Newcastle, the Chinese and the clothing industry: Doomed?

2011-06-02 00:00

AS you drive into Newcastle from the direction of Johannesburg you encounter a sign on top of a pillar bearing the words “Welcome to Newcastle”. Nothing remarkable about that. But beneath the greeting, the pillar is inscribed with a column of Chinese characters.

The plaque at the foot of the pillar says it was erected by the local Chinese community in 1995 to reflect the “tremendous contribution made by the immigrants from the Republic of China on Taiwan to the economic development in the area of greater Newcastle”.

That could soon change. Many of Newcastle’s Chinese community are involved in the clothing and textile industry, running 85 factories and employing about 7 000 people. By April next year, they must comply with the National Bargaining Council for the Clothing Industry’s demand to pay their workers the agreed minimum wage. Four factories have already been closed for not complying with an agreement to pay 70% of the minimum wage by April of this year.

In an area where there is already a 60% unemployment rate, it is estimated that over 5 000 people will lose their jobs if the non-compliant factories close down. Only two factories are compliant.

The factory owners say they are unable to pay the minimum wage because of the low profit margins associated with the clothing sector. Already, business delegations from Mozambique and Swaziland have visited Newcastle to encourage the Chinese factory owners to relocate to their countries where wages are lower. Some owners are also considering returning to China.

The majority of the Chinese-run factories operate cut, make and trim (CMT) operations, creating garments from supplied materials. “They are mainly what are called ‘mom-and-pop’ operations,” says Ferdie Alberts. “They make a huge contribution to the coffers of the municipality. The fourth largest consumer of electricity in Newcastle is a Taiwanese investor.”

Newcastle is the economic hub of northern KwaZulu-Natal, employing 22 000 people in several manufacturing industries, including clothing, chemical and engineering, not forgetting the Iscor steel plant which was established in 1972.

Iscor’s arrival was part of the decentralisation plan of the apartheid government that created pools of labour in adjacent homelands. In Newcastle, forced removals created the townships of Madadeni and Osizweni.

“Iscor was going to employ 25 000 people by the year 2000,” says Alberts. “It now employs 6 000. In the nineties, it retrenched and we had to have something to broaden our economic base. We turned to the clothing industry which is the quickest producer of jobs.”

Enter the Chinese. In fact, they had entered even earlier in the eighties when the apartheid government was wooing countries that might be prepared to shake hands with them diplomatically. Taiwan was one of the few. “That’s how they came,” says Alberts.

The first Chinese investors arrived in Newcastle in 1983. Many became South African citizens, they bought land and looked to be a permanent presence. There are now many second-generation South Africans.

The end of apartheid and the move to full democracy in 1994 saw relations open up to the rest of the world and the ANC government wooed mainland China. Consequently, in Newcastle today, there are about 1 400 people from mainland China, plus 600 from Taiwan and a few from Hong Kong. As well as factory owners, there are many traders and shopowners.

The influx of mainland Chinese in the nineties saw the previously empty factories on the Madadeni Industrial Estate operated by the Ithala development Finance Corporation quickly fill up. “Only two factories were occupied before the Chinese came,” says Selby Sithole, Madadeni Industrial Estate operations manager.

Now he’s facing the prospect of an empty industrial estate if the factories close. He believes a solution lies in all parties involved coming to the table — retailers, the Bargaining Council, unions and government.

“Nothing will happen if we don’t sit down and communicate with each other. We need to act together to ensure the stability of the clothing and textile industry. Otherwise how many job opportunities will be lost? How many people are going to go hungry?”

David Yen, a factory owner on the estate, and president of the Newcastle Clothing and Textile Industrial Association, arrived in 1999. “Madadeni and Newcastle are my second home,” says Yen. “I will shed tears if I have to leave here.”

Yen says he is unable to pay the minimum wage and is considering various options. One is to reduce staff, retaining skilled workers, in order to be able to pay the minimum wage. But finding a solution could be purely academic. “The problem is we are not getting orders,” says Yen.

The threat of closure due to non-compliance is making clothing buyers and retailers wary of issuing contracts. According to Alex Liu, chairperson of the Newcastle Chinese Chamber of Commerce: “It is putting us all out of business even before we are closed down for non-compliance.”

Another factory owner, who didn’t want to be named, said that the uncertainty is the biggest worry. “We don’t know if we will be operating in six months’ time. Our customers are also concerned.”

So are the workers. “The past few weeks have been very tough,” says a worker who declined to be named. “It is stressful not knowing what will happen.”

“The Chinese are the only people who have opened up jobs in Newcastle. If you leave school and have no qualifications the only option is to work in the clothing industry.”

This worker, the only breadwinner for a large extended family, said that she, and people in similar circumstances, are prepared to work for a low wage rather than no wage. “If the factories close it will cause even more stress to the people. Iscor down-sized and now there are lots of unemployed people. It’s going to be hard.”

Patrick Vundla, Newcastle organiser for the Southern African Clothing and Textile Workers’ Union (Sactwu), is appealing to factory owners to negotiate with the unions to protect jobs. “The 5 000 workers threatened with unemployment feed at least 10 000 people.” But there’s not much room for manoeuvre.

“Employers have to comply with the act,” he says. “We are in constant negotiation and are encouraging them to come to the party and are assisting wherever we can. But it’s in the act, they have to comply, no party will win. But I remain optimistic things will be okay next year.”

Optimism seems to be in the air: driving around Newcastle, there’s a casino, several new food and retail outlets, and construction has started on the Newcastle Mall, which is due to open next year.

The Chinese pillar no longer stands at the edge of the city and drivers are now greeted by the sight of the Amajuba Mall, car dealerships, restaurants, and directly opposite the pillar that symbol of aggressive American capitalism, McDonalds.

Although Newcastle positions itself as a regional hub, retail alone cannot drive the local economy. But attempts to attract international investment are proving difficult.

“We have tried to target other countries, including the United States, Europe and India,” says Alberts. “But since the fall of communism, Europe is more interested in looking after its new Eastern neighbours.”

While the U.S. is only interested in investment for strategic reasons, and Newcastle has no oil. As for India and the Far East, their competition is hard and government incentives to attract investors have fallen away. Added to this, investors are now wary of South African labour legislation and the high crime rate.

Alberts considers the only solution to be government intervention. “The government must decide whether clothing is a key industry or not. It says it’s a key industry but provides no support for it. If nothing is done, in less than a year from now, 4 000 people could be out of jobs.”

Liu agrees. “The future of the South African manufacturing industry lies in the government determining a policy with regard to the way forward. What is the government’s view of the clothing industry? If it sees it as a vital industry and wants to save it it must step in and intervene. If it doesn’t then it must tell us.”

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