An assessment of the role of the textile and clothing industry in the South Africa economy
Mabeleng, Lerato Boitumelo
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The economy of any country, be it developed or developing, is constituted and based on the performance of three major economic sectors, namely the primary, secondary and tertiary sectors. The primary sector is mostly built on primary or natural resources and serves as the supplier to raw materials which are transformed into the semi-final and final products by the secondary sector. Thus, the secondary sector comprises industries whose role is the transformation of raw materials into a usable finished product. Contrary to both primary and secondary sectors that are tangible, the tertiary sector is naturally intangible, and it consists of the provision of various services that include technology, finance, and education. Although the global economy has been evolving from the primary sector to the tertiary sector through the secondary sector, each of these sectors is still playing its significant role in the social and economic development of countries. The secondary sector and its sub-sectors (industries) play an integral and significant role in support of national economic growth. The textile and clothing industry is one of the sub-sectors of the South African secondary sector that play an important role in both economic and social life. During recent decades, the South African manufacturing sector has been faced with serious challenges from both domestic and global constraints. These challenges include the volatile exchange rate, unbalance between imports and exports, high unemployment rate, global competition, output reduction, and negative repercussions of the 2008 global financial crisis. The aforementioned limitations impose adverse implications on the South African economy. Based on the above discussion, the main objective of this study was the assessment of the role of the textile and clothing industry in the South African economy. In support of the primary objective, the study set the following as empirical objectives: (i) to analyse the share of the South African textile and clothing industry towards economic growth and national income; (ii) to analyse the long-run relationships between employments, exports, real effective exchange rate and output of the textile and clothing industry on South African economic growth; (iii) to determine the short-run relationships between exports, employment, real effective exchange rate and output in the textile and clothing industry on South African economic growth; and (iv) to investigate the causal relationships between employment, exports, real effective exchange rate and output in the South African textile and clothing industry and economic growth in the country. Secondary time-series data from 1994 to 2018 acquired from the South African Reserve Bank and Quantec website were used to achieve the above mentioned empirical objectives. The data were analysed using different statistical and econometric approaches. These approaches comprise descriptive statistics, pairwise correlation, unit root, and stationarity tests, the autoregressive distributed lag (ARDL) model, error correction model (ECM), and the Toda-Yamamoto causality tests. The study findings indicated that the textile and clothing employment, gross value added, and exports and exchange rate are jointly significant to impact on long term behaviour of the South African economy. It was also found that each of the explanatory variables possesses a long term effect on the South African economy. Gross value-added and the exchange rate were found to have more effect on the South African economy compared to the other underlined variables taking into consideration the gravity of effects from the above variables towards economic growth. The results from the ECM analysis suggested that both employment and exports have a positive short term impact on the South African economy whilst the real effective exchange rate negatively impacts the economic short term improvement. Based on the empirical findings, with the aim of the South African economic improvement, the study recommended the promotion of both domestic and foreign direct investment policies; promotion of local firms and domestic markets; labour skills empowerment, innovation, and technology promotion; promotion of textile and clothing production model aiming at high-value markets and export-orientated products; and the introduction and implementation of textile-clothing recycling model. Some constraints accounted for in conducting this study include a limited data sample size, selection of most significant variables in the textile and clothing industry, and the time constraints. Thus, grounded on these limitations, future studies should consider more textile and clothing industry features that may influence the country’s economy; analyse the impact of textile and clothing industry on economic performance using data with low frequency (quarterly or monthly data); and lastly, apply an alternative approach to test the asymmetric effect of the textile and clothing industry on economic growth.