Drivers for Sustainable Industrialisation in SADC [EN]

The Southern African Development Community (SADC) held its 44th Ordinary Summit of the Heads of State and Government on the 17th August 2024, in Harare, Zimbabwe. The Summit was held under the theme Promoting Innovation to Unlock Opportunities for Sustained Economic Growth and Development Towards an Industrialised SADC which recognises that innovation is a fundamental instrument with significant potential to drive the priority sectors of manufacturing, mineral beneficiation and agro-processing to enhance industrialisation and economic growth in the SADC region. Under this theme, the Government of the Republic of Zimbabwe organised and hosted the 7th Annual SADC Industrialisation Week (SIW) and Exhibition in Harare, Zimbabwe, from 28 July to 2 August 2024 in collaboration with the SADC Secretariat, the SADC Business Council, and the Confederation of Zimbabwe Industries.

The SIW is the largest public-private platform and consultative body for industrialisation in the SADC region. It provides a platform on annual basis for SADC Member States, the private sector, international partners, policymakers, researchers, SMEs, financial institutions, and civil society to share experiences on driving industrialisation and economic transformation in the region. The week-long event featured seminars, meetings, workshops, a gala dinner, exhibitions, and site visits to some selected manufacturing facilities and industrial hubs in Zimbabwe. The key focus areas included mineral beneficiation, agro-processing, pharmaceuticals, infrastructure development, women and youth entrepreneurship, and African Continental Free Trade Area enterprises. The SIW brought together more than 2000 stakeholders from the 16 SADC Member States to create a platform for fruitful discussions on sustainable industrial innovation. It came at an opportune time as the Agreement Establishing the Tripartite Free Trade Area (TFTA) among the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and SADC entered into force on 25 July 2024.

As the region prepares for the 45^th Ordinary Summary to be held in Antananarivo, Madagascar, it is an apt time to reflect on the theme of the Zimbabwean chairpersonship of SADC – promoting innovation to unlock opportunities for sustained economic growth and development towards an Industrialised SADC. This theme elevates innovation is a means drive industrialisation and economic growth through manufacturing, mineral beneficiation, and agro-processing in SADC. The importance of innovation is often overlooked given that popular approaches emphasise competition as the source of innovation. Very often the popular argument is that competition for customers leads to innovations that gives people a competitive advantage. Although this may be true in certain social settings and cultural backgrounds, Africa is better served by an approach that would emphasise collaboration or cooperation as the source of innovation. Cooperation and collaboration are central to the African ethos and philosophy of ubuntu and this is reflected across the continent in different cultures.

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Drivers for Sustainable Industrialisation in SADC

In the context of innovation and industrialisation, there are various kinds of cooperation and collaboration required to enable commercialisation or mass-adoption of innovations which is necessary for innovation to underpin industrialisation and economic growth. These range from providing necessary resources for education and research, producing enabling legislation and support with high success in commercialising innovation, and a myriad of other considerations in the realm of regional integration to take advantage of opportunities across multiple SADC countries. This is a highly ambitious ask but it is a necessary reminder that should resonate throughout all the SADC entities and member states under the leadership of Zimbabwe.

The reality in many SADC countries with respect to education and skills is a major obstacle. Whilst the current drive of mostly public investment in infrastructure across SADC is commendable, there are structural constraints related to how this investment has been financed. Very often financing requirements and the norms in transacting and deal-making in infrastructure finance do not support development of local skills or industrial capacity. These practices are not reserved to “certain financiers” as some would have us believe. Very often even the most favourable (read: affordable) concessional funding comes with pernicious requirements or conditionalities related to engineering, procurement, and construction, which may be required to successfully deliver on the infrastructure investment. However, the reliance on foreign consultants for most of these services and the lack of insistence on some level of localisation is to be expected given the narrow priorities around profitability of the financing arrangement for the foreign financiers of infrastructure investment. A more sustainable approach would emphasise some level of localisation which may be necessary for resilience to various challenges, reducing environmental impact, and uninterrupted servicing of the debt used in infrastructure investment.

But this is never going to come from foreign funders and requires some lobbying on the part of SADC governments, either as their own endeavours or as conditionalities for funders in future. This is often a missed opportunity in public infrastructure investment in SADC and the rest of Africa. Making demands on localisation is important for the sustainability of projects, and development more broadly. Whilst there might not be room or appetite to negotiation terms that enable development of local skills in economic infrastructure investment, the converse of imperative for social infrastructure investment remains unattended. Localising skills required to maintain and operate requires localisation of certain aspects in the construction phases as well. This means that the excuse of limited or no local skills or private sector capacity to deliver the required infrastructure can only be resolved by making ambitious demands that don’t derail delivery but are sufficient to enable private sector investment to meet those capacity needs. This means that infrastructure development and planning should not end with the delivery of turn-key infrastructure. The true costs need to reflect the required investment in the skills and local manufacturing capacity to operate and maintain that turn-key infrastructure asset. Legislation and practice need to incorporate a maintenance culture as part of sustainability as well. The true costs rarely reflect the financial and environmental cost of depending on foreign skills and imported goods to operate and maintain newly delivered infrastructure. This will never be a substitute for the required investment in education and research which should always be a matter of domestic concern.

Resources for Education and Research

Investing in education and research is crucial for governments trying to build robust manufacturing and industrial capacity. Education provides the foundation for a skilled and adaptable workforce, equipped with the technical know-how and critical thinking abilities needed to drive innovation in manufacturing processes and industrial development. By prioritising quality education in science, technology, engineering, and mathematics, SADC governments can cultivate a pool of talent capable of advancing new technologies and improving productivity in industrial sectors. Investment in education is a necessary precondition for industrialisation and development in the same way fertilising soil is necessary to increase agricultural yields. Moreover, education fosters entrepreneurship and leadership skills, which are essential for creating dynamic businesses that can compete in global markets.

Research and development (R&D) serve as a bridge between education and practical applications, playing a pivotal role in driving technological advancements that can transform industries. When governments invest in research, they stimulate the creation of new products, materials, and processes that enhance the competitiveness of their manufacturing sectors. R&D activities enable countries to identify and develop specialised niches within global supply chains, improving their ability to produce higher-value-added goods. For instance, investment in research around renewable energy and materials science can enable countries to become leaders in the green economy, manufacturing products that meet the demands of a sustainable future. Essentially, SADC governments need to investment in R&D to enable local beneficiation as the foundation of local industrialisation. Generally, African countries will never be able to increase local value-addition or achieve local beneficiation without investing in education and research.

Furthermore, education and research directly contribute to the creation of innovation ecosystems, where industry, academia, and government collaborate to solve complex industrial challenges. Such ecosystems encourage the flow of knowledge between universities, research institutions, and businesses, fostering an environment where technological breakthroughs can be rapidly translated into industrial applications. This is especially important for developing countries seeking to diversify their economies and move up the value chain, as it allows them to reduce dependence on primary commodities and build resilience against external shocks.

In this regard, regional partnerships and networks present an important way to bridge gaps or deficits severely affecting one or several countries. At education and research are important enablers to cross-cultural interactions as well. Apart from the economic exchanges, cultural exchanges are just as important in promoting regional integration. Education and research partnerships and networks can also fuel the culture needed to ensure that innovations are commercialised. SADC governments need to change the public perception of social infrastructure or education being viewed as an afterthought. While the increasing shift towards public investment in education and other social sectors (healthcare, housing, water etc.) is commendable, social infrastructure investments needs to be afforded equal importance as governments do towards economic infrastructure. SADC governments need to encourage partnerships and networks promoting cross-country learning and exchanges as part of their strategies to invest in education and research.

There is also room to include targets for public spending on education and research in the SADC macroeconomic convergence criteria. The target would encourage SADC members states to prioritise education in recognition of the current regional theme and as a foundational requirement for sustainable economic growth and development towards an industrialised SADC. Investment in education and research has boundless benefits. In summary, strategic investments in education and research are fundamental for enabling manufacturing and industrial capacity. They lay the groundwork for a skilled workforce, drive technological innovation, and create an environment that supports continuous improvement and adaptation in the face of changing global trends. By prioritising these investments, governments can ensure long-term economic growth and enhance their global competitiveness.

Legislation and Support for Successful Commercialisation

Governments play a vital role in providing the legislative framework and support mechanisms that enable successful commercialisation, which is essential for attracting investment into manufacturing and the development of industrial capacity. A conducive regulatory environment is crucial to foster investor confidence, streamline business operations, and ensure that industrial activities can thrive. By developing clear policies on property rights, investment protections, and regulatory certainty, governments can minimise the risks associated with doing business, thus making the SADC region more attractive for both local and international investors.

The SADC Finance and Investment Protocol (FIP) plays a significant role in this regard. The FIP is legislation that aims to create certain regional norms or practices to encourage investment. However, there are still major gaps in how national legislation dovetail with regional protocols like the FIP. This is why an integration of national economies into regional value-chains is critical and why the value-chains lens should guide regional industrial and competition policy development in SADC. Signing protocols to encourage regional trade and investment by reducing transaction costs and create free trade areas has its role in regional integration. But nothing beats regional industrial policy and regional competition policy based on a clear understands of global and regional production value-chains. Such legislation also helps to create a level playing field, ensuring that businesses of all sizes can access opportunities within the manufacturing sector.

Support mechanisms, such as incentives for research and development, tax breaks, and targeted industrial policy initiatives, further enhance the attractiveness of the SADC region for investment. Governments that actively support the commercialisation of innovations, whether through subsidies, public-private partnerships, or direct funding, can bridge the gap between research and marketable products. This is particularly important in regions where access to private capital may be limited, and where early-stage innovations require financial backing to reach commercial viability. By facilitating the translation of research outputs into industrial products and processes, such support can accelerate the growth of emerging sectors like renewable energy, agro-processing, and pharmaceuticals, which are critical for the region’s long-term economic sustainability.

Moreover, governments can play a strategic role in building regional industrial value-chains through harmonised legislation that encourages cross-border trade and investment. In SADC, given that many countries have small domestic markets, regional integration is key to unlocking economies of scale that can attract investment into larger manufacturing projects. Legislation that simplifies customs procedures, reduces trade barriers, and supports standards harmonisation can encourage businesses to invest in regional production networks, allowing for more efficient supply chains and competitive manufacturing industries. Additionally, SADC governments can support initiatives like regional industrial parks and regional special economic zones (SEZs), which provide a focused environment with infrastructure, tax incentives, and business support services tailored to industrial needs. But regional industrial policy and regional competition policy needs to take an integrated approach that does not isolate industrial from its primary inputs or tertiary services linked to the entire value-chain. The size and location of some countries in SADC does not support the development of entire industries or value-chains within those countries. This is why industrialisation in SADC countries will always have a regional element with value-chains spread across multiple countries.

While it may be premature for SADC to establish a fully-fledged and unanimously adopted regional industrial policy, there is considerable work needed to integrate regional demands of existing legislation like the FIP into national policies beyond mere ratification and entry into force. The establishment of regional capacity within countries or at the SADC secretariat would fast-track this area of work. The long-term nature of industrial investments necessitates legislative support to provide investors with a level of certainty. For example, the SADC Summit took note of the entering into force of the Agreement Establishing the TFTA among COMESA, EAC and SADC on 25 July 2024, providing opportunities for SADC Member States to tap into an expanded market of 26 countries, a population of about 700 million and a GDP of USD 1 trillion. This is a tremendous opportunity that will only reach its potential through the integration of across all TFTA member states.

In essence, the provision of supportive legislation and commercialisation incentives by governments is critical for enabling investment in manufacturing and industrial capacity in the SADC region. It allows countries to attract and retain investment, transform innovative ideas into market-ready products, and build competitive industries that contribute to regional economic growth. With a well-designed policy framework, governments can create the conditions for dynamic industrial ecosystems that not only uplift local economies but also enhance the region’s position in global value chains.

Regional Integration: Opportunities Across SADC

Regional value-chain opportunities within SADC present a significant pathway for achieving sustainable economic growth and development, particularly in the drive towards an industrialised region. By focusing on integrated production and trade systems, SADC countries can capitalise on their diverse resources, varying comparative advantages, and geographic proximity to create competitive industries. This approach allows member states to contribute to different stages of production, thereby creating efficient and diversified value-chains that enhance regional industrialisation. This can lead to increased productivity, job creation, and a more balanced economic structure across the region.

One of the most promising regional value-chain opportunities in SADC lies in agro-processing. The region possesses vast agricultural resources, including fertile land, diverse climates, and a variety of crops. By developing cross-border agro-processing value chains, countries can transform raw agricultural produce into higher-value processed goods, such as food products, textiles, and biofuels. This not only helps in reducing the region’s dependence on raw material exports but also boosts food security and creates jobs in rural and urban areas. Strengthening agro-processing value chains requires investments in infrastructure like transport, storage, and processing facilities, as well as harmonised standards and trade policies to facilitate the movement of goods across borders.

The mining and mineral processing sectors also present critical regional value-chain opportunities. SADC is richly endowed with mineral resources, including critical minerals like lithium, cobalt, and nickel, which are essential for the global energy transition. By focusing on regional value addition—such as processing minerals into refined metals or manufacturing battery components—the region can move beyond raw material exports and position itself as a key player in the global supply chains of the green economy. Collaboration among SADC countries in developing processing facilities, sharing technology, and coordinating investments can significantly enhance the region’s capacity to capture more value within the mining sector, ultimately supporting industrialisation efforts and creating new avenues for economic growth.

Furthermore, renewable energy value-chains offer a strategic opportunity for SADC’s sustainable development. The region has abundant renewable energy resources, including solar, wind, and hydropower, that can be harnessed not only for energy security but also to support energy-intensive industries. Investing in regional energy projects, such as cross-border electricity grids through the Southern African Power Pool and other initiatives, and renewable energy technology manufacturing, can lower energy costs and provide reliable power for industrial activities. This would be particularly beneficial for manufacturing sectors like cement, steel, and chemicals, where reliable and affordable energy supply is crucial for competitiveness. A focus on regional energy value-chains would also help SADC countries to meet their climate goals while enhancing the overall resilience of their economies.

In summary, SADC’s regional value-chain opportunities, particularly in agro-processing, mining, and renewable energy, are key to enabling sustainable economic growth and fostering an industrialized region. By leveraging these opportunities through strategic investment, cross-border collaboration, and supportive policy frameworks, SADC countries can diversify their economies, create jobs, and build industries that are competitive on a global scale. This approach can lead to more inclusive development outcomes, ensuring that economic growth in the region is not only robust but also equitable and sustainable.

Review of Macroeconomic Convergence for 2024

The SADC macroeconomic convergence criteria aim to promote economic stability and harmonization across member states by targeting specific economic indicators. The criteria focus on inflation rates, fiscal deficits, debt-to-GDP ratios, and the stability of exchange rates. SADC’s criteria include maintaining inflation rates below 5% and fiscal deficits below 3% of GDP, alongside a public debt ratio of under 60% of GDP. In 2024, many SADC countries will continue to struggle with these benchmarks due to external debt pressures and subdued growth prospects. Inflation rates are expected to gradually stabilise, but the convergence to target levels may be uneven across the region as countries contend with varying fiscal constraints and external financing needs. This outlook highlights the need for continued regional collaboration and structural reforms to align with SADC’s convergence goals, focusing on fiscal discipline and managing external vulnerabilities to enable more resilient economic growth.

Inflation has been driven up by two major factors across SADC, namely, the higher cost of food inflation due to the El Niño-Southern Oscillation (ENSO) and other climate-related shocks affecting agricultural output and food supplies; and depreciation of local currencies. Six SADC member states declared a state of emergency due to the ENSO-induced severe drought. Botswana, Lesotho, Namibia, Malawi, Zambia, and Zimbabwe have a state of emergency due to an ENSO-induced drought, whilst ENSO-induced conditions have also caused heavy rains and flooding in parts of Madagascar, Mozambique, Malawi, and Zambia. The drought has led to a surge in displacement, disease outbreaks and food shortages, negatively impacting national economies. The severe impacts of the ENSO-induced drought are unfolding in a context of pre-existing vulnerabilities. Many parts of SADC have endured the worst mid-season dry spell in over 100 years, marred by the lowest mid-season rainfall in 40 years. These ENSO-induced weather events have led to widespread crop failure, water shortages and livestock deaths. More than half of the annual harvest has been destroyed, leading to rapidly depleting stocks, and increasing food prices. This has driven up inflation beyond the macroeconomic convergence ceiling of 5% in several SADC member states.

Figure 1: SADC Macroeconomic Convergence – Inflation (2023-2025)

The severe impact of ENSO-induced shocks on agricultural output has forced governments to provide emergency funding for relief and to support livelihoods. Some 61 million people across SADC need assistance, including 7.6 million in Zimbabwe, 6.6 million in Zambia, 6.1 million in Malawi, 2.8 million in Madagascar and 1.8 million in Mozambique. More than 20 million of these people are experiencing crisis-level hunger. Since 2000, climate-related disasters have caused an estimated USD 540 billion in loss and damage in the region, and such events are becoming more intense and frequent because of climate change. Regional cooperation and early action are key to addressing the challenges posed by the ENSO and other climate-related shocks on the African continent. As the impacts of El Niño persist, there is now a 60% likelihood of a transition to La Niña in the coming months. This cooling phase of ENSO could lead to drought conditions in Eastern Africa and heightened flood risks in Southern Africa, driving humanitarian partners to advocate for increased preparedness efforts. The United Nations Office for the Coordination of Humanitarian Affairs supported the launch of Flash Appeals in four ENSO-affected countries, including Malawi (USD 137 million), Zambia (USD 228 million), Zimbabwe (USD 429 million) and Mozambique (USD 222 million), with the aim of reaching a total of 14.5 million people in need. This a pittance in comparison to the funding gap which has driven a widening of fiscal deficits below the SADC macroeconomic convergence floor of -3% of GDP.

Figure 2: SADC Macroeconomic Convergence – Fiscal Balances (2023-2025)

The impact of the ENSO-induced climate shocks on agricultural output has had a compound effect on the agricultural commodity exporters in SADC. Firstly, lower agricultural output has led to higher inflation driven by the cost of food which has pushed central banks to raise interest rates in response to inflation. This has further raised the cost of borrowing including for SADC governments. Secondly, the lower agricultural has affected export earnings and the overall balance of payment in many SADC agricultural commodity exporters which has resulted in depreciation of local currencies. This has compounded the cost of debt-servicing for those SADC member states with stronger dependence on foreign denominated debt. Hence the wider fiscal deficits and gradually increasing public debt levels. Some SADC countries now have a much higher risk of debt distress and countries like Malawi, Mozambique and Mauritius may be right behind Zambia in the list of countries in actual distress. Many SADC governments are facing multiple challenges including slow economic growth resulting in their gradually weakening fiscal position and rising risk of debt distress.

Figure 3: SADC Macroeconomic Convergence – Public Debt (2023-2025)

ENSO-induced climate shocks, including severe droughts, unpredictable rainfall patterns, and intense flooding, are increasingly destabilising agricultural output across SADC. The current El Niño, for instance, has led to one of the worst droughts in decades, possibly even a century, triggering widespread crop failure, water shortages, and livestock deaths. This volatility undermines food security, exacerbates poverty, and places immense pressure on government resources for relief efforts. These climate impacts extend beyond agriculture, affecting the entire value chain and threatening industrial sectors like agro-processing, manufacturing, and mineral beneficiation, which are key pillars of SADC’s regional economic growth and industrialisation strategy. Diminished agricultural yields reduce raw material inputs for agro-processing industries, creating supply shortages, raising costs, and limiting productivity. These shocks challenge SADC’s pursuit of an industrialised economy that is resilient and inclusive.

The theme of the 44^th SADC Summit underscores innovation as a critical lever to address these challenges and drive economic resilience. Investing in climate-resilient innovations, such as drought-tolerant crops, smart irrigation systems, and early-warning climate risk tools, can help stabilise agricultural output, ensuring consistent supply for agro-industries and reducing economic losses linked to climate volatility. In addition, advancements in digital agriculture, data-driven decision-making, and remote sensing technologies enable farmers and industries to better adapt to changing weather patterns, enhancing productivity and food security. These innovations not only buffer agriculture from climate shocks but also lay a foundation for a stronger, more diversified industrial base by building reliable agricultural supply chains that are essential for agro-processing and manufacturing sectors.

Furthermore, innovation in renewable energy, resource-efficient production methods, and sustainable mining practices can accelerate industrialisation while reducing environmental impacts and promoting long-term growth. By leveraging innovation in climate adaptation and sustainable industrial practices, SADC can reduce dependency on resource-extractive industries and foster inclusive, climate-resilient economic development. Such an approach aligns with the broader vision of an industrialised SADC, where innovation-driven solutions power diversified economic growth, increase resilience to climate change, and unlock new opportunities for employment and income generation. In this way, innovation serves as both a defensive strategy against climate impacts and a proactive tool for sustainable industrialisation, enhancing SADC’s capacity to build a thriving, climate-adapted economy in the face of mounting environmental challenges.

PESA Regional Integration Monitor, Jan 2025

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