Breaking the grip of commodity dependence
RECENTLY, South Africa hosted the SADC Summit under the theme “Partnering with the private sector to enable industry and regional value-chains.” Heads of state unanimously endorsed the theme, which builds on the SADC Industrial Strategy Action Plan adopted in March this year.
The plan charts a clear route to be followed by regional states to attract industrial investment and begin to break the grip of commodity dependence. The need is pressing. More than half of Africa’s countries are still predominantly dependent on a single commodity for their export revenues.
This partly explains the continent’s very low level of intra-regional trade. It currently stands at only 12 percent, with most trade being extractive, destined for global markets in largely unprocessed form.
The strategy is to create integrated regional markets that will enable higher levels of trade, greater economies of scale and firm-level industrial capabilities that will drive successful competition against imported products. This will require that member states create the conditions that will allow serious industrial investment to take place at all.
As a critical first step, the region will have to urgently invest in its power, rail and road infrastructure to lay the platform both for attracting investment into local industries and facilitating more robust trade between member states.
South Africa has played a key role in driving the regional integration agenda, through the SADC Free Trade Area and the tripartite and continental initiatives. These can now start to be driven with renewed vigour, to open up new African markets and provide access to a deepening pool of consumers.
To put the necessary muscle into the industrialisation strategy, it has been agreed that the key focus must be on strengthening regional value-chains. This is the pre-requisite, both for attracting new investment and for overcoming regional economic fragmentation.
South Africa currently imports around 1 million tons of soya-cake from South America as an input into our poultry and livestock industries. Zambia, however, has excellent growing conditions and is rapidly upscaling its soya production.
As the volumes and logistical arrangements are improved, so is it becoming more realistic to import soya from Zambia competitively, thus supporting investment and intra-regional growth, rather than long-distance importation of goods. This is the kind of win-win scenario we are after; and my officials in the dti are actively investigating the Zambian soya example and many other prospects in the mining and minerals, agriculture and pharmaceutical sectors.
Critical player What is clear is that our neighbours in the SADC see South Africa as a critical player in realising their industrial ambitions.
Currently Africa as a market represents more than 28 percent of South Africa’s exports, a high proportion of which are manufactured and value-added products. The SADC region, however, is by far our lead African trade partner, accounting for the overwhelming majority of our exports, at 86.5 percent in 2016. If one adds in our services exports – for which data is notoriously weak, and not currently included in the trade figures – “Africa as a whole” now figures as the most important regional trading bloc for South Africa.
But we cannot continue to export in the manner we have been doing up to now. Our neighbours are increasingly making their position clear: they are looking to South Africa to partner and invest in productive capabilities that will create catalytic local and regional multiplier effects.
Our larger companies must therefore increasingly establish and cement a permanent presence in their key markets, employing and training up locals to ensure that skills are created, value is added and mutual confidence is grown. If we do not move in this direction, there will be two negative consequences: firstly, we will not see the region develop in the integrated manner in which it should; and, secondly, we will increasingly find ourselves locked out of markets by Chinese and other competitors, and through retaliatory measures such as Zimbabwe’s Statutory Instrument 61 or the recent ban by Zambia on grocery imports from South Africa.
In other words, principled co-operation makes regional economic sense; and is at the same time obviously in South Africa’s self-interest. Going along with this reorientation is the need to take a long-term investmentand development-led approach.
To date – and with the partial exceptions of Sasol’s investment in the Rompco pipeline and the work being done around the north-south corridor – such an approach has largely been absent. This can’t be allowed to continue. Here’s one obvious example of a new dynamic that can be tapped into: massive opportunities exist in many of our neighbouring countries for large-scale commercial agri-investments.
To realise this potential requires focus, co-ordination and leadership. South Africa can bring to the table not just our agricultural expertise, but our capabilities in infrastructure development, energy, irrigation and logistics.
We can invest in post-harvest processing and bring in the skills and experience of our specialised financiers and legal practitioners.
Similar opportunities exist in mining and minerals processing, and in other areas where South Africa has world-class capabilities, such as forestry and aquaculture. Similarly, our position as the African leader in pharmaceuticals and bio-technology needs to be brought to bear on the wide range of bio-economy opportunities that exist in the region.
The agreement signed a few days ago between Mozambique and SA – under the auspices of the bi-national commission – shows the way towards realising mutually beneficial long-term developmental opportunities. One such key opportunity lies in working with Mozambique to dramatically increase the levels of local content that can be spun off from operationalising the world-scale gas fields of the Rovuma Basin.
Production investment Estimates of expenditure on this gas field over the next decade are in the region of $20-$30 billion (about R265 to R400bn). Much of the investment will go into direct engineering works such as sub-sea structures, drilling operations, floating LNG vessels, extraction pipelines and liquefaction processing facilities.
All this production investment must also be matched by the development of supportive infrastructure and services: an airline runway, kilometres of new quayside and harbour infrastructure, new accommodation villages, clinics, shops and leisure facilities.
As a government, we can help open up these opportunities on a state-to-state basis, and at the same time support our firms in accessing them. But this will also require our private sector to take a principled long-term perspective. This would mean willingness to co-ordinate strategies both with the government and with other South African companies; and – most importantly – learning to work sensitively for genuine mutual benefit with our counterparts in the region.
This is the essence of the “partnership with the private sector” outlined in the summit theme. We are entering a new era in SADC and Africa, where infrastructure is improving, governments are increasingly aware of the need to work with rather than against industry.
The Industrialisation Action Plan is a critical component in supporting SADC member states to diversify; and South Africa can and must play a central role as the most industrialised economy in the region.
With South Africa taking over as SADC chair for the year ahead, I will personally be meeting with the secretariat in the next month to start unpacking the immediate areas of action that can be developed within the framework of the plan, to ensure that they are practical, bankable and implementable.
There is much to look forward to as we work together to build a solid foundation for a new epoch of regional and Africa-wide integration and economic diversification.
Massive opportunities exist in many of our neighbouring countries for large-scale commercial agri-investments.