Our previous research suggests that Newcastle clothing workers spend R50 and R100 a week on transport, R40 a week on rent, R70 a week on electricity, and about R220 a week on the most basic food and groceries. If they buy other items, such as vegetables, meat, onions, tea, coffee, milk, creche, airtime, children’s transport to school, children’s school lunch, or even toothpaste, medication, toilet paper or clothing, amongst other things, their overall costs are higher.

AMSA members are not homogeneous. Some smaller firms may now be genuinely threatened by competition from firms in Newcastle. The bigger firms, however, are in a different position. Some have factories in Lesotho, and might be happy to see the Newcastle firms shut down. There is also a view that job losses in the non-metro areas will undermine the NBC and backfire on SACTWU, perhaps making the union more amenable to redesigning the wage model that applies in the metro areas.

SACTWU is hard to read. Some unionists seem to be ideologically committed to driving out the bottom end of the clothing sector. When push comes to shove, however, the union seems to be reluctant to be seen to be actively destroying jobs. When AMSA took the NBC to court to force the NBC to shut down non-compliant companies, SACTWU initially opposed the application—before it changed its stance when it was seen to be endorsing non-compliance with agreements that the union itself had signed!

Our motivation is clear: the levels of Newcastle workers’ wages are unacceptably low and their conditions of work are brutal. In addition, the Newcastle problem threatens the viability and development of a sustainable and decent clothing sector in South Africa. We do not condone illegality such as non-compliance.

No. We must point out again that the underlying issue is not simply non-compliance, it is the minimum wages that are imposed by the NBC and Minister of Labour. SACTWU, the NBC and the Minister have been pushing for reduced wage differentials between higher-wage and lower-wage areas. Higher-wage firms have always operated in places like Cape Town despite the existence of much lower wage firms in places like Newcastle. Non-compliance probably does erode the legitimacy and authority of the state. That is another reason why we need reasonable wage differentials with which labour-intensive firms in Newcastle can comply.

Your question also seems to confuse minimum wages and earnings. The non-compliant firms have proposed a different wage model, with lower basic pay and more room for productivity bonuses. If this wage model was implemented, then some workers would earn more and some less than the current legal minima. If this kind of model was implemented in places like Newcastle, then many compliant firms would probably want to adopt it also. We might thus see lower basic wages in different parts of the country but a much wider earnings distribution, and perhaps even higher average earnings. Non-compliant firms in Newcastle have in the past used this model, and their wages ranged from well below the legislated minimum to more than twice the minimum wage for those workers who were able to earn good productivity bonuses. Linking wages to productivity is the only way to save jobs and to grow the industry—for workers and bosses alike. We need to be moving to this kind of social democratic compromise.

We have heard a lot about the Newcastle wage model from its proponents. But we have also collected enormous numbers of testimonies and payslips of Newcastle workers (where workers even receive payslips) and it is clear to us that this supposed model does not really benefit workers.

A concrete example illustrates this: a Newcastle worker has informed us of how she earned R160 a week as a result of her productivity arrangement at work, while working 15 hours a day. She explained to us that, as a single mother, she struggled to get people she trusted to look after her young daughter until she finished work at 10pm in the evening. She also informed us of how, if she chose not to work beyond the legal 45 hour a week requirement, her wage wa10s redu/pced by her employer.

Many other workers have described similar situations.

In a few instances, it does appear that some workers earn more than the legal minimum wage—but this is often achieved because they work on Saturdays and Sundays too and hence work significantly more hours a week.

In any event, it is ludricous to suggest that many Newcastle workers earn above the prescribed minimum wage, with productivity incentives. Why would the bargaining council want to institute compliance proceedings against such companies?

In any event, it is not factually true to suggest that industry agreement does not make provision for productivity linked payments. Despite the union’s reservations, we have agreed to it.

Further, government does not set the wage levels for the industry. Government is not part of the industry wage negotiations, nor is it represented on the bargaining council structures. All that happens is that the Minister, in terms of powers vested in her by the law, considers the request to extend the agreement industry-wide based on legitimate collective bargaining outcomes. Associations like UCTA voluntarily choose to stay outside of this bargaining process.

Furthermore, the productivity systems practiced in Newcastle are often heavily punitive towards workers. Workers have money deducted from their wages for going to the toilet, for talking to another worker, for being late, or for being sick. Even if workers have a legitimate doctor’s note, the factory will deduct the sick day’s wages plus an additional amount of money, amongst many other things.

The NBC has a list of non-compliant companies. It is targeting these firms by obtaining compliance orders against them (in court) and then obtaining writs of execution. The local sheriff then goes to the factory, attaches the assets and shuts them down. It is unclear how the NBC has selected which firms to target first.

It is correct that it is not only a Newcastle issue. It is not also correct that factories are closed down in all instances when writs are executed. The purpose is not to close companies down. The primary objective is to get them to obey the law.

The problem is that we are dealing with people who simply just refuse to explore alternatives on how they can become compliant. For example, a few years ago, for KZN only, the union agreed to a “wage band” as part of collective bargaining outcomes: in this model, a lower-end wage and a higher end wage were set for every job category, with the lower end being that of what employers then claimed non-compliant employers would be able to pay. An employer could then pay at any level within the band. Even this concession by the trade union did not work.

Note that clothing is the most labour-intensive manufacturing sector. There are labour-intensive non-manufacturing sectors, although they too are shrinking. It is the tradable sectors, i.e. the ones competing with imports (not domestic work or security or local government), that are under the tightest constraints.

Unemployment is so high in South Africa in part because labour-intensive tradable sectors have been decimated by rising minimum wages in the past. Most clothing jobs have been destroyed already. These are pretty much the last remaining low-wage manufacturing jobs. COSATU’s own surveys indicate that approximately 30% of its affiliates’ members were unskilled in 1994. By 2004, i.e. just ten years later, the proportion had fallen to 12%. By 2008, it had fallen to 6%. The proportion that was either unskilled or semi-skilled fell from 60% in 1994 to 22% in 2008.

Saving 16,700 jobs in the low-wage clothing sector will not solve South Africa’s unemployment problem. But destroying them will make it even less likely that the South African economy will ever be able to provide sufficient jobs. We need to grow not destroy our labour-intensive sectors. Jobs in manufacturing cost R150,000 to create. It costs about one-tenth of this, perhaps as little as R10,000 each, to create jobs in the low-wage clothing sector. If we only create capital-intensive jobs for high paid workers, our economy and society will get more and more unequal, divided between a minority of well-paid workers and a huge number of unemployed who are paid nothing. It is an absurd fantasy to believe that we can create sufficient jobs to drive down unemployment through purely capital-intensive growth. We need to grow jobs at both the top and bottom end of the production spectrum. Getting rid of the extension of collective agreements to non-parties will help.

It is true that clothing manufacturing is very labour intensive and represents a very cost-effective way to create jobs in South Africa. This is precisely why the SA government has chosen to support the clothing sector as a key growth sector in the [government’s second] Industrial Policy Action Plan (known as IPAP2).

But the nature of the growth of the clothing sector is surely important too. As we have sketched above, Newcastle represents the lowest vision of how to develop the South African clothing sector—in a manner which ignites a race to the bottom and in which workers are treated without any dignity.

It is unclear to SACTWU why, if the authors are so concerned about the viability of Newcastle factories, they have not chosen to look for other ways to help make those factories viable, other than by trying to deflate workers wages. They could, for instance, have tried to address some of the distortions which exist in the clothing value chain. In this regard, it is telling that a retailer like Mr Price (which is cited by them as a company for whom Newcastle factories produce) has seen its profits before tax increase by 107% between 2010 and 2012 alone (from R864m to R1.8bm). The company’s CEO, Stuart Bird, took home R10.8m at the end of the 2012 financial year. If the authors are so concerned about the apparent paper thin margins of clothing factories in Newcastle, and about inequality, then why have they not chosen to find ways to address the core of inequality which manifests so starkly between the minimum wages of workers who make clothing and the profits and salaries of CEOs who sell clothing.