By Chengetai Madziwa – SANF 04 no 51
A recent report by the Development Bank of Southern Africa (DBSA) states that countries in the Southern African Development Community (SADC) can take advantage of investments made by South African companies in their countries to boost their economies.
South Africa, which currently contributes about 68 percent of the region’s gross domestic product, (GDP) has taken the region as a traditional destination for its foreign investment, which has grown and diversified over the years.
According to a 2003 Development Report by the DBSA, South African investment in the region before 1994 was limited to a few sectors such as construction contracts, mining, automobiles, agricultural components, timber and steel.
In the past six years, investment has diversified to cover a rich variety of products and services including Information Technology (IT) and telecommunications, advertising, education and skills training, financial services and property development.
The liberalisation of the telecommunications industry in southern Africa over the past few years has paved the way for South African investment. The country has invested in a number of new telecommunications projects in SADC countries where there is a growing market for this service. The Democratic Republic of Congo (DRC), Mozambique, Swaziland and Tanzania have benefited from new projects in this industry.
South African companies have also dominated investments in the region’s mining sector, says the report. For example, in 2002, South African companies invested US$30 million in the Angolan State Diamond Organisation, and US$12 million in a platinum mining company in Zimbabwe. Other investments were made in the same year in Namibia and the DRC, said the report. While most resource investments are new projects “financial services tend to take advantage of existing operations through privatisation processes and acquisitions,” says the DBSA report. South African companies have also managed to invest in banks such as Barclays Bank of Swaziland, Tanzania National Commercial Bank, and the Commercial Bank of Zimbabwe. In addition, the Johannesburg Stock Exchange (JSE) is working with other stock exchanges in the SADC region towards harmonization of stock markets as well as improving their capacities.
The report notes that investments in the region have been motivated by the growing demand for goods and services due to population growth and development. Other reasons for South Africa’s increasing investment in the region relate to the fact that southern Africa has got a rich resource base. In other cases, however, a search for business opportunities lies at the heart of the country’s economic projects in other countries.
Although SADC countries have welcomed South African investors in response to envisaged economic benefits, some concerns have been raised. The DBSA report includes the following concerns:
- market dominance by South African firms, with smaller domestic retailers often unable to compete;
- failure to accommodate local investors;
- lack of respect for local traditions and procedures; and
- lack of reciprocal relationship with countries seeking greater market access to South Africa.
By far the biggest concern in the region is how to increase market access in South Africa, something which is essential as the region implements the SADC Trade protocol which seeks to create a Free Trade Area by 2008. The Protocol calls for deeper integration in trade and foresees a situation where most goods will be traded at zero tariffs in the region.
Economic developments resulting from South Africa’s investment in individual countries will allow SADC member states to have more to offer in terms of goods and services on the regional market. This will in turn likely expand intra-regional trade, which stands at 22 percent.
Deeper integration is seen by SADC as a means of ensuring economic development in all its member states leading to the achievement of the ultimate goal of poverty reduction in the region.
The report notes that investments made by South Africa in other countries should thus foster and not hinder the process of regional integration if countries are to fully benefit, said the report. (SARDC)
