02 Jun 2013

Economic policy: a fine balance between domestic and regional

Written by  Dawn Nagar

No. 256: Economic policy: a fine balance between domestic and regional / Dawn Nagar / The Sunday Independent
2 June 2013

The idea of boosting economic growth through increasing trade and investing in infrastructure is clearly articulated in the National Development Plan (NDP) of 2011. However, although Finance Minister Pravin Gordhan expanded on this in his budget speech to Parliament three months ago, the extent to which South Africa should prioritise domestic concerns over regional and global ones in pursuit of these goals remains unclear.

Pretoria believes that successful economic integration in Southern Africa and the continent as a whole depends on solid infrastructure, particularly good roads, workable railway lines, efficient border posts, and well-co-ordinated customs unions. South Africa's infrastructure is well established but more still needs to be done to integrate it within the Southern African region. For example, a lack of co-ordination among national rail systems leads to serious delays and freight often being diverted from rail to roads.

Integrated transport is critical to ensure that southern Africa benefits fully from the Ngqura Port in Nelson Mandela Bay, which opened in March last year, and which has the potential to serve as a major conduit enhancing South-South trade. It is planned that the port will service a growing shipping route between China and Brazil, and eventually enable the integration of Southern Africa into a trade corridor incorporating Southeast Asia and South America.

In this regard, Pretoria must make every effort to enhance its trade links within Southern Africa to redress its skewed pattern of trade, which tends to look beyond Africa, and avoid becoming an industrialised state alongside semi-peripheral and peripheral states with poor and vulnerable economies.

Between 1994 and 2000, South Africa accounted for 80 percent of the economy in the Southern African Development Community region. The country's gross domestic product represents almost two thirds of that of the whole of Southern Africa. Eighty-five percent of foreign direct investment in the region flows to South Africa, and 70 percent of the multinational corporations in southern Africa are based here.

The importance of the country's economic role in the subregion has been highlighted by the huge investments it has made in southern Africa. Last year, South Africa oversaw investments of R6.2 billion in 41 projects across 17 African countries in mining, industrial infrastructure, agro-processing, and tourism.

However, given its socio-economic problems at home, South Africa cannot be expected consistently to devote substantial funds to building the region and its peripheral economies. At times the pendulum will inevitably swing in favour of domestic needs.

Since 1994, the government has employed a number of economic policy instruments to support accelerated social development. In 2009/10, a budget of R78bn was allotted to the South African Social Services Agency. The country also plans to spend R827bn on domestic infrastructure, including the construction and development of schools, clinics, and pipelines.

The New Growth Path of 2010 and the NDP of 2011 have set out economic plans that include the development of infrastructure across Africa.

The new socio-economic path is supported by Pretoria's 2011 National Industrial Policy Framework, which seeks to promote value-added trade and industrial production and its 2010 Trade Policy and Strategy Framework,which aims to foster commercial opportunities for manufacturers.

Since 1994, Pretoria has been sensitive to the need not to appear as a regional hegemon asserting its power in southern Africa.

Nonetheless, the reality is that South Africa does often dominate economically — for example, in the Southern African Customs Union (Sacu), in which it produces more than 90 percent of the Union's GDP. By contrast, Lesotho, the smallest economy in the bloc, accounts for only 0.5 percent of Sacu's total GDP.

Although the union's five member states amended the distribution criteria for the revenue generated by the bloc's tariffs in 2002, they have yet to come up with a more equitable agreement that properly supports Sacu's weaker economies. This is an issue on which Pretoria should take a greater lead.

South Africa can appear to adopt contradictory economic stances — at times seeming to prioritise domestic concerns, and at others, those of the region. As a developing state, the country's national interest of building its own economy and addressing the socio-economic inequalities inherited from the apartheid regime remain of paramount importance. But Pretoria also has a crucial role to play as a gateway to, and facilitator of, South-South trade flows for southern Africa as a whole.

The government is exploring avenues to boost trade with its Ibsa (India-Brazil-South Africa) partners, and hopes to achieve a trilateral trade arrangement among Sacu, India, and South America's Common Market — Mercosur — to create a single agreement encompassing 1.2 billion people and a GDP of $1.2 trillion (R12 trillion). In addition, Pretoria's entry into the Bric (Brazil, Russia, India, and China) forum of the fastest-growing economies globally in 2010 will inevitably increase the Sacu revenue pool.

As an economic hub driven by global economic partnerships, South Africa can provide great economic benefits to the weaker, peripheral economies in its subregion.

In support, Pretoria should make every effort to pursue the goals set at the World Economic Forum held in Cape Town earlier this year of "accelerating economic diversification, boosting strategic infrastructure, and unlocking Africa's talent".

Nagar is a researcher at the Centre for Conflict Resolution, Cape Town.

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