South Africa: African Initiatives For African Growth

Last Updated: 23 June 2009
Article by Julian Jackson

Much has been written about Africa's economic problems and the influence of the developed world on its vacillating fortunes. While the media's attention here and abroad often focuses on Africa's need for Overseas Development Aid, Foreign Direct Investment and the dismantling of overseas trade barriers obstructing African growth, surprisingly little is known about many pan-African initiatives to boost the continent's fortunes, many of which are having a positive effect.

Many African nations have initiated steps which reflect international consensus on priority areas for Africa's development. For example, a recent joint report published by the Economic Commission for Africa (ECA) and the Organisation for Economic Co-operation and Development (OECD) states that the three main priorities for Africa are, firstly, to continue to improve competitiveness (including by tackling supply side constraints and increasing investment in infrastructure), secondly, to take practical measures to facilitate trade, and thirdly, to accelerate regional integration. Many African initiatives have taken these priorities seriously, although progress is often hampered by a variety of difficulties including lack of infrastructure, weak civil service institutions, poverty and skills shortages. These can make it difficult to turn political intent into practical reality.

Most African governments have for some time emphasised the importance of trade. They have made policy commitments to facilitate this and correspondingly many have increased investment in infrastructure. Many have also attempted (with varying degrees of success) to tackle other supply constraints and other issues constraining competitiveness, and attempted to reduce trade barriers and tariffs. As a result, trade barriers and tariffs have on the whole been falling.

Export industries in the past suffered from restrictions and taxes and recently many of these have been eliminated, although some food supply protections (e.g. food exports) have been retained. According to the ECA-OECD report, intra-regional trade flows among African states are low, accounting for only 7% of total exports. This is dismal compared to Asia, where intra-Asian exports amount to 50%. And while African exports have dramatically increased in recent years (over 15% from 2007-8) these were concentrated in oil producing countries, and export growth of non-oil producing countries was merely at world-average levels.

Many African states are also taking seriously the need to simplify economic regulations and the World Bank's Doing Business Survey for 2007/8 ranks four African countries among the top ten reforming nations. This represents a significant improvement in investment conditions.

The New Partnership for Africa's Development (NEPAD), launched in 2001, is a pan-African initiative which seeks to identify priority areas for action, formulates plans and seeks government commitments. The initiative recognises the fundamental importance of infrastructure and recommends a programme of investment, regulatory reform and public-private partnerships. NEPAD has been criticised for having grand visions but being sluggish and ineffectual on the ground. This may in large part be because the implementation of NEPAD's objectives depends heavily on Africa's regional economic communities, which are lamentably weak. Nevertheless, some initiatives have borne fruit.

The recently established Pan African Infrastructure Development Fund is a case in point. Various African governments gave their commitment to this initiative a few years ago and the fund recently achieved its first close, with US$ 625 million of commitments from African investors, including the Development Bank of South Africa, the African Development Bank, African pension funds and institutional investors. The fund aims to invest in long term equity financing of commercially viable regional infrastructure projects, including toll roads, energy and telecoms. Other regional funding initiatives include the African Development Bank (AfDB) and the recently established African Finance Corporation (AFC). The AFC focuses on promoting economic development and growth through infrastructure investment.

Africa's many regional organisations include the East African Community (EAC), the Community for Eastern and Southern Africa (Comesa), the Community of West African States (Ecowas) and the Southern African Development Community (SADC), as well as various customs and trade bodies and free trade initiatives.

It is widely felt that regional integration has enjoyed limited success, and progress towards creating customs unions and free trade areas remains slow, and SADC's move towards free trade is among those lagging behind. Regional bodies have been accused of lack of focus and excessive talk-shopping and lack of practicality. The SADC's regional integration project, for example, boasts hundreds of projects which, some say, reflect a failure of political will to address the tension between national and regional interests. These initiatives are not assisted by the overlapping membership and geographical focus of the various regional bodies – Comesa's 20 nation free trade area for example overlaps with SADC states. South Africans are badly affected by tariffs in most African countries outside the South African Customs Union (SACU).

However, positive developments include the EAC common market protocol expected to be signed at the end of this year, which will establish a very significant common market in East Africa. The West African Economic and Monetary Union and the Central African Economic and Monetary Community and the Southern African Customs Union are already operational customs unions. West Africa has attempted to harmonise its business laws, through the OHADA treaty (Organisation for the Harmonisation of Business Law in Africa), adopted in 1997, primarily by West African states.

A mixed picture emerges of pan-African initiatives to encourage growth. There can be little doubt that many initiatives are bearing fruit and are contributing to Africa's turnaround. But the challenges should not be underestimated, and, as an East African lawyer colleague laments: "it is very well to reduce tariffs and create free trade zones, but regional trade can also be hampered by problems like potholed roads, police roadblocks and dysfunctional border control posts. One must pursue progress on all fronts". Many observers would agree that while there remains a lot to be done, the signs are encouraging.

Julian Jackson is a founder and Director of Africa Legal, an Africa specialised commercial service which is part of the Deneys Reitz Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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