Transaction Costs and Clothing and Textile Trade in SADC

This working paper looks at clothing and textile trade in the Southern African Development Community (SADC). Clothing and textile production is important in terms of employment and development, and thus they have been priority sectors since the SADCC inception in 1980. Evidence of intra-regional trade is presented. The scope for increased trade is then discussed and transaction costs are examined as one of the major factors restricting this increased trade. The original aim of this paper was to use a transport model to calculate the optimal pattern of clothing, textiles and fibre trade within the SADC region. This has not proved feasible and thus this paper now examines the Southern African Customs Union’s (SACU) trade with SADC and identifies patterns and trends within a transaction cost economics framework. SACU’s total exports of textiles, fabrics and clothing to SADC underperformed between 1989 and 1998, in contrast to the import sector, which performed quite well during this period. Transaction costs are significant barriers to trade in the SADC region. The paper examines various transaction costs, including inland transport costs, shipping constraints, tariffs and non-tariff barriers and shows that trade liberalisation is an important policy mechanism of reducing transaction costs. The paper analyses various trade agreements that offer great potential for improving the trade environment in the SADC region.