Minister of Finance on South Africa's participation in international organisations: briefing

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Finance Standing Committee

07 February 2011
Chairperson: Dr Z Luyenge (ANC) (Acting)
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Meeting Summary

The Minister of Finance briefed the Committee on South Africa’s participation in international organisations, and highlighted South Africa's international engagements in terms of African and international priorities. The Minister traced the history of the Southern African Customs Union from its formation in 1910 up to 2006. He highlighted the Union's achievements to date as well as the challenges faced and emphasised issues pertaining to Pan-African institutions such as the African Development Bank, the United Nations Economic Commission for Africa and the African Union. The Minister also referred to issues concerning the World Bank and the Organisation for Economic Cooperation and Development.  The Minister briefed Members on the Group of Twenty or G20, the World Economic Forum, and some of South Africa's key messages to the World Economic Forum.

A Member sought clarity on the G20 discussions in Davos, and was concerned about Brazil’s fear of a currency war turning into a trade war. The Member asked about the Doha Round of Trade Talks and was concerned about rising global food prices.

The Minister stipulated that questions would be answered in detail after the President’s State of the Nation address and after the Budget Speech. There was still work to be completed at the Doha Round of Trade Talks.  

Meeting report

Minister of Finance on South Africa’s participation in international organisations
The Hon. Pravin Gordhan, Minister of Finance, briefed the Committee on South Africa’s participation in international organisations. South Africa's international engagements were informed by a set of priorities in Africa and Internationally. In Africa the priority pertained to the promotion of regional integration, and, internationally, the priorities were for the promotion of South Africa's interests with linkages to national and regional economic initiatives. The mobilisation of resources for development was also an international priority as well as the reformation of global government institutions.
 
The Minister also briefed the Committee on the history of the Southern African Customs Union (SACU) from its formation in 1910 to 2006. The SACU was based on external tariff and revenue sharing and its members were South Africa, Botswana, Lesotho, Swaziland and Namibia. SACU had reached its 100 year anniversary in 2010. The organisation comprised a council of ministers of trade and finance. Finance and trade Ministers met for different reasons. Trade ministers met to discuss trade integration and negotiations and finance Ministers to discuss economic issues. The Minister highlighted SACU's achievements, challenges and expectations. SACU had negotiated many trade agreements with third parties thus far. The Minister highlighted some of the challenges relating to SACU. There had been slow progress with regards to development of common policies that had been mandated. There was also slow progress with the establishment and operation of the SACU Tariff Board and Tribunal.

With regards to the expectations of heads of state, there was to be a comprehensive review of SACU's revenue sharing formula. A basis had to be developed for common trade negotiation purposes. The briefing continued with a presentation on the Southern African Development Community (SADC) and the broadening of regional integration.

The Minister outlined the history of the SADC from 1980 when the SADC was initiated by the frontline states.
South Africa has joined the SADC in 1994 and had adopted its regional indicative strategic development plan in 1999. SADC had become a free trade area in 2008. SADC comprised 15 members and had three objectives.

The Minister noted that SADC’s objectives were economic cooperation with joint planning and mutual assistance, trade liberalisation, infrastructure development, poverty alleviation and support for domestic growth.

The Minister noted the urgent issues too. These pertained to the consolidation of the Free Trade Area as well as the overlapping of memberships and incompatible policies in member states.

The Minister noted issues on Pan-African institutions such as the African Development Bank, the United Nations Economic Commission for Africa (UNECA) and the African Union.

The Minister said that the African Development Bank (AfDB) was temporarily located in Tunis; the UNECA and the African Union were in Addis Ababa.
 
With regards to the African Development Bank, the Minister said that the challenge was for Africa to develop infrastructure for the increase of intra- Africa trade. Key priorities were governance, human development and infrastructure.

The Minister noted the critical issues for South Africa in relation to the AfDB.

The Minister mentioned issues in relation to the World Bank. The World Bank had a national engagement in terms of the Country Partnership Strategy for 2008-2012 in connection with the Government's urban and rural development priorities as well as regional integration.
 
In terms of the Governments’ urban and rural development priorities, he spoke on the large cities reform agenda, land reform and agriculture and private sector development.

In terms of regional integration, he spoke on the World Bank's advantage regarding knowledge services and he also noted the challenges faced by the World Bank.

One of the key challenges faced by the World Bank pertained to the improvement of relationships. There was a global debate on the reform of governmental structures and decision making process.

The Minister said that the World Bank needed a reform of governance structures as well as its decision making processes. He added that there also needed to be, within the context of the global debate, improved responsiveness and flexibility.

The Minister highlighted some of the implications of the governance and quota reforms. He said that South Africa had lost some of its quota share and that the country had gone from 84% to 79%. He stipulated that South Africa still remained the largest of all the African countries in the World Bank. Another matter related to Sub-Saharan Africa’s obtaining a third Board Chair.

The Minister noted that South Africa and Nigeria were part of a third African Constituency to assume the Board Chair. He noted that SA was in occupation of the Board Chair at present.

The Minister noted issues relating to the International Monetary Fund in relation to surveillance, technical as well as financial assistance. He said that surveillance was inclusive of the annual Article IV Consultation as well as the Financial Sector Assessment Programme (FSAP). He said that the 2008 FSAP was indicative of a good regulated South African financial sector. South Africa had not used financial products and there had been a demand for led technical assistance; this had been based on resources. The IMF was a quota based institution and South Africa had lost some of the quota share with a decrease from 78% to 64%. European countries were in agreement on consolidating some Board Seats and Africa had an opportunity to obtain a third chair. He emphasised that the heads of both the World Bank and the IMF were to be appointed transparently and that there was to be no bias regarding nationality.

The Minister highlighted some the issues on the Organisation for Economic Co-Operation and Development (OECD). He noted that the OECD had 30 members and that South Africa was not a member. However, the OECD had initiated a process of engagement with Brazil, South Africa, China, India and Indonesia. This process was called the Enhanced Engagement Process. OECD's strengths were based around benchmarking with best practices, analytic work and the informing of global policy issues.

The Minister tabled the Committee on issues relating to the Group of Twenty (G20). He highlighted the history of the G20, its achievements to date and the 2011 work plan. He noted that the G20 had been formed after the 1998 Asian contagion and that South Africa was the only African member. Other members were from the G8 countries. Some of the G8 countries included China, India, Brazil, Saudi Arabia, Turkey and Australia.
With regards to the achievements to date, the G20 had played a crucial role in the avoidance of the worst effects of the financial crisis. One of the issues noted for the G20’s 2011 work plan was the recovery of the global economy.

The Minister outlined the history of the World Economic Forum (WEF). It was an independent economic forum that had been derived to improve the state of the world via engagement with business, political, academic and other leaders for the moulding of regional and global industry agendas. The Minister remarked on the WEF at Davos in 2011. The theme for Davos was 'shared norms for the new reality' and had been structured on four interconnected pillars in response to the new reality, the building of a risk response network, the support of the G20 agenda and the economic outlook and policies for inclusive growth.

The Minister noted issues relating to the WEF in Africa for 2011. WEF Africa was co-hosted by the WEF Secretariat and the South African government. The co-ordination role had been moved from the Department of Trade and Industry (the dti) to the National Treasury (NT). He noted three thematic pillars - the shaping of South Africa's role in the new reality, the building of partnerships for inclusive development and the fostering of Africa's champions of growth. He noted some of South Africa's key messages in the WEF. Leaders had utilized the meeting in Davos to communicate South Africa's stance on economic and political developments in South Africa as well as globally and regionally. He noted some of the continuing policy issues in relation to the deepening of regional economic integration, resources for Africa's development as well as trade and investment in Africa. With regards to Outcome 11, the NT had contributed to all four outputs.

Discussion
Mr S Swart (ACDP) was interested in the Davos discussions. He was concerned about Brazil’s fear of a currency war turning into a trade war.

The Minister replied that the Brazilian finance minister had been very vocal regarding that issue. The Minister noted that all the finance ministers and governors of the central banks would meet in two weeks time, just before South Africa's budget speech. He noted that he would come back to Parliament with a more detailed response after that meeting.

Mr Swart asked the Minister for clarity on the Doha Round of Trade Talks and wanted to know where the Doha Round fitted in with the institutions.

The Minister replied that the Doha Round was just over 10 years old and that everybody was still anxious now that the round of negotiations had been resolved.

The Minister added that the Doha Round was an opportunity for ministers to meet to bridge the gap between the different countries and that at this specific stage there was still work that needed to be completed.

Mr Swart said that there had been recent concern about the rising global food prices. He sought clarity as to where one would address rising global food prices with regards to greater regulations on commodities and fuel prices. He wanted to know if it would be addressed in the G20.

He wanted to know what the benefits would be to South Africa from joining Brazil, Russia, India and China – the BRIC countries.

The Minister said that he did not want to comment on BRIC as President Jacob Zuma would probably cover that in the State of the Nation address.

With regards to the rising global food prices, the Minister said that the French were certainly raising the same question that Mr Swart had raised. The Minister noted that perhaps the issue could be addressed at a later stage when he got back.

The meeting was adjourned.




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