Southern Africa: Prospects for Industrial Development in SADC

Posted on : Monday, 28th July 2014

The first major challenge for SADC economies, as is the case with most African states, is a development model that is driven by consumption and primary commodity exports.

The limitations of this kind of an economic growth path were severely exposed during the recent global economic crisis when the region’s economic performance was severely jolted.

Further, the regional integration model in Africa has tended to focus too much on trade at the expense of the development of the industrial sector.

SADC has not been an exception. In fact, its successive development blueprints have identified trade as the main development priority.

Although SADC policy documents have consistently recognised the need to develop the industrial sector to accompany emphasis on trade, the industrial policy framework document has not been in place until recently.

The SADC Industrial Development Policy Framework was approved by the Committee of Ministers of Trade in November 2012 and endorsed by the Council of Ministers in February 2013 and is yet to be implemented.

The policy document identifies three sectors for initial focus in the medium term: agro-processing, mineral beneficiation and pharmaceuticals.

This will be a key issue for discussion at the 34th SADC Summit, to be hosted by Zimbabwe in Victoria Falls next month under the theme, “SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development”.

A growing industrial sector is key to sustained overall economic as well as human development of a country due to the multiplier effect insofar as it promotes value-addition and employment generation.

A second challenge relates to economies built on a weak economic infrastructure base, including poor road, rail and air networks, and power shortages.

Third, lack of access to appropriate modern technologies has limited industrial competitiveness and ability to engage in value-addition and beneficiation.

Fourth, the majority of the countries lack access to affordable capital for investment in industrial development.

Finally, when operating individually, most SADC economies are too small to enjoy the competitiveness that comes with economies of scale, particularly when dealing with any of the other challenges stated above.

These challenges can in fact present major opportunities when looked at from another angle. First, SADC is rich in natural resources, and simply needs to turn this into a competitive advantage through value-addition and beneficiation.

A related opportunity is presented by Africa’s demographic dividend. Whereas other parts of the world are losing their demographic dividend, Africa boasts of a young population, with the proportion of youth in some countries as high as 65 percent under the age of 35 years.

Second, due to Africa’s resource endowment, the continent is receiving greater attention from major economic powers – China, Europe and the United States.

Yet such attention, given the tempting nature of Africa’s resources, may lead to undesired consequences unless the leadership of the continent makes certain major decisions, including insistence on technological transfer in order to turn the primary commodities into high-value finished products for international trade.

Third, the arrival of China and other BRICS countries (Brazil, Russia, India, South Africa) on the global stage has democratised access to capital as well as widened options.

Gone are the days when decisions on flow of capital into Africa were dictated by the former colonial metropoles.

Shanghai and other international capital markets now offer a much wider menu for countries wanting to attract foreign direct investment.

Fourth, the problem of infrastructure has been correctly identified and therefore receiving political attention in Africa.

SADC adopted its Regional Infrastructure Development Master Plan (RIDMP) in August 2012 as the sub-region’s strategy for the development of integrated regional infrastructure to meet projected demand by 2027.

Fifth, regional integration offers the best option for member states to enjoy economies of scale that may be required to tackle some of the current challenges.

For example, some of the infrastructure projects identified under RIDMP would make economic sense only if pursued as sub-regional projects.

From a demographic perspective, the combined population of SADC is about 280 million, while that of the entire continent is just over one billion people, which compares favourably with other regions of the world.

The challenges facing SADC and many other African economies are as diverse as the number of countries that make up the continent, and it is important to acknowledge from the outset that while Africa is one continent, it is not made up of a homogenous group of countries, and so are the many regional economic communities spread across the continent.

All developing countries that have successfully made the transition from low income to middle and high income status, such as China and the East Asian Tigers as well as Latin American countries, have done so by relying on a strong manufacturing sector as the driver of an export-oriented growth economy.

This has been done with a strong role for government, especially in the provision of infrastructure whose magnetic power has been most evident in China in attracting new industries and other forms of development.

SADC and the rest of Africa have no choice but to break from the current consumption and commodity exports development path to a more sustainable development model based on industrial competitiveness.

Since the 1980s, special economic zones were introduced in China through careful experimentation, notably starting in Guangdong province where the remarkable story of Shenzhen was turned from what was once a fishing village into an ultra-modern industrial city.

This model has since been replicated in other parts of China, turning the country from a previously agro-based economy into one that now derives about 90 percent of its income from industrial and service sectors.

China is already supporting special economic zones in Egypt, Ethiopia, Mauritius, Nigeria and Zambia, and some lessons can be drawn from China’s development experience.

The success of China’s industrial development can be attributed to gradual and strategic economic liberalisation, an effective policy of foreign direct investment, incentives to both private and public sector enterprises, strategy of internationalisation for state-owned enterprises, research and development, and dynamic state institutions for policy guidance.

Success is driven by China’s strategic balance of protectionism and economic liberalism; China’s FDI policy and the regional development policy; and export-oriented growth and foreign economic policy.

Two strong features of the Chinese rapid economic development are investment-driven and export-oriented growth, based on the Chinese government’s ability to formulate an effective industrial development policy while maintaining a favourable climate for foreign investment.

In order to attract FDI without threatening growth of domestic industries, China adopted measures that include:

* Regional industrial policies and export promotion strategies;

* Development-oriented and sustainable FDI regimes that promote capital inflow, joint ventures between local firms and foreign investment; and,

* Adoption of coherent strategies for special economic zones.

China’s SEZ experience therefore offers a viable option if carefully designed with African characteristics.

The model of development hitherto pursued by African countries and their RECs has not successfully delivered the desired development targets for the continent to effectively rise out of the periphery.

The post-colonial African state needs to make certain radical decisions. Such decisions need not be made by others on behalf of Africa.

It is Africa itself that needs to make these radical decisions, drawing lessons and inspiration from the experience of China and other regions of the world.

Only that way can Africa take full advantage of its rich resource endowment as well as its demographic premium to finally break free out of the cage of post-colonial hegemony. sardc.net