the Association of Southern African Development Community (SADC) Chambers of
Commerce and Industry
20 August 2007
New Partnership for Africa's Development (Nepad) and African business
opportunities; what are the challenges?
I wish to thank the Association of SADC Chambers of Commerce and Industry
for inviting me to address this very important conference on the topic Nepad
and African business opportunities; what are the challenges?
This conference takes place at a time when the African continent is
currently engaged in a deep and fundamental renewal process. The over-arching
objective of this process is to break the vicious cycle of political
instability, poverty, and underdevelopment, as well as Africa's weak capacity
to defend and advance her interests in the global arena.
In this regard, the key building blocks of this renaissance strategy are
increased political unity and concerted action through the African Union (AU),
and accelerated socio-economic transformation through the AU programme, The New
Partnership for Africa's Development (Nepad).
This twenty first century has been declared the African century, what we do
together to ensure that this century in reality become the African century. The
most recent Economic Report on Africa, published by the United Nations Economic
Commission for Africa in February 2007, states that, during 2006, growth in
Africa have increased. African economies continue to sustain the growth
momentum of previous years, recording an overall real Gross Domestic Products
(GDP) growth rate of 5,7% in 2006 compared to 5,3% in 2005 and 5,2% in
2004.
As many as 28 countries recorded improvements in growth in 2006, relative to
2005. Only Zimbabwe recorded a negative growth rate in 2006. The Report bases
Africa's growth performance in 2006, as in previous years, on the improvement
in macroeconomic management in many countries, and strong global demand for key
African export commodities, sustaining high export prices, especially for crude
oil, metals and minerals.
This conclusion is for Africa as a whole, if we disaggregate the statistics,
we found that despite the tremendous potential, for most African countries,
real growth rates have remained low relative to their development goals. With
only four countries recording an average real GDP growth rate of seven percent
or more during 1998 to 2006, few African countries are positioned to achieve
the Millennium Development Goals (MDGs) by 2015. Heavy dependence on primary
commodities remains a common feature of production, exports and growth in all
the sub-regions. This exposes the continent to external shocks and makes
economic diversification a top priority for growth policies on the
continent.
Compared to other regions, Africa continues to lag behind in all indicators
of social development. Measures of poverty have remained virtually unchanged
over the past decades. The average share of population below the poverty line
was 44% in 2002 compared to 44,6% in 1990; thus, one can hardly talk of any
progress in poverty reduction.
The Electronic Communications Act (ECA) report found that the majority of
African counties are dependent on oil and minerals or a limited range of
agricultural commodities such as tea, coffee, cotton and cocoa. Thus,
fluctuations in commodity prices have a significant impact on export revenue
and the exchange rate in these countries. This forces many African countries to
accumulate excessive foreign exchange reserves at high economic cost. A better
approach is to adopt a comprehensive (country-specific) strategy for prudential
regulation and capital controls that can minimise exchange rate risk while
allowing the countries to benefit from increased export revenue and foreign
direct investment (FDI) inflows.
The ECA report concludes in an upbeat fashion. Global demand for African
products; especially oil, minerals and agricultural is expected to remain
upbeat, but this is contingent on successful economic recovery in major
industrial countries and continued strong growth in emerging Asian economies,
especially China. Moreover, delivery of the promised aid and debt relief will
allow African countries to boost expenditures in key sectors including public
infrastructure and social services. Furthermore, consolidation of macroeconomic
management will not only reduce inflation in the short run, but also encourage
private investment and strengthen growth.
Many analysts have indicated that factors that are likely to hinder growth
in 2007 and subsequent years include lack of diversification of production and
exports and subsequent instability and vulnerability to shocks, and the
increasing spread of the HIV and AIDS pandemic, which undermines labour supply
and labour productivity. In addition, inefficient public infrastructure and
unreliable energy supply at the national level as well as poor integration of
transportation and energy network at the regional level will continue to
undermine productivity and international competitiveness. Moreover, higher oil
prices are a major concern for African countries, which need to continue to
control inflation, promote fiscal stability, improve current account positions,
and increase growth.
Africa countries need a new approach to growth policy
More than any time before, it is now understood that the general,
one-size-fits-all growth policies embedded in macroeconomic stabilisation and
second-generation reform programmes will not help African countries.
Increasingly accepted that programmes based on the Washington Consensus and the
neo-liberal paradigm are unsustainable. Besides achieving macroeconomic
stability, African countries need to tailor their fiscal and monetary policies
to promoting domestic investment, employment generation, and growth. Moreover,
it is necessary to identify binding constraints to growth as well as the
sources of growth potential at a disaggregated level, and design incentive
mechanisms to channel resources to sectors with the highest potential for
growth and employment generation. This demands the active involvement of a
developmental state.
The challenge confronting governments and the private sector is what we must
do together to successfully deal with the above identified challenges.
Chairperson,
Nepad is Africa's response to tackle our many challenges to enable us to
achieve fundamental socio-economic transformation.
As you are aware since the 1970s, Africa had been in the search for a policy
framework to guide a continental-wide and functional socio-economic
transformation that would enable them to place the continent on the path of
sustainable development. The adoption of Nepad in 2001 was the affirmation by
Africa of a shared vision, conviction and a pledge by Africa and its leaders to
eradicate poverty and to place African countries, both individually and
collectively, on a path of sustainable growth and development and thus halt the
marginalisation of Africa in the globalisation process. These objectives are
also aimed at achieving the Millennium Development Goals.
Nepad is a holistic, integrated sustainable development initiative primarily
established as an African rejuvenation plan that focuses on creating the
conditions for sustainable development, namely:
* peace, security, democracy and political governance
* economic and corporate governance
* regional integration.
Interlinked with these efforts to create conditions for investment, growth
and development, are initiatives to raise the necessary resources to address
the development chasm in critical sectors that are highlighted in the Programme
of Action, such as infrastructure, education, health, agriculture and ICT.
Resources should be mobilised by way of increasing savings and capital
inflows via further debt relief, increased targeted Overseas Development
Assistance (ODA) flows and private capital investment, as well as through
better management of public revenue and expenditure.
The underlying principles of Nepad are:
* Accountability: Nepad recognises the importance of good political,
economic and corporate governance in creating the conditions for development,
with African governments embracing greater accountability to their
constituents. Nepad also seeks to base Africa's partnership with the North on
mutual accountability.
* Ownership: Nepad is a long-term vision that is African led and owned.
Ownership should be promoted through broad and deep participation by all
sectors of society, and by tapping into indigenous knowledge/expertise to
define needs and solutions.
* Partnership: While Nepad is foremost a partnership between and amongst
Africans, it seeks to accelerate sustainable development in Africa through
partnerships with the South, and to forge a new partnership with the developed
North that changes the unequal relationship with Africa.
Although Nepad has had some critics thus far, it is likely to be more
successful than previous OAU compacts and strategies for a variety of
inter-related reasons.
1. Nepad is a Pan-African strategy that focuses on how Africa should relate
to globalisation. Globalisation cannot be ignored and how African countries
confront this reality, will determine much of their economic and developmental
future. Nepad provides a comprehensive framework to guide Africa's engagement
with this global process.
2. The fact that most AU countries have backed the Nepad vision, with its
wide-ranging proposals for political and economic reform, displays a level of
political cohesion and will that has, unfortunately, been lacking in many of
the previous OAU strategies.
3. The composition of both the Nepad Steering Committee and the Heads of State
and Government Implementation Committee ensures that leaders on the continent
remain seized with the Nepad agenda to eradicate poverty and achieve
sustainable development. Besides guaranteeing continued political commitment to
Nepad, this has placed its vision on the agenda of both African regional
organisations and member states.
4. General acceptance of the need for good governance (public and private
sector).
The Constitutive Act which established the African Union has interalia the
following principles relating to good governance, democracy and human
rights:
* promotion of gender equality
* respect for democratic principles, human rights, the rule of law and good
governance
* promotion of social justice to ensure balanced economic development
* respect for the sanctity of human life, condemnation and rejection of
impunity and political assassination, acts of terrorism and subversive
activities
* condemnation and rejection of unconstitutional changes of governments.
4.2. Another important initiative is the good governance initiative:
National Treasury is a member of the Collaborative Africa Budget Reform
Initiative (CABRI) CABRI is a pan-African network of senior government
officials in ministries of finance and planning. CABRI's primary objective is
to promote the importance of effective management of public finances to foster
economic growth and enhance service delivery for the improvement of living
standards of people living in Africa. The South African National Treasury
houses the CABRI Secretariat.
African Peer Review Mechanism (APRM)
The APRM is a unique African initiative that introduced an instrument for
monitoring compliance with the principles, priorities and objectives of the
Constitutive Act and other decisions of the AU. It provides a mechanism for
peer learning and the sharing of information and best practice. It has received
international acclaim and the first set of reviews has been completed in Ghana,
Rwanda, Kenya, Algeria and South Africa. Thus far, twenty-six countries have
acceded to the APRM.
The APRM process is addressing corruption, poor governance and inefficient
delivery of public goods and services to their citizens. The APR Panel agreed
that lessons learnt from the five reviews done should be discussed at a
workshop/brainstorming session in Algiers towards the end of October 2007.
1. The historic opportunity for the advanced countries of the world to enter
into a genuine partnership with Africa based on mutual interests and benefits,
shared commitment, under African leadership. Although some of the interest in
Nepad from the North emanates from normative concerns, for instance, the
historical involvement of the Scandinavian countries in Africa's economic
development and reconstruction programmes. Today, migration and the Chinese
factor; much of this interest derives from eminently pragmatic considerations.
The wealth being unlocked across the African continent provides a compelling
motivation for the industrial countries not to ignore the African
continent.
5.1 International support for Nepad
* adopted as a United Nations programme
* Group of Eight (G8)
* European Union (EU)
* China Africa Forum
* Tokyo International Conference on African Development (Ticad)
* New Asia Africa Strategic Partnership
* Africa South America Initiative
The challenge is, how to implement the various commitments and programmes.
The sad reality is that today, many of the developed countries lack the
political will to implement their commitments.
Chairperson, over the past four years, the activities of Nepad evolved from
the conceptualisation of frameworks for the actualisation of the new vision and
onwards to implementation strategies and action plans in the identified
priority areas. Consequently, sectoral frameworks and mechanisms now are
embedded in a 2004/07 Strategic Action Plan have been developed and are being
implemented on the programmes and projects in those priority areas. Such areas
include:
* the Comprehensive African Agriculture Development Programme
* the Short-Term Action Plan for Infrastructure Development
* the Science and Technology Consolidated Action Plan
* the Environment Plan
* the AU/Nepad Health Strategy
* the Education Action Plan
* the Tourism Action Plan
* standards and guidelines for the African Peer Review Mechanism
* the Africa Productive Capacity Initiative.
I will make available to the organisers a matrix document covering progress
and costing of key aspects of the priorities identified. It is important to
carefully study this matrix and identify areas for private sector
participation.
The conceptualisation and the rolling out of the programmes have taken
longer than expected because of the lack of capacity and expertise in all our
countries and in the Nepad Secretariat.
Nepad seeks to address poverty eradication, sustainable socio-economic
development and growth. The success of these programmes depends on
public-private partnerships.
The state of market integration in Southern Africa
In the earlier sessions, you discussed the importance of regional
integration. Let me; for the sake of emphasis again refer to some aspects of
this debate. We must discuss regional integration in the context of the debate
on an African government.
The AU held its ninth Ordinary Summit meeting in Accra, Ghana from 1 to 3
July 2007. The principal aim of the summit was to provide an opportunity to the
African leaders to engage in the "Grand Debate on the AU government".
The Accra Declaration is a collective decision of the African political
leaders on how to proceed with the question of African integration. It stated
that the African leaders who gathered in Ghana agreed to accelerate the
economic and political integration of the African continent including the
formation of a union government for Africa, with the ultimate objective of
creating the United States of Africa. To realise this objective, the leaders
agreed on the necessary steps that must be taken which include:
* The rationalisation, strengthening and harmonisation of the activities of
the Regional Economic Communities (RECs) in line with previous decisions of the
AU, with the RECs mandated also to work for regional political integration,
with these acting as building blocks in the advance towards the creation of the
United States of Africa.
* The conduct of an audit of the executive council, the AU Commission, as well
as the other organs of the AU in terms of Article 10 of the Constitutive
Act.
* The establishment of a Ministerial Committee that will examine a number of
matters including the identification of the possible mandate of the union
government and its relations with national governments, identification of
domains of competence and the impact of the establishment of the union
government on the sovereignty of Member States and the determination of the
relationship between the union government and the RECs.
The next Ordinary Session of the AU, in January 2008, will consider a report
on the implementation of the Accra Declaration.
Chairperson, as you have discussed the key driver for development and deeper
integration in Southern Africa over the next 15 years will be market
integration. This will encompass financial and capital markets integration and
the extension of intra and extra-regional trade. SADC's immediate goal is the
full implementation of the SADC Free Trade Area that is envisaged for 2008. The
legal instrument for achieving the Free Trade Area is the SADC Protocol on
Trade, which entered into force on 25 January 2000 after the required majority
of SADC member states, had ratified it.
When SADC member states started to implement the Trade Protocol in September
2000, some 45% of all goods traded in SADC were already traded at zero tariffs.
All member states implementing the Trade Protocol follow their individual
tariff phase-down schedules applying the asymmetry principle with Southern
African Customs Union (SACU) moving fastest and the other countries following
more slowly.
Some challenges
Some countries have respectively not made any offer or not signed the Trade
Protocol. As recent as 13 August 2007, Angola indicated that it was in the
midst of a tariff restructuring exercise and promised to make an offer to SADC
before the end of 2007. Other countries are behind in implementing tariff phase
downs due at this point; however, these four countries have indicated that they
are taking steps to implement these.
Also several countries have substantially 'backloaded' their tariff phase
downs and would be obliged to remove duties on a large number of tariff lines,
in some cases amounting to more than 50% of tariff lines in respect of SACU in
2008. It must also be appreciated that complicated Rules of Origin hamper the
use of the SADC Trade Protocol, and that, with the exception of trade with
SACU, a large portion of intra-regional trade was taking place in terms of
Common Market for East and Southern Africa (Comesa) arrangements or through
revived bilateral agreements. Agreement on simplifying the Rules of Origin for
a number of lines have been reached and all member states are committed to
resolving outstanding Rules of Origin issues by the end of the year.
It is encouraging to note that all SADC countries, including those who have
heavily 'backloaded', in August 2007 indicated that they were in a position to
meet all tariff phase down obligations under the Maseru Protocol by the time of
the next SADC Summit in August 2008. To this end, this Summit may be designated
as the date for the official launch of the SADC Free Trade Area.
If we analyse the regional trading pattern, we find that intra-regional
trade within Southern Africa 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 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. South Africa's exports increased from R215
billion in 2001 to R320 billion in 2005.
South African imports from SADC are increasing, but it is unsustainable that
commodities drive most of the growth. These products did not face tariffs
before 2000 and therefore, it is unlikely that their performance improved due
to the implementation of the SADC Trade Protocol. Another factor that explains
why the region has not responded to market access incentives is due to capacity
constraints.
It is in the interests of all our countries that intra-regional trade must
diversify faster and more manufactured goods should be making up a larger share
of overall trade in the region. Presently some increases in trade have occurred
in the textiles and clothing, and sugar sectors, where special trade
arrangements in these industry sectors opened up larger opportunities for trade
in the region. Other important industry groups include agro- and food
processing as well as processed base metals.
SADC priority intervention areas
Your discussions have shown that in relation to the SADC Regional Indicative
Strategic Development Programme (RISDP) priority intervention areas two
intervention areas are central to the overall process of economic development
integration, as follows:
* The first area is trade/economic liberalisation and development including,
among others, free movement of goods, services and factors of production, and
intra-regional investment and foreign direct investment.
* The second priority area is related to the development of efficient
infrastructure and services to facilitate the free movement of people, goods
and services across the region, which will be enhanced through interventions in
the following key areas: transport and communications, information
communications technology, energy, water and tourism.
Additional to the above two key priorities, SADC also has to deal with the
regional dimensions of emergencies such as HIV and AIDS, natural disasters and
food security. President Mbeki suggested that, within SADC, any programme to
promote greater trade integration in Southern Africa must be complemented by
programmes of sectoral co-operation based on a developmental agenda. To this
end, President Mbeki articulated the priority areas within SADC as follows:
* promotion of macro-economic convergence around agreed indicators
* progress in terms of infrastructure development co-operation programmes
spatial development initiatives and sectoral programmes
* achievement of some level of harmonisation of industrial development
strategies and competition policies, as called for in the SADC Trade
Protocol
* elaboration of a detailed and realistic activity matrix necessary to create
the SADC Free Trade Area, to include processes to achieve balanced, mutually
beneficial regional economic integration.
The challenge is how we achieve the development objectives. Some analysts
have identified a few objectives of the SADC Trade Protocol where progress has
been particularly slow, and where we should be paying more attention. This
would include:
* the simplification and harmonisation of trade documentation and customs
procedures
* liberalising the services sector
* the promotion of an open cross-border investment regime, thereby enhancing
economic development, diversification and industrialisation, including the
improvement of productive capacity and competitiveness of the region
* the harmonising of various trade facilitation arrangements as well as the
finalisation of the Protocol on Industrial Co-operation
* agreement on the protection of Intellectual Property Rights, in accordance
with the WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights
* the prohibition of unfair business practices; the promotion of competition
and the adoption of coherent trade development strategies.
Foreign Direct Investment [FDI]
Despite many initiatives taken by our countries, we have not attracted
sufficient FDI. South Africa as one of the strongest economic powers in Africa
has the historic responsibility, in context of our developmental agenda.
South Africa public and private investments are the fastest new growing
investments in Africa.
Botswana, Lesotho, Namibia and Swaziland have remained destination countries
for South African investment since 1994, whilst the rest of the SADC region has
become a logical place for expansion. Driven by our developmental agenda, a
defining characteristic of South African investment is its diversity: Foreign
direct investment has not been confined to natural resource extraction, but
also the industrial and services sectors. The following figures illustrate
South Africa's investment to SADC countries for the period 1994 to 2004:
Country: Rand (million)
* Angola: 1 766
* Botswana: 1 095
* Democratic Republic of Congo (DRC): 17 356
* Lesotho: 4 086
* Madagascar: 166
* Malawi: 2 276
* Mauritius: 187
* Mozambique: 20 069
* Namibia: 4 654
* Swaziland: 563
* Tanzania: 3 630
* Zambia: 2 217
* Zimbabwe: 3 351
* Total: 61 042
What is encouraging is the South African investment in infrastructure in
Southern Africa. Since South Africa's accession to SADC, South African
companies such as Spoornet and Eskom have played a major role in infrastructure
investment in the region. Both Spoornet and Eskom have a presence in eight SADC
member states. Eskom is furthermore involved in electricity supply to the
region through its participation in the Southern African Power Pool (SAPP).
South African Airways has code share agreements with various SADC airlines
and is keen to increase its African business. The Department of Public
Enterprises is in the process of developing a strategic framework for these
investments, to ensure that their developmental impact is enhanced.
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 Nepad and the SADC Regional Indicative Strategic
Development Plan. 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.
Chairperson, I am sure that we all agree that the critical challenge to meet
our Nepad objectives is the need for infrastructure development. In their study
'Infrastructure, Regional Integration and Growth in Sub-Saharan Africa', the
authors Benno Ndulu, Lolette Kritzinger-van Niekerk and Ritva Reinikka
recognise infrastructure and regional integration as two mechanisms that can
help foster stronger economic growth in Africa. They recognise the general
pattern in Africa that, since the mid-80s, the principle focus on development
has been more on improving health and education. In terms of international
donor support in the 1990s, support to human development for Africa increased
from 14% to 34%. This shift was accompanied by similar shifts in governments'
own expenditures. At the same time, private investment in infrastructure did
not materialise as initially expected. Consequently, infrastructure had not
received adequate attention in public policy and spending.
During the African Development Bank annual meetings in Ouagadougou in June
2006, it was agreed that Africa's infrastructure investment levels are far too
low to support the magnitude and character of growth and development that the
continent needs. Representing South Africa at the meetings, the Minister of
Finance, Mr Trevor Manuel, said that in correcting these imbalances by scaling
up investment in infrastructure, African governments must take responsibility
for driving their own development trajectories.
The South African Minister of Finance, Mr Manuel argued that 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. The responsibility for ensuring the rapid expansion of infrastructure
within SADC lies squarely with member states: government budgets will continue
to be the main drivers of infrastructure development. The domestic public
sector remains the dominant source of finance for infrastructure all over the
developing world. It accounts for 70% of current spending on infrastructure,
with the private sector accounting for somewhere between 20 and 25%, and
official development assistance for five to ten percent.
In Africa, private investment in infrastructure is a fraction of this
developing country average.
As a direct response to this reality, in July 2007 the Pan-African
Infrastructure Development Fund (PAIDF) was launched in Accra, within the
margins of the African Union Summit. The vision for the Fund is to create a
financing platform for infrastructure development that will accelerate Africa's
growth. The Fund estimates that over the next ten years at least US$150 billion
of infrastructure investment opportunities are expected to be created, due to
infrastructure demands in energy, water and sanitation, transport and
communication technology.
The Fund represents investment opportunities to African States and Private
investors in Africa and is structured to:
* offer a range of investment instruments to offer opportunities for African
pension fund portfolios to invest on the continent
* competitive instruments based on public-private infrastructure investments to
increase returns
* flexible long-term investment horizons
* the mitigation of risk at key levels
* an opportunity to participate in an initiative for Africa's post-colonial
reconstruction that will help to put in place the drivers for Africa's future
growth.
The PAIDF has this far mobilised close to US$625 million that will be used
to finance continental projects within the auspices of Nepad. South Africa,
Nigeria and Ghana have made firm commitments to the PAIDF and other African
governments have expressed interest in making contributions pending legislation
from their individual parliaments, allowing them to make the necessary
payments.
Linking local economic development to regional development programmes
A synergy and close interface need to be established between the approach of
Nepad (continental framework), and the RISDP (regional framework) on the one
hand, and the approach of national rural and urban development strategies.
In this process of finding an alignment between the local economic
development programmes and the regional development programmes, it is clear
that the private sector can play a valuable role in bridging the gap between
national and regional programmes. An example of such an activity is to
facilitate South African support to the RISDP within cross-border initiatives,
through the identification, planning and implementation of local economic
development programmes in collaboration with our neighbouring countries.
Conclusion
This whole process of regional integration as a foundation of Nepad is to
create a larger economic space where the private sector can operate without
obstacles. In recent years, the private sector has been drawn in to participate
in the development of policies and programmes for regional integration. Most of
the instruments that are adopted by the regional economic communities on the
Continent are only successfully implemented if the private sector reacts
positively to the market integration process.
What should be of concern to SADC is the lack of momentum-drivers regarding
the development of efficient infrastructure and services to facilitate the free
movement of people, goods and services across the region. This, in the same way
as the attainment of the roadmap mentioned above, falls primarily within the
ambit of member states.
While significant progress has been recorded in Nepad implementation, a
number of challenges still exist. These need to be resolved to make progress on
Nepad. Key challenges include:
* strengthening political leadership
* capacity building
* integration of Nepad priorities into national development programmes
* increase multi-country infrastructure projects
* widening APRM participation
* converting pledges by developed countries into concrete actions
* making ODA more effective.
Together, governments, the private sector and civil society can overcome
these challenges.
Thank you.
Issued by: Department of Foreign Affairs
20 August 2007
Source: Department of Foreign Affairs (http://www.dfa.gov.za)
