Restructuring and retrenchment
The textile industry in South Africa and Vietnam

The textile industry in developing countries provides a striking example of the opportunities and threats from globalisation. While textiles are a potential export to global markets, the industry is having to adjust to increased competition as tariffs and other restrictions against imports are reduced under policies of trade liberalisation. How does this affect local incomes and employment?

South Africa and Vietnam were chosen for a study by the University of East Anglia as they have undertaken rapid reform of their trade regimes. In South Africa the restructuring of the textile industry since the early 1990s has occurred under import liberalisation designed explicitly as shock treatment. In Vietnam restructuring has been in line with policies designed to reform the state-owned enterprises (SOEs) that produce nearly half of Vietnam’s textile output in order to make them more competitive against imports and as exporters.

Trade liberalisation in Vietnam has involved replacing quantitative import controls with tariffs, and removing administrative barriers to exports. Vietnam has developed its textile and garment exports while maintaining a higher degree of protection against imports than South Africa. Most Vietnamese textile exports are indirect, in the form of garments, while South Africa exports directly many industrial and home furnishing textiles.

Rising outputs

In the course of the 1990s, Vietnam’s textile output rose by almost 75 per cent while employment fell by nearly a third. Although textile exports rose over the same period in South Africa, output stagnated and employment fell sharply as a result of intense import competition, despite tariffs on textiles now still averaging over 10 per cent. As in Vietnam, job losses were caused in part by investment in less labour-intensive equipment, but in South Africa many firms simply went out of business. In both countries, however, garment employment rose by more than textile employment fell.

In Vietnam real wages have risen in most textile SOEs for those workers who remained employed. South African average real wages in textiles rose somewhat during the 1990s, probably as a result of employment losses mostly among lower waged employees.

Retrenchment

Working with teams at Witwatersrand University in South Africa and the Institute of Social Sciences in Ho Chi Minh City, the UEA conducted interviews with employed textile workers and with textile workers who had been retrenched recently. In Vietnam, although only 30 per cent had been able to find another formal sector job, the retrenched workers remained well above the official 2001 Vietnamese urban poverty line. This was achieved through a combination of informal sector earnings, early retirement pensions and retrenchment allowances, and support from other family members.

In South Africa the effects of retrenchment have been more severe. Workers reported difficulties in meeting their most basic needs such as food, housing and medicine. A crucial factor is the astonishingly high level of unemployment in South Africa – 30 per cent of the workforce – and the difficulties faced by retrenched workers in finding income earning opportunities even in the informal sector.

Policy implications include:

• The Vietnamese experience shows that exports can be developed while maintaining protection against imports, as has happened in China and other East Asian countries. However, in Vietnam exports depended on the state’s promoting and helping to finance far-reaching reform of state-owned producing enterprises, as well as attracting export-oriented direct foreign investment. It is unlikely such reform would have been undertaken by South African domestic enterprises without the spur of increased import competition.
• Making a textile industry competitive almost inevitably involves job losses, but an efficient textile industry can support job creation in garments as well as exporting its products directly.
• Even in a rapidly growing economy like Vietnam, social safety nets are important to support retrenched workers finding new jobs; and even more so in a slowly growing economy like South Africa.

John Thoburn
School of Development Studies
University of East Anglia
Norwich NR4 7TJ
UK

J.T.Thoburn@uea.ac.uk

Views expressed on these pages are not necessarily those of DFID, IDS, id21 or other contributing institutions. Copyright remains with the original authors but (unless stated otherwise) articles may be copied or quoted without restriction, provided id21 and originating author(s) and institution(s) are acknowledged. Copyright © 2005 id21. All rights reserved.