Brexit impact: DIRCO & Institute for Global Dialogue; SA-EU & EU-SADC Economic Partnership Agreements: Foreign Policy impact; African Renaissance Fund 4 quarter 2015/16 performance

Meeting report

In the absence of the Chairperson, the Committee elected Mr B Radebe (ANC) as Acting Chairperson.
 
Ms S Kalyan (DA) voiced her concern at the outset of the meeting that the agenda showed that proceedings was to go on well beyond 1pm. Committee staff needed to plan meetings better in the future, as political parties on Wednesdays had other commitments after 1pm.

Mr S Mokgalapa (DA) agreed with Ms Kalyan, and said that perhaps the meeting could end before 1pm if briefings were kept to a strict timing schedule.

The Acting Chairperson agreed with the sentiments expressed by Members, as the women’s caucus also took place on a Wednesday afternoon. 

The Committee would do its best to conclude proceedings by 1pm.

African Renaissance Fund (ARF): Fourth Quarter Performance
           
Ms Hlengiwe Bhengu, Chief Director: Finance, Department of International Relations and Cooperation (DIRCO) provided the Committee with insight into the performance of the ARF for the fourth quarter of the 2015-16 financial year.

She said that no new project proposals had been processed for the ARF Board, since no new project requests had been received. Two requests had been received to approve disbursements to support democracy and good governance, and payments had been processed totalling R23 044 for election observer missions in Tanzania and Seychelles. The payment was made on a quarterly basis. One request for humanitarian assistance had been received, and an amount of R42 829 886 had been processed for Namibian drought relief. Two requests to support capacity building had been received, and R2 781 659 had been processed for the African Capacity Building Foundation’s final tranche payment. A second payment of R27 119 915 had been processed for the Cuban Economic Package.

The financial report of the ARF for the quarter showed that there was an accumulated surplus of just over R1.5 billion. The ARF had received an unqualified audit report on its performance and financial statements. Approved projects for 2015/16 were technical support for the third general elections of Burundi, the Timbuktu Manuscript, the Cuban Medical Brigade in Sierra Leone, the transportation of humanitarian assistance to Madagascar, the African Capacity Building Foundation and the Cuban Economic Package.   

Discussion
Mr S Mokgalapa (DA) knew about the project in Burundi being rescinded, but wanted to know what the status of other projects were. The Committee needed to follow the money that had been appropriated to the ARF. Had funds been disbursed to projects? What had been meant when, during the briefing, it was stated that quality assurance had not been done? The DIRCO was asked when the ARF was to be wound up, giving way for the South African Development Partnership Agency (SADPA).

Ms Bhengu explained that when the ARF secretariat received projects, the project proposals were quality assured before they were submitted to the Advisory Committee. If no projects were received, then quality assurance would not be done. Quality assurance was done on projects on the ground, as a report was required.

On the status of projects, she said that technical support for the general elections in Burundi had been carried out. The Timbuktu Manuscript Project had been put on hold. The Cuban Medical Brigade Project in Sierra Leone had been completed and was closed. On the transportation of humanitarian assistance to Madagascar, the project was ongoing. The African Capacity Building Foundation Project had been completed and closed. The Cuban Economic Package Project was making progress.

Ms D Raphuti (ANC) said that the ARF needed to be commended for obtaining an unqualified audit report.

The Acting Chairperson agreed. He commented that the SADPA had been in the Annual Performance Plan of the DIRCO in the previous financial year. What was the progress on this issue? The briefing document had indicated that close to R2.7m had been processed towards capacity building for the African Capacity Building Foundation. What was the Foundation all about, and what was its purpose? Payment of the Cuban Economic Package was long overdue. The Committee needed to be kept abreast of progress. What benefit was the package to the Cuban people?

Ms Bhengu said that the African Capacity Building Foundation was based in Zimbabwe, and was doing training on governance.

Mr Mahoai on the transition from the ARF to the SADPA noted that problems were being experienced. The SADPA had been proclaimed a government component in 2013. The ARF Act therefore needed to be repealed. The SADPA Bill was in cabinet but it was at an impasse. National Treasury was of the opinion that it should have concurrence with the SADPA as it had with the ARF. The DIRCO disagreed and felt that the SADPA should be under the DIRCO. The ARF would continue to exist until its legislation was repealed.

Ms Mathlako on the Cuban Economic Packages said that there were three in number. The packages were for seeds required in Cuba; there was the purchase of tyres that were required as well as other goods that could be supplied by South African companies. 

The Acting Chairperson remarked that what Mr Mahoai was saying was that the Annual Performance Plan had not been achieved as far as the ARF transition to the SADPA was concerned

Deputy Minister Landers responded that the issue of the SADPA was about accountability. National Treasury and the DIRCO were at a deadlock. He explained that the SADPA Bill should read either “after” or “in” consultation with National Treasury. If “after” was chosen then no National Treasury permission was needed. On the other hand if “in” was chosen then it meant that National Treasury had to grant approval for projects. He personally suggested the inclusion of both options so that cabinet could make a decision. The Bill and the issue would also come before the Committee. The Committee could also decide which the best option was.

The Acting Chairperson felt that the SADPA issue could not be in limbo forever. Only parliament could break the deadlock. The Committee could engage both National Treasury and the DIRCO. The sooner the transition from the ARF to the SADPA could take place the better it was for proactive funding of projects to take place.

Deputy Minister Landers asked that the Committee bear in mind accountability when it considered the Bill.

Mr M Maila (ANC) asked how the money was followed on ARF projects.

The Acting Chairperson asked what mechanism the DIRCO had to follow the money. The Committee needed specifics in the ARF’s Annual Report.

Mr Kgabo Mahoai, Acting Director General, DIRCO, said that specifics would be forthcoming when the DIRCO presented the ARF’s annual report.

Ms Dineo Mathlako, Head: African Renaissance Fund Secretariat, illustrated by way of example
how the ARF followed the money. The ARF had a project in Conakry, Guinea. The funds for the project had not been given to the Guinea Government, but to the South African mission in the country. ARF staff were on hand to run the project. There were financial reports and other reports for accountability purposes.

The Acting Chairperson said that the Committee appreciated the good work of the ARF, but there was room for improvement.

Impact on SA’s foreign policy of BREXIT and SA-EU/EU-SADC economic partnership agreement negotiations

Ms Yoliswa Maya, Deputy Director General: Latin America and Caribbean, DIRCO, on the issue of Brexit, said it was important to remember that the European Union (EU) was SA’s biggest trading bloc. The United Kingdom (UK) was SA’s eighth largest trading partner. Whatever was being said by the DIRCO over Brexit was purely speculation and assumption. A clearer picture would emerge in two years’ time, if and when the exit was complete. At present, the UK was still part of the EU.

Mr Pieter Vermeulen, Chief Director: Western Europe, said the UK had joined the EU in 1973 and was the first state to withdraw in its 58 years of existence. The outcome of the referendum had been largely influenced by factors such as Euroscepticism, which had been heightened by the migration crisis in Europe. There was the perception that increased migration led to decreased employment opportunities for UK’s citizens, discontent of the older “blue collar” establishment in the UK, many younger voters had not participated in the referendum, and many analysts believed that their participation would have favoured the “remain vote.” Finally, there had been the poor economic performance in Europe.

The political fallout of the referendum outcome in the UK had been swift. Prime Minister Cameron had immediately announced his resignation and after an intense campaign, Theresa May, former Home Secretary, had been sworn in as Prime Minister. She wished to have the “closest possible ties with the EU”. Some economic effects were that the pound had reached a record low in the immediate aftermath of the referendum, coupled with a decline in the London Stock Exchange, international credit rating agencies had cut the UK’s credit rating and finally, depending on the UK’s exit agreement with the EU, it would have to withdraw from more than 5 000 EU regulations and more than 1 100 trade agreements signed between the EU and third countries, including SA. The continued uncertainty caused by Brexit was expected to continue to impact negatively on the UK’s economy.

As far as the EU was concerned, the UK was the second largest EU trading partner after Germany, accounting for 13% of the EU’s internal trade and 15% of its imports to/from non-member states. Due to the UK being the US’s largest single market within the EU, Brexit may negatively affect the finalisation of the US-EU Mega Trade Agreement.

Implications of Brexit for SA
As at 2015, the UK was SA’s eighth largest bilateral trading partner. SA exports to the UK amounted to R41.6bn, and imports from the UK amounted to R35bn. 407 486 tourists from the UK had visited SA in 2015, making the UK the number one source of tourists to SA.  In 2011, the UK had unilaterally introduced visa requirements for all South African passport holders, whether diplomatic, official or ordinary. In September 2014, SA had responded by introducing visa requirements for UK diplomatic passport holders. In response, the UK had lifted visa requirements for South African diplomatic passport holders. SA wanted all holders of South African passports to be visa exempt. The UK would cease to be a party to the Southern African Development Community (SADC) Economic Partnership Agreement (EPA) with the EU. In preparation for the eventual Brexit, it would be necessary for SA to enter into discussions with the UK on future trade relations and possibly a new bilateral trade agreement.

There would be no change to the framework of SA-EU relations. Relations would continue to take place under the SA-EU Strategic Partnership, within the legal framework provided by the Trade, Development and Cooperation Agreement (TDCA), as well as the SADC-EU EPA. Imports from the EU had totalled R320bn in 2015, and exports had amounted to R216bn. Over 2 000 EU companies operated in SA, creating 350 000 jobs. Investment from the EU accounted for 77% of SA’s total foreign direct investment stock
.  
The Committee was given insight into the procedure that the UK had to follow in withdrawing its membership of the EU. This process could take up to two years and was triggered only once the country invoked Article 50 of the Lisbon Treaty. Prime Minister May had made it clear that the UK would not do so before the end of 2016. If no agreement was reached within two years, the exit from the EU was automatic. Alternatively the parties could agree to extend the negotiating period. In the interim, the UK would continue to be a full EU member state, bound by the bloc’s rules and treaties.

On the way forward for SA, the fact of the matter was that there was much uncertainty around Brexit. SA should continue to monitor developments around Brexit -- the UK’s approach and also its negotiating strategy. SA should engage the UK’s political leadership to ensure that the SA-UK strategic bilateral relationship continued seamlessly after Brexit. Whilst these were early days, SA should start negotiating market access for South African products and services and also seek out possible opportunities that Brexit may present for Africa, BRICS and other formations.

Discussion
DIRCO’s Deputy Minister, Llewellyn Landers, referred to the issue of the UK unilaterally imposing visa requirements on South Africans going to the UK, and said that in all fairness, they had done so because a person had used falsified documents that had been issued in SA. SA had seen to it that its identity documents were now properly issued. This was the true state of affairs. On a positive note, he said that the National Assembly had ratified the SADC-EU Economic Partnership Agreement the day before, on 30 August 2016.

The Acting Chairperson said that SA had a history with the UK. He was glad that relations with the UK were ongoing and that the DIRCO had been proactive in meeting with the UK High Commission.
He pointed out that much information was missing from the version of the briefing document that Members had received, compared to what the DIRCO had presented. He asked that the DIRCO ensured in the future that Members received updated versions of briefing documents.

Arrangements were made to print out copies of the latest version of the briefing document, and they were handed out to the Committee.

Mr Maila asked whether it would come down to SA having to choose between the EU and the UK.

Ms Kalyan asked which seven countries were ranked higher than the UK as SA’s trading partners. She asked, hypothetically speaking, that if SA decided to exit from the African Union (AU), whether it would be the same as the exit of the UK from the EU. She asked the question because there was some discontent in Africa on the AU. The Pan African Parliament (PAP) had been formed as Africa’s equivalent of the EU.

Ms Maya said that DIRCO officials would have to consult with one another at present on which countries were the top trading partners of SA.

The Acting Chairperson commented that it was best to do so, rather than speculating on which the top countries were.

Deputy Minister Landers, with tongue in cheek, said that the DIRCO would not want to offend some states had not made it on to the list. He commented that Ms Kalyan had raised an interesting point on SA leaving the AU. The AU had been the successor of the Organisation for African Unity (OAU). The Libyan leader, President Muammar Gaddafi, had proposed that a United States of Africa be formed. He said that the strength of unions was the manner in which the parties to it conducted themselves. The citizens of member states had to see benefits. Britain and other EU member states had criticised the EU for making unilateral decisions.

Mr D Bergman (DA) said that SA needed to focus on things that were in its control. One of the things that needed to be ensured in SA was political stability, and the political parties had mostly done their part. The banks in SA needed to be independent and strong. The tourism sector should also be growing. He also referred to the South African Revenue Service (SARS) “wars” debacle that was going on between the Hawks and Minister of Finance, Pravin Gordhan, which did not bode well for SA. On a more positive note, he agreed with the DIRCO Director General’s suggestion that the number of trade shows that SA hosted should be increased.  On the EU-UK issue, for SA it should not be for the one or the other. SA should flirt with both the EU and the UK on issues of trade, etc. He reiterated that SA should influence things that were in its control.

The Acting Chairperson appealed to Members to stick to the issues at hand, and not to bring up matters like the SARS “wars” that were appearing in the media.

Deputy Minister Landers said that he intended to meet with his counterpart in Britain. SA’s interests would be foremost on the agenda.

Mr Mokgalapa drew comparisons with Brexit, if SA wished to withdraw from the SADC. Looking at the impact of Brexit on the SADC-EU EPAs, he asked whether an approach would be taken to bilaterally engage with the SADC’s 14 states.

Deputy Minister Landers noted that there was some concern that the EU was engaging in negotiations with SADC member states bilaterally. Going forward, the UK would have to do the same. The EU was negotiating with SADC member states individually and through the SADC bloc, hence the ratification of the SADC-EU EPA the previous day 30 August 2016 in the National Assembly. SA had to look at its national interests.

He said that the Trans-Atlantic Trade and Investment Partnership (TTIP) looked dead in the water. It was a monstrosity. USA President Barack Obama had sights on the TTIP being his legacy. Local environmental laws of countries like SA would have been overridden by the TTIP. There were members of the EU which did not see eye to eye on the TTIP. The German government was not in total agreement on it, and the French head of state had also not supported it.

Ms Maya said that the SADC Summit was taking place and that the DIRCO would raise the issue of the EU engaging SADC member states bilaterally.

Ms Raphuti asked who the actual Britons had been that had voted on the Brexit issue.  What had been their rationale, given that a 52% majority had voted in favour of Brexit? What had informed their decision to leave? She asked whether ordinary Britons understood the implications of leaving the EU.

The Acting Chairperson said that Britons had made their choice, and South Africans needed to respect it.

Ms Maya said that the information on the voting of Britons on Brexit was provided in the briefing document. Statistics had shown that young persons had not voted. It was mostly the mature and older people that had voted. Research information had shown that after the referendum had taken place, some Britons had not even known what the EU was and what benefits it had for them as Britons. Clearly many Britons had not understood what the referendum was all about. The biggest sentiment which had influenced the UK to leave the EU had been the flow of immigrants into the EU. There were concerns that immigrants were eating into social benefits. This sentiment was shared even in the Americas.

The Acting Chairperson stressed that by its own admission, the briefing by DIRCO on the impact of Brexit on SA was based purely on speculation.

Institute for Global Dialogue (IGD) on SA-EU relations and impact of Brexit

Dr Philani Mthembu, Acting Executive Director: IGD, said that the presentation was based on a research paper that he had done, and that it was still in draft form. The idea had been mainly to evaluate the EU-SA trade partnership -- or rather, to re-evaluate it. The research had included field work done in some EU countries.

The EU was one of SA’s biggest trade partners as a bloc. China was SA’s biggest trade partner as a country. The trade agreement between the EU and SA was SA’s first trade agreement post democracy. As trade relations with China were growing, there was a perception that SA was choosing China over the EU. The facts were that 77% of all foreign direct investment came from the EU, and not from China. The EU also played a huge role in trade and development issues.

In the last few years, development funding to SA had decreased, and this was the broader policy adopted towards emerging economies. SA still faced challenges, but its overseas direct investment (ODI) from the EU was declining. The concept of trilateral cooperation was where a donor country worked with a developing country on work that was to be done in a third recipient country. For example, SA had worked with Germany on work that was to be done in Tanzania. Germany, Spain and Japan had policies on trilateral cooperation. The EU did not have a policy on trilateral cooperation. The funding on trilateral cooperation was not as much as it was on bilateral cooperation. Bilateral cooperation was the best form of cooperation.

On the economic side, relations between the EU and SA were strong. However, SA was diversifying its trade partnerships, and there was friction on the political side of things, as EU officials were concerned that SA favoured African solidarity. On the ground, this was not the case, but politically it was coming to the fore. SA had approached the issue through quiet diplomacy. Of late, the EU’s position had come closer to that of SA. The EU had even softened sanctions against Zimbabwe. The EU had even come to understand the complexities of SA implementing its African Agenda. SA favoured a more multilateral approach than a bilateral approach. There would never be total agreement on all issues. The strategic partnership between the EU and SA allowed for dialogue to take place at a high level.

SA played a huge role in enhancing the African Agenda, and especially in respect of peace and security in Africa,. SA worked with the EU to implement its African Agenda by virtue of the EU’s involvement in Africa already. A great deal of funds originated from the EU when it came to the architecture for African peace and security. The EU did play a role in filling the funding gap. While SA wished Africa to be self sufficient, for now donors like the EU had to be worked with. The EU would continue to play a role in terms of SA’s foreign policy in Africa.

The reality was that SA did not have the capacity to fund all its aims in Africa. This could be done through trilateral cooperation. This would become evident when SADPA came online. It was important not to reduce the partnership to regional issues, but to maintain it on a global basis. The growing discontent in Europe showed that the TTIP would not succeed. SA’s focus was on multi-lateralism. The TTIP negotiations had shown that the EU and the US wished to circumvent the World Trade Organisation (WTO). The US and the EU were pushing for mega-region agreements, and would eventually try to rewrite global trade rules.

Moving forward, SA had to engage the EU to bring the WTO back to the centre of global trade. SA needed to voice its displeasure with the EU on its willingness, with the US, to enter into agreements outside of the WTO. This weakened the WTO and also weakened SA in terms of global trade. The EU was still an important trade and development partner to SA while it was meeting its own goals. 

Discussion
The Acting Chairperson said that when SA visited the EU, the issue of China being a major trading partner of SA was always raised. When SA meets its EU partners, discussions should take place on positive things. The Committee appreciated the presentation, and it had been helpful that Dr Mthembu had done field research in some EU countries.

Mr Mokgalapa agreed that field research had provided a fresh perspective. He asked Dr Mthembu to speak to the issue of the AU budget. The AU was supposed to have come up with a new funding model. On the collapse of the TTIP, he said that when he had gone to Geneva in 2015, the US and the EU had tried to negotiate the TTIP. The amount of protectionism that the US and the EU were calling for was alarming. He totally supported bringing the WTO back to the forefront of trade negotiations. The EU and the US expected everybody else to open up markets while they closed their own.

Dr Mthembu responded on the issue of the AU Budget, and said that suggestions had been made to charge tourists coming into Africa a tax in order to raise funds. Some countries had objected to the proposal, as it could negatively affect tourism. Meetings held in Addis Ababa regarding financing for development, had stressed that resources needed to be sourced from within Africa. The perception had always been that Africa was a recipient of aid. Strangely enough, when one looked at the amount of funds that the African Diaspora sent back to Africa, it was greater than the amount of aid that was sent to Africa. It was, however, unfortunate that illicit flows out of Africa were more than what was coming into Africa. Donors should always be put under pressure. On the other hand Africa had to also come up with creative ways of financing institutions in Africa. He gave the example of Ethiopia not being able to secure financing for its Renaissance Dam. Ethiopia had approached its own society to come up with financing. The financing was eventually provided by its diaspora and China.

The issue was whether Africa could finance its own funding. On the rise of protectionism and the fall of the TTIP, developing countries had been given instructions to open up their markets. SA, for that matter, had one of the most open economies. In recent years, as developing countries became stronger in putting development issues at the core, the US and the UK had moved backwards in their use of the WTO. Pressure needed to be applied to the US and the UK not to enter into bilateral deals which kept the developing world behind. He pointed out that the Trans Pacific Partnership did not have any Brazil, Russia, India, China and SA (BRICS) countries being part of it.

It had to be realised that there was a geopolitical aspect that had to be taken into consideration. The issue needed to be raised, as it affected developing countries like SA. If SA did exactly what the EU was doing and it affected them negatively, then they would raise it immediately with SA. SA had to stand its ground and raise issues with the EU. There were those in the EU which viewed the TTIP in the same way as SA did. The EU must not be seen as a single unit. Initially when the TTIP had come up, the EU had done a study which showed that there were massive gains, and it had looked promising to the Germans. However, when civil society and think tanks in Germany looked at it, they had found loopholes in iy. The TTIP allowed multinational corporations to take sovereign countries to court, where it impacted upon their profit margins. Multinational corporations, for example, had taken Germany to court when the country decided to stop using nuclear power. He urged that when SA went to the EU and the US, it had to identify different voices and not only those that agreed with SA.   

Ms C Dudley (ACDP) asked what the way forward was for SA on Brexit. Would there be pressure from the UK?

Dr Mthembu pointed out that one positive of Brexit was that the uncertainty created was the final nail in the coffin of the TTIP. The UK had been a major supporter of the TTIP.

He had read a report which said that UK supermarkets would no longer source its vegetables and fruit from the Netherlands and Spain, but rather from Africa. Technical issues had been used to prevent African fresh produce from getting on to markets. The EU was under pressure to show that they were trying to solve their issues. SA must constantly be looking for opportunities. The UK would wish to maintain agreements that it had with SA. The African Growth and Opportunity Act (AGOA) was not sustainable if it was unilateral. It had to be reciprocal. The WTO had to be brought back into the foreground. EU countries alleged that they were open to trade, so SA should put pressure on them. This should be done, despite the EU having protectionist measures. The EU, in granting development aid, always asked its recipients to open up markets.  

The Acting Chairperson commented that the input had been at a very high level and for SA to be protected, it had to be in a formal structure. He said that US unilateralism was concerning. The input was hugely appreciated, but SA and Africa had a long way to go.

The meeting was adjourned.