The first Covid-19 case was registered in Eswatini on 14 March 2020, with the number of positive patients growing daily over the next two months. Following WHO recommendations, the government enacted a partial lockdown on 26 March, which lasted for six weeks and included the temporary closure of non-essential business and productive activities, the closure of the country’s borders to foreigners, heightened screening measures for freight, the banning of non-essential internal travel, and the suspension of all commercial flights (Gardaworld 2020). The lockdown was partially relaxed on 8 May for productive activities, which enabled most non-essential manufacturing plants to resume activities under stringent health and safety measures and social distancing, including allowing only 50% of the workforce into the factory at any time. Some services (including retail clothing stores) were also allowed to reopen for up to three days a week (Worldaware 2020).
In the apparel sector, the concept of ‘essential production’ extends to cover the manufacture of PPE material and infant clothing, which enabled some manufacturers to produce and export these goods over the period of partial lockdown. After 8 May, however, most firms were open and exporting, though at lower capacity. Critical in this respect has been the relaxation of lockdown measures in South Africa, the main export market for Eswatini’s apparel. South Africa introduced a complete lockdown on 26 March, which included the closure of retail stores and borders, effectively stopping all imports with the exception of essential goods—for apparel this meant only PPE could be imported.Footnote 15 On 1 May, the South African government partially eased the lockdown, moving to Level 4 and enabling the trade and sale of infants’ wear, bedding and winter wear for adults. This move allowed Eswatini’s plants to resume exports. On 1 June, South Africa moved to Level 3, opening up the trade and sale of all clothing categories (Government of South Africa 2020).
As of July 2020, the situation for the country’s apparel export sector was critical, with three plants still closed and a large majority of manufacturers operating at about 50% of their capacity (ETATA, online, 5 June 2020). The situation has been further exacerbated by the heavy toll the lockdown has taken on South African apparel retailers, in particular Edcon, which officially filed for business rescue in April after failing to pay its suppliers for the previous two months (CNBC 2020). Before the Covid-19 outbreak, eight Eswatini apparel exporters were supplying Edcon (at varying volumes), exposing themselves to potentially permanent labour retrenchment and even closure.
The Impact of Covid-19 on Economic up- and Downgrading
In order to determine the impact of Covid-19 on economic up- and downgrading we first examine aggregate data for the Eswatini apparel export sector extrapolated from SRA customs data (Fig. 6). The total number of exporters in 2020 does not appear to have changed compared to previous years, but the number of businesses sourcing apparel from Eswatini dropped by about 34%. As a consequence, the data also show a 26% drop in the total number of transactions, i.e., orders. Whereas in the March–April period in 2017, 2018 and 2019 there were on average 2299 export transactions by apparel firms, the Eswatini Revenue Authority recorded only 1705 transactions in the same period of 2020. Regarding the destination of exports, we do not observe any major change, with South Africa remaining the main destination for 95% of the country’s exports. In terms of value, Eswatini exported an average of ZAR 461 million in the March–April period in 2017, 2018 and 2019. In 2020, however, this figure dropped by 46% to ZAR 249 million, reflecting the disruptive impact of Covid-19 on one of the country’s largest export sectors.
From the dataset, we further isolate suppliers that exported before and during the Covid-19 lockdown (i.e. suppliers that exported at least once in the 2017–19 period and once in the 2020 period). To further exclude small and occasional traders, we retain only observations for firms that exported at least ZAR 1 million worth of apparel over the 2017–19 period. This results in a sample of 18 suppliers. We then compute their average annual exported value, average log unit values, and number of exported products for the period before (2017–19 moving average) and during the lockdown (March–April 2020) period. In doing so, we separate the top six firms and the bottom 12, based on their share of exports in 2017–19 (Table 3, Appendix).Footnote 16 As noted previously, the top six firms are all large exporters directly contracted with South African retailers, whereas the remaining exporters operate mostly through design houses.Footnote 17
In terms of average exported value, both direct and indirect suppliers experienced a significant drop. For the latter, this drop averaged -35% compared to their yearly exports in the March–April period in 2017–19. For the former the drop was even greater, at − 42% compared to their exports in the years predating Covid-19.Footnote 18 When it comes to unit values, direct suppliers reported a marginal increase of 4.5%. Conversely, indirect suppliers suffered an average drop of 14% in March–April 2020 compared to the same period in 2017–19 (Fig. 7). Arguably, this evidence suggests that, while direct suppliers have reduced their total exports without dropping their overall unit costs, smaller CMT plants have engaged in cost-driven competition, dropping prices to retain orders. This conclusion is supported by the comments of the chair of the Eswatini Textile and Apparel Traders Association (ETATA), who is also the owner of a direct supplier: ‘We have been doing business for 15 years with this buyer and we have a good relationship. They work with us, they do not squeeze us. However, I observed that other companies that do business with those on the other side in Durban [design houses], they are being squeezed and buyers try to get them to sell the same products at lower prices. Other firms in ETATA complained about this’ (online, 4 June 2020). Furthermore, while none of the five direct suppliers that responded to our online questionnaire indicated any price reduction by buyers, the opposite is reported by two of three relatively small firms classified as indirect suppliers: ‘The buyer has reduced orders and prices, I am now working at a loss…This cannot continue’ (F1, Manzini, 12 July 2019).Footnote 19
Finally, the average number of exported products did not change for indirect suppliers. Conversely, direct suppliers considerably broadened their basket of products from an average of 9.5 to 13—an increase of 37% (Fig. 8). This is doubtless the consequence of some firms converting part of their work to the production of personal protective equipment (PPE). Four out of five direct suppliers introduced (or increased) PPE production for the domestic and (in two cases) the South African export market. As the manager of a direct supplier producing PPE reported: ‘We got an opportunity to get into producing PPE and face masks and that allowed us to keep working, first for the local market and recently also for export to South Africa, as our main buyer won a tender with the government there’ (F2, online, 6 June 2020).
Overall, we observe that the Covid-19 pandemic and the initial responses by the governments of Eswatini and South Africa translated into a loss of income for Eswatini’s apparel suppliers in terms of total sales and unit prices. Economic downgrading has therefore occurred. This has, however, been different across direct and indirect suppliers, with the latter experiencing a significantly more severe drop in unit prices. Furthermore, large direct suppliers have also differentiated their product basket significantly more than their counterparts, moving into the production of PPE equipment for the domestic and export markets.
Impact of Covid-19 on Social Up- and Downgrading, and the Role of Public Governance
Sectoral data on employment during and following the Covid-19 lockdown is not available. Based on information provided by employers during our fieldwork in 2019, we recorded a total of 21,768 workers for the sector, of which 18,000 were in permanent employment. This is very close to the figure of 22,000 directly employed workers provided by ETATA and the Eswatini Investment Promotion Agency (EIPA). Interviews with key stakeholders in 2020, as well as data provided in response to our online questionnaire, suggest that, as of July 2019, the entire workforce remained employed. But the hours worked and income earned had declined significantly.
Three relatively small indirect suppliers (with about 1000 employees in total) had not resumed operations since the beginning of the lockdown in March, and it is possible that these firms will close permanently, with the workers being retrenched. In June–July 2020, most of the other factories appeared to be operating at about 50% capacity, with the labour force split in half and working on rolling shifts (daily, weekly and fortnightly). Workers were paid only for the time they worked, so their income was about half of what they were earning at the start of 2020—i.e. machinists were earning ZAR 900–1000 a month (about US$52–59), significantly below the sector’s minimum wage and the country’s living wage.Footnote 20
As of July 2020, despite a pledge to support retrenched workers with ZAR 25–30 million, the government had not delivered on its promise. While workers in compliant apparel plants in neighbouring South Africa received full pay for the initial six week lockdown period through the Unemployment Insurance Fund (UIF), Eswatini managers and ATUSWA, the major trade union in the sector, complained of a complete lack of support from the Eswatini government (Government of South Africa 2020).Footnote 21 The General Secretary of ATUSWA stated: ‘Since the easing of the lockdown, most factories have re-opened and are working with 50% of the staff at factory and with social distancing measures. However, workers are being paid for the time worked only, effectively earning 50% of their normal wage’ (online, 5 June 2020). The Chair of ETATA, who currently represents the sector in the committee for the Post-Covid-19 Economy Recovery Plan, warned against the potential consequences of government inaction: ‘Look at what the South African government has been doing for the textile industry…We are trying hard to explain to the government how much this industry contributes to the Kingdom. I estimate that this crisis could translate into a permanent loss of 30–35% of the workforce if nothing is done’ (online, 4 June 2020).
Eswatini’s Employment Act provides for wage security. When starting a business, each employer must pay to government the equivalent of one month’s wage for each of its employees, which is held in a trust to pay employees if the firm endures financial hardships. However, payment of this security is at the discretion to the Labour Commissioner, who can exempt an employer from making the payment. According to a key informant, many of the apparel firms were given exemptions, leaving the trust almost empty: ‘We found that in fact very few apparel manufacturers had paid into the fund and to all intents and purposes there is no money available in this fund’.
A second source of funds that the government could tap into is the National Provident Fund (SNPF). Workers and employers must each contribute 5% of the gross weekly wage to the SNPF. Discussions between the government and employers about accessing some of these funds have been ongoing, with some employers having formally applied to lay off workers for the legal maximum of 14 days.Footnote 22 However, the amount being proposed would provide only ZAR 230 per month to each worker, which is well short of the amount needed to sustain a household. Crucially, ATUSWA has been largely ignored in the negotiations and, as reported by their general secretary, only three firms consulted (separately) with the union about lay-offs.
Factory managers are also critical of government over its lack of support for the sector and its general mismanagement of the crisis:
We as management and staff are fully aware of the dire consequences if utmost care is not taken proactively in combatting this dreaded disease… Sadly, our measures are not supported by the government, as during the whole Covid-19 the various ministries charged with this responsibility still remain absolutely silent and shone in their absence. Cases are on the rise and while everything is done by us to combat this disease infections are a real possibility and will have as consequence the shutdown of the factory with more lost production. (F3, online, 12 June 2020)
Employers, however, are not blameless. The Regulation of Wages (Textile and Apparel Industry), issued in terms of the Wages Act of 1964, provides that an employer may lay off workers without pay, for reasons or circumstances beyond his or her control, for a period of up to 14 days. At the end of this period the employer must either re-employ the workers in their original jobs or terminate their employment with notice. We were not told of any firms that had complied with this provision. Instead, workers were left in limbo, neither formally laid off nor retrenched, which meant that they did not receive wages or severance pay, nor could they apply for their provident fund benefits from the SNPF.
With the exception of Edcon, no other retailer has refused to pay for orders placed, in process or shipped. Furthermore, unlike design houses, no retailer has tried to renegotiate prices downwards: ‘They [buyers] have been paying on time, we cannot complain’ (F4, online, June 2020). This statement is echoed by all direct suppliers who responded to our questionnaire. Three direct suppliers further noted that retailers had provided them with some forms of financial assistance: ‘They assisted me with 80% payment for the staff while I was shut down. They asked me for a list of the staff, and they accepted to pay 80% while I was shut. They are also supporting me now by commissioning masks for South Africa’ (F5, online, 4 June 2020). Similarly, the manager of a large FOB direct supplier emphasised: ‘Fabric suppliers are [taking] two weeks longer than before and customers’ selling performance is not stable yet. Our main buyer gave us a loan of ZAR 5 million to buy fabric’ (F6, online, 12 June 2020) Importantly, therefore, we notice that private governance by South African retailers has provided some form of support to direct suppliers.