The New Economic Programme of the SADC: evaluating its prospects for success
The Southern African Development Community (SADC) is an inter-state organisation based in Gaborone, Botswana that pursues a comprehensive regional integration agenda through both socio-economic and political cooperation.
This year represents a turning point in the socio-economic programme of the Southern African Development Community. The launch of the Tripartite Free Trade Area and a pivotal overhaul in socio-economic integration strategy that sees new emphasis placed on industrialization make 2015 a seminal year in the evolution of the SADC. It also presents a choice opportunity to consider what problems the recent steps taken are intended to address, and evaluate their prospects for success.
Regional economic integration – characterised by the elimination of prohibitive trade barriers and the coordination of monetary and fiscal policies – is the development strategy adopted by the SADC to enhance economic growth. Integrating small economies contributes towards efficiencies in production and intraregional trade, encourages investment in infrastructure, and overcomes barriers to equitable, sustainable growth and development.
However, by 2012 – despite an overarching socio-economic policy roadmap with clearly defined norms, values, practices and objectives, and a harmonized and complementary, legally binding Protocol on trade liberalisation – intra-regional trade remained comparatively low and progress toward regional economic integration had all but stalled.
SADC Protocol on Trade (Protocol)
Signed in 1996, before the 2001 restructuring process, the Protocol was an early economic integration initiative aimed solely at liberalising intra-regional trade in goods and services. It requires member states endeavour to reduce tariff charges and remove customs procedures that hinder efficiency, and harmonise trade policies in accordance with international standards.
The Protocol was amended firstly in 2000 to align its objectives with the RISDP that was then in the late drafting stage, and further amended in 2007 and 2009 to overcome obstacles that had been encountered.
However, despite this being a legally binding document with a multilateral emphasis, several member states had actually renewed dormant or established new bilateral trade agreements [1]. Although publically committed to regional integration ideal, it appeared that many members lacked any real commitment to deepen and ensconce the process. This was the first of many problems.
The Regional Indicative Strategic Development Plan (RISDP)
Approved in 2001 and adopted in 2003, the RISDP represented the conceptual framework within which the SADC would pursue its socio-economic objectives. Designed to act as a roadmap for deepening economic integration, it provided member states with comprehensive economic development policies. It also affirmed commitment to good political, economic and corporate governance – seen as required by the Mission Statement of the SADC – as well as to democracy, participation in civil society, transparency and respect for rule of law.
It assigned priority to the following areas of intervention and cooperation, agreed upon as essential to regional integration:
A. Trade/Economic liberalisation and development
B. Infrastructure in support of regional integration
C. Peace and security in the region
D. Special programmes at a regional dimension: health; HIV/Aids and other communicable diseases; food, security and trans-boundary natural resources; gender equality, science; technology and innovation; and research and development.
Most notably, it charted a 15 year linear model of progression toward full regional economic integration demarcated by consecutive developmental milestones to be realised along the way: a free trade area (FTA) by 2008; customs union (CU) in 2010; common market in 2015; monetary union in 2016; and economic union with regional currency in 2018.
Problems with the Linear Progression Model of Integration
Free Trade Area
The regional FTA was officially launched in 2008 to meet its deadline. In reality, it only came into effect at the start of 2013, following a workable majority of the member states meeting the tariff phase-down commitments requires of them at the end of 2012 [2]. Even after the FTA came into effect though, substantial issues remained:
i) Malawi, Mozambique and Zimbabwe had all failed to reduce import quotas and tariffs on goods from South Africa. Tariff reduction on South African goods represented a significant loss of potential revenue these governments were reluctant to surrender.
ii) Trade in sugar, commonly viewed a ‘political good’ [3], was a source of disagreement. Disputes between sugar producing and sugar consuming SADC member states could not be resolved.
iii) Complicated rules of origin remained problematic, stemming largely from overlapping trade agreements and domestic concerns over particular industries – particularly textiles.
iv) Most significantly, certain products and goods fundamental to intra-regional trade – such as minerals and mineral products, vehicles, base metals, textiles, processed foodstuffs, and all animal products – were excluded from the tariff phase-down agreement, which severely restricted the FTA’s scope.
Customs Union
A CU is an FTA with a Common External Tariff (CET). On top of the issues that remained with the FTA discussed above, three major issues stood in the way of realising an SADC CU:
i) Loss of Revenue. Any proposed CET lower than a member state’s current tariff rate would represent an immediate, and in many cases substantial, loss of revenue. Madagascar and Lesotho, for example, depend on customs charges for upwards of 40% of their annual revenue [4].
ii) Loss of Sovereignty. Agreeing on and implementing a CET amounts to forfeiting autonomy over external trade policy. Given the region’s struggle for independence from colonial and white-minority rule, any threat to national sovereignty is, unsurprisingly, usually greeted with suspicion and hostility.
iii) Multiple Memberships. Many SADC members also belong to other regional trade blocs with similar integration ambitions. Tanzania, for example is also a member of the East Africa Community (EAC) and the Common Market of Eastern and Southern Africa (COMESA), whilst every member of the Southern Africa Customs Union (SACU) – an established CU with an implemented CET – is also a member of the SADC. This leads to a conflict of interest, compounds by several orders of magnitude the difficulty in agreeing on a CET, and directly undermines attempts at deeper regional integration.
Common Market, and beyond
A Common Market is a CU with harmonised regulation and free movement of factors of production – most notably, labour. Notwithstanding the numerous and insurmountable issues with earlier stages of integration, there was one key consideration that undercut the already implausible plausibility of the progression to a common market.
Given the enormous disparity in GDP, financial opportunity, and quality of living between member states, the establishment of a common market would inevitably lead to significant ‘brain drain’ to the most developed and prosperous nations, particularly South Africa [5].
In 2010, the Forced Migration Studies Program at the University of Witwatersrand in Johannesburg estimated that there are between 1 and 1.5 million Zimbabweans living, both legally and illegally, in South Africa [6]. Considering Zimbabwe is a country of 14 million, one need only glance at that figure to realise just how the free movement of labour – especially skilled and educated labour – could have a devastating effect on the majority of SADC members, who are more than aware of this.
The prospect of Monetary Union, let alone Regional Currency, in a region where the GDP (in 2010) differs from just over $400 billion (South Africa) to $1.9 billion (Malawi), and inflation figures range from 4 million (Zimbabwe) to less than 10 (South Africa and Botswana) [7] is so farfetched as to invite ridicule. Moreover, crises in the European Union cast a long shadow over the merit and sustainability of advanced economic integration blocs.
Summary of the Issues
The progression model of the RISDP was spectacularly overambitious and overlooked many fundamental characteristics of the region. This rendered it largely inoperable, although it enjoyed limited success in establishing an FTA in the region, this FTA was limited in scope and still riddled with issues. Moreover, and despite the FTA, intra-regional trade had not increased to nearly the level envisaged.
Further, prospects of progression to a CU were next to none, in part due to the unwillingness of countries to surrender autonomy and revenue, but largely due to the fact that many countries retained multiple memberships of regional blocs with similar, and thus conflicting, integration ambitions. The inclusion of a proposed full economic union with regional currency by 2018 cast grave doubt on the coherence of the RISDP itself.
It became increasingly evident that the RISDP was in need of a major rethink.
The New Direction
A new socio-economic trajectory for the SADC was decided on by the 34th Ordinary Summit of Heads of State and Government, which met in August 2014 in Victoria Falls, Zimbabwe, under the theme; “SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Value Addition and Beneficiation” [1].
SADC aspirations for economic integration have not been discarded. Rather, they have been scaled down to achievable objectives, which circumvent experienced obstacles and reflect continental ambitions and global trends. Regional economic transformation is now the priority – driven by accelerated industrial development, beneficiation of certain key production sectors, and amplified private sector involvement.
An Extra Ordinary Summit of Heads of State and Government, convened on 29th April 2015 in Harare, Zimbabwe, to operationalize the new SADC socio-economic trajectory. In the short term, the Summit approved and adopted the Revised Regional Indicative Strategic Development Plan (2015 – 2020) that will guide implementation of SADC socio-economic policy for the next five years.
In conjunction with the leaders of the East Africa Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA), the Tripartite Free Trade Area was launched on 10th June. This is hoped to boost trade across a wide swathe of the continent and overcome the issue of multiple memberships that had been a thorn in the side of all three organisations.
The Summit also approved the long term SADC Industrialisation Strategy and Roadmap, 2015 – 2063. This articulates a 48 year strategy that the SADC will implement to effect significant socio-economic structural change in the region and transform southern Africa into an empowered, fully modernised, innovation-driven region with high levels of growth, knowledge-based economies and a competitive global presence.
The Revised RISDP
In response to the findings of an Internal Desk Assessment conducted in 2011 by the Secretariat, evaluating the success or otherwise that the SADC had had in meeting the RISDP objectives from 2005-2010 [2], as well as the recommendations put forward in the Independent Mid-Term Review of 2012 carried out by the Zimbabwean based Trade and Development Studies (TRADES) and approved by the COM, the Summit requested that a revised RISDP be drafted.
The Vision and Mission of the revised RISDP remain the same; SADC member states remain committed to regional integration, sustainable development and the eradication of poverty. However, the revised RISDP reassigned priority to:
A. Industrial development and market integration
B. Infrastructure in support of regional integration
C. Peace and security in the region
D. Special programmes of regional dimension
Changes and amendments have been made to specific focus areas and strategic objectives within Priorities B, C and D. Most noteworthy is a realignment of Priority B focus areas with those of the Regional Infrastructure Development Master Plan (RIDMP) signed in 2012, a fifteen-year blueprint that guides cross-border infrastructure development initiatives in three stages until 2027. The new focus areas are energy, inter-regional transport, tourism, ICT, meteorology, climate and water [3].
The substantive change in tack, however, lies in Priority A – and the shift away from trade and economic liberalisation and a shift toward industrialisation within the wider market integration agenda. Responding to the obvious failure of the linear progression model of economic integration and the reluctance of many member states to surrender autonomy over trade policy, the SADC now sees industrial development as crucial to underwriting economic integration.
However, a switch in focus from trade policy to industrial policy carries risks of creating high cost production and even negative value added at world prices. It also creates incentives for exceptions to free trade principles.
Tripartite Free Trade Area (T-FTA)
Officially launched on 10th June 2015, the T-FTA amalgamates three major regional economic integration blocs – SADC, EAC and COMESA. The T-FTA covers an area of 17.3 million square kilometres [4] - roughly twice the size of the United States of America – and represents a market of more than 600 million people. It will include 26 countries, and account for 58% of the continent’s total GDP.
The potential benefits of the T-FTA are wide reaching and substantial. First, due to the sheer size of the area and the consequently vastly increased number of possible trading partners, intra-regional trade could be significantly increased. Second, by creating diverse inter-regional economic linkages, the T-FTA would present considerable domestic and foreign investment opportunities – contributing to wealth creation and economic growth. And third, the consequent employment opportunities would help combat poverty and empower currently impoverished nations.
The T-FTA represents a coordinated inter-regional effort to address the outstanding and previously intractable obstacle posed by multiple memberships. In this regard, leaders of the SADC, EAC and COMESA must be commended for their foresight and willingness to engage in positive initiatives of mutual benefit. If the T-FTA can be effectively consolidated, it will provide an abundance of opportunity for economic growth stimulation and sustainable trans-regional and inter-regional development. Moreover, it will act as a guiding light in the AU vision of a Continental Free Trade Area (CFTA).
However, many of the issues that faced the SADC FTA are relevant to the T-FTA. Rules of origin must be resolved and a tariff liberalisation schedule must be decided upon, both of which will require national governments to work proactively and unselfishly to harmonise current trade policy.
The SADC Industrialisation Strategy and Roadmap (Strategy)
Described as a ‘modernisation scheme’ [5], the Strategy is aimed at bringing SADC member state’s production and trade capacities in line with the developed world. It is anchored on three pillars, proposed to be mutually interdependent but individually fundamental to bolstering regional self-sufficiency in economic development:
I. Industrialisation as champion of economic and technological transformation
II. Competitiveness as an active process to move from comparative to competitive advantage
III. Regional integration and geography as the context for industrial development and economic prosperity [6].
Specific emphasis is placed on the need for beneficiation and the development of value added chains in agriculture and mining. Currently, SADC regional exports are dominated by raw or minimally processed products, especially agricultural and mineral products, which denies significant potential return value for the region’s natural resources. The SADC also experiences a worryingly low amount of intra-regional trade – currently only 17% of total SADC trade - despite the establishment of the SADC FTA.
It is hoped that establishing value added production chains – particularly agro-processing, minerals beneficiation and downstream processing, as well as encouraging cross border value chain development – will yield much higher value returns on exported goods then at present, accelerate industrialisation, create investment and employment opportunities and contribute to strengthening intra-regional trade.
An emphasis on beneficiation carries risk. The Harvard analysis of the South African economy regarded it as a bad idea, the reason being that it does not necessarily build naturally on to the existing industrial knowledge base.
The need for private sector involvement is also highlighted. It is thought that public-private-partnerships will drive technological innovation and overcome current constraints on business and employment. It is also hoped that involving the private sector in the long-term industrialisation process will foster the development of sophisticated business models, which will accelerate the process and contribute to competitive advantage. More immediately, outsourcing projects to private firms and organisations with attractive pull to foreign investors will contribute significantly to alleviating severely felt financial constraints that have, in the past, hindered or ever prevented project implementation.
Economic transformation is ‘road-mapped’ in a three-phase approach over the period from 2015 – 2063:
Phase 1) Factor Driven. Covers 2015 – 2020. Active frontloading of Industrialisation Development and Market Integration prioritised by the revised RISDP. Targeted average per capita annual income growth 6%. Targeted average GDP per capita $2000.
Phase 2) Investment Driven. Covers 2021 – 2050. Diversification of industry and enhancement of productivity and competitiveness. Targeted average per capita annual income growth 8%. Targeted average GDP per capita $9000.
Phase 3) Innovation Driven. Covers 2051 – 2063. Development of advanced technologies, emergence of knowledge-based economies characterised by service provision and increased business sophistication. Targeted average annual income growth 5% plus. Targeted average GDP per capita $17,000.
Phase schedule predictions like these should be taken with a grain of salt; they are attractive ways of representing desired, but often unrealistic, objectives. It is highly unlikely that the region will not still be heavily dependent on factor based production – i.e. unskilled low wage labour – for several decades, let alone fiver years. Developments such as these take time, and are moreover transitional; there will not be one single point where the region transforms from being factor driven to investment driven.
Furthermore, the ambition for a regional economy driven by innovation is ambiguous and, in this, misleading. The USA, Japan, South Africa and Botswana can all validly claim to have economies that, to greater or lesser extents, depend on innovation. However, whereas the former two countries are at the cutting edge of technological research and invention, the latter two have an abundance of sophisticated businesses as well as a sufficiently competent science sector that are able to work in conjunction to very quickly sign licensing agreements, adopt new technologies and develop them in domestic markets. It is extremely difficult to imagine that the SADC region will, even at some stage in the very distant future, rival the Silicon Valley or research institutes of Tokyo and Seoul in innovation and invention. However, aiming at bringing the rest of the SADC in line with South Africa and Botswana is an ambition that is probably achievable, and this should therefore have been explicitly acknowledged.
Conclusion
The changes affected by the SADC this year seem promising. A revision of the RISDP was badly needed and its new objectives seem feasible. Its long-term counterpart, the Strategy, also has potential to radically transform the region’s economies and end the current overreliance on raw product exports. And the T-FTA offers a seminal opportunity to both facilitate further SADC integration by ridding it of the obstacle posed by multiple memberships, and provide new and abundant wealth creation opportunities through establishing economic linkages with a large inter-regional area of the Continent.
However, there are potential dangers. First, the T-FTA will face many implementation issues. Some of these – such as rules of origin and tariff liberalisation – were already encountered in the SADC’s FTA. These could now be even more difficult to overcome, as the number of acting parties is much larger, and much more diverse, then before. Many more issues will no doubt present themselves in due course in the process.
Most significantly, focusing on rapid industrialisation to the extent that trade policy is subordinated to industrial policy, as the SADC has now done, carries with it the inherent potential for tendency toward import substitutionism. This is a form of economic protectionism and is retrograde; it leads to high cost production and isolates economies from the global market. The potential dangers of this are compounded, as import substitution is not without attraction – especially to political leaders. It thrives off nationalist sentiment. Moreover, it redistributes wealth from consumers to producers – and this gives rise to cronyism, patronage and corruption. In a region riddled with graft, this is a potential worry. Steps must be taken to ensure that the SADC industrialisation agenda is not pursued at the expense of export promotion.
Andrew Barlow is a Researcher at the Helen Suzman Foundation.
This is a consolidated and amended version of a series of HSF Briefs.
Annex:
