SADC Economic Development

SADC Economic Development

Overview of the SADC

3.1 Introduction

SADC has been in existence since 1980, when nine states in Southern Africa formed the Southern African Development Coordination Conference (SADCC) with the aim of coordinating development projects in order to lessen economic dependence on the then apartheid South Africa. On 17 August, 1992 the organisation was transformed from a Coordinating Conference into a Development Community giving the organisation a legal character. The Member States are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

As per Article 5 of the SADC Treaty, the organisation has as its mission “to promote sustainable and equitable economic growth and socio economic development through efficient productive systems, deeper cooperation and integration, good governance, and durable peace and security, so that the region emerges as a competitive and effective player in international relations and the world economy.”

The following are the objectives of the SADC as set by the Section 5 of the SADC Treaty:

• The achievement of development and economic growth, alleviation of poverty, enhancement of the standard and quality of life of the people of the region and to support the socially disadvantaged through regional integration;

• The evolvement of common political values, systems and institutions;

• The promotion and defence of peace and security;

• The promotion of self-sustaining development on the basis of collective self-reliance, and the interdependence of Member States;

• The achievement of complementarity between national and regional strategies and programmes;

• The promotion and maximization of productive employment and utilisation of resources of the region;

• The achievement of sustainable utilisation of natural resources and effective protection of the environment;

• The strengthening and consolidation of the long-standing historical, social and cultural affinities and links among the people of the region.

All the above objectives converge to a single main objective of building a region where a high degree of harmonisation exists and to enable pooling of resources for the achievement of collective self-reliance to improve the living standards of the people belonging to the region. However, this is a complex task which needs to be carried out with great care and Article 4 of the SADC Treaty does provide some principles to which SADC and its Member States are expected to abide. These are:

• Sovereign equality of all Member States;

• Solidarity, peace and security;

• Human rights, democracy and the rule of law;

• Equity, balance and mutual benefit;

• Peaceful settlement of disputes.

A number of measures and means have been identified in order to better achieve the aims. These are:

• The harmonisation of political and socio-economical policies and plans of Member States;

• The mobilisation of the people of the region and their institutions to take initiatives for the development of economic, social and cultural ties across the region and full participation in the implementation of the programmes and the projects of the SADC;

• The creation of appropriate institutions and mechanisms for the mobilisation of requisite resources for the implementation of the programmes and operation of SADC and its institutions;

• The development of policies aimed at the elimination of hurdles for the free movement of capital and labour, goods and services;

• The promotion of regional development of human resources;

• The promotion of the development, transfer and mastery of technology;

• The improvement of economic management and performance through regional cooperation;

• The promotion of the coordination and harmonisation of the international relations of Member States;

• The security of international understanding, cooperation and support.

3.2 Socio-Economic Situation in SADC

3.2.1 Political Situation

Southern Africa has experienced political unrest for several decades which led to economic decline and social instability. But now a great deal of political stability is prevailing over the region, a factor which can surely lead to economic recovery.

3.2.2 Main Economic Characteristics and Current Economic Development

Selected Macroeconomic Indicators

Population and Gross Domestic Product (GDP)

Despite a slow start in 1990-1992, the average regional GDP growth rate during the 1990s and beginning of 2000s has been significantly positive.

SADC Structure of Production

SADC countries are not different from the other developing countries where the primary sector dominates. Statistics on SADC show that only Mauritius and South Africa have manufacturing sectors at approximately 25% of GDP. In addition there is limited production of diversified range of product in SADC economies.

Per Capita Income

SADC’s average level of per capita income is very low and has been declining in most countries over the last three decades, the main contributing factors being underdeveloped production structures, poor economic performance, macroeconomic problems and unfavourable international economic environment.

Inflation and Interest Rates

Due to sound macroeconomic policies, especially in the early 1990s, most SADC economies have performed well in stabilising inflation rates. But the tight monetary policy intended to the levels of inflation low means that interest rates remain high in all SADC Member States.

Savings and Investment

Savings and investments are central determinants of the rate and pattern of economic growth in SADC countries. Between 1980 and the early 2000s regional Gross National Savings fell short of regional Gross Domestic Capital Formations. Individually, wide disparities between savings and investment rates existed between the countries. Concerning foreign direct investment (FDI), most countries are attracting resource-seeking foreign investment flows.

Fiscal Balances

Most SADC countries continued to experience high budget deficits during 1990-2000 despite high efforts to bring them to acceptable levels. The reason for this was because of the countries’ commitment to eradicate poverty through increased public provision of health and education facilities.

External Trade and the Terms of Trade

Total merchandise trade of the SADC increased between 1991 and 1998, trade being relatively more important part of GDP in small countries than in large countries. Statistics show that the majority of SADC members have experienced a long term decline in their terms of trade, the trend being particularly persistent between 1980 and 2000.

Intra- regional trade in SADC is influenced by both the SADC Trade Protocol and bilateral trade agreements, which Member States have negotiated prior to entry into force of the Trade Protocol.

External Debt and Aid

Most SADC countries have seen their external debt burden increase over the last two decades and in many countries the debt burden has become extremely onerous.

Key Integration and Development Enablers

3.3.1 Peace, Security, Democracy and Good Political Governance

SADC Member States are committed to “promote common political values, systems and other shared values which are transmitted through institutions that are democratic, legitimate and effective”. To this effect, SADC acknowledges that in conditions of political intolerance, absence of a proper legal system, corruption and war, economic growth and development will not be realised.

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Economic and Corporate Governance

Good economic and corporate governance are fundamental for the realisation of deeper integration and poverty eradication in the SADC region. There is some shared understanding that the unification of the Region's economies through the SADC FTA and the quest to achieve deeper levels of integration will not be realised in the absence of good economic and corporate governance.

Other Prerequisites for Deeper Integration and Poverty Eradication

There are several other prerequisites that will facilitate the move towards deeper integration and poverty eradication. Some of them are:

• Diversification of regional economies through, inter alia, industrial development and value addition;

• Trade liberalisation and development;

• Liberalisation in the movement of factors of production;

• Research, science and technology innovation, development and diffusion;

• The creation of an enabling institutional environment;

• Productivity and competitiveness improvements;

• Private sector development and involvement;

The above prerequisites are interrelated and each one supports each other. If treated in isolation, none can successfully impact on the integration agenda. All of them are important for leading towards sustainable development. But they require careful timing if they are to be effective for deeper integration.

Regional Integration in SADC: Possible Benefits and Obstacles

The possible benefits that will accompany a regional integration of exchanges among the SADC Member States are numerous. Investors may gain in terms of diversified risk in a larger market, reduced costs, higher returns and superior cross-border capital flows. It should be noted that the efficiency and competitiveness of the markets will also be improved. A broader range of shares will be available to investors and the issuers would gain access to a larger number of investors.

Large share issues will be possible through regionalisation which previously could not be absorbed on a national basis. These types of transactions can further promote the development of the capital market and lead to increased liquidity. In addition to all the benefits already mentioned, the integration of capital markets can also help to achieve integration in other areas. For instance, policy areas such as taxation, accounting standards, corporate governance and legal practices can be harmonised which would enhance the regional integration.

However, a major setback in the achievement of these benefits is the pace at which the regional integration will be carried out. If an integrated stock market is created too early without proper consideration for the future or without taking into consideration the present state of the individual members, this can lead to create a large illiquid market. Since liquidity is one of the most essential elements for a strong link between stock market development and long term economic growth, it would not be wise to compromise with it.

It is argued that in order to avoid failure, by heading too quickly towards regional integration, progress should be made firstly in the developing capital markets at the national level. The collective investment vehicles must be stimulated and public must be made aware of the benefits of investment through education and publicity campaigns. In short, the illiquidity constraints must be dealt with.

It is a known fact that many of the SADC Member States’ national exchanges are characterised by inappropriate institutional capacity to enforce stock market regulations, low stock market infrastructure, inefficient access to information or communication technology. These limitations will have to be taken into consideration when harmonisation of regulatory and policy frameworks and infrastructure are made.

Other obstacles that have reduced, if not, prevented the possibility of capital market integration in Africa till now is the fact that there are overlapping memberships in the different regional groupings. Apart from SADC there are COMESA, SACU and EAC. This has lead to duplication of effort and on many occasions, inconsistent aims towards the integration of the markets.

Furthermore there is resistance towards the regional development plans at the national government level of the different States. Governments fear the idea of losing the national sovereignty that a national exchange possesses.

Thus, the differences among the Member States in their commitments to regional integration due to factors such as sovereignty concerns and limited available resources may delay the progress.