BRANCH: AFRICA MULTILATERAL 11 BRANCH: AFRICA MULTILATERAL PORTFOLIO COMMITTEE BRIEFING ON REGIONAL ECONOMIC INTEGRATION 15 JUNE 2011 11 1 1

Outline of the presentation 22 Outline of the presentation 1. Background 2. Objectives 3. Challenges to Regional Economic Integration 4. Developments of the Economic Regional Agenda SADC Priorities SACU SADC FTA RISDP Review COMESA- EAC-SADC Tripartite FTA 5. South Africa’s Approach to Regional Economic Integration 6. Way forward 22 2 2

Background to Regional Integration 33 Background to Regional Integration Background Regional economic integration aims to facilitate trade; investment; job creation poverty alleviation and to achieve peace and security. 1996 SADC Protocol which has resulted in the Development of the SADC FTA in 2008 This is supported by South Africa’s Trade policy and strategy documents adopted in 2010. IPAP 2, ( Industrial Policy Action Plan ) - New Growth Path, Outcomes 11 and South Africa’s cooperation with emerging markets (BRICS) Realising that the economic growth of South Africa is directly linked to that of the region and the African Continent. That the security of the region is under threat for as long as there is underdevelopment, unemployment and poverty. South Africa has played a critical role in SADC achieving the FTA. The FTA has been implemented by the majority of the SADC member states with only DRC, Angola have not yet implemented the FTA while Zimbabwe has requested SADC waiver to allow for domestic industry development. Malawi has also not fully implemented the Trade protocol arguing that the government wanted to understand how the process will be beneficial to them. 33 3 3

2. To ensure collective approach in engaging other REC’s 44 OBJECTIVES 1. To contribute towards the improvement of the climate for domestic, cross-border and foreign investment. 2. To ensure collective approach in engaging other REC’s 3. To enhance the economic development, diversification and industrialization of the Region. 4. Transform SADC region into a competitive and effective player on the global political and economic stage. The SADC and the Africa continent has become a contested terrain for foreign investment. However due to lack of coherence in policy priorities the region has been unable to take advantage of foreign investment in the region. This has perpetuated the problem of underdevelopment with the majority of member states relying on development aid (assistance). Dependence of foreign aid limits policy space and decision-making as the donor countries tend to dictate on policy in the region. National policies and priorities are in conflict to that of the SADC region which manifests when the region is negotiating with third parties. i.e EPA’s. This realisation has resulted in SADC shifting the establishment of the Custom Union which was envisaged for 2010 due to the fact that SADC trade protocol has not been fully implemented by all member states. Emphasis is now placed on the development of regional industrial policy, competition policy and infrastructure development. These priorities aim to transform the SADC region into a competitive global economic player. 44 4 4

Challenges to Regional Economic Integration 55 Challenges to Regional Economic Integration Lack of commitment in the implementation of targets by member states (e.g. DRC, Angola etc not implementing SADC trade protocol), overlapping memberships in RECs (e.g. Tanzania – SADC and EAC) Lack of funding- SADC programmes are finance mainly by donor agencies which present the challenge of ownership and foreign influence Market not diversified – remain exporters of low- value raw materials and importers of high-value goods. 55 5 5

Challenges to regional economic integration 66 Challenges to regional economic integration Challenges: 4. Lack of infrastructure development 5. Different levels of economic development 66 6 6

Developments of the Economic Regional Agenda : SADC priorities 77 Developments of the Economic Regional Agenda : SADC priorities Development of comprehensive work programme in an effort to consolidate the regional economic integration agenda. RISDP review Consolidating the SADC FTA Status of the SADC Customs Union COMESA-EAC-SADC Tripartite FTA process In recognition of the need to accelerate the pace of Regional Economic Integration, SADC developed and implemented a roadmap designed to provide a strategic framework for the achievement of this objective in the SADC region. The roadmap seeks to align its programmes to the social and human development indicators and measures as contained in the Millennium Development Goals Regional Indicative Strategic Development Plan (RISDP) identified key goals towards regional economic integration: achievement of a Free Trade Area by 2008; a Customs Union by 2010; and a Monetary Union by 2016. SADC FTA – provides good platform for higher regional economic integration and infrastructure development to benefit all Member States. South Africa advocates for a developmental regional economic integration agenda with an aim to create an environment conducive for economic growth and development. Other member states see the linear approach to development advocating for the immediate establishment of the SADC Customs Union for monetary benefits. South Africa’s position remains to defer indefinitely the establishment of the SADC Customs Union to focus our limited resources and energy towards consolidating an FTA. Over and above this, South Africa advocates a wider regional integration programme (the tripartite process). 77 7 7

Developments of the Economic Regional Agenda : SACU 88 Developments of the Economic Regional Agenda : SACU SACU remains the oldest customs union, however this has not been without challenges. SACU Agreement (2002) – not fully implemented which manifested when negotiating with third parties (e.g. EPAs) Revenue declines from the SACU revenue pool which exposed over reliance on SACU receipts for national budget revenue by member states and lack of diversification Low intra- regional trade SACU goes beyond being a captive market for South Africa and remains an integral part of South Africa’s regional economic integration process. The aim is to use the experiences of SACU for the deeper integration of SADC and that of the tripartite process which will present South Africa with a far larger market and enabler for accelerated regional economic integration. As with SADC the challenges of SACU reveals that the full implementation of the SACU 2002 agreement has not been achieved. Emphasis has been on the tariff related issues while work on industrial and institutional development was not done. The Summit held in South Africa in June agreed on the following priorities to ensure the full implementation of the SACU 2002 agreement. Five of the 12 priority areas are: development of a regional industrial policy; review of the revenue sharing formula; trade facilitation ( elimination of non-tariff barriers – improve customs process, ICT, trade partnerships and legislations); Development of SACU institutions (SACU tariff board); unified engagement of Member States in international negotiations. 88 8 8

Developments of the economic regional agenda : SACU (continues) 99 Developments of the economic regional agenda : SACU (continues) In addressing the challenges SACU member states agreed on five priorities namely; development of regional industrial policy, review of the revenue sharing formula, development of SACU institutions, unified engagement of Member States in international trade negotiations. 99 9 9

Developments of the Economic Regional Agenda : SADC FTA 10101010 Developments of the Economic Regional Agenda : SADC FTA Launch of SADC Free Trade Area (FTA) in 2008- provides enabling platform to positively advance higher levels of regional economic integration and infrastructure development. SADC Summit (August 2010) adopted comprehensive work programme with concrete actions and timelines aimed at consolidating SADC FTA as a priority. SADC- significant trade integration progress recorded. integration. In 2008, 85% of goods were traded duty free; by 2012, 99% of goods traded will be duty free. 1010 10 10

Developments of the Economic Regional Agenda : RISDP review 11111111 Developments of the Economic Regional Agenda : RISDP review RISDP- identified establishment of specific milestones in support of the regional economic integration agenda i.e. SADC Free Trade Area by 2008; Customs Union by 2010; and Monetary Union by 2016. Recent developments: - March 2011 Council of Ministers Meeting (March 2011)- decision that Member States undertake review of national development aligned to RISDP. 1111 11 11

Developments of the economic regional agenda : RISDP review (continue) 12121212 Developments of the economic regional agenda : RISDP review (continue) - Progress reports forwarded to SADC Secretariat (May 2011). - Terms of Reference developed to inform comprehensive review of RISDP. - SADC- to advertise ISDP review by external contractor among Member States. Progress to be discussed at SADC Summit, August 2011,Luanda, 1212 12 12

COMESA-EAC-SADC Tripartite Free Trade Agreement 13131313 COMESA-EAC-SADC Tripartite Free Trade Agreement Establishment of SADC-COMESA-EAC Tripartite Free Trade Area (FTA) arises from decision by the Heads of State and Government at Inaugural Tripartite Summit in Kampala, Uganda in October 2008 The COMESA-EAC-SADC Tripartite FTA represents 26 Countries with a combined population of nearly 600 million people and a total Gross Domestic Product (GDP) approximately US$1.0 trillion; 1313 13 13

COMESA-EAC-SADC Tripartite Free Trade Agreement (Continue) 14141414 COMESA-EAC-SADC Tripartite Free Trade Agreement (Continue) Addresses issue of overlapping membership Forms a building block towards eventual African economic integration as envisaged by the Abuja Treaty of the African Union. Better opportunity to expand market access for SA products on the continent, while preserving SA’s These figures outlined in the presentation points to the huge potential economic benefit this Tripartite FTA arrangement offers Member States from the perspective of leading to higher levels of inter-Africa and inter-regional trade from its current low base of 10%. A larger, integrated and growing regional market will serve to attract foreign investment. It will bring tangible benefits for traders and people by removing obstacles to the movement of goods across borders. It will provide a framework for addressing the logistics of moving goods across borders, including the efficiency of transport infrastructure, documentation, and the overall administrative procedures associated with cross-border trade. An integrated regional developmental approach underpinned by the three pillars of market integration, infrastructure development and industrialisation will facilitate the development of regional manufacturing and production bases. This in turn will contribute to product diversification and the move away from trade in primary to value added products (beneficiation). The building of manufacturing production capacity would facilitate entry to value chains in context of both South-South and North-South trade. It is also seen as offering an outcome to the vexing issue of multiple and overlapping membership of regional economic communities that has bedevilled the regional economic integration process in SADC in particular. 1414 14 14

COMESA-EAC-SADC Tripartite Free Trade Agreement (Continue) 15151515 COMESA-EAC-SADC Tripartite Free Trade Agreement (Continue) Second Tripartite Summit decisions: Officially launched the COMESA-EAC-SADC Tripartite Free Trade Area (FTA) Negotiations on 12 June 2011, Johannesburg, Summit endorsed the pillars of Tripartite integration, namely (i) market integration; (ii) infrastructure development; and (iii) industrial development. Summit endorsed the Tripartite FTA Negotiating Principles, Processes and Institutional Framework. These figures outlined in the presentation points to the huge potential economic benefit this Tripartite FTA arrangement offers Member States from the perspective of leading to higher levels of inter-Africa and inter-regional trade from its current low base of 10%. A larger, integrated and growing regional market will serve to attract foreign investment. It will bring tangible benefits for traders and people by removing obstacles to the movement of goods across borders. It will provide a framework for addressing the logistics of moving goods across borders, including the efficiency of transport infrastructure, documentation, and the overall administrative procedures associated with cross-border trade. An integrated regional developmental approach underpinned by the three pillars of market integration, infrastructure development and industrialisation will facilitate the development of regional manufacturing and production bases. This in turn will contribute to product diversification and the move away from trade in primary to value added products (beneficiation). The building of manufacturing production capacity would facilitate entry to value chains in context of both South-South and North-South trade. It is also seen as offering an outcome to the vexing issue of multiple and overlapping membership of regional economic communities that has bedevilled the regional economic integration process in SADC in particular. 1515 15 15

The most important principles agreed to were that the 16161616 The most important principles agreed to were that the negotiations shall be REC and/or Member State driven; the principle of variable geometry shall apply ( Member States shall enter negotiations at level of development); and decisions shall be taken by consensus. Tripartite Free Trade Area Roadmap for negotiations Preparatory Phase- 6-12 months, Phase I for negotiations on trade in goods- 3 years Phase II for the negotiations under the built- in agenda to be undertaken after the completion of Phase I i.e. services, intellectual property and trade related issues. 1616 16 16

17171717 Summit agreed that the negotiations on the movement of business persons, as well as the work programmes on infrastructure and industrial development would be undertaken concurrently on separate tracks during Phase I. Summit noted that the time-frames may run concurrently rather than sequentially on the basis that some programmes would be ongoing and could therefore be pursued simultaneously. 17 1717 17

South Africa’s Approach to Regional Economic 18181818 South Africa’s Approach to Regional Economic Integration South Africa is advancing a developmental integration agenda that combines trade integration, infrastructure development and sector policy coordination towards productive capacity across the region. South Africa supports the need to accelerate regional economic integration, and endorses SADC’s roadmap for the achievement of this objective in the region. 1818 18 18

19191919 South Africa is advancing a development integration in Southern Africa that combines trade integration, infrastructure development and sector policy coordination, in support of building greater productive capacity across the region. This includes strengthening a “real economy” cooperation agenda, of which industrial development is a critical component. The process is hampered by a lack of commitment by member states, shifting of goal posts and a lack of cohesion in our efforts towards realising objectives of this agenda. South Africa is advancing a development integration in Southern Africa that combines trade integration, infrastructure development and sector policy coordination, in support of building greater productive capacity across the region. This includes strengthening a “real economy” cooperation agenda, of which industrial development is a critical component. The process is hampered by a lack of commitment by member states, shifting of goal posts and a lack of cohesion in our efforts towards realising objectives of this agenda. South Africa needs to develop mechanisms to be more assert as a key player in the region, continent and beyond. There is a need to develop clear strategies of engagment within various groupings and to ensure that they are inline with our interests as a country and in the region. Eg; RSA’s membership in BRICS needs to managed being mindful of the fact that BRICS members are RSA;s biggest competors in particularly the African continent 1919 19 19

20202020 Regional and continental infrastructure development is of intrinsic importance to the realisation of Africa’s economic growth and development imperatives and ambitions for greater trade integration and global market space. The championing by President Jacob Zuma of the North-South Corridor Project has provided important impetus to continental infrastructure development projects that will be mirrored in other corridor projects across various countries and sub-regions throughout the continent. 2020 20 20

21212121 Without these two elements it will be difficult for SADC countries and others in Africa to grow and develop the productive and manufacturing capacity needed to export to fellow African countries, the emerging economies of the South, and indeed the developing world. The primary challenge for Africa in relation to enhancing its trade capacity is to gain access to the value chains found in South-South and North-South trade linkages.   2121 21 21

South Africa should advocate for the following: 22222222 Way forward South Africa should advocate for the following: Finalise review of RISDP priorities and time-frames. Contribute to regional economic Integration through: Consolidation of SADC FTA. Promoting and strengthening institutional cooperation between SADC and SACU (i.e. notion of SACU as nucleus for regional economic integration). Prioritise regional economic integration with focus on market integration; infrastructure development; and industrial development. Ensure the realisation of the grand FTA (Tripartite process) 2222

23232323 Way forward South Africa needs to develop mechanisms to be more assertive as a key player in the region, continent and beyond. There is a need to develop clear strategies of engagement within various groupings and to ensure that they are in line with our interests as a country and in the region, Eg; RSA’s membership in BRICS needs to be managed, being mindful of the fact that BRICS members are RSA’s biggest competitors particularly in Africa. 2323