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Regional Integration in Southern Africa: Overview of recent developments
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EXECUTIVE SUMMARY
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SALIENT POLITICAL, INSTITUTIONAL AND SOCIO-ECONOMIC FEATURES OF SOUTHERN AFRICA
Membership of a regional integration arrangement is a political choice of any one
country, whether based on political, social, geographic and/or economic considerations. A
salient feature of Eastern and Southern African (ESA) is the existence of multiple overlapping
regional agreements, namely the Southern African Customs Union (SACU), Southern
African Development Community (SADC), Common Market for Eastern and Southern
Africa (COMESA), East African Community (EAC), Indian Ocean Commission (IOC) and
Inter-governmental Authority for Development (IGAD). These regional integration
arrangements (RIAs) are supplemented by regional arrangements such as the Regional
Integration Facilitation Forum (RIFF) and the Multilateral Monetary Agreement (MMA).
Most of the countries belong to at least two of these regional groups, except for Mozambique.
For instance, South Africa and Botswana are members of both SADC and SACU, while
Namibia and Swaziland hold membership of three regional integration agreements, are part of
the common monetary area and also participate in the RIFF.
From a brief overview of these RIAs within the ESA region, it is apparent that conflicts may
arise from multiple memberships in RIAs, which have similar mandates but different modalities
for achieving these. If these RIAs were seen as variable geometry and multi-speed approaches
to regional integration, they could have reinforced regional integration, particularly in
the areas of sectoral cooperation. However, as practiced in the sub-region and in the absence of thorough planning and effective management,
these seem to result in confusion and conflict for both governments and the private sector.
Membership fees and participation in the activities of these RIAs are also costly, while
particularly SADC and COMESA do not effectively use non-payment as a sanction
mechanism on participation.
The southern Africa region constitutes a small market, smaller than that of Turkey and about
5% of the United States market, but within the African context, SADC’s aggregate gross
domestic product (GDP), amounting to US$187.7 billion in 2000, is more than double
that of the Economic Community for West African States (ECOWAS) and equivalent to
more than half (56%) of Sub-Saharan Africa’s aggregate GDP. SADC’s total volume of
exports (estimated at US$66 billion) is three times that of the CFA Zone and more than
double that of ECOWAS. With almost 200 million inhabitants in 2000, the sub-region’s
total population, which is about a third of that of sub-Saharan Africa (SSA), is nearly double that
of the CFA zone.
However, intra-regionally, socio-economic
development is highly uneven, with long-term
internecine war in some countries contributing
to such development patterns, as indicated by
the following:
- Diversity in political regimes and differences in levels of political stability
characterize the sub-region. Over the past few years some countries in the sub-region
have witnessed consolidation of a democratic culture, good governance, the
rule of law and respect for human rights. Angola and the DRC (with nearly 40% of
the sub-region’s population) are slowly emerging from decades-long internecine
war, which also drew in other southern and central African countries. The second most
economically diversified country, Zimbabwe, is facing a serious political and
economic crisis, which have resulted in its de-linking from international and regional
financial support.
- The combined sub-regional population of almost 200 million is unevenly distributed.
South Africa (SA), Tanzania and the Democratic Republic of the Congo (DRC)
have 64% of the population, with the remainder unevenly distributed among the
other 11 countries. The five smallest countries in terms of population (Botswana,
Lesotho, Mauritius, Namibia, and the Seychelles) account for only 3.4% of the
sub-regional total.
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SA accounted for nearly 70% of the subregion’s total GDP of US$187.7 million in
2000. The five smallest (Seychelles, Lesotho, Swaziland, Malawi and Namibia)
accounted for 4%. SA’s economy was 138 times larger than that of Lesotho, the second
smallest economy.
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The average GNP per capita for the subregion (in nominal dollars) was US$932 in
2000, with a difference of nearly 90 times between the highest (Seychelles) and lowest
(DRC). The United Nations Development Program (UNDP) human development index
(HDI) ranked Mauritius1 the highest among SADC countries (71st of 175 countries with
an HDI of 0.761) and Mozambique the lowest (168th with an HDI of 0.341).
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About 40% of the sub-region’s population or 76 million people is estimated to be living in
extreme poverty. Poverty is increasing despite the recent higher growth rates in the
sub-region, due to increasing unemployment. Unemployment is estimated to have
increased from 30.5% in 1986 to nearly 59% (51 million people) in 2000. Even in
Botswana and Mauritius, which are among the region’s best economic growth
performers, unemployment is rising.
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Whereas SADC countries appear to be performing well in providing universal basic
education (except Mozambique and Tanzania) they are under-performing
(including SA) in providing secondary and tertiary education. This could be seen as a
serious structural weakness, given the increasing importance of skills in the
globalizing world economy (with knowledge-intensity being crucial in
enhancing competitiveness). The sub-region is facing yet another threat to its
development in having the highest adult HIV/AIDS prevalence rate in the world.
Estimated HIV/AIDS prevalence rates among adults in 1999 ranged from about
36% in Botswana, 25% in Zimbabwe and Swaziland, and 20% in SA and Zambia.
Estimates indicate that the adverse social and economic impact of HIV/AIDS will be
substantial, affecting GDP growth, labor supply, income inequality, domestic saving,
productivity, and human, physical and social capital. The spread of the HIV/AIDS
pandemic will most probably further compound the problem of poverty in the
region in the foreseeable future.
- Insufficient and often poorly maintained infrastructures as well as limitations in
regional linkages, no less due to legislative and administrative constraints, are deterrents
to trade and investment.
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In terms of economic structure, the subregion seems to be struggling to diversify its
productive base with progressive industrialization remaining elusive in most
countries. Between 1970-98, the share of agriculture in GDP increased in Zambia and
Zimbabwe, while in Mozambique, Namibia, SA, Tanzania, Zambia and Zimbabwe the
share of industry in GDP decreased as did the share of manufacturing in the more
industrialized countries of the sub-region (SA and Zimbabwe). Overall, economies in
the sub-region are largely undiversified, resulting in a lack of complementarity,
which limits the scope for trade, except between SA and the rest of the region. The
economies are reasonably open, and given that most countries in the sub-region are
heavily dependent on exports of primary and semi-processed agricultural and mineral
commodities, the sub-regional economy remains excessively vulnerable to rainfall
variations and commodity price fluctuations. As an emerging market, SA is vulnerable to
the volatility in financial flows for such markets. The impacts of financial volatility
on the SA economy are transmitted through both the real and financial sides of the
economy to other SADC countries due to trade and financial linkages between these
economies.
Stabilization and adjustment experiences have seen significant convergence in the broad
policies that have been pursued, although the outcomes of such policies and programs are
varying significantly, even widely in some instances, across countries. Since the beginning
of the 1990s, seven countries, have been undertaking International Monetary Fund
(IMF)/World Bank (WB) financed stabilization and adjustment programs, six are implementing
home-grown programs (SA, Botswana, Swaziland, Namibia, Seychelles and Mauritius),
while Angola and the DRC have opened lines of communication with the Fund and the Bank and
are receiving post-conflict reconstruction support. Overall over the last decade, the
outcomes of adjustment in the sub-region have been mixed, although the sub-region has made
some progress in macroeconomic stabilization.
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Macroeconomic stabilization: Most SADC countries have undertaken reforms,
including measures aimed at improving monetary and fiscal policies and
management. Their interest rates are more flexible and they have been eliminating
preferential interest rates for state-owned enterprises; they have strengthened their tax
administrations and have been broadening their revenue bases through the introduction
of e.g. value-added tax; and they have been liberalizing their exchange control regimes
and adopted flexible exchange rates. Mauritius and Zambia have achieved the
highest degree of external current account and capital account liberalization on the subcontinent.
Fiscal deficits have fallen sharply and inflation is under control in many
countries. In 2000, eight countries (Botswana, Lesotho, Mauritius, Namibia, the Seychelles, SA, Swaziland and
Tanzania) recorded single digit inflation levels. However, given some of the
countries’ aid-dependence and high debtburdens, their maintenance of sound macroeconomic
policies may, for the foreseeable future, depend heavily on massive debt
write-downs; very large continued aid flows; and very large foreign direct investment
flows, the latter which are unlikely to materialize quickly. The absence of any one
of these three essential conditions, therefore, would jeopardize the sustainability of sound
macroeconomic policies and the apparent macroeconomic achievements.
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Financial system reforms: SADC countries have been opening up competition within
their financial systems, are becoming more compliant with international standards of
rules of supervision, and are moving towards increased central bank autonomy.
According to an IMF study on financial sector development in SSA, Botswana,
Lesotho, Namibia, and Tanzania have taken steps toward full autonomy of their central
banks2, while the independence of the South African Reserve Bank is constitutionally
enshrined, giving it full(er) responsibility to conduct monetary policy with price stability
as its ultimate goal. Except for SA, however, financial markets remain small,
narrow and shallow.
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Strengthening of investment frameworks: Several SADC countries have also reformed
the legal, judiciary and regulatory frameworks governing business activities,
including through accession to multilateral conventions and entering into bilateral
investment treaties. Many state-owned enterprises have been or are in the process of
being restructured and privatized, while private sector involvement in the
management, financing and provision of infrastructure is encouraged through a range
of modalities – albeit at varying speed and scope. They are actively promoting
investment including through offering a host of investment incentives. Although, on
aggregate, the sub-region has maintained its proportional level of foreign investment
flows to Africa (about 35-37%) between 1990 and 1999, it has failed to attract a
proportionate share of growing foreign direct investment (FDI) flows to developing
countries. Its share in 1999 was roughly 50% of that in 1990. Furthermore, it failed
to attract the kind of investment that buttresses economic development, i.e.
investment in industry, specifically the manufacturing sector, which is necessary for
production and trade diversification. They have attracted largely resource-seeking FDI
and project finance, associated with privatization and public -private provision of
infrastructure. Intra-regionally, cross-border investment, particularly from SA and
Mauritius, has increased.
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Liberalization of trade and exchange regimes: Trade flows across SADC in the
last decade have been influenced by changes in: tariffs, non-tariff barriers (NTBs),
exchange rates and various types of trade taxes and subsidies including export
incentives. Non-SACU governments in SADC have changed their policies
unilaterally; while changes in bilateral trade agreements with SA and in macroeconomic
policies (e.g. fiscal and monetary policies) also have had an inevitable impact on trade
competitiveness in relation to neighboring countries. Although recorded intra-regional
trade levels remain low, a distinct outcome of changes in the sub-region’s trade regimes
has been a growing annual trade surplus for SA vis-а-vis the rest of SADC.
Debt burdens and aid -dependence: Five of the
eight low-income countries in the sub-region3
can be considered as severely indebted4, while
one is considered a moderately indebted low-income country.
Due to their debt overhang, high sovereign risk perceptions and generally underdeveloped financial systems, access
remains limited or closed to official sources of funds, apart from on highly concessional terms,
as well as to international and domestic capital markets. Many of the countries thus remain
highly dependent on official development assistance for filling the savings-investment gap.
Aid dependence in SADC remains high: in 1999, it has received US$19.7 per capita in aid,
roughly the same level as in 1980, and more than the average of US$18 per capita for SSA.
Economic growth has recovered in many countries since 1995. In 2000, real GDP growth
was estimated at more than 8% in the Democratic Republic of Congo (DRC), more
than 7% in Mauritius, nearly 6% in Botswana and more than 5% in Tanzania5. However, of
particular concern is the poor growth performance of the largest economy, SA, and the
second-largest SADC economy, Zimbabwe, which has been experiencing a socio-economic
and political setback, with threatening disruptive implications for regional integration in SADC.
The slowdown in growth since the 1980s and in particularly since the latter half of the 1990s in
SA and Zimbabwe, reflects in the declining growth levels for the sub-region as a whole.
Overall, the sub-region’s economies share important failures. So far, their efforts have
failed to achieve: sufficiently high and sustainable rates of growth ; sufficie nt expansion
of employment opportunities and sufficient progress with poverty alleviation. These failures
reflect, in turn, their inability to improve the quality of investment; to enhance human or
social capital sufficiently and to increase labor mobilit y to the extent that circumstances warrant
within and across the countries6.
Socio-economic performance and outcomes in the sub-region are attributable to both policy
reforms and other influences. Exogenous influences such as adverse changes in climatic conditions, political instability and deteriorating
risk perceptions as well as the global economic environment and commodity markets have been
driving a wedge between domestic economic policies and outcomes. In addition, other non-policy
factors operating in the sub-region’s economies such as their weak institutional,
financial and physical infrastructure and administrative capabilities may also explain the
observed discrepancies between policies and outcomes and the shared failures in terms of low
economic growth, unemployment and poverty. These issues raise a question for intensified
cooperation on macroeconomic policies at regional level as to whether such cooperation
would necessarily result in better outcomes for individual countries or the sub-region as a
whole? The answer to this question is not clear.
In contrast, these issues clearly point to strengthening cooperation on the structural
issues, which are weakening the link between policies and outcomes. These structural
weaknesses are observed in all countries in the sub-region, albeit to different extents, and
include weak financial systems, infrastructural inefficiencies, and insufficient human capital
and institutional capabilities.
SA, by virtue of its size and level of economic development, is perceived to pose a threat to
other countries in the sub-region, given the potential for unbalanced development within the
RIA. However, it is also widely seen as an important regional actor - both as a resource
upon which other SADC countries can draw in the sphere of technical expertise and as a
catalyst for deeper economic integration. Moreover, the sheer size and purchasing power
of the South African economy holds important benefits for other SADC member countries
whose economic development has been constrained by small and weak domestic
economies.
INTENTIONS AND PROGRESS WITH REGIONAL INTEGRATION IN SOUTHERN AFRICA
From the brief overview of recent developments in regional integration in southern Africa, it is
observed that the countries in the sub-region have identified many common challenges
amenable to region-wide solutions ranging from macroeconomic issues, trade and industry,
education and health to infrastructural developments and service delivery. In SADC,
member states have developed a number of protocols which provide a legal framework for
their cooperation in various areas such as transport and communications, industry and
trade, finance and investment, natural resource management, water, mining, energy, health,
education, human resource development and on aspects of security and politics. The protocols,
when signed and ratified, are mechanisms for locking countries into the same policies and
approaches to development. For SADC, the development and negotiation of protocols are
seen as progress per se, given that the time for this often allows preparation on the country level
for their implementation - by adopting appropriate policies and associated institutional
mechanisms for their implementation. This then often explains the long time taken for such
protocol development and negotiation. By August 2001, 10 regional legal instruments have
come into force, another 10 have been signed or ratified but are not yet in force, while a host of
others are in the preparation phase.
Currently, there is no mechanism in place for monitoring and evaluating the direction and pace
of regional integration. This background paper has also not attempted to design such a
monitoring and evaluation system. In stead, it has merely reported on progress made in
cooperation of the various sectors, and even then such progress cannot be unambiguously
attributed to membership of the RIA. Many policy and institutional changes in the
constituent countries have come about through unilateral decisions, although their pace of
implementation might have been accelerated through complementary regional-level
obligations. On the one hand, it seems that political problems, inappropriate institutional
mechanisms and the uncoordinated pace in implementing sectoral programs and projects are
bogging down regional integration. On the other hand, it seems that much progress has been
made in some discrete areas of cooperation, i.e. either in entire sectors or in specific sub-sectors.
Henceforth, the shift in SADC’s agenda from
sectoral cooperation to market integration would
require not only continued cooperation in
specific sectors/areas, but also stronger linkages within and between the various sectors or areas
of cooperation if it were to be successful. Thus, the implementation of the Trade Protocol has
given rise to new challenges to the sub-region’s objective of economic integration, foremost of
which is the strengthening of multisectoral linkages and the coordination of the activities of
the various sectors within the framework of market integration. The few protocols in force,
and then only for a short period, has not been sufficient to achieve greater policy credibility
and anchor all member countries to continued pursuit of sound policies. However, the
implementation of the Trade Protocol has set in motion a seemingly self-accelerating mechanism
for regional economic integration as the adoption of certain sectoral protocols
necessitates the adoption of others, especially where the interests of the private sector are
concerned. Unlike in the past, SADC is now forced to deal, over the short term and in very
practical ways, with sectorally crosscutting issues such as e.g. competitiveness, regional
dimensions of poverty and trade efficiency. The issues embodied in e.g. the trade efficiency
concept namely customs, transport, banking and insurance, information for trade, business
practices and telecommunication have been the responsibility of mainly four SADC sectors:
trade and industry; finance and investment; transport, communication and meteorology; and
employment and labor. Up till now, the interface between these sectors as captured by
the trade efficiency concept has not been pursued in a region-wide, integrated and
coordinated way, mainly due to the institutional division of sector coordination among member
states, apart from the predominant paradigm of cooperation and harmonization as opposed to
integration.
Deeper integration in the sub-region has been
precluded therefore also by SADC’s
decentralized, sectorally- and project-based institutional arrangements. Some of the
institutional constraints have related to the SADC Secretariat’s lack of power, authority and
resources required for facilitating regional integration; the sector coordinating units’ highly
uneven capacity to pursue and implement policies; the SADC Program of Action’s lack of
a clear regional focus; the limited capacity to
mobilize the region’s own resources and resultant over-dependence on external financial
resources; and the failure to address governance, peace and security issues in the wake of growing
political divisions within SADC. SADC’s decision to realign its institutional machinery
and processes with its regional integration agenda, by clustering its 20 odd sectors into four
directorates and centralizing these within a strengthened Secretariat, as well as that of
designing and managing a regional development strategy are thus important steps towards deeper
regional integration. Apart from a more clearly articulated and focused ‘common agenda’,
deeper regional integration would critically hinge on the speedy implementation and smooth
functioning of the new regional institutional mechanisms.
INVOLVEMENT OF ‘INTERNATIONAL COOPERATING PARTNERS’
The sub-region is attracting huge annual amounts of grant funding from bilateral and
multilateral sources such as the EU and its constituent countries as well as the USA, and to
a lesser extent from the African Development Bank, the World Bank and sub-regional
institutions such as the Development Bank of Southern Africa. Bilateral cooperating partners
such as the EU and OECD countries are making grant funds available for SADC’s regional
coordination function, regional ‘public goods and services’ and/or multi-country projects. In
relation to the EU and the USAID, the World Bank is not only a relative newcomer to the
regional integration arena in southern Africa, but in terms of grant financing, even if leveraged by
trust and other funds, it is also a ‘small player’ on the supra-national level, partic ularly for the
coordination function. However, as the experience of the DBSA shows, a small budget need not be equated with insignificance. This is
particularly so for multi-country or regional goods and services which require
implementation on the country level whether through projects, which could be amenable for
financing through Bank financial products, or policy and institutional reforms, which could
lend themselves for inclusion in Bank country operational work. Similar to the lack of a
centralized and accessible management information system for monitoring and
evaluating progress in SADC’s cooperation and integration agenda, SADC seems to have failed
to comprehensively record the sourcing and application of funds for its SPA. In the last
section of the document an attempt is made to record some of the international cooperating
partners’ involvement in SADC. However, much more detailed information would be
required on the content of at least the EU’s and USA’s support programs to identify
opportunities for leveraging its much larger allocation of grant funding with that of the
Bank’s own resources, should that be deemed desirable. This type of information is
particularly important to avoid overlap in support, which seemingly exists even between
the sub-region’s two major international cooperating partners – the EU and USA.
Furthermore, a good grasp of the modus operandi of the various international cooperating
partners would be critical for the Bank to form ‘smart partnerships’, particularly given its
relatively limited resources for regional cooperation activities that cannot carry any cost
recovery.
Footnotes:
- Seychelles, a small island-state, is excluded.
- See IMF, 1998. Financial Sector Development in Sub-Saharan African Countries. Occasional Paper No. 169, IMF, Washington D.C.
- The low-income countries in SADC are Angola, the DRC, Lesotho, Malawi, Mozambique, Tanzania, Zambia and Zimbabwe.
- Severely indebted low-income countries are Angola, the DRC, Malawi, Mozambique, Tanzania and Zambia, while Zimbabwe is classified as a moderately-indebted low-income country.
- World Bank, SIMA, Regional Database, 2001.
- SADC Finance and Investment Sector Coordinating Unit, 2000. Executive Summary of the Studies on Convergence & Adjustment, Investment
and Development Finance. Pretoria, FISCU, June 2000.
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