Historical imbalances haunt SACU’s combined industrialisation bid

Mbongeni Mguni | Monday April 25, 2022 06:00

Whenever the issue of regional industrialisation is discussed at SACU level, the elephant in the room is the domination of Botswana, Namibia, Lesotho and Eswatini by South Africa.

Critics of SACU, which is the world’s oldest customs union, say to some extent, it has allowed this imbalance, with South Africa benefiting the most from the union’s position itself as a common bloc for trade with the world.

Part of the imbalance stems back to the apartheid era, where economists such as Roman Grynberg say authorities at the time included a secret clause where member states could not seek infant industry protection within union unless capable of supplying 60% of the SACU market.

The Revenue Sharing Formula, set up in part to monetarily compensate the smaller members for this industrialisation imbalance, has been pending revision for several years, even though one of the agreed principles is “economic convergence” among member states.

In terms of economies of scale, cost of labour, geography and other factors influencing the attractiveness of countries to investors, South Africa has been able to leverage SACU to drive its own industrialisation agenda, with the agreement also providing the regional giant with easy passage of its exports into the smaller members.

Figures shared at SACU’s investment roundtable held recently in Gaborone underscore the scale of South Africa’s economic overshadowing of its fellow union members. For 2020, South Africa’s Gross Domestic Product, a rough estimate of its economic output, measured US$302 billion, about nine times the combined size of the other four SACU member states.

In terms of Foreign Direct Investment (FDI), South Africa attracted US$2.5 billion worth of inflows in 2019, compared to US$492 million for the other four states combined.

In Botswana, the power relations within SACU and the issue of imbalance are remembered in the events of Wednesday January 12, 2000 when 900 citizen jobs were thrown onto the street after the inglorious closure of the Hyundai assembly plant in Broadhurst.

On that day, the country’s pride and joy, its very own vehicle assembly plant, closed its doors despite previous assurances that operations would keep going.

South Africa reportedly filed a rules of origin complaint against the Hyundai plant arguing that because it used Semi-Knocked Down kits, the cars it produced did not qualify for favourable SACU duty provisions. This, the experts say, was due partly to South African workers questioning why Botswana-made vehicles were competing in their market, Cynics say the real issue was Big Brother’s “traditional” desire to see all SACU-bound FDI end up in Gauteng.

Insult was added to injury when, in September 2014, a shiny new Hyundai assembly plant was opened in Benoni, Gauteng with officials there hailing the massive job creation it will lead to.

At the SACU investment roundtable held recently however, officials largely skirted the issue of historical imbalances in industrialisation, preferring to focus on the region’s joint push to attract investors for an array of projects that have been put together. The historical imbalances would hardly have featured at the top of the agenda at the roundtable, which aimed to lay selected industrialisation projects before private sector investors.

However, as the officials spoke about regional integration and the need to strengthen cross-border value chains for joint industrialisation, delegates who were attending virtually were busy in the chat box raising the issue of developmental imbalances in the union.

Debates continued in the chat box with the issue of the Hyundai plant coming up, a lingering sore point for the country’s industrialisation hopes.

On stage, Eswatini Minister of Commerce, Industry and Trade, Manqoba Khumalo hinted at the issue.

“As we are all facing the same challenge of youth unemployment, let us industrialise in a manner that will create jobs in all member states,” he said.

“SACU’s industrialisation strategy will go down in history as having failed, if the industrialisation of one member state negatively impacts another member state.”

According to the SACU’s plans, 36 projects are being presented to investors, of which two are from Botswana. These two comprise the long-awaited Leather Industry Park and the Zambezi Integrated Agro-Commercial Development Project, which will involve 40,000 hectares of irrigated commercial farms featuring various crops and associated agro-processing infrastructure.

Eswatini and Namibia have seven projects under the SACU initiative, while Lesotho has five. South Africa has 15 projects under the initiative ranging from meat and meat products to cosmetics and essential oils.

While Botswana has just two projects the SACU initiative, they have a total investment value of about P9 billion, while those proposed by Eswatini, Namibia and Lesotho have individual investment values ranging from US$55,000 (P605,000) to US$200 million (P2.2 billion).

South Africa’s proposed projects do not include estimated project costs, according to information made available by SACU.

According to the guidelines, projects included in the investment package were required to have reached bankable feasibility stage or at least have completed pre-feasibility analysis, while also demonstrating access to raw materials in the region, among other criteria.

Selected projects had to be based within SACU boundaries, present opportunities for other member states to participate in value chains, support SMEs and support job creation/spill over effects to other member states.

An analysis of the projects indicates that in terms of presenting opportunities for other member states to participate in value chains as well as spill over effects, many of the projects rely on South Africa’s advanced industrial capacity for value addition and export.

For instance, the smaller countries’ plans to set up leather industries all involve either contract tanning in South Africa, or exports to South Africa, while South Africa itself plans to use its own projects to export to SACU.

SACU’s fruit and vegetable projects under the investment initiative are less focussed on South Africa, even though the regional powerhouse dominates production. Countries such as Botswana are ramping up efforts towards both higher production and greater value addition, with opportunities for skills transfer from South Africa whose fruit and vegetable industry is far more advanced.

South Africa’s Trade and Industry minister, Ebrahim Patel, appeared to acknowledge the imbalances between the regional economies and the need for the latest initiative to drive industrialisation in all member states.

“We want to shift the focus to a common export drive rather than competition between the countries,” he said at the investment roundtable.

Other leaders, including President Mokgweetsi Masisi stressed the need for SACU member states to engage with the private sector in bringing the selected projects to fruition.

“Today’s deliberations require contributions on the development of measures and mechanisms that will allow the private sector participating to ensure that their engagements lead to securing investments, including development of joint ventures,” Masisi said.

“The need for bilateral engagements in platforms like this roundtable, provide the private sector with the opportunity to engage and leverage these opportunities.

“Our engagement will also engender discussions on how to ensure financing and mobilisation of resources for industrialisation, infrastructure and technology development in SACU.

“This is important in unlocking the SACU region’s industrial development capacity.”

As SACU’s technocrats further distil the investment initiative into strategies and sectoral plans, the smaller member states will be hoping investors focus on the region-wide linkages and value chains, rather than individual countries.

The memories of the Hyundai plant closure remain fresh in the minds of the 900 who lost their jobs 22 years ago.