Trade pact impasse dampens Paramount Garments exports
FAILURE by the governments of Zimbabwe and South Africa to expedite resolving the Bilateral Trade Agreement (BTA) has seen one of the country’s leading textile firms, Paramount Garments’ export sales slumping by 25 percent, an official said.
Paramount Garments managing director Mr Jeremy Youmans told the Sunday News Business last week that failure by the company to effectively penetrate one of its lucrative export markets in South Africa had a drastic negative impact on its export business as well as other players in the clothing sector.
“Our exports were down 25 percent last year compared to the previous year. The main reason for this was the need to restrict orders to South Africa due to lack of competitive access to that market. The lack of action to resolve the Zimbabwe-South Africa Bilateral Trade Agreement by Government is severely restricting the ability of clothing companies to sell into the biggest market in our region,” he said.
The BTA between South Africa and Zimbabwe was terminated on 20 November 2018. The termination of the agreement affected certain imports from South Africa and exports from Zimbabwe to South Africa. South Africa opted for the Southern African Development Community (Sadc) Trade Protocol on Trade. The bilateral agreement in question favoured Zimbabwean exports of clothing and textiles due to relaxed rules of origin of “single transformation” compared to “double transformation” under the Sadc Trade Protocol on Trade.
The prior arrangement allowed local clothing makers to import fabrics from foreign markets, especially Asian suppliers such as China, India and Bangladesh, to produce finished clothing items, and then export to South Africa under favourable terms.
Under the Sadc protocol, however, there is the double-transformation rule, which requires that the fabric should be produced in Zimbabwe or within Sadc.
“This situation (BTA) alone is preventing job creation of more than 5 000 in the short term, let alone the immense value addition that would be created locally. Our Clothing Manufacturers Association has given all the input we can think of on the need, the value and the importance of dealing with the issue. While the finalisation of the agreement is still in limbo, South Africa have gone ahead and stopped administering it, a detrimental move to both countries,” said Mr Youmans.
Failure to resolve the BTA impasse has also hampered the company’s growth trajectory prospects.
“At this moment, we will struggle to grow significantly this year, without resolution to the BTA with South Africa and a more stable trading environment,” said Mr Youmans.
He also said the prevailing foreign currency shortage in the country was adversely affecting their operations.
“We still cannot get anything significant from the inter-bank market. While we export what we can, we are still a net importer and so need additional foreign currency. We lose 20 percent of what we earn, and can’t get some of that back from the market as we are told we are exporters,” exclaimed Mr Youmans.
Further to that he said the company had to bear additional production related costs such as electricity and water charges.
“We have to buy transformers for Zesa, even though we have to pay foreign currency for our electricity, as an exporter. Because of the cost of this, we are about to agree on a solar power installation, all of which take foreign currency. We were buying 100 000 litres a day of water to meet the Harare factory’s requirements. But I doubt these are peculiar to us. I think most companies have the same problems,” said Mr Youmans.
He said although the company was still grappling to keep its going concern status due to the unresolved BTA issue and an unstable trading environment it was in the process of exploring more export markets.
“We are making inroads into the regional market and want to try and develop the market in Europe. We have significant opportunities and could employ another 1 000 people but we are constrained by access to foreign capital to realise them,” said Mr Youmans.
Paramount Garments exports its textile products in the region, Sudan, Kenya and Germany. Last year the company also invested heavily in capital equipment for its leather factory at its apparel unit in Bulawayo, Archer
Clothing Manufacturers.
“We are progressively growing the leather factory. We have allocated a significant amount of extra space for it and imported more processing machines. We are also looking at further opportunities for developing this sector. We have been exporting our leather goods mostly to South Africa but we are now looking at Europe as well,” said Mr Youmans.