HomeIndustry SectorsBusiness and marketsIndustrialisation strategy lacks clarity for the SADC region

Industrialisation strategy lacks clarity for the SADC region

The status of implementation of the SADC Industrialisation Strategy and Roadmap, as well as the current political situation and its effect on investment, is expected to be addressed in Namibia today.

The 38th Summit of Heads of State and Government of the Southern African Development Community (SADC), which is taking place in Namibia on 17-18 August 2018, is expected to address a wide range of issues of importance to the region.

According to Wildu du Plessis, the head of Africa at global law firm Baker McKenzie in Johannesburg, there is a common theme of political uncertainty having a detrimental effect on investment amongst all members of the SADC region, with the exception of the Botswana economy, which appears to be behaving differently.

“Sometimes this political uncertainty in Africa has been successfully addressed, for example Kenya appears to be back on track after uncertainty surrounded its elections last year. However, the political issues that surfaced around the recent elections in Zimbabwe has put the country back in a cycle of uncertainty. The same applies to South Africa, where there was positive sentiment around the appointment of Cyril Ramaphosa as the country’s new president, but now reality has set in and investors are realising that Ramaphosa has to deliver on a very tall order,” he says.

Du Plessis notes that with regards to the SADC Industrialisation Strategy and Roadmap, which will be discussed at the Summit, there appears to be a big gap between the planning and implementation stages.

He explains that to date, there has not been a big change in the levels of industrialisation in the SADC region. For example, an important element for improving industrialisation would be to bring manufacturing back to the region, which hasn’t happened yet,” he notes.

Positive example of industrialisation strategy

“One hopes that the Summit will focus on the ways to move from strategy to implementation,” he says.

A good example of an industrialisation strategy that is being implemented effectively is the Zimbabwe Government’s partnership with commercial farmers to increase agricultural production in the country.

“This looks like it is working and that might produce a solution that could be implemented in other sectors as well,” he notes.

Kieran Whyte, head of energy, mining and infrastructure at Baker McKenzie in Johannesburg, explains further that there has not been enough clarity around SADC’s Industrialisation Strategy.

“I am not sure everyone is up to speed with what is proposed in the plan,” he says.

“Industrialisation will be a priority agenda item at the upcoming Summit, considering the urgent need to foster economic growth and increase employment in the region. Industrial growth has to take place having regard to advancements in technology, the movement to digitisation, the decarbonisation agenda and automation. It is also important for countries to ensure they have the required workforce that is skilled in the right areas, as opposed to skilled people in operations that are unlikely to last,” he says.

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Increased efforts paying off

Whyte says that an example of the process involved in implementing an industrialisation strategy is the role the Department of Trade and Industry in South Africa is playing a role in fostering industrialisation, especially with regards to projects that increase youth employment and the creation of special economic zones and industrial parks.

The Black Industrialists Scheme and the commitment to localisation, which involves the uptake of locally manufactured goods and services, are all part of the process to increase industrialisation in the country.

The theme of this year’s SADC Summit is “Promoting Infrastructure Development and Youth Empowerment for Sustainable Development”.  At the recent BRICS Summit in Johannesburg the importance of industrialisation and the need for Africa to address its infrastructure deficit, including power, was also discussed.

Whyte says that developing infrastructure is vital for the improvement of economic growth, employment opportunities and the socio-economic conditions in the region.

An example of a proposed power infrastructure project in Namibia, the SADC Summit hosts, is the mooted Kudu Gas Project. The Namibian Minister of Energy recently referred to this project when he spoke at the African Energy Forum in Mauritius.

“This project is offshore, and they have to bring the gas onshore and find power or industrial offtakers not only in Namibia but in neighbouring countries as well. As such, industrialisation will work only if there is an increase in intra-regional trade and dependency,” he says.

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The continuing funding saga

Whyte notes another key challenge of industrialisation is raising finance on acceptable terms.

SADC noted when it launched the Industrialisation Strategy and Roadmap that one of the biggest challenges to the growth of industrialisation in the region was inadequate funding, and that they needed to consider innovative ways of financing industrialisation.

Whyte notes that investments in infrastructure in particular are often big ticket, long term commitments with fixed locations, fixed revenue streams and structures, which will require substantial financial buy-in from all parties and stakeholders.

“Because of market volatility, coupled with low credit ratings and a lack of exposure to private investors, emerging markets, and Africa in particular, require innovative financing solutions to bridge the gap between public and private investment. This is where the New Development Bank and other Development Finance Institutions (DFIs) play a pivotal role.

“Apart from perceived or actual investment barriers, infrastructure projects have to identify and mitigate multiple risks notably completion risks, regulatory or policy uncertainty, performance risks and revenue risks to ensure that the project not only repays its debts, but also provides an adequate return for investors. The overall ‘bankability’ and multi-faceted and inter-dependency of the components of the primary and enabling infrastructure of a project must not be underestimated

“The key role that DFIs have to play in making a project bankable include being able to provide a broad range of financing products, the ability to act as a loss absorber on both greenfield as well as brownfield projects, having  developmental mandate which goes beyond pure funding, active engagement in creating enabling environments to address regulatory and institutional challenges, and risk mitigation.

Other items on the agenda

Whyte adds that Industrialisation in the SADC has to happen but it’s going to be challenging, especially when developing nations like China have the ability to mass produce products at lower production cost.

“SADC members will most likely also use the Summit’s platform to discuss the need for cross border and regional co-operation and collaboration, as well as the need for regulatory certainty and certain, independent, transparent and impartial regulation.

“Also under discussion will be the need to pursue a liberalised market to foster intra-Africa trade based on the recently signed African Continental Free Trade Area Agreement, the implementation of liberalised foreign exchange markets and convertibility of currencies, the status of bi-lateral investment treaties and security around property rights in the region.”

Nicolette Pombo-van Zyl
Nicolette is the Editor of ESI Africa print journal, ESI-Africa.com and the annual African Power & Energy Elites. She is passionate about placing African countries on the international stage and is driven by the motto "The only way to predict the future is to create it". Join her in creating a sustainable future through articles and multimedia content.