T Manuel: SADC Integrated Committee of Ministers meeting

22 June 2006

The Challenges

1. The central challenge facing Southern African Development Community
(SADC) at this juncture is to strengthen the political and technical mechanisms
to drive the region's economic development and integration agenda. This
requires visionary leadership, political commitment and a well capacitated and
focussed secretariat.

2. In terms of the 1992 Treaty that established SADC, its central objectives
are:

* Promoting development, poverty reduction and economic growth through
regional integration.
* Consolidating, defending and maintaining democracy, peace, security and
stability.
* Promoting common political values and institutions which are democratic,
legitimate and effective.
* Strengthening of links among the people of the region.
* Mobilisation of regional and international private and public resources for
the development of the region.

3. While the political agenda has advanced, progress on the economic front
has been limited. This is evidenced by the fact that intra-regional trade
within SADC (as well as Africa's other regional economic communities), remains
low compared with non-Africa Regional Economic Communities (RECs) (European
Union (EU), Association of South East-Asian Nations (ASEAN), etc).

4. Obstacles to poor inter-regional trade within SADC (and other African
RECs) remain non-complementarily of domestic production, poor infrastructure
linkages, lack of enforcement of regional protocols, sovereignty, prohibitive
customs and border controls, and lack of international trade financing. The
status quo is therefore disintegrated markets and industries, where individual
SADC countries are constrained by the small size of their economies.

5. A further illustration of the paralysis of the economic integration
agenda is that the Finance and Investment Protocol which is central to resource
mobilisation, capital market deepening and macroeconomic convergence has not
yet been implemented. Indeed, a meeting of Finance Ministers to approve the
most recent version of the Protocol was abruptly cancelled in early June.

6. The key reason that the economic integration agenda has stalled, is that
most Member States do not see any concrete benefits from economic integration,
against the substantial cost of surrendering sovereignty. This is not unique to
SADC: the unwillingness of individual Member States to give up sovereignty for
a future of common good has been the central challenge to regional integration
agreements the world over.

7. This is exacerbated by the absence of appropriate decision-making
structures to drive economic integration, alongside inadequate technical
capacity. This has arisen because the decision taken by the SADC Summit in
March 2001 to restructure SADC's institutional framework has resulted in the
dismantling of sector coordinating units in Member States, without replacing
this capacity in the centralised technical structure located in the
Secretariat. Moreover, the decision to streamline SADC's decision-making
structures by creating an Integrated Committee of Ministers (ICM) resulted in
the exclusion of a number of Ministers that are keys to driving the economic
agenda, including Finance Ministers.

8. A further factor constraining the advancement of economic integration is
the fact that many Member States are members of other regional groupings.
Indeed, the rationalisation of RECs has been a central preoccupation of the AU.
The issue of how to rationalise membership across SADC, Common Market for
Eastern and Southern Africa (Comesa), South African Customs Union (SACU) and
the East African Community (EAC) is critical to securing political commitment
to the integration agenda.

9. A stark illustration of the challenges confronting SADC is that of the 27
protocols that have been crafted, only two (the Protocol on Trade and the
Amended Protocol on Trade) have been implemented, 18 have entered into force
but not been implemented and seven have not yet entered into force. This
highlights both the lack of political commitment to the economic integration
process and the lack of adequate technical capacity to implement it.

The Opportunities

10. SADC's economic integration and development agenda, which is articulated
in the Regional Indicative Strategic Development Plan (RISDP), has the
potential to substantially enhance the growth and development prospects of all
the Member States. The region has a total population of 210 million and a
combined gross domestic product (GDP) of about US$170 billion, making it the
largest market in Sub-Saharan Africa. Regional integration enhances the
prospects for accelerating the region's growth because it redresses the
constraints created by small and fragmented markets. Critically, despite the
malaise in implementing the economic integration agenda spelled out in the
Regional Indicative Strategic Development Programme (RISDP), trade and capital
flows have been increasing over the past decade.

11. Intra-regional trade was estimated at about 20% of total trade in 1997.
The overall figure for intra-regional trade stood at roughly 25% by 2003 and is
expected to increase further by the time the Free Trade Area (FTA) is fully
implemented. Member states' trade shares with SADC vary widely, from a low but
increasing 2.1% of overall trade for Mauritius to up to some 80% for Swaziland.
Malawi, Zambia and Zimbabwe trade 40% and 50% of their overall trade (imports
and exports) with SADC partners. Notably, intra-regional trade is diversifying
slowly but gradually, and more manufactured goods are now making up a larger
share of overall trade in the region.

12. Republic of South Africa’s total trade with SADC in absolute terms is
estimated at R38bn having increased over the last five years by 36 percent. The
country's trade balance by 2005 stands at R21,4 billion. South Africa's imports
from SADC have grown much faster at an annual average growth rate of 19 percent
over the past five years, while exports grew sluggishly by three percent.

13. As regards capital flows in the region, it is common cause that South
Africa accounts for a high proportion of Foreign Direct Investment (FDI) in
SADC countries. The data suggests that South Africa has been the primary
foreign investor in many SADC countries over the past 10 years, including
Botswana, the DRC, Lesotho, Malawi, Mozambique, Swaziland and Zambia. A
defining characteristic of South African investment is its diversity FDI has
not been confined to natural resource extraction but also the industrial and
services sectors.

14. South African State Owned Enterprises (SOEs) in particular Spoornet and
Eskom are playing a major role in infrastructure investment in the region. Both
Spoornet and Eskom have a presence in eight SADC countries. Eskom is
furthermore involved in electricity supply to the region through its
participation in the Southern African Power Pool. South African Airways has
code-share agreements with various SADC airlines and is looking to increase its
African business. The Department of Public Enterprises is currently developing
a strategic framework for these investments, to ensure that their developmental
impact is enhanced.

15. These private sector led elements of the integration process highlight
the fact that there is immense potential to drive the region's economic
development through the implementation of the Regional Indicative Strategic
Development Plan (RISDP). It will serve to enhance the developmental impact of
these flows of goods and capital, as well as mobilising additional resources
for development and removing the constraints to growth in the region.

Key Elements of an Economic Integration and Development Agenda

16. The central objective of the RISDP is deeper regional integration
through

* Peace and security
* Transparent and accountable governance
* The establishment of a Common Market.

17. The first two goals are regarded as pre-requisites, and are mainly dealt
with in the Strategic Indicative Programme for the Organ (SIPO). In terms of
the establishment of a Common Market, the following priorities have been
identified:

* development of a regional institutional capacity
* macro-economic convergence, including exchange rate alignment
* free flow of goods, services, capital and people
* financial integration
* delivery of regional public goods.

This contains elements of both shallow integration (i.e. removing barriers
to the movement of goods, capital and people) and deep integration (i.e.
harmonisation and alignment of policies). Both need to be pursued in tandem in
a manner that yields benefits to Member States.

18. It must be acknowledged that in many cases, the RISDP has unrealistic
targets. The specific target of a SADC Customs Union by 2010 needs to be
reviewed at the highest level and must be informed by the progress of
establishing the full FTA. Moreover, although SADC accepts the principle of
variable geometry, the pace of regional integration is determined by Member
States with the slowest pace of non-implementation. This negatively affects the
sequencing of RISDP timeframes, which reflects the expectation that all member
states would simultaneously attain the objectives of each stage, and preferably
as rapidly as possible within the timeframe accorded.

19. The key to developing the region is stronger and sustained economic
growth. This will create a positive environment in which other SADC reforms and
sector programmes would be politically more viable because of increasing public
revenue to invest in new sectors and projects. While some SADC countries have
experienced periods of accelerated economic growth, these have often not been
sustained and have had little positive spill-over effects on neighbouring
economies in the Southern African region.

20. Developing the capacities of SADC countries to trade is a critical
driver of growth. This requires more than just reducing tariff barriers. Better
coordination and cooperation will be needed to address supply-side constraints
and to identify new growth and integration opportunities in the region. Greater
economies of scale could be achieved by investing in institutional capacities
in areas such as customs and revenue capacities and compliance with product
standards in regional and global markets.

21. Investment in infrastructure is a priority for the region, because it is
an area of collective regional interest. Clearly, if an economically and
socially integrated region is to be built more resources need to be allocated
to economic infrastructure to link the countries of the region so that their
economies can become integrated.

22. During the African Development Bank (ADB) annual meetings in June this
year, South Africa argued that Africa' infrastructure investment levels are far
too low to support the magnitude and character of growth and development that
the continent needs. In correcting these imbalances by scaling up investment in
infrastructure, governments must take responsibility for driving their own
development trajectories.

23. There is substantial agreement that regional infrastructure in the form
of power pools, road corridors and communications networks are critical to the
support of growth and competitiveness, in achieving economies of scale and in
reducing costs.

24. Improved Infrastructure not only improves the living conditions of the
poor, but also reduces the costs of business, and further encourages business
to invest in productive assets. It enlarges markets. It is not surprising that
the poor of Africa perceive the isolation associated with the lack of
infrastructure to be the cause of their poverty and marginalisation. They say
it is too far from markets, too far from arable land, too far from hospitals
and clinics.

25. The responsibility for ensuring the rapid expansion of infrastructure
lies squarely with the state: the government budget will continue to be the
main driver of infrastructure development. The domestic public sector remains
the dominant source of finance for infrastructure all over the developing
world. It accounts for 70 percent of current spending on infrastructure, with
the private sector accounting for somewhere between 20 and 25 percent, and
official development assistance (ODA) for 5 to 10 percent. But that is a global
statistic; in Africa private investment in infrastructure is a fraction of this
developing country average.

The way forward

26. At this juncture in the region's political and economic development, the
imperative is to revitalise SADC's economic integration and development agenda.
The following essential elements are required to do this:

a. Political commitment at the highest level, which requires surrendering
some elements of sovereignty for a future of common good.
b. Adequate technical capacity to implement the economic integration
agenda.

Issued by: Department of Foreign Affairs
22 June 2006
Source: Department of Foreign Affairs (http://www.dfa.gov.za)