New Partnership for the Economic Development of Africa: briefing

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
27 February 2002
NEW PARTNERSHIP FOR THE ECONOMIC DEVELOPMENT OF AFRICA: BRIEFING

CHAIRPERSON: Dr R H Davies

Documents Handed Out:
NEPAD and the DTI's Trade Agenda
South Africa's Global Economic Strategy for Trade (see Appendix 1)
Update on Global and Regional Economy (See Appendix 2)
Brief on the Sawen Road Show & Integrated SMME Strategy Review

SUMMARY
The Department of Trade and Industry outlined the importance of NEPAD as a multinational initiative, which focuses on the transformation of Africa by Africans. The key priorities of NEPAD include rectifying past imbalances with respect to the production of marketable goods. As leading agency, South Africa's main goal is securing even better access to world markets. The need to for more consistency between South Africa's approach and that of NEPAD was pointed to.

MINUTES
Mr Tshediso Matona: Chief Director of Trade Negotiations, Department of Trade and Industry briefed the Committee.

Importance of the New Partnership for the Economic Development of Africa (NEPAD)
Mr Tshediso Matona sought to describe the working of NEPAD in relation to South Africa and other African countries. NEPAD is a multi-national initiative in Africa focusing on the transformation of Africa by Africans. It is not so much related to market access, given that Africa has enjoyed generous access to world markets for the past 30 years but to development as a whole. A major obstacle for Africa is the lack of production of marketable goods due to the fact that Africa has become marginalised in this regard. NEPAD's main objective is to rectify these past imbalances.

South Africa's main objective, as leading agency and 'most-favoured nation', is securing an even better access to key markets. The NEPAD framework serves as a model on how to address constraints in Africa applying to trade in the region. The approach of South Africa is consistent within NEPAD's framework but must be made more consistent.

With regard to trade, there needs to be integration on a sub-regional level. It is therefore important to look at how the major trading powers operate in Africa. Europe proposed that trade with African countries be prioritised. The question is the extent to which it can be ensured that South Africa's trade is put on the formal agenda. All this must be considered in the light of the fact that South Africa is more likely to trade with Europe than with countries in North Africa and this must be addressed.

Contribution to capacity building
NEPAD has the opportunity to play a significant role in development in Africa. Methodology used was gained by task groups that were sent to various countries to measure the level of development such as infrastructure. Major companies were approached, such as Eskom and Transnet, in assisting to create an environment that enables the companies to work together in regional areas.

Calendar of key activities
One of the major subjects, which will be discussed at the G8 summit held later in June, will be the development of Africa. President George Bush from the USA, who serves as key President, expressed the need for external support to Africa. The issue of NEPAD was put on the agenda for the Conference of Finance, which will be held in Mexico.

Discussion
Mr L Zita (ANC) noted the challenges faced by East Asia a few years ago and the support offered by Japan. To what degree does South Africa offer assistance and are there alternative models or forms of development available for the various countries?

Mr T Matona responded that they had appropriate and specifically researched models available. He emphasised that NEPAD do not follow a particular ideology but identifies critical objectives that most countries in the region can identify with. It must be kept in mind that NEPAD does not prescribe a particular process of action. It only provides models for thought and debates. The current conjunction provides us with certain possibilities. The evolution of the information technology services creates opportunities that could accelerate abilities in various regions.

Dr R H Davies (ANC) said that he understood the objectives of NEPAD but that the presentation indicated that Africa had open access to world markets. The danger was that capacity does not heal poverty.

Mr Matona stated that he believed the trade policy was a mere framework and does not necessarily mean much. The issue is the purpose to ensure that the objectives of agreements are met. NEPAD could provide the space for development. Mr Matona continued that he does not deny that there have been problems relating to market access. He felt that if one worked on the larger issues such as Investment and Trade, one could take advantage of other regional development. The greatest concern lately is that Europeans are upstaging Africans on all spheres and there is a need to accelerate of integration.

Ms F Hajaiji (ANC) asked Mr Matona to indicate what role the IMF plays in NEPAD. What was the link between NEPAD and the African Union.

Mr Matona answered that apart from the fact that agencies like the IMF demand resources, it must be kept in mind that NEPAD was created to enhance greater coordination between these types of agencies to improve development initiatives in Africa. The African Union's main objective is the ultimate integration of the continent as a whole and there must be progress on different levels. NEPAD's contribution is advancing the idea of economic revival and integration.

A Member enquired about issues concerning the dependency theory and to what extent the capacity will be driven by South Africa.

Mr Matona's response was that capacity and dependence is related. The philosophy of NEPAD centers around what Africans can do for themselves. If this is applied to the issue of capacity then the capacity leader should define and develop capacity. Capacity in the case of NEPAD must be market driven. Looking at examples of programmes driven by external donor countries it is clear that they have limited or no impact. This is due to the fact that the capacity needs were not well defined. South Africa could deliver capacity by applying experts to certain areas.

Dr Davies (ANC) asked about the context of economic integration and how the Department of Trade and Industry envisioned this process.

Mr Matona responded that beyond SADC they have not engaged with these issues but they are expanding their capacity to rethink these issues.

An ANC Member asked about the involvement of other African countries and how they were looking into this problem.

Mr Matona's response was that they have constant interaction with other countries and discussion is continuing.

Ms Hajaiji (ANC) was concerned about the link between NEPAD and various departments. She asked Mr Matona to shed some light on the interaction with the Department of Foreign Affairs.

Mr Matona said that during the initial drafting of the document the Department of Foreign Affairs had interacted with the Department of Trade and Industry. It must be kept in mind that the Department of Trade and Industry are solely looking at trade while the Department of Foreign Affairs are focusing on political issues. He considered this an open question with no satisfactory response but proposed that these two extremes be put together in future.

The meeting was adjourned.

Appendix 1:
South Africa's Global Economic Strategy for Trade
ADVANCING TOWARDS THE TWENTY FIRST CENTURY

The objectives of South Africa's post-1994 trade strategy have been to overcome the country's previous isolation from international markets and to grow exports and inward investment through, inter alia establishing long-term access to key markets.

Since 1994, South Africa has been entering into a variety of formal trading relationships with key economies in the world, both on a preferential basis, as well as on a 'most-favoured-nation' (MFN) basis, the latter which is the minimum standard for global trade relations as established under the World Trade Organisation (WTO).

Advancing Global Trade Liberalization through the WTO

South Africa's accession to the WTO in 1995 - on the basis of a commitment to open the economy to international competition - earned the country long-term predictable access to global markets, as well an opportunity to influence the future direction of the WTO's multilateral trade system in cooperation with other developing countries.

Possible further global trade liberalization entailed by the launch of a new round of WTO negotiations should enhance South Africa's access to all WTO members on an MFN basis, particularly to large industrialized economies.

Pursuing a Preferential Market Access for South Africa

While South Africa's trade with the world takes place mainly on a 'most-favoured nation' basis, a priority objective of the country's trade strategy is securing even better access to key markets. In this light, the unilateral preferences extended by major trade partners to the South Africa are important, such as the so-called Generalized System of Preferences (GSP) and the US's Africa Growth and Opportunity Act.

In view of the ongoing and intensified vying for global market access advantage by major trading nations and groups, and the resulting segmenting of the world trade system into a hierarchy of preferences, it is critical for South Africa to seek more secure long-term preferential access to key global markets.

In this light, the free trade area being established between South Africa and the country's leading trade partner, the European Union, in terms of the bilateral Trade, Development and Cooperation Agreement is significant as a long-term framework for expanding and deepening market presence in the EU, and for attracting investment.

A key challenge of South Africa's trade strategy is to alter the current dominant pattern of trade with the world whereby the bulk of the country's exports are commodities destined to 'northern' countries (e.g. US, Japan and Europe) from which, in turn, manufactured goods are imported. Worsening terms of trade result in declining per capita GDP.

This underlies the need to accelerate the process of building deeper economic linkages with fast-growing emerging markets in the developing world and, in particular, in Africa. In this context, large developing countries such as in South America's Mercusor trade bloc, as well as India, China and Nigeria have been targeted for possible preferential market access negotiations on the rationale that there is much greater potential for mutually beneficial economic linkages with these countries.

Towards A Trade Strategy for the African Continent in the NEPAD Framework

Strengthening and formalizing trade and economic links with countries in Africa is a critical key imperative of South Africa's trade strategy for two reasons. Firstly, being the leading economy in Africa presents the country both with unique trade and investment opportunities, but with the challenge of systematically contributing to the continent's economic revival and development. Secondly, South Africa faces potential market competition on the continent from major developed countries such the EU and the US whose own trade strategies envisage securing preferential market access for themselves on the continent. It bears keeping in mind that both the existing preferential schemes offered African countries by the EU and US provide for reciprocation by beneficiary countries through free trade agreements after a transitional period of between 8 to 10 or little more years.

For both these reasons, the New Partnership for the Economic Development of Africa (NEPAD) should be a key priority for South Africa as a framework for the country's trade strategy for the continent.

In this context, the free trade area pursued by the Southern African Development Community (SADC) is important not only for the offering preferential market access to South Africa's exports to SADC countries, but more generally as the key instrument for the economic development of the SADC region, and to that extent as a critical pillar of the NEPAD.

In view of this, the position of the Southern Africa Customs Union is strategic, being a concrete achievement in the integration of the economies on the SADC region, as desired by SADC governments.

Beyond SACU and SADC, the African continent in general presents a particular challenge to South Africa's trade strategy. The fundamental question In this regard concerns the nature of the trade regime that South Africa, as the leading economy in Africa, should seek to forge with various economies in the rest of the continent, taking into account their varying levels of development.  Clearly, it is untenable - particularly for in view of the implications of the NEPAD for SA - for South Africa to trade with a Uganda, a Rwanda or a Kenya on the same basis as the country's trade with the US, or as is the case, on less preferential terms compared with the EU, notwithstanding the differences in respective compositions of the trade.

The alternative or combinations of options that South Africa faces in this regard are:

- unilaterally extending preferences to individual countries in the rest of the continent;
- extending preferences with the condition that recipients will reciprocate after a given transitional period;
- pursuing bilateral preferential/free trade agreements with key countries, such as Nigeria, Kenya, Egypt, etc.
- reciprocal exchanges of preferences on a trade bloc to bloc basis, on the model of the imminent ACP-EU negotiations, e.g., between SADC and Comesa, or Ecowas;
- an all-Africa free trade area, as envisaged in the Abuja treaty and inherited in the proposed African Union.

Contributing to Supply Capacity-building in Africa:

In conjunction with work to develop appropriate frameworks for trade with the continent, a key focus is on promoting outward investment into Africa, primarily in areas where the multiplier effect would be more pronounced. The following areas have been identified:

- infrastructure and logistics (roads, ports, etc)
- energy and ICT
- water
- construction
- mining
- agri-business
- Human resource development

Methodology:

Due to years of isolation, SA does not have good economic information on African countries, yet they are in our own backyard. To address this, the DTI organises technical mission to African countries. Whilst these would normally be led by a DTI official, it would mainly comprise of industry experts representing a particular council. The purpose would be to scope opportunities for SA business to invest in, and to identify some bottlenecks that would inhibit businesses from investing in the host countries. They would then compile a report (which we share with the host country), and we then decide on how to strategically intervene, e.g. create the appropriate legal framework in the form of agreements like the Protection of Investments.

Furthermore, these missions also attempt to identify institutional inefficiencies in the host country, and decide on capacity building measures that would be appropriate. These could range from Trade Policy to Trade Development Also, due to the privatisation processes taking place in Africa, abundant opportunities are created, and we try to position SA businesses to exploit them in a "mutually beneficial "way through the formation of joint ventures.

We also co-ordinate the expertise that SA has to bring to bear some of the deliverables desired as per NEPAD, e.g. IDC, CSIR, etc. These institutions also assist in project/s development and management, as well as in capacity building. Through encouraging SA parastatals to invest in scoped opportunities, we somewhat reduce the risk for potential foreign investors, e.g. Mozal in Mozambique. Furthermore, we launched a SADC business forum in Durban during the World Economic Forum Summit, with a view to develop a team of SA business that would focus on the medium to long term development agenda facing us. DTI also co-ordinates the activities of other government departments working in Africa, with a view of developing an integrated approach to the targeted countries, and to complement each other's activities. i.e. building a SA team.

Regional and continental integration

Thought the Spatial Development Initiative (SDI's), the DTI explores and facilitates the implementation of cross-border projects that would assist in either creating a conducive environment for investment, or facilitate increased trade flows by reducing logistical problems/costs. These also brings along several private sector stakeholders and governments in all the affected countries, and is consistent with the concept of forging Public Private Partnerships (PPP) to deal with the development challenges facing the continent. Although these have mainly been conducted in SADC, the DTI is trying to extend this approach to other economic regional groups in Africa through strategic bilateral engagements with key countries.

Conclusion

Leveraging the opportunities entailed by the various market access regimes available to South Africa remains a critical challenge for the country's trade establishment.  In this connection, the role of TISA and the relationships being pursued through the IRPS are important, as are inter-governmental instruments like Joint Ministerial Commissions and Bi-National Commissions between South Africa and key countries.

INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT DIVISION SOUTH AFRICA

Appendix 2:
PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE & INDUSTRY, AND SELECT COMMITTEE ON ECONOMIC & FOREIGN AFFAIRS
Update on Global & Regional Economy
Tshediso Matona, ITDD

South Africa's Global Economic Strategy

· NEPAD
· World Trade Organization
· Strategic Partners
· South-South relations

South African Exports
Key Markets (World)

· US, UK, Japan, Germany, France, Australia, China, India, Brazil, Sweden, Russia are "Strategic Partners" (SP)
· US, UK, Germany, France, Japan represent 36% of SP exports (average 1998-2000)
· Developed country markets sources of capital, technology
· Developing country markets future sources of growth, greater prospects for intra-industry trade
· Exports to China, India and Brazil account for <3% of SP exports (average 1998-2000)

South African Exports
Key Markets (Africa)

SADC (Zimbabwe, Mozambique, Malawi, Mauritius, Tanzania) Kenya, Ghana, Nigeria and Algeria
SADC accounts for 78% of total exports to Africa (average 1998-2000)
Exports to Africa account for <14% of total exports (average 1998-2000)

The Changing Composition of South African Exports

· Declining importance of gold (from 33.7% of the export basket in 1990 to 15.5% in 2000)
· Increase in manufactured exports
· Increase in the export orientation of the manufacturing sector
· Suggests a re-orientation from traditional resource-based exports to beneficiated and manufactured exports

Foreign Direct Investment

· Private direct investment in Africa totaled $7.2 billion in 2000 (IMF)
· This represents a decline from $9 billion in 1999 following an increase from $6.9 billion in 1998
· The FDI figure for 2000 also represents <18% of private direct investment in Asian emerging markets and <12 % of private direct investment in the Western hemisphere in 2000 (IMF)
· FDI in Africa therefore remains low and variable
· FDI largely dependent upon market size (existing & potential), economic growth (high & sustained), and political stability (national & regional)

Analysis of the Global Economy
Global Economic Prospects 2002

· 2001: Global economic downswing pre-Sept 11
· 2002: Global economic recovery likely (IMF)
But
· Synchronicity
· US remains "locomotive" for global recovery
· "Double-dip" phenomenon
· High level of US indebtedness

Analysis of the Global Economy
Key Macroeconomic Uncertainties 2002

· Extent and pace of global economic turnaround?
· EU response lag to US recovery?
· Emerging market "risk appetite"?
· Possible Asian currency devaluations?
· Southern Africa?

Implications for South Africa's Global Economic Strategy

· Strategy is valid despite short-term cyclical fluctuations in global economy
· Seeks access to diversified markets (sources of capital & technology, and future sources of growth)

Update on Trade Negotiations

· WTO
· EU-SATDCA
· SACU
· SADC
· Mercosur, India, China,
· EFTA, US