Status of Integration in the Southern African Development Community
The Status of Integration in the SADC Region Report highlights the key achievements and successes made by the Southern African Development Community (SADC) in the area of regional integration, as well as the challenges that have been faced along the way.
This review of the status of integration in SADC in terms of achievements realized and challenges encountered, reveals that implementation has progressed well despite the several challenges faced, and SADC has been successful at many levels and across a wide range of areas relating to regional cooperation and integration. There are variations across the sectors, but the most important achievement is that appropriate policy frameworks, protocols and decisions have been put in place, ratified and domesticated in key areas.
In the process of implementing the various initiatives on regional integration, useful lessons can be drawn which include, the challenges of domestication of agreed policies and legal frameworks, roadmaps for implementation, enforcement and follow-up mechanisms, administrative issues, capacity issues, statistics and information sharing, and budgetary constraints.
This Report highlights the Status of Regional Integration in SADC and seeks to inform SADC Member States and the wider range of relevant stakeholders on the progress made in achieving the regional integration agenda. It covers four key pillars –
Industrial Development and Market Integration;
Infrastructure Development in Support of Regional Integration,
Special Programmes of Regional Dimension; and
Peace and Security Cooperation.
Industrial Development and Market Integration
This is Priority A for SADC, including sustainable industrial development, productive competitiveness and supply-side capacity; free movement of goods and services; stability oriented macroeconomic convergence, financial market integration, and monetary cooperation; intra-regional investment and foreign direct investment; and deepened regional integration.
The pdf SADC Industrialisation Strategy and Roadmap 2015-2063 (2.34 MB) , which is a landmark milestone for the Region, was developed as an inclusive long-term modernisation and economic transformation scheme. The Strategy seeks to achieve major economic and technological transformation at national and regional levels, accelerate growth of the SADC economies, and enhance comparative and competitive advantages. SADC is further developing a Protocol on Industry, which will be a binding instrument that will entrench and give legal effect to the SADC Industrialisation Strategy and Roadmap.
Much work has already gone into the implementation of the SADC Industrialisation Strategy and Roadmap. Implementation of the Costed Action Plan is ongoing in Member States, with a number of activities already undertaken. These include the profiling of regional value chains in the priority sectors of agro-processing, mineral beneficiation and pharmaceuticals as well as the development of the SADC Mining Vision, which will complement the African Mining Vision.
The SADC Free Trade Area, launched in August 2008, now covers twelve (12) of SADC’s sixteen (16) Member States. The benefits of an enlarged regional market are beginning to show. It is heartening to note that since 2013, intra-regional trade in SADC has been consistently above 20% and growing, which can be considered to be a relatively good achievement compared to the pre-FTA era high of around 16%. Current focus is on consolidation of the FTA, which is perceived to set the stage for higher levels of integration.
SADC is also part of the part of the COMESA-EAC-SADC Tripartite Free Trade Area (TFTA) which was officially launched in June 2015. The envisaged COMESA-SADC-EAC Tripartite Free Trade Area is a major regional African trade and development initiative that aims to establish a Free Trade Area and subsequently Customs Union of the three African regional economic communities. To support the free movement of services in the Region, the Protocol on Trade in Services has now been ratified by 7 countries.
SADC is implementing a cross-border settlement system called SADC Real Time Gross Settlement System (SADC-RTGS). A total of 81 banks (central banks and commercial banks) are participating in the system. The SADC-RTGS has performed impressively since July 2013 when the system went live, with a total of 1,275,591 transactions settled as at end 2018, representing ZAR5.21 Trillion. The benefits of the cross-border payment system are its efficiency and the reduction in transaction costs. Whereas previously transactions would go through correspondent banks, all intra-regional transactions are now handled within the Region. For example, where transactions previously took two to three days to clear, now they are cleared within 24 hours and fees paid to non-SADC clearing banks are removed. The elimination of intermediaries – often Western correspondent banks – means money stays in the Region and payments are processed faster.
In the area of exchange controls, all Member States have liberalised the current account. Four Member States (Botswana, Mauritius, Seychelles and Zambia) have liberalised the capital account. The Common Monetary Area (CMA) Member States: Lesotho, Namibia, South Africa and Swaziland, have no exchange controls among themselves but have exchange controls vis-à-vis the rest of the world.
In the area of financial inclusion notable progress has been made. The Implementation Plan for the SADC Financial Inclusion Strategy and SME Access to Finance was approved by Ministers in July 2018, thus paving way for the implementation of activities and assisting Member States to develop their own Strategies and programmes aimed at empowering the SMEs, youth and women to participate and contribute to economic activity. A total of 10 Member States have either developed their own Financial Inclusion Strategies or a national roadmap on financial inclusion.
The cost of cross border remittances has been reduced by 7 percentage points from an average of 20% per transaction to about 13% in the corridor between South Africa and DRC, Eswatini, Lesotho, Malawi and Mozambique. The challenge is to further reduce these costs to meet the G20 target of 5% per transaction.
The SADC Stock Exchanges have embarked on a programme for the Centralization of Government Bond Trading in Exchanges, which is expected to influence a change in policies in SADC countries, leading to removal of some of the existing barriers hindering capital market growth in SADC. Ministers of Finance and Investment 2018 approved a framework for the centralization of the bond markets in SADC Region so that government stocks/bonds be listed and traded on stock exchanges.
Progress with regard to the achievement of the Macro Economic Convergence (MEC) targets was reasonably good prior to the global financial crisis of 2008-9. However, a weak global economic recovery since the global economic crisis; volatile commodity prices; weak exchange rates; and climate change factors have affected economic performance in the Region, in turn hampering progress on macroeconomic convergence. The Peer Review Panel noted that a majority of Member States underperformed in achieving the agreed macroeconomic convergence indicators. Only three Member States (Botswana, Lesotho and Tanzania) met the set targets of the primary macroeconomic convergence indicators (Inflation, Fiscal Deficit and Public Debt) in 2017.
To improve the investment and business environment and remove barriers to investment, SADC is implementing a Regional Action Programme for Investment (RAPI). In that regard SADC has developed an Investment Policy framework to guide Member States in developing their National Investment Action Plans. To support investors in accessing information, SADC has developed an investment portal which is linked to Member States investment portals. In addition, SADC has developed a Bilateral Investment Treaty Template to assist Member States in the negotiation of investment treaties. Further, SADC has developed a Foreign Direct Investment (FDI) Strategy to support the mobilisation of FDI into the Region.
SADC developed the SADC Model Double Taxation Avoidance Agreement to assist Member States in the negotiation of tax avoidance agreements which are critical for investment and businesses. The network of double taxation avoidance agreements in the region has increased from 52 in August 2015 to 59 by December 2018. Three guidelines to enhance cooperation is taxation and related matters have been developed and are under implementation. These are Guidelines on Value Added Tax; Excise Tax; Tax Incentives.
This report was prepared as an input to the inaugural AU-RECs Coordination Meeting of mid-2019. This is in line with the broader AU institutional reform agenda as outlined in Assembly Decision 635 adopted in January 2017, which, among other things, requires the AU Commission to regularly engage with RECs and development partners to assess progress on implementation of programmes aimed at achieving continental integration.