Greece knocks monetary union off SADC's agenda

20 August 2015

There was a telling moment of candour at this week’s annual Southern African Development Community (SADC) summit when South Africa’s Trade and Industry Minister Rob Davies acknowledged that the organisation had put the goal of a single regional currency by 2018 on the backburner because of developments in Greece.

The organisation’s ambitious economic integration strategy had once envisaged a customs union by 2010, monetary union by 2016 and a single currency by 2018. But SADC’s current Regional Indicative Strategic Development Plan emphasises industrialisation instead. Davies told the African News Agency (ANA) that ‘monetary union is something for the longer term and not now.’

‘The experience of the EU and Greece was about constructing a monetary union among countries with very divergent development, and not all with the same value in currency,’ he said. ‘You can see it is becoming unstuck in Europe and it is only being held together in Europe under very difficult conditions. People are getting bailouts, and who is going to do that in southern Africa where its levels of diversification are even higher?’ he asked.

That ambitious roadmap of integration towards monetary union and a single currency was for many years SADC’s guiding star, even though several critics at the time warned that it would be impossible to merge such diverse currencies as the then Zimbabwe dollar – as it plummeted into worthlessness – with the stable Botswana pula for example. Now, in a flash, the goal of a single currency is gone.

The new buzzword is ‘developmental regionalism’ – or integrating the region’s industries via the SADC Industrialisation Strategy and Roadmap, which was adopted by SADC leaders at a special summit in Harare in April this year. The theme of the Gaborone summit this week was ‘accelerating industrialisation of SADC economies through transformation of natural endowment and improved human capital’, which was about how to refine and advance that strategy.

The industrial strategy, as anyone who knows anything about SADC will not be surprised to hear, is a very ambitious plan which aims to raise the average GDP per capita of the region to US$17 000 by 2063 (from under US$2 000 now).

As the summit theme indicates, the main strategies for achieving that target are beneficiation of the region’s abundant natural resources – principally through agro-processing and adding value to minerals – as well as improving the skills of SADC member state workers and inserting regional economies into regional and global value chains.

But this is really still not much more than a vision, painted in very broad brush strokes, of where SADC would like the region to be in 2063 (a date chosen to coincide with the African Union’s Africa Agenda 2063).

It is a vision of the region when its members will have been transformed from low-income (with one or two exceptions) developing countries into middle or even high-income developed states. That will have been achieved by industrialisation, which will convert the region’s raw materials into finished goods or at least much higher-value intermediate goods to be exported into regional or global value chains.

That all sounds wonderful. But how to get there? As the Economic Diplomacy team at the SA Institute of International Affairs (SAIIA) notes in a recent paper, ‘The strategy remains more a vision document than a detailed action plan, and lacks specific proposals on how to achieve the broad goals the document sets out.’

To be fair, the strategy does include some proposals on how to achieve its ambitious targets. These include integrating industrial development zones in the member states, rationalising rules of origin in free trade regimes to allow production inputs from all SADC member states, pooling resources to establish regional research and development centres to help regional businesses climb the technology ladder, and giving employers tax breaks to re-train their workers for higher-tech production.

But most of its recommendations are in the stating-the-obvious and/or the wish-list categories.

The SADC policy document also raises fundamental questions about whether industrialisation can be achieved regionally at all. As the SAIIA paper notes, the industrial sectors of the 15 SADC member states are so diverse, that it is hard to see how they could integrate. That raises the possibility that about a decade or so from now, SADC might decide, as it decided with its single currency roadmap, to shelve an unworkable industrialisation strategy and for the same reason, that the SADC economies are just too different to work together.

Even the strategy document itself acknowledges that industrial strategy is primarily a national responsibility, although it believes that the region can also contribute collectively. It proposes greater regional integration, including integration of infrastructure and removing bureaucratic impediments to the flow of goods, services and people, as a key leg of the industrialisation strategy. And that makes a lot of sense.

Regional integration is supposed to be happening anyway, though, mainly through the Tripartite Free Trade Agreement that was launched in June. The agreement should join SADC, the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), into one free trade area.

However, as the first meeting of the South African Business Forum which took place on the margins of the summit noted, member states are still dragging their feet in actually implementing regional integration at the most basic level by removing non-tariff barriers to trade. The forum heard, for instance, that the corruption and incompetence at Beit Bridge, SADC’s busiest border post, are adding between US$400 and US$500 per truck per day to the costs of moving goods across the border.

The ‘neutering’ of the SADC Tribunal was another issue raised at the forum. Last year SADC leaders completed the process of divesting the Tribunal of its authority to hear cases brought by individuals or companies against their own governments. That was because it had offended Zimbabwe’s President Robert Mugabe by ruling that he had discriminated against white farmers by seizing their farms.

The SADC business leaders at the forum said disempowering the Tribunal had damaged investor confidence in the rule of law. They noted that some of the less-publicised cases that the Tribunal adjudicated when it had that power, were brought by investors who complained that their investments in other SADC states had been illegally seized. Revealingly, SADC leaders blithely stripped the Tribunal of this power, while adopting an industrial strategy that calls for improvement of the business climate to attract investment.

If SADC governments wish to industrialise the region, they should be focusing on improving the business climate, including by doing the unexciting, quotidian business of just improving concrete governance, which is after all, their prime job description.

The other elements of the industrial strategy venture into the much more controversial area for governments of trying to dictate to business how it should do its job – including picking winners; deciding which industries and products should succeed. South Africa has already witnessed the friction between government and mining houses caused by government’s attempts to compel them to beneficiate minerals locally, even if exporting them raw is more profitable.

In the world of global supply chains, which the SADC industrial strategy purports to be premised on, it surely no longer matters where value is added to raw materials. Geography is no longer destiny in this new world and a regional industrial strategy might just be an oxymoron.

Peter Fabricius is an ISS Consultant.

This article first appeared in ISS Weekly, an online newsletter of the Institute for Security Studies.