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The China factor and global indices are providing good measures for investment in some surprising places in SADC and on a provincial level:local regions seem to be shaped by global trends
South Africa’s provinces are more than simply geographic entities dividing the country into administrations for governance. Instead, trade is flourishing and the global economy’s shifts are leading to renewed interest in specific areas.
In South Africa’s northernmost province of Limpopo, graphite mine deposits are but one example. Used in lead pencils, steel, brushes for electric motors and generators as well as a variety of other global products, Limpopo’s graphite deposits are crucial to the world’s technology markets.
A province’s natural resources are not only critical in an investment analysis.
With South Africa’s service industry-led growth and focus on continental trade, Limpopo is thriving on the latter in a way no other province can.
As the gateway to the rest of Africa bordering Zimbabwe, Botswana and Mozambique, the province is well-situated for economic co-operation with other parts of southern Africa.
With accession to the BRICS community including Brazil, Russia, China and India, there is no better time to enjoy geographic proximity to fellow markets in sub-Saharan Africa.
The Maputo Development Corridor is set to link Limpopo directly with the Port of Maputo in Mozambique, creating development and trade opportunities, particularly in the southeast, as the government has sought to assure investors.
For companies seeking to export to fellow southern African nation states, Limpopo’s attractiveness bears consideration when it comes to setting up premises for a production chain.
Neighbouring Mpumalanga has proved attractive too; already, Portuguese in parts is as prevalent as other local languages.
Straddling the northern borders to the west, the Northern Cape’s traditional sectors of mining, agriculture and manufacturing have increasingly diversified via the sub-industries that have evolved in each of the three respective industries.
TradeInvest South Africa recently concluded that South Africa’s western coastal shelf is one of the richest marine ecosystems in the world: “Much of this shelf is in Northern Cape waters, and the province is already an extremely profitable area for fishing and aqua-culture.”
Port Nolloth – the Northern Cape’s principal port – and its coastal surrounds are unpolluted, nutrient-rich and abundant with marine life, with the provincial government identifying long-line hake fishing as an example of the marine industry potential.
With the growth of the service and hospitality industry in the post Fifa Soccer World Cup environment, focusing on hake, oysters, abalone and freshwater ornamental fish as a top-class South African cuisine offering is ripe.
But such a development would require collaboration and foresight from entrepreneurs in the marine and hospitality industry. For restaurant and hospitality innovators, the potential to cash in on a local source of seafood is on offer, while investors may want to take a closer look at growth potential on the Northern Cape coast, with a view to companies serving both local and overseas markets.
Group Five recently announced plans to build a R5-billion solar power plant in the sun-soaked province. The government says it is further confirmation of the potential for renewable energy initiatives in the country.
Cabinet has approved South Africa’s Integrated Resource Plan 2010, a document of which the projections indicate that energy from renewable sources will be expected to make up a substantial 42% of all new electricity generation over the next two decades.
Alongside energy, efficient transport has come to dominate the planning agenda for rail since the beginning of this year. Now another national-led priority, the economic hubs of Johannesburg, Cape Town and Durban can look forward to long-term consideration.
For now, the big cities in KwaZulu-Natal and Gauteng are set to see the most tangible progress emerge. Transport Minister Sibusiso Ndebele has approached Cabinet for approval.
Bua News reveals the move has generated a flurry of international interest from France, Germany, China, the United States, Japan, Canada and South Korea.
Suppliers in the provinces should look forward to contracting opportunities, though in the short term the country’s eastern provinces will require infrastructure and construction services when the massive transport undertaking commences.
- 03/06/2011 08:45 - Locking down
- 03/06/2011 07:45 - Mixing the energy cocktail
- 01/06/2011 13:47 - Down to business
- 01/06/2011 13:14 - Good for business
- 01/06/2011 12:23 - Tomorrow's leaders
- 01/06/2011 07:34 - A matter of business
- 31/05/2011 09:07 - Ed's Note
- 15/04/2011 10:28 - Going Places
- 15/04/2011 10:06 - A plan going forward
- 15/04/2011 10:02 - A package deal
“We wish to state that the Department of Transport will only call for expressions of interest on the Durban—Johannesburg High Speed Rail route in July 2011,” explains Ndebele, leaving companies not yet tendering in a position to get a move on and do so.
In June, an international investors’ conference kicks off in Cape Town to consolidate interest in various infrastructure projects in the country, including the Durban to Johannesburg high-speed rail project.
If the government’s stated intention remains consistent, the state will seek a modal split across transport modes – “commuters moving mainly through rail, appropriate goods on rail and road, and using our maritime and aviation transport to move people and goods without stressing one mode through inappropriate cargo or congestion,” notes Minister Ndebele.
Apart from companies seeking to work in public-private partnerships, investment purely in the private sector is provided some context by international indices.
Of 183 countries in an annual World Bank study on trade and investment, South Africa holds 34th place in the study, titled “Doing Business 2011”.
Acquiring credit, dealing with taxes and the protection of your investments by law are well-rated by global standards across provinces, though registering a property and trading outside the borders are significantly more difficult.
That means checking the record of a local municipality is important when registering a new property, while bearing in mind that there are added incentives to trade locally between provinces, relative to the growing, but far from fulfilled, capacity for regional trade.
A number of SADC initiatives currently under way are addressing the issue of trade, making the country’s border provinces and the transport and energy industries good options for renewed focus.
For a start, China’s driving support for South Africa’s accession to the BRICS club was largely motivated by recognition of the country’s gateway position to the rest of the continent. That means while it appears to some that Cape Town and Johannesburg are ideal locations for Western investors and corporate, the influence on Chinese trade is likely to shift this focus to what will become more porous trade borders.
The Eastern Cape, while not positioned geographically or traditionally as the stereotypical investment or business location, could provide a model to others with its incentive-based economic benefits for companies looking at export markets.
The Eastern Cape Development Corporation Trade Promotion Unit offers assistance to companies to assess and evaluate their ability to service international markets, including the standard export readiness assessment analysis.
The surpassing of trade with the United Kingdom and US by China and its unmistakably Africa-oriented trade agenda translate to economic structure that will increasingly evolve to resemble that of an export-driven regional player, assuming provinces such as the Eastern Cape continue to incentivise export while previously economically less advantaged provinces take in the benefits of location.
While first-world infrastructure in financial services, asset management and marketing in the major cities of Cape Town and Johannesburg continue to add valuable contributions to South Africa’s attractiveness, the unique offering that sets the country apart is the southern African connection. As the continent’s biggest trade partner puts this region high on its agenda, investors should watch the response of our provinces and their municipalities and not only the big decisions coming from Pretoria.
Trading in the SADC
Free trade has been upheld for centuries by many economists; at times, they were shunned for it, but as Kenyan intellectual James Shikwati points out, free trade between African neighbours is no foreign concept to the African people. But with the verdict and the benefits of open trade evident, taking advantage of the goal toward a common market continues to inform the agenda of the Southern African Development Community (SADC).
Make no mistake, our biggest trade partner China has increased the relevance of SADC and the Brazil-Russia-India-China-South Africa (BRICS) community.
Eleven of the 14 member states of the SADC officially launched a free trade area (FTA) in 2008.
One can safely expect an acceleration of free trade, particularly from Pretoria.
South African-based meetings of the World Economic Forum and Fortune magazine indicate the continent-wide interest in businesses and industries seeking to use South Africa as a gateway to the continent.
According to Martyn Davies, chief executive officer of Frontier Advisory (a capital advisory company), the “S” in BRICS could ultimately stand for SADC, indicating the entry nature of South Africa’s context as a BRICS state.
United States and European-based investment remains relatively strong, but South Africa’s accession to the now BRICS community was buoyed by a recognition of its role in Africa by fellow emerging markets. Most notably, China displayed its expressed confidence in the ability of the South African infrastructure to serve as a foundation for trade in the SADC.
During May, the SADC is expecting its biggest ever investment of Chinese money in the region when representatives from China’s major industries travel to South Africa in this month for a trade forum.
According to Matthews Malefane, a lobbyist and facilitator for the organisers of the IMEXPO 2011: SADC-China Trade Fair & Investment Forum, it “will without doubt bring demonstrable, tangible benefits to South Africa and the region,” following on the heels of South Africa’s accession.
These companies and financiers across the major sectors will be actively looking to invest in those sectors in joint venture partnerships with locals, and it could result in one of the biggest injections ever of Chinese money into the region.
For investors and those engaged in public-private partnerships, understanding the social and developmental rationale for free trade in southern Africa is important to the political aspect of regional integration.
According to an article on SouthAfrica.info, free trade agreements are “part of the SADC’s ongoing efforts to deepen long-term regional integration in order to accelerate economic growth and reduce poverty for the millions of people living on the continent.”
Says Davies, the SADC economy offers similar growth opportunity to the Asian powers, though he told Business Day that the South African government needs to make the benefits of trade more apparent to other SADC members.
South African economist Jasson Urbach is among a large number of economists commending the work of the SADC, but he has been quick to warn that although trade liberalisation is a necessary condition for growth, it is not necessarily sufficient.
“There are complementary conditions, such as macro-economic stability, credibility of policy, enforcement of contracts and the respect of private property rights, without which the benefits of openness may fail to materialise,” he says.
“Southern African governments have it directly within their power to reform their economies and adopt policies that will increase growth and reduce poverty.” He and others cite the Index of Economic Freedom as a useful measure in this regard.
Success in fellow African states will depend on the decisions made by the 15 governments across the economic union.
Though Zimbabwe dominated headlines for a decline in agriculture, both Botswana and Mauritius succeeded in financial services and commodities respectively, facilitating economic contexts that can take advantage of Chinese trade and investment, but not necessarily depend on it – ensuring seemingly better long-term prospects for investments and projects that go beyond the short- and medium term if Chinese growth reaches a peak and declines as some predict.
The Index of Economic Freedom measures the degree to which economic growth can be easily facilitated.
“Since independence in 1968, Mauritius has emerged from a low-income agricultural economy to a middle-income highly diversified economy,” as Fulbright Scholar Laura Glube explains. “The government created an export processing zone (EPZ), diversified the economy (by encouraging the financial sector, tourism and other service industries), and formed social and economic alliances (including membership in SADC, the Common Market of Eastern and Southern Africa and the African, Caribbean and Pacific Group of States).
“The EPZ attracted investment by lowering trade barriers such as tariffs, quotas and business regulations.”
By 2006, less than 10% of the population was below the poverty line, creating the conditions of economic stability that concern countries.
While Chinese investment is critical, companies should bear in mind that investing in countries with lower economic freedom indices could spell short-term gains, but medium and longer threats.
Though China’s purchases of commodities helped fuel Latin American growth, investments have lagged, and the region’s capacity to escape its dependency on commodity exports has been limited, with domestic industry often undercut by Chinese competition, as a report by the US-based Heritage Foundation pointed out.
Africa can avoid that fate by focusing on institutions that incentivise local business without a reliance on external trade in commodities. Having done just this, Mauritius and Botswana are positioned as stable investment choices, if indeed Chinese growth does contract from its impressive high over the past decade.
Other member states are exhibiting gains that make for better business prospects regardless of the Chinese trade factor – and even Zimbabwe is among them.
SADC member states made more progress last year than any other region, according to the 2011 Index of Economic Freedom by The Wall Street Journal.
Rwanda, though not a SADC member, logged the largest gain of any country, increasing its Index score by 3.6 points to 62.7 (on a scale of 100).
Taking stock of sub-Saharan Africa as a whole sees the region’s top five countries on the Index rankings – Mauritius, Botswana, Cape Verde, Namibia and South Africa – enjoying per capita gross domestic product of more than six times greater than that of the bottom five: Zimbabwe, Eritrea, Democratic Republic of Congo, Republic of Congo and Comoros.
While each of the top five at some point received prophetic warnings of doom from the international community, each has emerged thriving. The bottom five display latent investment potential set to ripen when the country’s institutional frameworks improve alongside political stability.
As a US economist told a private audience at an investors’ convention in Las Vegas recently, he puts his money on Zimbabwean land as possibly one of the best investments if the country takes an upward swing in growth and investor attractiveness.
South African companies, from an investment perspective, retain a prime geographical location and status as an investment gateway to the continent. Add to that the social factor of investing without the anxiety of those outside the continent.
While news of a conflict in one country shakes the stock exchange of another, South African investors have the benefit of what Nobel Prize-winning economist Friedrich Hayek calls “local knowledge”.
South Africa would not serve such an important role to its fellow BRICS eyeing Africa if this reality were merely a feel-good platitude.
Garreth Bloor
