The South African Textile Industry: Challenges and Opportunities

The full integration of the textile industry into GATT, which with some exceptions occurred on January 1, 2005, is likely to greatly impact the global textile and apparel industries. In particular,one prediction is that the South African industries are likely to be "decimated." The actual effect on these industries in an individual country will depend at least partly on the ability to take advantage of economies of scale and to be internationally competitive. In an endeavor to gain more insights into the future of these industries in South Africa, this study uses a cost function to investigate the presence of scale economies and the nature of input interrelationships. The findings include statistically significant economies of scale present in both industries and cross price elasticity estimates indicating that most inputs are substitutes for one another. The first result offers an opportunity to reduce unit costs, if these industries can grow their markets. However, lower prices on imported intermediate goods will likely decrease the demand for domestic inputs. The cross price elasticities of demand are relatively low in some cases, consistent with domestic input market rigidities and international trade restrictions. More recent data might bring findings of higher cross elasticities in the new international environment.