SPEAKING NOTES: Lesley Wentworth
South Africa and the regional economic integration agenda: Priorities and Perspectives
In considering South Africa’s current approach and commitment to regional integration it is
important to ponder the evolution of its relationships with its neighbours on the African continent.
Always an economic powerhouse in Africa, relations have been far from cordial between South
Africa and its continental peers for the most part of the past century. A brief historic reflection is
not out of place in this, South Africa’s twentieth year of democracy. No doubt, the transition from
apartheid to democratic rule that took place 20 years ago has had as far-reaching implications for
Sub-Saharan Africa as the collapse of communism in the former Soviet Union had on the Eastern
European bloc.
The Southern African Development Coordination Conference (SADCC) was established in 1980 under
the provisions of the Lusaka Declaration. Also in 1980, the OAU’s Lagos Plan of Action encouraged
the establishment of regional economic communities as building blocs for an eventual continental
economic union (the Abuja Treaty of 1991).
SADCC was, in essence, a political and defensive response by the Front line States - Angola,
Botswana, Lesotho, Mozambique, Tanzania, Zambia, Zimbabwe – to PW Botha’s grandiose
conception of the ‘Constellation of Southern African States’ (1979) in the region. SADCC in
contradiction to the constellation idea, wished to reduce economic dependence on South Africa
through infrastructure security –especially of transport and especially for the land-locked countries
in the region.
SADCC adopted a Programme of Action identifying activities and development projects to be
pursued and led by specific countries, e.g. Angola for energy, Mozambique for transport, and
Swaziland for human resources development. Unfortunately this has focused member states’
attention on the coordination of national development, rather than on a regional economic strategy.
The transformation of SADCC into the Southern African Development Community (SADC) through
the 1992 Windhoek Treaty was obviously much more focused on economic issues than the politicalsecurity considerations underpinning the SADCC. Economic globalisation and liberalisation increased
the proliferation of RECs and the rise of global value chains played a major part in the decision to
transform SADC into a REC that would move up the continuum from regional cooperation to regional
integration.
Shortly after joining SADC, South Africa was charged with the responsibility for coordination of the
Finance and Investment sector (as well as the Health sector). South Africa has the most sophisticated
and deepest financial and capital markets on the continent. At the end of the 1990s, the country led
the development of the Protocol on Finance and Investment (FIP) and has also been providing key
consultation and advice on the development of the Model SADC BIT – despite the centralisation of
all functions and responsibilities (including finance and investment) within the SADC Secretariat in
Gaborone.
South Africa has committed to the Regional Indicative Strategic Development Plan (RISDP) which is
the SADC Blueprint for regional integration and development. This has been under review since 2011
with this process being finalised earlier this year. Most of the integration targets set out in the RISDP
have been delayed and are largely considered unrealistic. This means that the monetary union
expected in 2016 and the single currency in 2018 - will most likely not happen on time. Nonetheless,
important progress is being registered. With respect to financial integration, nine countries are now
live on the SADC Integrated Regional Electronic Settlement System also known as SIRESS (or the
SADC payment system). These countries are Lesotho, Swaziland, South Africa, Namibia, Malawi,
Tanzania, Zambia, Zimbabwe and Mauritius. It is expected that DR Congo will go live soon bringing
the number to 10. The next round of countries to go live will be sometime in the first quarter of
2015.
SIRESS is an automated, real time gross, cross-border settlement system for SADC. Currently SIRESS
is processing high value transactions. The environment will soon also be able to accommodate low
values; for example, EFTs. This payment system consists of a set of instruments, banking procedures
and interbank fund transfer mechanisms that ensure the circulation of money regionally in SADC and
worldwide.
Monetary and financial integration is a complex set of processes from collaboration to co-operation,
to unified financial market codes, markets and services and regional financial integration RFI is
considered to benefit regional member states since:
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It provides incentive for domestic reforms.
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It increases economies of scale in operation and competition.
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It promotes foreign direct investment.
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It allows local financial services institutions to grow regionally, continentally and globally.
Again, South Africa’s skilled and experienced central bank authorities and the large commercial
banks have played a significant role in galvanising support for this important initiative in the region.
Yes, it certainly underlines South Africa’s undeniable influence. This is probably the most
pronounced economic reality in SADC– that South Africa is the economic hegemon in the region –
perhaps a reluctant hegemon, but no doubt as only African G20 member, BRICS member, is an
influential actor in regional and international geo-politics. It is by far the region’s most industrialised
member.
In Africa: No country plays a bigger role than South Africa in shaping the continent’s economic
future. Accounting for a quarter of Africa’s gross domestic product (GDP), it is the dominant market
on the continent. It also serves as the gateway to a dozen neighbouring nations with a collective
population of 160-million, altogether accounting for more than 40% of Africa’s GDP.
In SADC: South Africa dominates the region economically, accounting for 60 percent of SADC's total
trade and about 70 percent of SADC's GDP - so clearly it has a critical role to play in regional
integration. In addition, South Africa is the only country in southern Africa that has the requisite
economic capability and levels of diversification that are required to drive economic integration in a
manner that is mutually beneficial.
And the attention it receives on the global front does help to amplify the region’s issues, challenges
and potential …
Moreover, there is South Africa’s perceived obligation towards African countries, including Tanzania,
Zambia, Mozambique, Zimbabwe, Guinea and even the smaller kingdoms of Lesotho and Swaziland
for providing support to the anti-apartheid movement, and refuge to anti-apartheid activists
The first democratic administrations of Nelson Mandela and Thabo Mbeki (between 1994 and 2008)
in essence defined South Africa’s character as a new democracy. While President Mandela
emphasised the promotion of human rights in Africa and South Africa's role in this, President Mbeki
focused on the pan-Africanist vision of the African renaissance. Since 1994, South Africa has
prioritised strengthening SADC -and regional integration, giving support to the spirit and
embodiment of the RISDP. It has sought to nurture regional integration at three levels:
 the Southern African Customs Union (SACU)
 Southern African Development Community (SADC) and
 the Tripartite Free Trade Area (TFTA) -- between the Common Market for Eastern
and Southern Africa (COMESA), the East African Community (EAC) and SADC.
SACU
SACU provides the best example of the difficulty of South Africa’s hegemonic position due to the
contrast between its history of regional destabilisation and its repositioning post-apartheid. The
customs union was created in 1910 to make customs administration in the British territories and
protectorates in Southern Africa easier to manage – thus a convenience for the colonial
administration of the time, rather than a tool for economic development. Common customs policy
was dictated from Pretoria and the free internal trade facilitated the dominance of South African
industry within the union. The apartheid government’s import-substituting protectionism
was designed to stimulate industrialisation in South Africa – but this was at the expense of the other
country’s industrial development. As a result, compensatory payments were made to Botswana,
Lesotho, Swaziland, and Namibia (BLNS) as recompense for the trade diverting effects of South
Africa’s protectionist tariff structure.
There was a political imperative to securing the BLNS’ participation in SACU because of South
Africa’s isolation during apartheid. This resulted in over-compensation in the updated SACU revenue
sharing agreement of 1969.
A post-apartheid South Africa renegotiated SACU’s revenue sharing agreement in 2002 by which
time the BLNS were heavily dependent on the customs revenue to fund their fiscal operations.
Despite the 2002 agreement being far more democratic and developmental, it still involved the
redistribution of a large portion of South Africa’ customs revenue to the smaller states. With the
strain on South Africa’s fiscal budget after the global financial crisis and the growing levels of South
Africa’s public debt, there have been calls from many quarters within South Africa to reclaim much
of the customs revenue which is currently distributed to BLNS. However, the smaller SACU members
are adamant that this redistribution is necessary to compensate them for the preferential access
South African companies have had to their markets, particularly during South Africa’s colonial and
apartheid eras.
Implicit in this debate is the difficulty for contemporary South Africa to choose between protecting
its own economic interests, and being the benevolent hegemon. South Africa has threatened to
withdraw from SACU when Botswana established a national tariff body threatening South Africa’s
ability to set tariff policy, and with BLNS negotiations on EU economic partnership agreements
threatening to flood the South African market with cheap EU products.
However, the reliance of BLNS on SACU fiscal revenue makes dissolution of the union unthinkable –
Botswana, and possibly Namibia may survive a painful tax overhaul, but the small Kingdoms of
Swaziland and Lesotho would not. Notwithstanding, the current revenue sharing arrangement is not
sustainable and renegotiating this formula remains an imperative
The 2002 SACU agreement creates provisions for the development of a common industrial policy for
all SACU states. The commonality refers more to the development of regional policies which
produce common benefits, rather than adopting a uniform industrial policy approach – given the
disparities in industrial processes across countries.
High on SACU’s industrial policy agenda has been the development of cross-border value chains
which could deepen regional market integration and assist the smaller states in diversifying their
production. The agro-processing and automotive industries in South Africa have been particularly
highlighted as access points to larger global value chains for BLNS. However, the development of
these cross-border value chains has been held up with member states being unable to appropriately
prioritise. South Africa has been arguing that SACU’s revenue pool needs to be shifted towards
funding industrial development, as well as cross-cutting infrastructural needs, rather than funding
national fiscal budgets. However, as long as Swaziland and Lesotho for example receive 60% of their
GDP through SACU revenues and do not diversify their tax base, SACU will never be a meaningful
regional development arrangement
SADC The degree of regional economic integration in SADC is often considered to be seriously
lagging behind other RECs in Africa. While SADC has committed to following a linear economic
integration plan, moving from a free trade area to a customs union, and eventually culminating in a
common market with a single currency, it has consistently missed its convergence targets and there
has been a lack of serious engagement in pursuing the RISDP integration plan. This is probably not a
bad thing – the linear integration path is based on the EU integration model and the wholescale
application in an African context is questionable at best.
Even after 2008 as a free trade area, SADC’s intra-regional trade has not significantly improved. As
an alternative, Southern Africa has developed its own model of regional economic integration which
it believes fits the African context better. Called functional regional integration, the model takes a
lateral approach which focuses on consolidating the free trade area in SADC by addressing non-tariff
barriers to aid in market integration, and developing regional trade infrastructure. This is a positive
development since the lack of success of the free trade area in unlocking regional trade is indicative
that non-tariff barriers are more culpable in stifling intra-SADC trade than tariff barriers.
Non-tariff barriers (or NTBs) can range from costly and burdensome customs procedures, to
regulatory red-tape, to bribery and corruption among customs and immigration officials, to health
and safety standards which are sometimes applied to protect local industry. Furthermore, Southern
Africa’s colonial history has meant that transport and trade infrastructure is largely geared towards
getting primary commodities from the point of extraction to the coast to be exported to Europe or
North America, rather than facilitating trade among Southern African countries. Unfortunately,
despite the sense in this argument, it has not received the needed political buy-in from SADC states,
and on-the-ground implementation of its associated policies has been slow. This is partly due to a
mistrust of regional economic integration among politicians and policy-makers in SADC. Convincing
member states to sign onto the free trade area was not easy – in fact Angola, DRC and Seychelles are
still not signatories. When it became evident that the free trade area did little to boost regional
trade and increase the rate of economic development, member states began reneging on the
provisions of the agreement and erecting other non-tariff barriers to trade.
Despite SADC (and two other RECs) having set up an online monitoring mechanism which allows the
private sector to register the NTBs they experience, SADC’s decision to reject litigious dispute
settlement means that there is no recourse to be taken against an offending country unwilling to
cooperate. This is indicative of a broader issue within SADC. While SADC heads of state often pay lip
service to the importance of deepening regional integration, there is an unwillingness to sacrifice
national sovereignty to the regional body. SADC has a central secretariat without the necessary
institutional bolstering, and many of the regional bodies, such as the SADC Tribunal, are either
powerless to enforce regional policy or have completely failed. As such, it seems as though the
regional economic integration agenda is not going to be driven by the public sector, whether at
national or regional level.
Rather, attention has shifted to the role of the private sector in driving regional integration in SADC.
Business has shown a keen interest in being involved in regional policy-making and aiding in the
eliminating NTBs. With the private sector’s access to expertise, experience and resources, a greater
level of public-private engagement is called for. Unfortunately, in SADC this engagement is low –
partly because organised business in SADC is weak. Whereas other RECs in Africa have strong
regional business apex bodies that can distill private sector representation into a single platform,
organised business in SADC is fragmented and partial to being captured by sectoral interest. It is also
because many Southern African states view the private sector as a source of revenue collection
rather than as meaningful development partners. The numerous permits and regulatory fees applied
to cross-border transporters represent taxes on doing business rather than economic policy tools
designed for desirable outcomes.
TFTA The negotiation around Africa’s own mega-regional trade agreement started in 2008. Whether
you, like the WEF, question whether mega-regionals are global economic game-changers or, in fact,
costly distractions, the Tripartite Free Trade Area will bring together 26 Member States in one
market of nearly 600 million people. The TFTA makes up 57% of the population of the African Union
(AU) and just over 58% in terms of GDP -- approximately US$ 624 billion.
The launch of a regional free trade area has remained something of a moving target since 2011
when the tripartite agreement was adopted. The Tripartite FTA should have been officially launched
in June 2014. However, this deadline was missed owing to factors including the closure of its
erstwhile secretariat, Trademark Southern Africa. The launch is now understood to be scheduled for
December.
South African policy makers see the T-FTA against a type of ‘developmental regionalism’ which
focuses on poverty reduction through industrialisation and economic growth. Trans-regional
transport infrastructure and the coordination of economic policy are essential. The T-FTA is based on
three pillars:
 Market integration,
 Infrastructure development and
 Industrialisation.
These pillars are expected to address the key challenges which constrain the competitiveness of
African businesses, and consequently limit Africa’s integration within the global economy. The T-FTA
priorities also find resonance in South Africa’s own policy documents such as The New Growth Path
of, the National Development Plan and the IPAP 1&2 - the Industrial Policy Action Plans.
The New Growth Path FOR INSTANCE highlights the need for
 expanding public investment in infrastructure;
 concentrating on labour-intensive value chains in agriculture and mining, AND in
manufacturing, construction and services;
 promoting innovation through low-carbon initiatives; and
 supporting rural development, including agriculture and regional integration
The NGP sets the target of five million new jobs up to 2020. The vision behind the NGP is a response
to the many challenges facing the domestic economy. The associated Industrial Policy Action Plans
2011–2012 to 2013–2014 (IPAP 2) are linked to and viewed as a crucial component of the NGP,
giving impetus to a ‘new path of industrialisation’ of high-value beneficiation, and strategically
important industrial and services sectors. In the proposed T-FTA, one sees South Africa as the
strongest link in a regional value chain which is able to support greater-value-addition, regional
economic development and integration
Of course there are challenges, to the proposed T-FTA as many countries are at different levels of
development; the majority of them are Least Developed Countries (LDCs). GDP growth has generally
been high in the tripartite region. FDI is increasing, particularly into the extractive sector, yet poverty
levels are high and levels of intra-regional trade relatively low. There is also wide variation in
economic activity, trade levels, incomes and poverty within and between countries. The various
endeavours for economic integration in Africa have led to countries belonging to multiple regional
economic communities implying competing priorities and conflicting requirements – characterised
by contested implementation schedules and commitments of the different trade regimes, which
fundamentally undermine their effectiveness. In the ideal, when implemented the T-FTA will:
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Address issue of overlapping membership.
Form a building block towards eventual African economic integration as envisaged
by the Abuja Treaty of the African Union.
Offer better opportunity to expand market access for SA products on the continent,
while preserving SA’s market space
Enable greater competition with other strong economies in the regions such as
Kenya and Egypt
South Africa’s role in the region has transformed profoundly where various groups— public, private
and civil society sectors have sought new forms of collaboration and cooperation in FOR INSTANCE
poverty reduction, economic development, peace and security and governance support. Moreover,
South Africa’s dominance in the Sub-Saharan African region also calls into question whether regional
integration will show any significant progress without the commitment from South Africa – and we
all wait to see exactly what level of commitment this actually is.