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Promoting private sector development as a driver of regional integration in Southern Africa

Promoting private sector development as a driver of regional integration in Southern Africa
Photo credit: Aaron Ufumeli | EPA

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11 Jun 2018

The Economic Commission for Africa (ECA) Office for Southern Africa in collaboration with the African Union Southern Africa Regional Office (AU-SARO) and Africa Business Group (ABG) is organising the Southern Africa Regional Integration Stakeholder Forum under the theme: “The Private Sector and Regional Integration in Southern Africa: Accelerating Opportunities for Investment and Growth” from June 11-13, 2018 in Lilongwe, Malawi.

The objective of the Forum is to discuss how the private sector can be a major driver of the regional integration project in Southern Africa and what are the opportunities for accelerated growth and investments for the private sector in the process.

As regional integration seeks to open up national borders for trade and investments, the private sector should position itself as a key actor and beneficiary of the process. In developing the private sector in the region, more jobs will be created, government revenue enhanced through increased taxation, and better living standards assured for the citizens.

Participants will also discuss key issues and challenges pertaining to the alignment of the regional integration agenda with the central role of the private sector in the regional economic development process.

The Forum will be attended by high-level government officials especially from the trade and industry departments, representatives of the private sector in Southern Africa, regional financial institutions including development banks, SMEs, Logistics Companies, development partners, corridor management institutions, private equity firms, insurance, private equity firms, insurance, Regional Economic Communities (RECs) as well as bilateral and multilateral development partners active in Southern Africa.

The Forum will be facilitated by the presentation of a background research paper on the theme of the meeting with several panels and breakout sessions along sectoral lines-manufacturing, agriculture, financial sector, infrastructure etc.

An outcome statement outlining clear agenda and roadmap for better private sector involvement in regional integration processes as well as a comprehensive report will be published and well circulated, following the deliberations.


The Private Sector and Regional Integration in Southern Africa: Accelerating Opportunities for Investment and Growth

Background paper

There is a wide consensus among policy-makers and development practitioners on the continent and abroad that a deeply integrated Africa would unleash the region’s enormous and untapped economic potential and could significantly contribute to the structural transformation of its economies as well as social development outcomes.

The African Economic Community Treaty (AEC, also known as the Abuja Treaty), which was adopted by the African Union in 1991 and came into force in 1994, is the blueprint for the continent-wide integration agenda. The African Economic and Monetary Union Community, in addition to a Pan-African Parliament by 2028 would be established gradually in six main stages, commencing with the creation and strengthening of Regional Economic Communities (RECs).

With ten years remaining until the 2028 deadline, it is evident that the pace of integration has been quite slow across the continent. The signing of the African Continental Free Trade Area (AfCFTA) Agreement by 44 African countries at an Extraordinary Summit of the Assembly of the African Union on 21 March 2018 in Kigali, may have come at an opportune time to reinforce the commitment made by African leaders in 1991. It set the tone for accelerating the process of implementing the Treaty establishing the AEC as envisaged by the Constitutive Act of the African Union.

While the establishment of the AfCFTA does not feature explicitly in the AEC Treaty and Roadmap, the extent of the AfCFTA agreement is clearly consistent with the grand scheme of integration and should act as a facilitator for the remainder of the process. Importantly, the continent-wide market integration is envisioned to be built around the consolidation of integration processes at sub regional levels within the eight (8) African Union (AU) recognized RECs. Thus, it is of critical importance to ensure that the integration agendas within these communities are carefully and effectively implemented at reasonable speeds.

In Southern Africa, regional integration has mainly taken the institutional form of the Southern African Development Community (SADC), which was established in 1992 superseding the 1980 founded Southern African Development Cooperation Conference (SADCC). A number of SADC member States are also part of the Common Market for Eastern and Southern Africa (COMESA), a sister REC which was formed in 1994. Despite arguably being one of the most developed RECs on the continent, a closer examination of the integration dynamics within the SADC, shows that the pace of the process has been relatively slow, at least over the past decade.

At a very early stage, the organization elected to pursue a trade integration approach for regional integration, as evidenced by the SADC Treaty and Trade Protocol (signed in 1996). Notable progress has been made since then with the establishment of the SADC Free Trade Area (FTA) in August 2008. However, the integration agenda of the region has stalled thereafter and a lot remains to be done to ensure the smooth functioning of the free trade area. In particular, more than two decades after the launch of the SADC Trade Protocol, the level of fragmentation of the regional market is still very high with trade to the rest of the world growing disproportionately faster than intra-regional trade.

It is generally recognized that, not only the volume of trade matters, but also and more importantly, its quality or level of sophistication. The latter comes as a result of enhancing levels of production, productivity and a well-thought-out and focused approach to industrialization. Over the last two decades, industrial growth, particularly in the manufacturing sector has been lower in Southern Africa than in other regions of the continent. Consequently, it is not surprising that most of the regional economies are insufficiently diversified, relying predominantly on a few and unsophisticated commodity exports thus making them extremely vulnerable to price shocks.

In addition, the region features one of the lowest intra-industry trade scores in the world, which suggests little participation in Regional Value Chains (RVCs). Accelerating integration processes should clearly provide many opportunities within the region to promote specialization among countries and develop RVCs to boost diversification and competitiveness.

Recognizing that a traditional trade integration agenda that focuses predominantly on border issues to enhance market access is not equipped to tackle the region’s fundamental challenges of lack of diversification and value addition, the SADC Heads of State and Government adopted the pdf SADC Industrialization Strategy and Roadmap, 2015-2063 (2.34 MB) , at an Extraordinary Summit, held on 29 April 2015. The Strategy emphasizes the concept of an investment-led trade and the development and strengthening of RVCs. It essentially aims at promoting the development of an integrated industrial base within the region through the exploitation of synergies in value-added production and enhancement of export competitiveness.

Considering that trade and investment are largely driven by individual firms and that the overall objective of trade and industrial policies is to shape firms’ incentives with the ultimate goal of fostering growth and development, it is important that the role, priorities and perspectives of the private sector in the regional integration agenda should be carefully discussed. Private sector actors are generally considered to be the main beneficiaries of all integration efforts. Yet, their capacity to be the implementers and drivers of the process cannot be overstated. In fact, these two facets of private sector involvement in the integration agenda are closely linked.

The economic potential of Southern Africa is enormous with immense opportunities for private sector growth and development at the regional level. Substantial returns can be anticipated in key areas/sectors such as services, agro-processing, manufacturing, mining and infrastructure development. However, for the private sector to effectively participate in the regional integration agenda through its investment and expertise, there is need to create and maintain a consistent and effective enabling environment across the region.

Building on existing reports and studies related to the topic as well as data and official documents from regional and international sources, this paper provides a background review and discussion on the state and dynamics of regional integration in Southern Africa, with a special emphasis on the role, priorities and investment potential of the private sector in the integration agenda. Evidently, there are numerous and very relevant issues and challenges surrounding the implication of the private sector in Southern Africa integration efforts.

The paper does not intend to offer an exhaustive review, nor does it attempt to address all aspects of the topic. It should be regarded as a means to provide a basis for deeper reflections and actions on the subject. It may also assist some readers to (re)familiarize themselves with the concepts, issues and challenges around the theme.

This paper was prepared by Koffi Elitcha, an Associate Economic Affairs Officer with the Southern Africa Office of the United Nations Economic Commission for Africa (ECA-SA), based in Lusaka, Zambia.