The June 2017 issue focuses on slow economic growth in major economies and its impact on the SADC region – What are the drivers and key role players in the SADC growth story? what is their foreign policy approach regional versus national? how do they influence African government and the regional economy? what is their developmental impact? what is the outlook given the currently slow economy growth? how will this impact African economies and the region?
An Overview of Slow Global Growth and its Impact on the SADC Region
The Southern African Development Community (SADC) has tremendous potential in terms of economic growth and trade for its member states. However, SADC countries are at different levels of economic development and there is a marked disparity in the relative sizes of their economies. These conditions undermine macroeconomic convergence, an important economic basis for regional integration.
For instance, the 15 SADC member states include Zimbabwe – currently facing severe domestic liquidity and production crises1 – while other members, such as Botswana and Mauritius, are economically stable, prospering middle-income countries. In addition, the regions production is heavily imbalanced by South Africa which is estimated to have contributed 40% of the regions total GDP in 20162 – down from an annual average of 53.5% for 2011 to 2015. These differences perpetuate unequal gains from intra-regional trade, which undermines regional industrialisation and the political basis for regional integration; making it difficult to reach consensus on regional matters. Nevertheless, the differences do foster inter-regional competition amongst like-ranks, and also provide an economic basis for redistribution of surplus capital, because larger economies like South Africa provide less returns due to slower growth.
There is an emerging set of players challenging the historical dominance of the South African economy, and reversing the economic disparities in SADC. These include Tanzania, Mozambique and Zambia which are all estimated to have grown by 7.2%, 4.5% and 3.0% respectively in 2016. In the medium-term, these “SADC emerging countries” are expected to grow at an average rate of 6.8%, 6.5% and 5.1% respectively from 2017 to 2021. But these countries have relatively small and underdeveloped economies, with strong reliance on commodity exports, making them vulnerable to commodity price fluctuations and cyclic exchange rate or foreign reserves’ crises. Therefore, despite their strong contribution towards SADC GDP growth, unless these countries can diversify their economies, it is unlikely that they will displace traditional SADC output and growth leaders such as South Africa and Angola.
With the exception of South Africa, labelled as an ‘emerging market’, all other SADC member states are classified as developing nations. This intensifies the regions reliance on major economies for economic growth, investment and export markets. Such reliance means that slower growth, isolationism and geopolitical uncertainty affecting traditional trading partners like the European Union and United States, will have a negative impact on SADC economies. In addition, SADC countries can expect less trade and infrastructure investment from China due to the country’s current macroeconomic rebalancing, slower growth and geopolitical concerns involving the US and North Korea.
Before China’s recent economic slowdown, the country had enjoyed an average real GDP growth rate of about 10% from 1979 until 20103. China was heavily reliant on export earnings, domestic savings and large government investment; which all declined after the 2008 financial crisis which originated in China’s largest export market, the US. China’s overreliance on export earnings exposed the economy to external shocks, which have led to slowed economic growth and a reduction in investment. Following the crisis, the Chinese government has focused on rebalancing the economy to be more reliant on domestic consumers rather than domestic investment and export earnings4.
This is bad news for SADC countries like Zambia which is reliant on China as a market for copper its exports5. These conditions are a contributing factor to the global commodity price slump. Lower commodity prices have affected export earnings, lowered foreign exchange reserves and destabilised the Zambian Kwacha, resulting in nominal depreciation of 39.4% against the US dollar in 2015 and 21.5% in 20166. Due to exchange rate volatility, Zambia’s debt-servicing costs have risen strongly, with interest payments estimated to have increased by 138.6% from ZMK757mn in 2014 to ZMK1.8bn in 20157. In 2017, interest payments on foreign debt are projected to increase by 33.6% (2016: 44.4%). This is in stark contrast to the growth rate of interest payments on domestic debt, which is projected to increase by 10.2% in 2017 (2016: 15.5%) – highlighting the impact of exchange rate depreciation.
Infrastructure investment and development is critical to achieving regional integration in the SADC region. SADC countries, like Angola, are heavily dependent on Chinese financing for infrastructure investment. Slowed economic growth, and reduced domestic and foreign investment by China, will have a significant negative impact on SADC infrastructure development.
Currently, China is the biggest donor toward infrastructure projects in SADC9. Continued slow growth could threaten funding for current and future infrastructure projects. Major SADC infrastructure projects funded by China include:
- The Dar Es Salaam-Bagamoyo transport corridor10, and
- The rehabilitation of the Bengula railway line in Angola11.
In addition to the effects of slowing growth in China, growing geopolitical uncertainty and isolationism will have a negative impact on SADC economic growth. Brexit will likely have a negative impact on trade, investment finance and development aid in SADC; particularly for small mono-crop economies like Malawi. The EU accounts for a third of Malawi’s exports and the country depends heavily on British donor aid which constitutes about 40% of its annual fiscal budget12. Although the UK accounts for only 4% of Malawi’s exports, or 10% of its total exports to the EU, Malawian exports could be affected should Brexit foster a contagion effect through the rest of the EU13. Moreover, a reduction in exports, and the impending reduction in donor aid, would result in further economic crisis in the already vulnerable Malawian economy. Malawi is currently struggling to recover from the 2015 drought, with limited fiscal space to support farmers through fertiliser subsidies and grow agricultural production, which has resulted in food insecurity for a sizable portion of its population and double-digit inflation, driven by food imports14.
South Africa’s diversified economy and dominance in the region makes it an important driver of regional development in SADC. South African economic growth has almost slowed to a halt, as the country faces falling investment, slow recovery from the 2015 drought and 2014 commodity price slump, and heightened political uncertainty15. A weakening South African economy is detrimental to the SADC region, as it is reliant on South Africa for access to international trade markets and manufactured imports. However, as the dominance of South African output in the region wanes, this may create the environment necessary for the rest of the region to “catch up”; thereby encouraging deeper regional integration. Furthermore, in light of prevailing global economic conditions, SADC countries are forced to rely more on intra-regional trade. The current regional imbalance amongst SADC member states is not sustainable however, and remains the primary obstacle to deeper regional integration.
1 RBZ 2017. ‘Press Statement on the Availability and Allocation of Foreign Exchange, KYC and CDD Requirements, Use of Plastic Money and Submission of Information by Producers Supported by Statutory Instrument’, Reserve Bank of Zimbabwe: Harare. Available At: http://www.rbz.co.zw/ [Last Accessed: 9 June 2017]; MFED 2016. ‘The 2017 National Budget Statement: Pushing Production Frontiers Across All Sectors of the Economy’, Ministry of Finance and Economic Development: Harare. Available At: http://www.zimtreasury.gov.zw/ [Last Accessed: 9 June 2017].
2 IMF 2017. World Economic Outlook Database, International Monetary Fund: Washington, D.C., Available At: https://www.imf.org/ [Last Accessed: 10 April 2017].
3 Igbinoba, E Dr., 2016. ‘China’s Economic Slowdown: Assessment and Implications for Africa’ The Centre for Chinese Studies at Stellenbosch University: Stellenbosch. Available At: http://www.ccs.org.za/ [Last Accessed: 29 April 2017].
4 Zhang, L., 2016. ‘Rebalancing in China – Progress and Prospects’ International Monetary Fund (IMF) Working Paper. Available At: https://www.imf.org/ [Last Accessed 30 April 2017].
5 Sibindina, D., 2017. Republic of Zambia: 42016/17’ Political Economy Southern Africa (PESA) Editorial. Available At: https://politicaleconomy.org.za/ [Date Accessed: 29 April 2017].
6 BoZ 2017. ‘Exchange Rates’, Bank of Zambia: Lusaka. Available At: http://www.boz.zm/ [Last Accessed: 10 May 2017].
7 IMF 2015. ‘Zambia: Staff Report for the 2015 Article IV Consultation’, International Monetary Fund: Washington, D.C. Available At: https://www.imf.org/ [Last Accessed: 10 May 2017].
8 IMF 2015. ibid.
9 Cisse, D Dr., Anthony, R Dr., Burgess, M., Esterhuyse, H., 2014. ‘African Regional Economic Communities’ Engagement with China’ The Centre for Chinese Studies at Stellenbosch University: Stellenbosch. Available At: http://www.ccs.org.za/ [Date Accessed: 25 March 2017].
10 Du Plessis, R., 2016. ‘China’s African Infrastructure Projects: A Tool in Reshaping Global Norms’ South African Institute of International Affairs: Johannesburg. Available At: http://www.saiia.org.za/ [Last Accessed: 6 April 2017].
11 Corkin, L., Burke, C., 2010. ‘China’s Interest and Activity in Arica’s Construction and Infrastructure Sectors’ The Centre for Chinese Studies: Stellenbosch. Available At: http://www.ccs.org.za/ [Last Accessed: 6 April 2017].
12-13 Gay, D., 2016. ‘The Impact of Brexit on the Least Developed Countries’ United Nations: Geneva. Available At: http://esango.un.org/ [Last Accessed: 5 April 2017].
14 Sibindina, D., 2017. ‘Republic of Malawi: April 1Q2017/18’ Political Economy Southern Africa (PESA) Editorial. Available At: https://politicaleconomy.org.za/ [Date Accessed 30 April 2017].
15 Biniza, S., 2017. ‘Republic of South Africa: April 1Q2017/18’ Political Economy Southern Africa (PESA) Editorial. Available At: https://politicaleconomy.org.za/ [Last Accessed 1 May 2017].
The Republic of Malawi
Malawi is a landlocked country, dependent on agriculture and external funding. The Malawian economy is relatively small, susceptible to external shocks, geopolitical instability, and extreme weather conditions, such as droughts and flooding. The Malawian government is currently faced with challenges of widespread poverty, underdevelopment, and an increased burden on the fiscus due to the adverse impacts of climate change and the need to support domestic food security. Economic growth declined from 5.7% in 2014 to 2.8% in 20151, and 2.9% in 2016 due to the 2015 drought, which affected agricultural output2. Delayed rains, persistent dry-spells, and depreciation of the Malawian Kwacha, as a result of poor agricultural export earnings, further contributed to Malawi’s plight3. This in turn led to increased levels of poverty, and a 12.4% fall in maize production resulted in food insecurity for approximately 17% of Malawi’s population in 2015/164.
Malawi is now faced with a new set of challenges as Britain withdraws from the European Union (EU). This process officially commenced on 29 March 2017, with the signing of the order to begin the two-year negotiations5. Malawi depends on development aid from the EU, with Britain as one of the most consistent and largest contributor to the European Development Fund (EDF) after Germany and France, reflected below6.
Brexit will inevitably result in the re-negotiation of Britain’s development assistance, which may become overregulated and unfavourable for Malawi. Britain may continue to provide development assistance to Malawi, but will likely come with increased pressure for transparency and accountability in assessing its usefulness and the manner in which the funds are disbursed. On the other hand, Brexit may allow Britain increased autonomy over its development assistance and bolster foreign direct investment into Malawi, and other developing nations8. Even so, Britain’s development assistance will be less influential than the sum of the EU’s pooled funding, but may be more effectively disbursed.
Britain’s absence from the EU’s developmental policy making will become increasingly noticeable, especially with regards to the EU’s Common Agricultural Policy (CAP). Although CAP is generous towards European farmers in its allocation of agricultural subsidies9, Britain is a long-standing activist lobbying for reform of this policy. Britain has argued that the CAP distorts market prices, making it more difficult for foreign farmers to compete fairly in the EU, which defeats the purpose of a ‘trade for development approach’. Furthermore, it grossly distorts the prices for consumers, wherein a significant 39% of the EU’s 2015 budget was awarded to CAP10. The CAP policy is deeply detrimental to an economy like Malawi, which is largely dependent on agriculture for trade, employment, revenue, and subsistence11. However, Malawi was among 34 African countries that received preferential trade agreements through the Generalised Scheme of Preferences (GSP) in 2014. The GSP is a response to CAP, which awards duty- and quota-free export access into the EU. As a result of the GSP, Malawi receives preferential treatment for its exports of tobacco, its primary export commodity, to the EU. However, re-negotiations of the GSP are being conducted due to imbalances and uncertain consequences of Brexit12. There is a marked difference in Malawi’s trade relationship with the EU, when compare to that of the UK. This may be attributed to established colonial ties between the UK and Malawi.
Malawi’s trade has been systematically decreasing. The country is currently maintaining a current account deficit as a result of declining exports, and an increased reliance on imports, due to poor agricultural output over the last three years14, as well as the depreciation of the Malawian Kwacha. In addition, Malawi has seen a decline in donor and investor finance due to the 2013 public financial management scandal, which raised concerns about officials’ accountability and disparaged donor confidence.
Nonetheless, Malawi has access to established trade links and bi-lateral or multi-lateral trade agreements to prolong its relations with the EU, such as the Cotonou Agreement which is effective until 2020. The agreement, signed on 23 June 2000 and revised on 25 June 200515, fosters a platform for political dialogue, sustainable development, international cooperation and trade. However, Malawi’s trade with the EU has declined from above 50% of total exports to below 40% since the signing of the Cotonou Agreement, this can be largely attributed to increased competition from other ACP recipient countries like Brazil16.
Considering the internal and external challenges Malawi has to overcome, its current economic conditions provide an opportunity to rebalance the Southern African Development Community (SADC) economies through macroeconomic convergence. Macroeconomic convergence is an important driver that can underpin deeper regional integration and broaden intraregional trade within SADC18. This includes the SADC Finance and Investment Protocol (FIP) assistance in leveraging Malawi’s central geographic location to exploit both Eastern and Southern African markets. This may require further investment into Malawi’s infrastructure, to form and tap into established trade corridors, logistics and production networks throughout the region. Additionally, the FIP process monitors achievements of SADC member states in terms of their public and national debt, inflation levels, and current account balance19. Even so, the continued success of macroeconomic convergence in SADC will rely on large economies like South Africa, sharing their industrial capacity with the region, to spread production and promote intraregional trade and competition. This in turn affords poorer countries an opportunity to exploit their comparative advantage within the REC, taking into account the structural and institutional weaknesses in SADC.
Ultimately, smaller SADC economies need to focus their efforts on integrating with the wider region in order to encourage macroeconomic convergence. The example of Greece in the EU provides an important lesson for the SADC region. It illustrates the negative consequences of macroeconomic divergence and uneven regional growth, which undermined progress achieved by the EU20.
1 AfDB 2017. ‘Malawi Economic Outlook’ in African Development Bank, viewed on 18 March 2017, from https://www.afdb.org/.
2 MFEPD 2016. ‘The 2016/17 Mid-Year Budget Review’, Ministry of Finance, Economic Planning and Development (MFEPD), Republic of Malawi: Lilongwe.
3-4 WB 2016. ‘Malawi Economic Monitor: Analysis Predicts Continued Weak Growth in 2016 Amid Low Agricultural Production’ in World Bank, viewed on23 March 2017, from http://worldbank.org/.
5 UK Government 2017. ‘Prime Minister’s Letter to Donald Tusk Triggering Article 50’, viewed on 13 May 2017, from https://gov.uk; UK Government 2017. ‘Oral Statement to Parliament: Prime Minister’s Commons Statement on Triggering Article 50’, viewed on 13 May 2017, from https://gov.uk.
6 AfDB 2017. ‘Malawi Economic Outlook’ in African Development Bank, viewed on 18 March2017, from http://afdb.org/.
7 EC 2014. ‘European Union Public Finance 5th Edition Budget’, in European Commission, viewed on 13 May 2017, from http://ec.europa.eu/.
8 ADB 2017. ibid.
9 EP 2017. ‘Financing of the CAP’, in European Parliament, viewed on 14 May 2017, from http://www.europarl.europa.eu/.
10 EC 2017a. ‘CAP Expenditure in the Total EU Expenditure ‘ in European Commission, viewed in 14 May 2017, from http://ec.europa.eu/.
11 EC 2017. ‘CAP in your Country’ in European Commission: Agriculture and Rural Development, viewed on 3 April 2017, from https://ec.europa.eu/.
12 EC 2012. ‘EU Publishes Revised Preferential Import Scheme for Developing Countries’ in European Commission: Trade, viewed on 25 April 2017, from https://trade.ec.europa.eu/.
13 UNCTAD 2017. UNCTAD Statistical Database, United Nations Conference on Trade and Development: Geneva, viewed on 10 April 2017, from http://unctadstat.unctad.org/.
14 UNCTADstat 2017. ibid.
15 ACP 2011. ‘ACP Countries to Negotiate as a Unified Entity with EU’ in African Caribbean Pacific, viewed on 3 April 2017, from http://www.acp.int/.
16 FAO 2017. ‘SUGAR: Policy Insights from Analysis of Sugar Sector Reform’, Food and Agricultural Organisation, viewed on 14 May 2017, from ftp://ftp.fao.org/.
17 UNCTAD 2017. ibid.
18 SADC 2012. ‘Macroeconomic Convergence’ in Southern African Development Community, viewed on 3 April 2017, from http://www.sadc.int/.
19 SADC 12. ibid.
20 ECB 2015. ‘Real Convergence in the Euro area: Evidence, Theory and Policy Implications’, in European Central Bank, viewed on 3 April 2017, from https://www.ecb.europa.eu/.
The recent global economic downturn has been largely driven by slow growth in major advanced and emerging economies, which has had a knock-on effect for developing countries. This downturn has been characterized by lower aggregate demand, falling commodity prices and high volatility in financial markets. Consequently, global growth slowed from 4.2% in 2011 to 3.1% in 2015, recovering slightly to 3.2% in 2016. Sub-Saharan Africa’s economic growth averaged 4.8% per annum between 2009 and 2015, and declined to 3.0% in 20161.
A number of SADC countries have also been affected by adverse weather conditions. The El Nino drought in particular has negatively impacted agricultural production across SADC. SADC agricultural exports grew by an annual average rate of 6.5% from 2009 to 20152, but declined by 12% in 2015 as a result of the drought. During 2016, the production of maize, the staple food consumed in the region, recorded a 10% decrease from 2015, and a 15% drop compared to the average maize production for the past 5 years. The most significant declines in production were reported in Lesotho (70%) and Swaziland (59%)3. Livestock were not spared from the drought, with livestock deaths recorded in Botswana (about 40 000), South Africa (over 200 000), Swaziland (over 63 000) and Zimbabwe (about 22 000) 4.
Climate change has led to severe food insecurity and affected vulnerable segments of the population. Approximately 70% of the rural population in SADC depend on agriculture for food, income and employment5. SADC governments such as Malawi, Zambia, Tanzania, Mozambique and Zimbabwe were forced to support their domestic agricultural sectors with fertiliser and other agricultural subsidies to improve food security. These governments have little fiscal space however, due to reduced government revenues caused by slow growth, lower agricultural exports and low commodity prices6. As Illustrated, in Table 3 below, DRC, Tanzania, Mozambique and Malawi recorded the highest share of agriculture value added as a percentage of GDP, respectively: 20.3%, 31.0%, 25.2% and 29.4% in 2015.
SADC agricultural exports are primarily dominated by semi-processed or unfinished products, indicating that value addition in these sectors remains low7. SADC agricultural imports from the rest of the world grew by an annual average rate of 6% from 2009 to 2014, but in 2015 food imports from the rest of the world declined by 19.1%8. The decline can be explained by weak national currencies within the SADC countries.
The depreciation of SADC national currencies and the poor crop harvest in the region contributed to food import inflation in the region, pushing food prices higher (Malawi’s inflation was estimated at 19% and Zambia’s at 21.3% in 2016). The decline in South Africa‘s maize production led to a rise in food prices in the region, causing a deficit in the regional market. While countries such as Lesotho, Zimbabwe, Swaziland and Mozambique heavily depend on maize imports from South Africa9.
The main cereal crops produced in SADC are maize, sorghum, millet, wheat and rice. SADC cereal crop production experienced a drop of 40.3 million tonnes to 38.2 million tonnes between the FY2014/15 and FY2015/1610.
It is important to note that most SADC countries still depend largely on raw commodity and mineral resource exports. Industrial output is dominated by mining, instead of manufacturing, which has left SADC’s agricultural sector untransformed. This is has made SADC economies vulnerable to external shocks and commodity market fluctuations, which deteriorate terms of trade and foreign exchange earnings. Therefore, it is imperative for SADC countries to transform their manufacturing sector in order to drive growth in agricultural production and output and move away from small-scale and vulnerable agricultural production. This would improve SADC economies’ terms of trade, diversify domestic economies, and stabilise foreign exchange earnings, by complementing commodity and agricultural exports with manufactured exports, which have less volatile markets and low elasticity of demand11.
Development and regional industrialisation in SADC should focus on diversifying domestic economies, encouraging regional value-chains and the development of regional production networks. This would allow member countries to capture more value addition and maximise competitiveness from regional and international trade. Low productivity, poor investment, constraints in the energy sector, policy changes and climate change, constitute the major challenges for SADC’s agricultural development, food security and intra-regional trade13. These challenges have added pressure to government budgets in countries such as Malawi, Mozambique, Swaziland, Zambia and Zimbabwe, that were the most vulnerable and affected by the 2015 drought14.
To overcome challenges in domestic policy coherence and limitations in domestic resource mobilization, SADC countries have established the Regional Indicative Strategic Development Plan (RISDP). The RISDP has set a common roadmap for the region to implement policies, and measures to stimulate sustainable agricultural development, food security and foster regional integration through the SADC Regional Agricultural Policy (RAP). The RAP is a binding instrument and a legal framework, underpinning agricultural development in the region. In addition, in July 2016, SADC member states adopted the Regional Agricultural Investment Plan (RAIP 2017-2022), which is the initial phase of implementing the agriculture component of the RISDP. The RAIP prioritises investment in areas where there is the highest local value addition; and focuses on improving productivity, competiveness, access to markets and trade of agricultural products16. Domestic resource mobilisation may remain an obstacle for SADC agricultural development, and so the regional approach may present the region with better prospects of mobilising international finance and capital.
1 IMF. 2016. World Economic Outlook: Too slow for Too Long. Washington, D.C. April. Available At: http://sadc.int [Last Accessed: 15 March 2017]; IMF.2016. Regional Economic Outlook: Sub-Saharan Africa. Time for a Policy Reset. Washington, D.C. April. Available At: http://www.img.org/ [Last Accessed: 15 March 2017].
2 See Figure 3.
3-4 SADC 2016. SADC Regional Vulnerability Assessment and Analysis Synthesis Report. State of Food Insecurity and Vulnerability in the Southern African Development Community. August. Available At: http://reliefweb.int/ [Last Accessed: 16 April 2017].
5 USAID 2017. Agriculture and Food Security. Available At: https://www.usaid.gov/ [Last Accessed: 25 March 2017]; Kanu, B.S., Salami, A.O, & Numasawa, K. 2014. Inclusive Growth. An imperative For African Agriculture. African Development Bank Group. Available At: https://www.afdb.org/ [Last Accessed: 20 March 2017].
6 ACB 2016. Farm Input Subsidy Programmes (FISPs): A Benefit for, or the Betrayal of, SADC’s Small Scale Farmers. Available At: https://acbio.org.za/ [Last Accessed: 28 April 2017]; SADC 2016. SADC Regional Situation Update on EI Niño-Induced Drought. Available At: https://www.sadc.int/ [Last Accessed: 18 April 2017].
7 SARDC 2015. Prospects for Industrial Transformation in SADC: Towards A Regional Strategy and Roadmap. Southern African Research and Documentation Centre. No1. Available At: http://www.sardc.net/ [Last Accessed: 25 March 2017]; Ngwawi, J. 2012. ‘Global Recession SADC Prepares.’ Southern Africa Today. Vol. 14(3). Available At: http://www.sardc.net/ [Last Accessed: 25 March 2017].
8 UNCTAD 2017. UNCTADstat Database, United Nations Conference on Trade and Development: Geneva. Available At: http://unctadstat.unctad.org/ [Last Accessed: 11 April 2017].
9 OECD 2016. Agricultural Outlook 2016-2025. Special focus: Sub-Saharan Africa. OECD publishing, Paris. Available At: http://dx.doi.org/ [Last Accessed: 24 April 2017]; WFP 2015. ‘Food & Nutrition Security Working Group’. Issue 1. Available At: http://reliefweb.int/ [Last Accessed: 11 May 2017]; WFP 2015. ‘Food & Nutrition Security Working Group. Special focus: El Nino Seasonal Forecast Oct 2015 to Mar 2016’. Issue 3. September. Available At: http://documents.wfp.org/ [Last accessed: 11 May 2017].
10 SADC 2016. ibid. ibid.
11 AfDB 2016. Feed Africa: Strategy For Agricultural Transformation in Africa 2016-2025. Available At: https://www.afdb.org/ [Last Accessed: March 2017].
12 UNCTAD 2017. ibid.
13 AfDB 2016. ibid.
14 SADC 2017. Regional Indicative Strategic Development Plan. Available At: http://www.sadc.int/ [Last Accessed: 26 March 2017]; NEPAD 2017. ‘Regional Agricultural Policy’, August 2014. Available At: http://www.nepad.org/ [Last Accessed: 3 April 2017].
15 WB 2017. Word Development Indicators, World Bank: Washington, D.C.. Available At: http://data.worldbank.org/ [Last Accessed: 11 April 2017].
16 SADC 2017. ibid.
Costed Action Plan for SADC Industrialisation
The Southern African Development Community (SADC) heads of state and government recently held the Extra-ordinary Summit. The Summit took place in Swaziland’s Lozitha Royal Palace from 6 to 18 March 2017. The summit approved the Costed Action Plan for the SADC Industrialisation Strategy and Roadmap 2015-20631. By approving the action plan, the summit has underscored the importance of high-impact investment, effective monitoring and reporting of regional development, and the role of the private sector in the implementation of the SADC Regional Industrialisation Strategy and Roadmap2. The plan’s approval provides an apt opportunity to evaluate the financial implications, potential benefit to the region, and challenges to be countered during implementation.
The action plan is an elaboration on the roadmap’s long term perspectives, and seeks to further articulate and align the roadmap to national, regional, and continental priorities and development plans. The roadmap includes a number of initiatives which encourage development of regional productive capacity, such as reduced non-tariff barriers to trade, and establishing an economic base to underpin deeper regional integration. Overall the roadmap emphasises the importance of technological and economic transformation of the SADC region through industrialisation, modernisation, skills development, science and technology, financial strengthening and deepening regional integration3. As such, the Costed Action Plan is necessary to bring the roadmap from strategic phase to implementation value.
For its first 15 years, the action plan looks at a budget of around USD 112 million, focusing on activities to be executed at regional level. Activities to benefit from this budget include industrialisation and market integration, and infrastructure development4. This is expected to improve regional infrastructure, in order to create an environment of opportunities and improved living standards for the population. While there are no objections to these goals, a clear outline on how the budget will be developed and spent in the first 15 years is required. The region has set itself a target to contribute at least 54% of its budget through some innovative fundraising mechanism in order to reduce reliance on foreign donors.
How the USD 112 million budget will be raised, and from where, are questions still to be addressed. The main domestic sources of finance identified so far includes tax revenues, capital markets, SADC development funds, remittances, institutional savings – including pension funds, and intra-regional foreign direct investment5. However, exploring these potential sources will require deep financial sector reforms, innovative mechanisms and effective frameworks to maximise and sustain the high level of resources necessary for industrialisation. Externally, sources of finance to complement domestic resources include donor aid, development finance, and foreign direct investment. These sources of funding and finance are largely contingent upon further policy and political interventions by member states. Moreover – with the exception of South Africa, which has a well-developed domestic capital market – this means the implementation of the action plan is heavily reliant on external finance, given the limited domestic resource mobilisation capacity of governments in the region. Hence the currently approved version of the Costed Action Plan is really more of “a plan to make a plan about implementation of the Roadmap” rather than a concrete action plan.
The “plan to make a plan” scenario is concerning, with the region facing criticism for slow policy implementation and adjustment in times of crisis. Additionally, some SADC member states are struggling to implement domestic policies to establish a conducive environment for external investment. Therefore, it is unlikely that the action plan will reach its financial potential, create an attractive regional investment environment, or be a significant success. However, its intentions can be commended as a display of political willingness to implement regional policies.
The SADC Summit requested member states to determine their national coordination costs, which needed to be incorporated in the Costed Action Plan6. The SADC Secretariat was therefore directed to support member states who may need assistance in determining national indicative public coordination costs for the Costed Action Plan. For this, member states need to be encouraged to prioritise the process, as delays can result from member states delaying the adjustment of their policies and fiscal operations to suit the plan. The process of incorporating the SADC Regional Industrialisation Strategy and Roadmap into national development plans, and articulating the roadmap through national budgets and medium-term expenditure frameworks needs to take priority.
1-2 SADC, 2017, Communiqué of the Extra Ordinary Summit of SADC Heads of State and Government, 18 march 2017, viewed 24 march 2017, from http://www.sadc.int/.
3 SADC 2015. ‘SADC Industrialization Strategy and Roadmap: 2015-2063’, Southern African Development Community: Gaborone. Available At: http://www.sadc.int/ [Last Accessed: 11 April 2017].
4 Towindo, S. 2017. ‘SADC nears Industrialisation’, The Sunday Mail, viewed on 18 May 2017, from https://www.pressreader.com/.
5 SADC 2015. ‘SADC Industrialisation Strategy and Roadmap 2015-2063 – Approved by Summit 29 April 2015’, viewed on 28 April 2017, from http://www.sadc.int/.
6 Hlangusemphi, P. 2017. ‘Post-Council Media Briefing 2/6’, 16 March 2017, Southern African Development Community, viewed on 19 May 2017, from http://www.sadc.int/.