It is common cause that industrialisation across the Southern African Development Community (SADC) region is key to diversifying the regional economy away from its current reliance on the export of raw commodities and to supporting economic growth and employment creation. There is broad acceptance that SADC member States are still struggling to add value to their mineral products ahead of export, for instance, which is related to the need to increase levels of intraregional trade and investment, particularly trade and investment that would be supportive of regional value chains.
To support such a transition, much emphasis is being given to the adoption and implementation of the so-called ‘SADC Industrialisation Strategy and Roadmap’, which outlines how the region could move from a commodity- driven growth path to one of value addition, knowledge and industrialisation.
The roadmap, adopted at the SADC Summit of heads of State and government in 2015, sets out three potential growth paths – agroprocessing, mineral beneficiation and downstream processing, and service-driven value chains. The paths are mutually supporting and inclusive, encompassing the combination of downstream value addition and backward integration of the upstream provision of inputs, intermediate items and capital goods.
According to SADC regional standardisation president Dr Eve Gadzikwa, industrialisation is the most effective driver of structural poverty reduction, owing to its capacity to expand employment opportunities, boost productivity and increase wages. She stresses that industrialisation can contribute to transformation in the agriculture, trade and transport sectors, and is key to economic development.
“Industrialisation requires a focus on improving competitiveness and ease of doing business, as well as enhancing the quality of products that can compete internationally,” she says, adding that it is crucial to strengthen economic cooperation among SADC countries.
Strengthening regional economic cooperation, however, also requires reforming the business environments in SADC member States.
According to the Organisation for Economic Cooperation and Development’s (OECD’s) July 2017 economic survey, little progress has been made regarding industrialisation, despite it having been earmarked as a priority for the region.
Even though infrastructure plays a major role in Southern Africa, significant gaps remain in the SADC region, the report highlights.
The report also finds that a lack of institutions or deficient institutions, skills shortages and complex regulations are common across SADC countries, as are regulatory barriers and monopolistic behaviours that hamper competition.
MIND THE GAP
It is in infrastructure in particular, notwithstanding South Africa being almost on a par with the OECD average in terms of transport infrastructure, that the region lags many countries badly.
The report highlights, though, that some regional infrastructure cooperation has progressed, albeit slowly.
“Regional cooperation has been made easier by the creation of road agencies in most SADC countries and progress in energy cooperation has been accelerated by the setting up of the Southern African Power Pool power trading platform and grid,” the report says.
A major challenge in terms of infrastructure in the SADC region is implementing bankable and investable projects in the rail, road and power sectors.
“The focus must be on how to make these projects readily planned and attractive to the private sector using concessionary funding such as that provided by financial service providers the Development Bank of Southern Africa (DBSA) and the African Development Bank,” Department of Trade and Industry (DTI) African integration and industry chief director Nigel Gwynne-Evans notes.
“If a region does not have quality infrastructure in place, it will not have an enabler to grow its economies,” he says, adding that all SADC member States should prioritise localisation in infrastructure development.
“These developments require long-term government plans and considerable preparation to achieve the requisite skills and industrial capacity to meet demand.”
DBSA group executive Mohan Vivekanandan says that, according to International Monetary Fund findings that deemed South Africa’s economy vulnerable to external shocks and funding shortfalls, infrastructure is crucial to enable short- and long-term economic growth.
He adds that State-owned entities, which work with the DTI to drive localisation, have a critical role to play in creating an environment to attract private-sector investment.
With low levels of electrification hindering economic growth and development in sub- Saharan Africa – where 78% of the population relies on biomass as their main energy source – $57-trillion will be required up to 2030 to fund the continent’s infrastructure and energy projects.
“There has, however, been a lot of progress regarding energy in the region,” adds Vivekanandan. “The SADC region has moved from a deficit [of power capacity] to a surplus, with the latest figures from the Southern African Power Pool showing that there is 1 000 MW of excess capacity in the region.”
The challenge now, he notes, is strengthening the interconnectivity of the transmission grid.
“The DBSA is working closely with SADC counterparts on the area’s infrastructure agenda. According to the SADC Master Plan, the region should invest R33-billion a year to develop the energy and transport sectors,” he says.
Vivekanandan adds that South Africa has brought a significant amount of energy onto the regional grid through megaprojects such as State-owned power utility Eskom’s Medupi, Kusile and Ingula power station projects.
“The DBSA has also invested a lot of capital into bringing renewable-energy projects onto the grid,” he says, adding that the bank played a significant role in the establishment of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).
He points out that, to date, the DBSA has committed funding to 21 projects involved in the REIPPPP, which has essentially funded the generation of 2 550 MW to date. Vivekanandan adds that 18 of these projects are operational and delivering power to the grid, while three are under construction.
The DBSA has committed about R15.1-billion to rounds 1 and 3.5 of the REIPPPP, with R12.6-billion committed to senior debt and about R2.5-billion to black economic- empowerment parties and local community trusts.
“The DBSA will continue to support broad-based black economic-empowerment entities and local community trusts with funding to acquire equity stakes in REIPPPP projects,” he says.
Vivekanandan further notes that, in addition to funding various renewable-energy programmes, the DBSA has been funding project preparation studies to strengthen transmission grid infrastructure to interconnect regional power grids throughout the SADC region.
TRAFFIC FOLLOWS TRANSMISSION
He notes that, by 2030, traffic for landlocked SADC countries will increase from 50-million tons to 148-million tons by 2040 – an 8.2% yearly growth rate.
Port traffic in SADC countries will expand from 92-million tons to 500-million tons by 2027, with port expansion projects at Dar es Salaam, in Tanzania, for instance, only sustaining shipment traffic to 2020.
“OR Tambo International Airport, in Johannesburg, South Africa, will add two-million passengers a year by 2030 and three-million a year by 2040, while Kenneth Kaunda International Airport, in Lusaka, Zambia, and N’djili International Airport, in Kinshasa, in the Democratic Republic of Congo, currently operate at 70% of capacity, but expect traffic to expand well over 100% of capacity by 2020,” Vivekenandan says.
Meanwhile, the DBSA is also providing funding for preparation studies aimed at improving the North–South Corridor (NSC), which runs from Durban, in South Africa, to Dar-es-Salaam. “We are allocating $1-million for a preparation study to improve the rail linkage that will lead to about $700-million in capital expenditure over the next two years.”
The signing of the NSC initiative in July by SADC Transport Ministers was a big step to ensure that the project moves forward, he states.
“The NSC will be one of the largest transnational corridors and has massive regional importance. It will connect eight countries and 252-million people, and generate $458-billion in collective gross domestic product.”
In sum, there is a growing acceptance that regional integration is going to depend as much, if not more, on the creation of physical linkages as it will on tariff liberalisation. However, hard infrastructure alone will also not guarantee higher levels of intraregional trade and investment. Besides political will, real and sustained effort will be required by all SADC member States to ease the burden of doing business across borders by getting the ‘soft’ factors to line up coherently.