South Africa’s economic diplomacy: trade and investment promotion Report prepared for The Presidency’s Fifteen Year Review Brendan Vickers Che Ajulu Institute for Global Dialogue March 2008

Note: This paper was commissioned by The Presidency as an input into the fifteen year review process. The views expressed are those of the author/s 1

EXECUTIVE SUMMARY Achievements and impact assessment Multilateral economic diplomacy 1.

South Africa has played an increasingly active, assertive and public role in the World Trade Organisation (WTO) and more specifically, the Doha Round of multilateral trade negotiations. In contrast to the previous Uruguay Round (19861994), in which South Africa accepted developed country commitments, the country is now negotiating as a developing country, reflective of its socioeconomic, growth and development challenges.

2.

South Africa is strategically participating in two important developing country coalitions: the G20 demanding fairer global agricultural trade and the NAMA-111, which maintains developing countries’ right to policy space for industrial development. South Africa is also a member of, and supports the Africa Group in the WTO. However, it should be recognised that the country’s more diversified economy and industrial structure implies that its interests may not always coincide with those of its poorer continental partners.

3.

South Africa has positively impacted on the system by helping to shape the development debate in the WTO, with benefits for South Africa’s own economic diplomacy. South Africa has consistently articulated a developmental agenda that emphasises: i) enhanced market access in areas of export interest to developing countries; ii) balanced rules to expand and enhance policy space; and iii) technical assistance and capacity-building programmes (or aid-for-trade). In recognition of this role, South Africa was elected to chair the Special Session of the WTO Committee on Trade and Development from 2004-2006.

4.

In this role, South Africa has promoted the integrity of the rules-based trading system and given voice to the developmental concerns of developing and leastdeveloped countries in the WTO.

5.

The impact of this growing assertion by developing countries on the WTO and the Doha negotiations (including South Africa on NAMA) has been a more equitable shift in decision-making. Unlike the past, developed countries can no longer unilaterally determine the negotiating process, agenda and outcome. However, it is unclear whether the Doha Round can be concluded under the current conditions and demands, and what a failed trade round would mean for the WTO system.

Regional and bilateral economic diplomacy 6.

1

South Africa has consolidated its economic relations with its traditional Northern trading partners, particularly the European Union (EU) and the United States (US).

Non-agricultural market access.

2

The impact has been that the EU and the US remain the country’s top two trading partners, with annual increases in total trade and strong investment inflows that underscore confidence in the South African economy and the government’s macroeconomic policies. 7.

At the same time, South Africa has expanded its economic relations with the African continent and the emerging markets of Latin America and Asia, particularly China. South-South political diplomacy has led to a tangible economic impact, including investment inflows — with some major deals2 — and outward investment from South Africa. The solid political relations between South Africa and China led to China’s imposition of a voluntary export restraint on 31 categories of clothing exports to South Africa, until 2008.

8.

Tracing the impact of negotiated trade agreements as well as inward and outward investment promotion on domestic social goals, including job creation, is complex and may require econometric modeling. This is beyond the scope of the present study.3 Government may also negotiate trade agreements that have little commercial value or real economic impact (e.g. SACU-MERCOSUR PTA).

9.

However, there are clear examples of the developmental impact of South Africa’s corporate investment in Africa, inter alia: •

South Africa’s corporate investment has bolstered revenue for the Mozambique government, especially with regard to taxes paid by Mozambican Breweries, which have increased by 700% since being purchased by SABMiller;

•

In Mali, the most visible effect of South African corporate investment is reflected in the dramatic increase in the volume of gold production. The increase in gold production has had an impact on government revenue. In 2001, the state received about $200 million in from gold mining revenues; and

•

Another highly visible impact of South African business (retail and services) presence in the region is the rapid increase in a number of franchises that create local employment, business skills development (through management training), train local chefs and in some cases source products from local farmers.

2

In 2007, China's biggest lender, the Industrial and Commercial Bank of China (ICBC), bought 20% of South Africa's Standard Bank for R36,67-billion ($5,6-billion) in cash, in the biggest foreign investment yet in Africa. 3 A study by the Centre for Research into Economics and Finance in Southern Africa (CREFSA) to measure the initial impact of the TDCA on investment in South Africa concluded that the TDCA only played a limited role in the overall climate for FDI (see CREFSA, 2005).

3

Potential impact indicators for measuring levels of economic diplomacy*: South Africa’s % of world trade, imports and exports South Africa’s ratio of the world manufacturing market Levels of FDI inflows into South Africa, and outward South African FDI Number of Bilateral Investment Treaties (BITS) signed Number of Preferential or Free Trade Agreements signed Number of trade fairs and exhibitions, and investment promotion road-shows Tourism arrivals in South Africa Retained tourism spending in South Africa * = not necessarily reflective of the qualitative impact of economic diplomacy on the real economy, jobs, manufacturing value-added, etc

Lessons and future challenges for 2009-2019 10.

There is a need to better align and coordinate the country’s political and economic diplomacy, particularly in Africa. A case in point is South Africa’s trade surplus with Africa, which remains politically sensitive and also drives perceptions of subimperialism by South African corporations that invest in the continent.

11.

South Africa must develop a new global economic strategy, which recognises and responds to the changing balance of forces globally, particularly the emergence of Brazil, Russia, India and China (BRIC economies) and the opportunities provided by the Gulf States. The BRICs are expected to transform the global business landscape and have greater influence on markets across the world by 2018. This new global strategy should clearly identify and prioritise South Africa’s own economic interests, informed by the country’s emerging development model4, and define the country’s terms of engagement with the world economy.5 This strategy should frame all future trade, investment and tourism promotion initiatives.

12.

A global economic strategy should be accompanied by a global marketing strategy that promotes positive perceptions of South Africa and the African continent abroad, and highlights potential trade, investment and tourism opportunities.

13.

Deeper regional integration in Southern Africa will be essential to create a ‘SADC investment zone’ that will provide a larger market to attract foreign investment.

14.

There is a need to properly resource the trade negotiating machinery within government, and adequately skill South African diplomats abroad in economic diplomacy (particularly investment promotion) and commercial intelligence.

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In this regard, a basis has been laid with the new industrial policy, ASGI-SA, and sector and export strategies. The EU’s ‘Global Europe strategy’ is an instructive experience and example.

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INTRODUCTION Economic diplomacy is an established priority of the South African government’s International Relations, Peace and Security (IRPS) cluster. The Ten Year Review identified two key challenges in this regard, for the next decade: • •

Pursue economic diplomacy in order to expand the country’s economic links to Africa and internationally, and attract FDI. Marketing South Africa and Africa.

Although the concept of ‘economic diplomacy’ is open to different interpretations6, it is defined here as policies and activities that promote trade, FDI, tourism, and technology transfers to South Africa, and positively position the country in the world through imaging, branding, marketing and public diplomacy (domestic and international). There are dynamic linkages between a country’s political and economic diplomacy, and in this regard it is critical that the pursuit of both should collectively support economic growth and development in South Africa. This report critically reviews the government’s achievements with respect to the two major components of economic diplomacy: FIRST, multilateral, regional and bilateral trade and investment negotiations and agreements; and SECOND, South African investment promotion and perceptions in Africa, as per the terms of reference It also highlights critical coordination challenges for conducting a more effective economic diplomacy in the future. In doing so, the report addresses other cross-cutting IRPS themes, such as consolidating the African Agenda and South-South cooperation, and more equitably transforming NorthSouth relations A.

THE ECONOMIC DIPLOMACY OF TRADE

1.

Multilateral economic diplomacy

At the multilateral level, South Africa pursues its economic diplomacy objectives through its membership of the 151-country World Trade Organisation (WTO) and more specifically, the organisation’s Doha Round of trade negotiations. Alongside Brazil and India, it is commendable that South Africa (in effect, then, IBSA) has played an increasingly active and assertive role in the world trade body and the Round itself. This is a major success and achievement of the country’s economic diplomacy. South Africa’s heightened activism in global trade has been shaped by both material and ideational incentives. As an outward oriented economy that is largely dependent on trade flows and inward investment, securing market access abroad (particularly for its intermediate manufacturers and service suppliers) is an essential objective of South Africa’s economic diplomacy. For the government, the 6

Commercial diplomacy concerns issues/factors such as marketing, branding, public diplomacy, investment and export promotion. Economic diplomacy entails calculations regarding political economy alignments between market access interests abroad and opening some import competing sectors at home (or simply bilateral and multilateral trade negotiations).

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WTO provides an appropriate forum for such reciprocal exchanges but, more importantly, an institutional platform for managing the forces of globalisation. On the obverse ideational side, South Africa places considerable faith in the benefits of rules-based trade multilateralism, which it argues are prerequisites for growth and development in an increasingly interdependent world. For these reasons, the principal objectives of South Africa’s multilateral economic diplomacy are the promotion of fairer trade (particularly in agriculture, which is grossly distorted) and more balanced global trade governance. This lies at the core of its internationalist reform agenda (see DTI 2001b). These economic diplomacy objectives need to be situated within the protracted negotiations of the Doha Round and the Doha Development Agenda (DDA). The latter was launched in the Qatari capital in November 2001, following the aborted 1999 Seattle ministerial conference. In doing so, developing countries hoped that the DDA would rebalance the global trading system more in their favour, following the asymmetrical liberalisation created by the last Uruguay Round (1986-1994). The Doha Ministerial Declaration crystallised this commitment into three key areas, which South Africa has strongly advocated for on behalf of Africa and the developing world, as part of its economic diplomacy: • • •

enhanced market access (in areas of export interest to developing countries); balanced rules (to expand and enhance policy space); and technical assistance and capacity-building programmes (or aid for trade).7

In addition, the Doha Work Programme8 makes important references to special and differential treatment (SDT) for developing countries (paragraph 44) and for the nonagricultural market access (NAMA) negotiations, less-than-full reciprocity (paragraph 16). 1.1

Critical assessment of South Africa’s multilateral economic diplomacy

When critically examining South Africa’s multilateral economic diplomacy since Seattle 1999, three achievements — but also challenges — are pertinent (see Vickers 2007). First, it is possible to discern a shift of emphasis in South Africa’s multilateral trade diplomacy: from middle power facilitator, to active and assertive leadership of developing country coalitions, underpinned by a consistent development agenda. Initially, South Africa’s approach to the WTO’s proposed Millennium Round and its later incarnation, the DDA, was to strategically position the country as a middle power ‘facilitator’ or ‘bridge’ between the developed and the developing worlds (a familiar motif in South Africa’s postapartheid foreign policy). Unlike the wary predispositions and resistance from its African

7

See paragraph 2 of the Doha Ministerial Declaration. The Doha Work Programme is organised around nine topics, with eight to conclude in a single undertaking: the implementation of the Uruguay Round agreements, agriculture, services, industrial tariffs, subsidies, antidumping, regional trade agreements and the environment. 8

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partners to launching an ambitious new trade round9, South Africa supported the new negotiations, as well as some of the Singapore issues.10 Former Trade and Industry Minister Alec Erwin was even appointed as one of six ‘Friends of the Chair’ at Doha in 2001, tasked to oversee the rules negotiations. However, through his prominence in these processes, Erwin was criticised by civil society for colluding with the undemocratic ‘green room’ modalities of the WTO. However, as Keet (2005:14-15) observes: South Africa now seems to be moving away from its earlier misconceived option to ‘act as a bridge between developed and developing countries’ in the WTO, and rather to be acting more clearly and publicly within the initiatives of various developing country tactical coalitions. If this is the case, South Africa will at last be in a position to make the vitally important contribution to developing country resistance in the WTO that is commensurate with the democratic credentials and political skills within this country.

Rather than pursuing the politics of compromise and consensus, this shift of emphasis involves promoting a more domestic-oriented agenda that prioritises the country’s further industrial development and diversification, with particular emphasis on gaining greater industrial policy space (particularly tariff flexibility11). This latter approach was best epitomised at the Hong Kong ministerial conference in December 2005 with the formation of the NAMA-11, co-ordinated by South Africa (with domestic support from COSATU and such civil society circuits as the Trade Strategy Group). This new alliance essentially sought to reclaim the original developmental spirit of the DDA. Importantly, this emerging phase in South Africa’s multilateral economic diplomacy appears to be far more consistent with the resistant positions and claims of other developing nations than its stance during the Erwin years. Even traditionally trenchant critics of the government’s trade policies from a developing country perspective concede that the South African delegation at Hong Kong played a very positive role. This new approach broadly resonates with an apparent shift in the government’s political discourse, away from trade policy and its unilateral liberalising impulses and towards more critical industrial policy

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African countries insisted that developed countries first address the outstanding implementation issues. The official African ‘Algiers’ position for Seattle in 1999 “… maintained a non-committal position on a new round of negotiations and did not endorse South Africa’s call for a new round” (Keet, 2004:10). 10 At the WTO’s first Ministerial Conference, held in Singapore in 1996, trade ministers agreed to examine the relationships both between trade and competition and between trade and investment. They also agreed to conduct a study on transparency in government procurement and to look at how trade procedures could be simplified. A decision on these four issues was delayed until the WTO’s fourth Ministerial Conference held in Doha in 2001. The Chair of the Fourth Ministerial Conference stated that a decision by ‘explicit consensus’ would need to be taken at the Fifth Ministerial Conference before negotiations on these four Singapore issues could begin. 11 While not the most effective or first-best option, in the absence of other policy tools that are today proscribed by the WTO, a modulated regime of high and low tariffs designed to protect learning in dynamic sectors — rather than deep-seated inefficiencies or vested interests in sunset industries — may be a key component of a developmental state’s approach to restructuring (see Akyüz 2005; Gallagher 2005; UNCTAD 2006).

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questions of economic development, diversification and technological upgrading (as part of the ‘developmental state’ agenda). Table 1: South Africa’s growing activism in the WTO and DDA Green Man (e.g. Friend of the Chair, CTD, miniministerials, etc) Cairns Group Africa Group ACP G90 G20 G110 NAMA-11 Services Annex C Group

Seattle 1999 §

Doha 2001 §

Cancún 2003 §

Hong Kong 2005 §

§ § §

§ § §

§ § § § §

§ § § § § § § §

Key: CTD = Committee on Trade and Development G90 = Africa, least-developed countries (LDCs) and the Africa, Caribbean and Pacific (ACP) Group G110 = G20, G33, Africa, LDCs, ACP and small, vulnerable economies (SVEs).

Second, as a middle-income developing country with limited political leverage in the WTO, South Africa has strengthened its bargaining power through coalition-building with other Southern ‘developmental regimes’ and by forging common regional and subregional positions.12 However, while South Africa is certainly closer to the Africa Group today than it was at Doha seven years ago on Alec Erwin’s watch, forging common continental positions is hardly a fait accompli. Finding a balance between pragmatic selfinterest and seeking greater access for the country’s intermediate manufacturers and service exporters to markets in the region, the continent, and abroad on the one hand, and politically supporting the more defensive, dependent and developmental interests of the G90 on the other, remains a challenge for the future.13 Third, South Africa’s involvement in two key developing country coalitions — the G20 demanding fairer global farm trade and a coalition around NAMA, or industrial tariffs — highlights important aspects of South Africa’s respective offensive and defensive economic diplomacy agendas in the Doha Round. While South Africa’s heightened and more visible activism in the WTO is arguably a function of the post-Cancún environment in which developing countries have asserted greater agenda-setting power, the negotiating discourse is often still shaped by polite proposals from developing countries, whereas developed countries speak of red lines, vetoes, mandates and no-go areas. The challenge for developing countries, including South Africa, is to more firmly assert their negotiating 12

For example, the Kigali Consensus of May 2004; the Grand Baie Declaration of July 2004; and the Arusha Development Benchmarks of November 2005) 13 In his post- Cancún report to Parliament, Alec Erwin highlighted the challenge of crafting joint continental positions, given that the majority of Africa’s monoculture agricultural economies are dependent on continued preferential access into Northern markets. Faced with the spectre of diminished market access under the Doha Round’s multilateral MFN liberalisation, these preference-dependent economies — led by Mauritius, who also chaired the Africa Group — broke ranks, joining an alluring G10 Northern protectionist fold.

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positions and demands, even when confronted by Northern pressure. In this regard, the recent principled positions of the G20 and NAMA-11 are salutary and are briefly explored below. 1.2

South Africa and the G20 for fairer agriculture

The G20 was formed at the time of the Cancún ministerial conference in September 2003. Led principally by Brazil, the G20 brought together a number of developing countries on the single issue of agriculture, supported by at least two other alliances: the ‘cotton club’, comprising Mali, Benin, Chad and Burkina Faso; and the Alliance on Strategic Products and Special Safeguard Mechanism (SP&SSM), co-ordinated by Indonesia and Philippines (the G33). The G20 held the position — and still does — that agriculture is the locomotive of the entire negotiating train, and if there is going to be any movement, this has to move first. With twinned offensive and defensive demands, the group has broadly cast its position on agricultural reform (i.e. domestic support, export subsidies and market access) as a compromise or ‘middle ground’ rather than an outlier, or simple blocking agenda. The emergence of the G20 at Cancún was significant in many ways. It was distinguished by having assembled and unified, through intra-coalition bargains, a motley crew of unlikely partners, ranging from agricultural exporters with strong liberalising interests (e.g. Brazil and South Africa) to defensive food importers and countries with greater protectionist interests (such as India). But as a collective the G20 certainly represented a formidable Southern axis, and was further emboldened by unprecedented ‘Alliances of Sympathy’ of other countries, including the Cairns Group. Despite palpable differences within the G20 over agriculture and the broader DDA, the group maintained its unified front and did not splinter during the Cancún endgame, as many had predicted. Narlikar and Tussie (2004) account for the group’s success by arguing that the G20 is a product of almost two decades of social learning by developing countries, and specifically their reformist adaptation within the broad liberal paradigm. They distinguish between ‘bloc-type coalitions’ and ‘issue-based alliances’. Whereas bloc-type coalitions are galvanised and unified by ideational and identity-based factors, issue-based alliances are forged for more instrumental reasons. Furthermore, bloc-type coalitions bring together like-minded countries and try to maintain collective positions across issues and over time; by contrast, issue-based alliances are temporary, and formed to address a specific threat. From this perspective, the formation of the G20 at Cancún — and arguably the NAMA-11 at Hong Kong two years later — reflected a shift away from old bloc-style diplomacy infused with declaratory commitments to an atavistic ‘Third Worldism’ towards more pragmatic issue-based alliances. Narlikar and Tussie then suggest that the durability of the G20 in the face of a wide range of internal and external tensions lay in its propitious blending of elements of both issue-based and bloctype coalitions. In other words, as a new form of ‘smart coalition’, the G20 based its offensive and defensive demands for agriculture on technically sound research, while appealing to the shared weaknesses of developing countries. The former is an important point: the G20 has engaged in studious research and careful analysis to inform its proposals. Whether the G20 can hold firm in the longer run of the negotiations, with its requisite tradeoffs and mercantilist bargains, is an entirely different question. Members’ interests do 9

differ. Brazil is an agricultural powerhouse, with almost unlimited arable land and water, a highly productive agricultural sector, and competitive capacity in transport, storage, distribution, and logistics for agricultural exports. Compared to Brazil’s agricultural competitiveness, India has a wider range of sensitive and subsistence agricultural products that demand protection. With elections expected in India before the summer of 2009, negotiators may become even more constrained. In this regard, it was recently suggested that Brazil and India were prepared to cut a deal on NAMA if their respective offensive and defensive demands on agriculture were appropriately accommodated. The NAMA-11 has, however, denied any rift in its ranks, pointing rather to the space for negotiation. On the other hand, agriculture can never be a complete answer to South Africa’s growth and employment challenges. Commercial farming produces only 4% of the country’s GDP, employs about 10% of the formal labour force, and contributes roughly 8.4% of export earnings. But South Africa does have aggrieved offensive interests; for instance, the country’s labour-intensive, resource-based and rural deciduous fruit canning industry — i.e. canned peaches, pears, apricots and mixed fruits — has been hard hit by global protectionism and market distortions, and local products are often priced out of third country export markets by subsidised EU goods. In terms of this ‘new politics of confrontation’ between the North and South, Drache (2005:127) succinctly captures the politics of the moment: ‘It is wrong to think that G20+ Southern states are in revolt against globalisation, but they have become smarter and much more discriminating in their response to global integration. They are no longer unconditional supporters of the WTO’s idealised, but deformed, view of the market. They have climbed off the world trade express train, at least for the time being, with the basic political understanding that to succeed in the global economy, very different strategies are needed.’ This understanding has also informed the emergence of the NAMA-11, which prosecutes a politics of ‘defensive development’ and the right to maintain policy space for future economic diversification. 1.3

The NAMA-11 and industrial policy space

The formation of the NAMA-11 at Hong Kong followed at least two related processes and highlights important aspects of South Africa’s economic diplomacy. FIRST, in November 2005, nine developing nations — i.e. South Africa, Argentina, Brazil, India, Indonesia, Namibia, Pakistan, Philippines and Venezuela — submitted a document entitled ‘Reclaiming Development in the WTO Doha Development Round’ to a special session of the WTO’s Committee on Trade and Development (CTD), then chaired by South Africa’s permanent representative to the WTO, Faizel Ismail. Its sponsors argued that the negotiating trajectory on industrial tariffs and agriculture threatened to invert the development content — indeed, the very logic — of the Round. It was therefore necessary to reassert the proportionality issue and the priority of development, at least as these countries understood it. Later at Hong Kong, South Africa consolidated this group of developing countries into a group known as the NAMA-11. SECOND, a number of countries led by Argentina submitted a document on the specific issue of the NAMA flexibilities and their interpretation of the agreement on flexibilities outlined in the 2004 July Framework. These countries rejected the notion that the flexibilities should be read together with the 10

coefficients (i.e. higher flexibilities for developing countries implied a lower coefficient for tariff cuts and caps). South Africa and the NAMA-11’s diplomacy is therefore underpinned by the original Doha principles of less-than-full reciprocity for NAMA (paragraph 16) and SDT for developing and least-developed countries (paragraph 44). From this perspective, South Africa and the NAMA-11 achieved three successes at the Hong Kong conference. Sequencing agriculture and NAMA South Africa and the NAMA-11 successfully resisted the attempts by the developed nations to try to force a premature agreement on modalities in NAMA, ahead of any significant agreement on the main issues in agriculture. In this regard, South African negotiators have frequently argued that the sequencing of the Doha Work Programme is not incidental: development issues are to be addressed first; agricultural modalities second; and then the NAMA modalities. In other words, substantial reform of trade-distorting agricultural policies by rich countries should be the benchmark against which NAMA tariff liberalisation is measured. Proportionality, balance and paragraph 24 At the behest of South Africa and the NAMA-11, the Hong Kong Ministerial Declaration included a paragraph on the need to ensure a balanced outcome to the Round as a whole. This is outlined in paragraph 24, which states that there will be a proportionately high ambition in both agriculture and NAMA. This is not the exact wording proposed by the NAMA-11; the group would have preferred that the level of adjustment in agriculture should be higher than the level of adjustments in other areas (e.g. NAMA and services) and that the levels of adjustment borne by developed countries must be higher than the level of adjustments borne by developing countries. Although they did not win it in that format, there is now agreement on proportionality between the levels of ambition. The NAMA coefficients The third contested terrain where NAMA-11 resistance has been pronounced is the respective coefficients for developed and developing country industrial tariff reductions. In December 2005, the Hong Kong ministerial conference adopted a Swiss formula (a variant of the non-linear formula), whereby each individual tariff line would be pared down, rather than the more flexible approach of reducing the average of total industrial tariffs (as insisted by the US during the Uruguay Round). This formula would see proportionately steeper cuts in higher tariffs (i.e. developing countries) than in lower tariffs, with some flexibility. To illustrate this precarious situation, the average weighted bound tariffs for NAMA in developing countries are close to 14%, compared to 3% in industrial countries. For South Africa and its SACU partners, the simple average is 15.8%, with some peaks on autos (30%) and clothing (40%). The adoption of this formula will require about 30 advanced developing countries (but indirectly, also their least-developed customs union partners, such as Lesotho in SACU) to pare down their industrial tariff books much deeper than their developed country peers. Some WTO analysts have even called this approach ‘more-thanfull reciprocity’. 11

South Africa and other developing countries are prepared to make concessions, but not at the inordinate price demanded by the North. So, for instance, the NAMA-11 calls for a ‘gap’ of at least 25 points between the coefficients for developed and developing countries (e.g. 10 and 35, respectively). This is critical if liberalisation is to be consistent with the principles of proportionality, SDT and less-than-full reciprocity (in the effect of the reduction, not the number of the formula). By contrast, developed countries like the EU and US are proposing coefficients of 10 and 15, and insist that a NAMA agreement must bite into applied tariff rates to create ‘new trade flows’ or ‘real market access’. In July 2007 the chairman of the NAMA negotiating group, Ambassador Don Stephenson of Canada, proposed compromise coefficients of 8-9% for developed countries, and 19-23% for developing countries. This, however, polarised the debate even further. In the tables below, the NAMA-11 calculates that coefficients of 10 and 15 would reduce developed countries’ average tariffs by 40%, whereas linear cuts for NAMA-11 and other developing countries would exceed 69% on average. As a result, developing countries will have to implement tariff reductions which, in linear terms, almost double those that will be carried out by developed countries. Furthermore, the average tariff cut in percentage points for developing countries will be nearly nine times higher than the cut for developed members Table 2: Impact of tariff reductions on NAMA: bound tariff Swiss formula coefficient 10

Average initial tariff 6.8

Average (a) % resulting tariff reduction 4.0 40.4%

(b) reduction in % points 2.7

Developed countries NAMA-11 15 34.4 10.4 69.6% 23.9 countries NAMA-11 35 34.4 17.3 49.5% 17.0 countries Note: a mark-up of 30 p.p. was applied to unbound tariff lines. Source: Communication from the NAMA-11 group of developing countries. Negotiating Group on Market Access, WTO, TN/MA/W/86, Geneva, June 8, 2007.

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Table 3: Impact of tariff reductions on NAMA: applied tariff Swiss formula coefficient 10

Average initial tariff 3.4

Average (c) % reduction (d) reduction resulting tariff in % points 2.6 25.5% 0.9

Developed countries NAMA-11 15 12.2 6.7 44.9% 5.5 countries NAMA-11 35 12.2 9.1 25.9% 3.2 countries Source: Communication from the NAMA-11 group of developing countries. Negotiating Group on Market Access, WTO, TN/MA/W/86, Geneva, June 8, 2007.

South Africa and its partners in the NAMA-11 continue to defend their principled position on two grounds. FIRST, they claim that for tariff reduction modalities, there are significant differences between agriculture and NAMA. This effectively falls foul of the proportionality injunction and the requirement for balance, as enshrined in paragraph 24. To illustrate: • • • •

•

•

In agriculture, it was agreed to apply a tiered formula with four bands and different linear cuts to be applied in each of the bands, whereas in NAMA there was agreement on the application of a Swiss formula with coefficients. In agriculture, the possibility of imposing a maximum tariff limit or cap is still under discussion, whereas in NAMA, given the characteristics of the Swiss formula, there will be a maximum limit matching the coefficients adopted. In NAMA it was agreed that all non-ad valorem would be bound in ad valorem terms; this has not been agreed in agriculture. In agriculture, developed countries will have the possibility of exempting a percentage of sensitive products from the general tariff reduction, including products in the lower bands, without any limit as to the value of trade involved. Meanwhile, in NAMA, paragraph 8 flexibilities for developing countries have explicit limitations to trade value. In agriculture, tariff rate quotas will be maintained. However, developed countries’ insistence that developing countries applied tariffs on NAMA products should be reduced is not matched by their agricultural proposals, which leave most in-quota tariffs unaffected. In agriculture, the Special Safeguard, on top of being unpredictable, represents a severe obstacle to market access. There is no such an instrument in NAMA.

SECOND and notwithstanding claims by developed countries that a coefficient of 35 would not reduce applied tariffs, NAMA-11 countries’ new bound tariffs would face a reduction below the current applied level in 22-51% of tariff lines, depending on the country and without considering flexibilities. The group maintains that the reduction below the applied level would affect between 9% and 37% of the value of NAMA imports in most of these countries. 2.

Regional and bilateral economic diplomacy

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South Africa’s post-apartheid drive to expand and diversify the country’s trading relations, anchored politically by a new South-South axis of cooperation, took shape in 1996 with the adoption of a trade strategy premised on the metaphor of a butterfly. This conceived of Africa as the continental body of the butterfly, opening up its trading wings to the dynamic growth poles of Asia in the East (especially China, India, the newly-industrialised countries (NICs) and near-NICs) and Latin America in the West, while consolidating economic relations with the country’s traditional, but more economically sluggish Northern partners. In 2001, the DTI released its Global Economic Strategy to give direction to forging these alternative patterns of trade (see DTI 2001a). This sought to guide the country’s trade negotiations with ‘strategic’ and ‘priority’ partners. In the spirit of the African renaissance, the DTI ascribed strategic status to all African countries. An IRPS-process commenced in 2004 to develop a South African strategy to assist the African continent with its broader economic development. It is unclear where this process currently stands. In assessing South Africa’s regional and bilateral economic diplomacy, SIX important developments may be highlighted. FIRST, in 1995 after the EU refused to grant South Africa temporary access to the Lomé Convention’s non-reciprocal General Trade Provisions, South Africa and the European Commission embarked on negotiations for free trade arrangements under a Trade, Development and Cooperation Agreement (TDCA). Following protracted negotiations, the TDCA was signed in late 1999 and came into effect on January 1, 2000. The agreement is framed asymmetrically: the EU will liberalise 95% of its imports from South Africa within 10 years; South Africa will reciprocate with market access for 86% of its imports from the EU over 12 years. Wines and spirits (signed in 2002) and fisheries proved to be highly contentious sectors to negotiate, with agreement on the latter still outstanding. Successor negotiations with the four non-EU European Free Trade Area (EFTA) members — Switzerland, Liechtenstein, Norway and Iceland — were subsequently concluded to bring trading relations with EFTA in line with the TDCA. In March 2006, the review of the TDCA was aligned with the SADC14 configuration’s Economic Partnership Agreement (EPA) negotiations with the EU. South Africa’s objective in joining the EPA negotiations was to harmonise the region’s various trading regimes with the EU into a single approach (thus strengthening regional integration), and to address some of the more defensive concerns of Botswana, Lesotho, Namibia and Swaziland (BLNS). The SADC position held that the reciprocity required for WTO-compatibility had been effectively dealt with by virtue of South Africa’s TDCA with the EU, which de facto applies to the BLNS. Second, Mozambique, Angola and Tanzania (MAT) are least-developed countries, entitled to duty- and quota-free access into the EU market for ‘everything but arms’. Third, the SADC EPA was to be restricted to trade in goods, since the region was not yet prepared to negotiate on the new generation trade issues15, apart from capacity-building. Despite maintaining a commendable unified front for most of the negotiating period, the looming deadline of December 2007, coupled with immense political pressure from the EU, led to 14

The SADC configuration consists of Botswana, Lesotho, Namibia and Swaziland (SACU), together with the least-developed countries Mozambique, Angola and Tanzania. 15 These include services, investment, intellectual property, competition policy and government procurement.

14

divisions within the SADC configuration. The BLNS and Mozambique relented, signing interim agreements with the EU, and have a clear agenda and timetable for progressing towards a full EPA in 2008. South Africa has, on principle, not yet signed an EPA, citing the EU’s unreasonable demands (but bilateral trade flows have not been disrupted, given the TDCA). SECOND, the Southern African Development Community (SADC) signed the Maseru Trade Protocol in 1996, which provides for the implementation of a free trade area (FTA) in 2008. This is to be followed by the formation of a SADC customs union in 2010 (and common market by 2015 and monetary union by 2016). Various challenges persist to fully implement the FTA: 4 countries are behind in their current commitments; and 5 countries heavily backloaded their commitments, with over 50% tariffs due to be eliminated in 2008. As South Africa argues, it is now important to complement the launch of the FTA with work on a Protocol on Industrial Policy and Sectoral Cooperation as well as non-tariff barriers (NTBs). Although the Trade Protocol makes provision for asymmetrical liberalisation, South Africa’s perceived pursuit of a neomercantilist agenda raises key normative questions about the nature of its regional hegemony. This debate on South African hegemony within the region is rehearsed later in the paper. In addition, the 2010 target date for a customs union appears to be wholly unrealistic. Many of the necessary preconditions for a customs union do simply not exist at present in SADC.16 The South African government is presently considering two consultants’ studies on the matter of a SADC-wide customs union. THIRD, a new Southern African Customs Union (SACU) Agreement between South Africa and Botswana, Lesotho, Namibia and Swaziland (BLNS) was renegotiated and concluded in 2002, although all its envisaged institutions are not yet fully operational. Importantly, article 38.1 requires member states to ‘… recognise the importance of balanced industrial development for the Common Customs Area as an important objective for economic development’. To implement this, the Agreement proceeds in article 38.2 to enjoin that: ‘Member States agree to develop common policies and strategies with respect to industrial development’. There are questions about this injunction, and the extent to which South Africa’s economic diplomacy is being effectively coordinated with the other BLNS countries. FOURTH, free trade negotiations between SACU and the US commenced in June 2003, with the aim of locking-in the preferential access granted under the unilateral African Growth and Opportunity Act (AGOA) and Generalised System of Preferences (GSP).17 The FTA talks collapsed in April 2006 for various reasons; the two parties now seek to conclude a Trade 16

These conditions include: • a similar level of industrial development among member countries; • harmonised national macroeconomic policies, as well as regional macro stability; • significant intra-regional trade and complementary industrial development; • significant differences among member countries factor endowments; and • a politically stable region, with a willingness to cede some level of sovereignty to a supranational body that has enforcement authority. 17 According to USAID, 99.6% of the value of South Africa’s exports to the US during 2005 entered with zero import duty. Only 0.4% of South African exports are subject to duty – $26 million out of $5.9 billion worth of trade. Under an FTA, these currently taxed goods could add $140 million of extra trade per year.

15

and Investment Cooperation Agreement (TICA).18 SACU levelled principled objections against the US’s competitive liberalisation paradigm and its inflexible FTA template as an inappropriate model to address the region’s pressing socioeconomic discontents. Washington’s preferred FTA route is to negotiate everything or nothing, including the new generation trade issues. These demands simply overwhelmed SACU’s institutional capacity. Obviously the region does need to faster harmonise its regulatory regimes, but this should be internally-driven (as is currently happening with the SADC Protocol on Services). In addition, there were fears that an FTA’s investment provisions would clash with the South African government’s policies on black economic empowerment. Washington has sanctioned such ‘non-conforming measures’ in select FTAs (e.g. Australia). But these flexibilities have aimed to assist underprivileged minority communities, not the vast majority citizenry as in South Africa. In other words, the SACU position resonated with compelling evidence that bilateral trade deals between rich and poor countries erode the latter’s policy space for development and impact on the livelihoods of the poor deleteriously. The major beneficiaries are largely northern multinationals, particularly those engaged in agribusiness and services provision (see UNCTAD 2006; Oxfam 2007). FIFTH, SACU also concluded a Preferential Trade Agreement (PTA) with the MERCOSUR bloc, constituted by Brazil, Uruguay, Paraguay and Argentina. The agreement covers approximately 2,000 product lines. Some minor issues, including a few outstanding product lines and rules of origin issues, remain to be finalised. FINALLY, PTA negotiations with China and India have commenced; moreover, a visionary or grand India-Brazil-South Africa (IBSA) trilateral FTA is also mooted. The aim would be to enhance the aggregate trilateral trade flows among MERCOSUR-SACU, MERCOSUR-India and SACU-India from US$4 billion to US $10 billion in the short term in an attempt to develop trade convergence between the three partners. Collectively, this trilateral FTA could create a market of 1.2 billion people, US$1.2 trillion of GDP and foreign trade worth $300 billion. Some would even argue that the origins of the G20 coalition reside with the Brasilia Declaration signed between Brazil, India and South Africa in June 2003. In addition, the South African government is keen to underline its political commitment to Africa by negotiating a similar agreement with a strategic African partner, such as Nigeria, Egypt or Kenya. B.

THE ECONOMIC DIPLOMACY OF INVESTMENT

1.

South Africa’s investments in Africa

South Africa’s political and economic roles in the continent have generated much controversy. However, it would seem that South Africa’s economic forays in the continent have been more contentious than its political engagements. Broadly speaking, perceptions are that South Africa’s domestic political and economic structures are too closely aligned to those promoted by the global neoliberal order and therefore, any economic or/and political 18

The TICA will focus on four areas for cooperation: sanitary and phytosanitary measures (SPS); standards, specifically technical barriers to trade (TBT); customs cooperation; and trade and investment promotion.

16

frameworks championed by South Africa are most likely to promote the neoliberal agenda, which ignores African realities and the continent’s most urgent developmental needs. More directly, South Africa is perceived as harbouring intentions to dominate the rest of the continent both politically and economically because of its acclaimed successful domestic political transition and its comparatively advanced and thriving economy. South Africa’s increasing engagements in continental politics, particularly in its peace diplomacy, together with the expansion of its businesses into the rest of the continent, have brought into sharp relief the tensions that exist between its foreign policy pronouncements and the difficulty of translating them into reality. More importantly, it has brought to the fore the tensions that exist between South African business interests and the state’s idealistic-benevolent foreign policy inclinations towards the continent. Despite South Africa’s increasing involvement in efforts to resolve Africa’s conflicts — in what has come to be known as South Africa’s peace diplomacy — others have contended that a more critical appraisal of South Africa’s re-entry into continental processes would suggest that even its otherwise benevolent efforts, have a hidden agenda: to dominate and control the continent economically and politically. Therefore, both South Africa’s political and economic penetration of the continent has been perceived as disguised forms of exploitation for the country’s national interest. South Africa’s corporate penetration of the continent has received the most attention in this regard. South Africa’s economic expansion into the continent in the past decade has been rapid and extensive. This has created perceptions and concerns about the country’s real intentions and designs in the continent, with some concluding that South Africa harbours hegemonic imperialist designs in this regard. South Africa’s economic penetration of the continent has been in two main areas: FIRST, Africa has emerged as an important export destination for South African products; and SECOND, South African capital has become directly involved in the continent by way of mergers, acquisitions, joint ventures and new direct greenfields investments (Daniel, Naidoo and Naidu 2003: 36). Economic indicators show that South Africa’s export trade with Africa has grown significantly since the end of apartheid, with Africa emerging as the country’s fourth largest export destination by region. In 2001, South Africa was listed as the second biggest investor in SADC, with investments totalling R14.8 billion and multi-state deals leading at R27 billion. Some of the major investments in SADC in 2001 and 2002 were investments of $1.1 billion by SASOL in the Pande & Tamane gas fields in Mozambique; $860 million by BHP Billiton, the Industrial Development Corporation (IDC) and Mitsubishi in the expansion of Mozal II; $142 million by Vodacom in Tanzania and a further $139 million in the Democratic Republic of the Congo (DRC) (Games 2004: 16-17). Furthermore, Sun International spent $56 million on its hotel in Zambia; $6 billion was invested by power parastatal Eskom Enterprises on the Inga dam project in the DRC; and $20 million by South African Airways for its stake in Air Tanzania (Games 2004: 17) It is even expected that with the restoration of peace in Angola, and with prospects of peace in the Great Lakes region, particularly in the DRC, more investment and trading opportunities would be opened to South African business.

17

What is even more important is the imbalance in the South African-African trade relationship and the extent to which South Africa dominates the African economy. South Africa enjoys a trade surplus with each of its trade partners. For example, in South Africa’s R20.3-billion trade with SADC member states in 1999, R17 billion were exports to the region and only R2.6 billion in imports from the region. This translated to an imbalance of approximately 7:1. Worse still, this imbalance rose to 8:1 in 2000 and by 2001 it stood at 9:1 (Daniel, Naidu and Naidoo 2004: 376). This trade imbalance is even bigger in the case of South Africa’s trade relations with some individual SADC countries like Angola where it is estimated at 22:1 in 2002. Even more concerning is that these imbalances are likely to increase in the foreseeable future. In relation to the broader continent, the balance of trade is also in South Africa’s favour. For example, in 2001 South Africa’s total trade with the rest of the continent, excluding SACU, amounted to $856 million in imports and $3.7 billion in exports, translating to an imbalance of nearly 5:1. This favourable balance arguably has justified the DTI to establish trade offices in a good number of African countries – including Angola, Egypt, Cote d’Ivoire, Kenya, Tanzania, and Zimbabwe. The DTI’s interest in Africa is in spite of the fact that in overall comparative volume terms, the EU, the North American Free Trade Area (NAFTA) and the China- Japan-Malaysia-Singapore axis remain much more important than the African market. This bias is due to the constraints of the smallness and poverty of the African market (Daniel, Naidoo et al. 2004: 375). Yet it is the very fact of the smallness of African markets that makes South Africa’s ever-increasing shares in them very worrying to local actors – who find themselves increasingly threatened in already small markets. In relation to the latter – “acquisitions, mergers, joint ventures and ‘greenfield’ investments”, the speed and spread of South African businesses in the continent is such that some have qualified South Africa’s corporate expansion as amounting to the ‘South Africanisation’ of the African economy. Good examples include: South Africa’s running of the railroads in Cameroon; control of telecoms in Lesotho; and being the leading provider of cell phone services in Nigeria, Uganda, Tanzania, Rwanda and Cameroon. South African companies are also involved in the management of power plants in Zimbabwe, Zambia and Mali, and are building roads and bridges in Malawi and Mozambique. As a matter of fact, almost every sector of the South African economy is operative in the rest of the African market – including banking, breweries, supermarkets, hotel management and providing television programming to over half of all African states (see ibid, p. 375-379). South Africa, according to an UNCTAD report of 2002, has emerged as the continent’s largest source of foreign direct investment (FDI). And as far as SADC is concerned, South African FDI into the region amounted to about $5.4 billion, higher than the combined United Kingdom and United States FDI injections into the region during the period 1994-2000. An important feature of this South African expansion has been that the six key sectors of the South African economy, namely: mining, retail, construction/manufacturing, financial services, telecommunications, tourism and leisure have worked in tandem to securing South African investments throughout the continent (ibid, p. 380). Yet another feature of South Africa’s penetration of the African economy has been the promotional role played by the state through such entities as the IDC, which not only provides funding but also shares 18

the risk by taking a direct stake in some projects. For example, the IDC had a 25% interest in the ‘Mozal project’ in Mozambique. The envisaged IDC portfolio of African projects include 60 projects in 21 African countries, spanning from Egypt and Algeria in the North to Nigeria and Senegal in the West, Sudan, Uganda, Kenya, Tanzania, Malawi and Swaziland in Central and Southern Africa (Business Day 26.09.02). Meanwhile by providing export finance, the IDC has facilitated the growing participation of South African industry in projects throughout the continent (ibid, p. 381). A further characteristic of the investment pattern of South African business has been the targeting of Africa’s generally underdeveloped infrastructure – which has translated into a real boom for South African contractors. The key players here include: Eskom Enterprises and Transnet, with Transnet being the bigger investor, particularly with its flagship venture of developing an energy grid across Africa – from the Grand Inga Falls in the DRC. It is clear from the aforementioned that South Africa’s corporate penetration of the continent has been enormous. This has elicited concerns about South Africa’s the real intentions in the continent – that are increasingly perceived as gradually taking over the African markets from both the local and traditional Western investors. 2.

Perceptions and realities about South African corporate behaviour

Some have argued that South Africa’s foreign economic strategy in the continent has largely been shaped by mercantilist interests that sometimes contradict expressed commitment to pursue mutually beneficial relations and promote balanced development in the sub-region and the broader continent (Qobo 2005:2). This has fed into perceptions that the country seeks to play a hegemonic role or that it harbours hegemonic ambitions (ibid). Moreover, many South African companies in the continent are perceived as arrogant, disrespectful, aloof and careless in their attitude towards local business communities, work seekers and even governments, as the former South African Minister of Public Enterprises conceded in early 2004 (see Bond and Kapuya, 2006: 30). The sources of these perceptions have been varied and whether or not they are founded has been a subject of heated debate. Three sources of these perceptions are briefly outlined below. FIRST, South Africa’s ‘unfair’ competitive advantage: This is indeed the primary source of the negative perceptions about South African investments in the continent, particularly fuelled by the country’s huge trade surplus in its dealings with the rest of the continent as shown earlier. Only a few African countries enjoy a marginal trade surplus with South Africa – Nigeria and Egypt. Although South Africa’s investments into the region are supposed to compensate for this huge imbalance, much of the profit made is repatriated back to Johannesburg or to the headquarters of these companies in London and Western metropolis, with little left in terms of the social advancement of the host countries. This is in spite of the fact that South African firms provide jobs and probably better salaries to some nationals of their host countries. Therefore, the solution lies in South Africa opening its markets to the rest of the continent. SECOND, the behaviour of individual companies: The behaviour of individual companies, especially large corporations involved in strategic sectors of national economies often has 19

significant impact on the way South African business is perceived. In this regard, while Anglo Gold’s acquisition of Ashanti Goldfields, Ghana’s national pride has contributed positively to the image of South African business; the failed hostile takeover of Kenya Breweries and the eventual withdrawal of SABMiller’s Breweries from Kenya had the opposite effect. THIRD, the unintended effects of some of South African retail companies’ policies: such as the sourcing of inputs locally from South Africa and not from the host country; the encouragement of the transfer of good functional business skills; and more importantly, the impact of domestic South African policies relating to its tax regime have not helped matters. Against this backdrop, the question then arises as to whether South Africa’s corporate expansion advances or impedes the realisation of South Africa’s Africa policy. 3.

South African corporate expansion and South Africa’s African foreign policy: convergence and divergence

Like businesses elsewhere, the South African business sector is driven by typical corporate interests – profit, market share, elimination of competition, the urge to dominate and to monopolise. Accordingly and in contrast to the altruistic posture of the overall South African Africa policy, South African businesses’ expansion into the continent is not altruistic. Rather their expansion into African economies is directed by profit motives. And in pursuit of profits, South African companies like companies from other countries have unfortunately not acted like saints, neither have their host countries wholeheartedly embraced them. Sadly though perceptions about the profit motives of South African business seem to have affected and structured attitudes towards South Africa’s overall foreign policy towards Africa, with some contending that contrary to South Africa’s official rhetoric of partnership with the rest of the continent, its real design is to dominate and exploit the continent for its own narrow national interest, in a manner akin to western imperialism. The question therefore arises as to whether the officials in Pretoria have acted in ways that support the conduct of their businesses in the continent or could it be said that SA business is wholly detached from the country’s foreign policy goals. Post-apartheid South Africa has had to simultaneously reintegrate the country into the international political economy after years of isolation, while at the same time strive to achieve the government’s stated developmental agenda both nationally and regionally (in the continent). While there is nothing inherently contradictory between these two tasks, their simultaneous pursuit has created some interdepartmental tensions in Pretoria between the Department of Foreign Affairs (DFA) and DTI – that appear to hold different visions for the country’s foreign policy. The tensions between these two departments are a reflection of the tensions between South African business and the country’s foreign policy, and an area where economic diplomacy needs to be better coordinated. The DFA has sought to use South Africa’s external relations, particularly in the sub-region and the entire continent to improve the country’s image and by forging mutually beneficial and non-hegemonic relations with the continent. It has also sought to emphasise its membership and contribution to various sub-regional and regional multilateral institutions, 20

demonstrating a deep sensitivity to perceptions of arrogance and hegemonic ambitions against it. Conversely, the DTI has been seen as having a penchant for going overboard to pursue commercially driven interests, at times at the expense of neighbouring countries. The content of its engagement in the continent has been found to reflect strong mercantilist instincts that have tended to inflame suspicions against South Africa. The DTI seems to be suspicious that neighbouring states are looking forward to forging ‘parasitic relations’ with South Africa, rather than mutually beneficial ties. Overall, while the DTI pursues what appears to be South Africa’s parochial market access agenda, the DFA appears to seek to advance the broader African interest as underpinned by the African Union (AU) and the New Economic Parnership for Africa’s Development (NEPAD) (Draper and Khumalo 2004:16). The DTI’s strategy appears to be informed by the fact that it is very much beholden to powerful economic actors in the domestic sphere, including labour, export-oriented business interests, and the import-competing sector of the economy. This, it would seem, is pursued alongside considerations for domestic stability with respect to economic adjustments and sustaining job creation initiatives (Qobo 2005:9). In this regard, South Africa’s behaviour in the continent, particularly as it pertains to trade relations, could be partly explained in terms of the influence its domestic capital and trade unions have over state strategies. All of which give the country a hard neo-mercantilist character and a hegemonic actor, more interested in what it can gain than what it can contribute to regional development (ibid). In this regard, some have argued that despite Pretoria’s insistence that its post-apartheid economic engagement with the rest of the continent is premised on mutually beneficial relations, it would seem that Pretoria has acted in tandem with its domestic capital to promote mercantilist interests by, for example, facilitating South African business’ penetration of African markets, and flooding them with South African goods and services (Qobo 2005:13). Yet some like Daniels, Naidoo and Naidu (2004), have been adamant that a distinction needs to be drawn between the behaviour of South Africa’s corporate structures and its government. Whatever the case, the divergence between the DFA and the DTI suggests that South African corporate interest and behaviour do not converge with the country’s African policy. South African business is therefore not in a position to advance the country’s African policy. In fact, the way a number of South African companies operate in the continent, stands to impede the achievement of the country’s African policy. 4.

South African peace diplomacy and South African corporate penetration of the continent: linkages and parallels

Politically, South Africa has been instrumental in crafting continental mechanisms aimed at eliminating some of the sources of Africa’s conflicts and also those designed to provide continental and regional responses to such conflicts when they occur. South Africa’s peace diplomacy has helped bring some stability in Burundi; it has contributed to the prevention of a full-blown civil war in Cote d’Ivoire; it has and continues to contribute to bring about democracy and lasting peace to the DRC; and it has been very vocal about the situation in the Sudan and Somalia. In spite of these invaluable contributions to peace efforts in the continent, voices have been raised that South Africa’s peace diplomacy has been directed at 21

paving the way for its corporate penetration of the economies of these countries in conflict. Put simply, perceptions are that South Africa’s involvement in resolving Africa’s conflicts is not as altruistic as officials in Pretoria would make believe. Rather, it is felt that Pretoria’s forays into Africa’s numerous conflict spots are aimed at facilitating the expansion of its businesses into the continent and, by default, to dominate the continent economically. According to Daniel, Naidoo and Naidu, “peace in Angola and the prospects of peace in the DRC will open up massive opportunities for South African capital. Against this background, one can anticipate that Africa’s share of South Africa’s overall export trade will continue to climb’ (cited in Qobo 2005: 13-14). The belief that the South African government supports or is intent on facilitating the expansion of its businesses into the continent has been further strengthened by the emerging pattern of including powerful businesspeople in delegations of South African government officials visiting African countries that are perceived to harbour enormous economic potentials, particularly countries where South Africa has been involved in brokering peace. In the case of the DRC, during a state visit to the country in January 2004, President Mbeki was accompanied by a delegation of South African businessmen, including some 20 senior executives. A landmark cooperation pact was signed at that meeting between key South African business interests and the government of the DRC. The Memorandum of Understanding (MOU) reached between South African Black Economic Empowerment (BEE) companies — Mvelaphanda — guarantees investments, over a tenyear period, in the areas of processing gold tailings, copper and cobalt mining, road construction and property acquisition (Qobo 2005:14). On the sidelines, South Africa and the DRC signed a bilateral agreement worth US$10 billion covering defence and security, the economy and finance, agricultural and infrastructure development (Qobo 2005:14). According to Qobo, this is an expression of clear linkages between South Africa’s foreign policy interest in enhancing political relations and stability on the one hand and the logic of specific interests in society on the other. Yet others would argue that South African corporations, such as Anglo-American, have had long-standing holdings and investments in the continent, and have even made inroads in countries that are not necessarily in conflict – like Anglo-Gold’s acquisition in Ghana. Importantly also, South African farmers have maintained a presence in areas as remote as Botswana’s farwestern Ghanzi district. Moreover, South African investments in and promotion of tourism in Malawi, Mozambique, and Zimbabwe, for example, in some respects are simply a resurrection of pre-independence patterns. What occurs is in some cases, is simply the normalisation of historic regional economic patterns and trends which have always been particularly beneficial to South Africa (Black and Swatuk 1997: 223-225). To expect that South Africa’s economic engagements with the rest of the continent would be essentially benevolent and that the South African government would be able to give its corporate operators directives to this effect would be myopic indeed. It reflects not only a lack of understanding of the depth of the economic challenges and pressures that South Africa has to contend with, but also ignores the realities of the workings of capital, particularly in the post Cold War world, dominated by a liberal market ethos. For example, one strand of constraint on South Africa’s engagement with the continent is found in the 22

contradictions that define the country’s foreign policy: on the one hand, given its diverse economy and diverse interests, it seeks to integrate closely with the global economy; and on the other hand, there are pressures to engage meaningfully and progressively in developing the proximate region – sub-region and continent – if South Africa is to sustain its own growth (Qobo 2005: 11). This not withstanding, the South African government has been making efforts to indirectly guide, though not direct the behaviour of its businesses in the continent. In this regard, efforts such as the establishment of Bi-National Commissions, emphasis on regional integration, and initiatives such as the NEPAD, including of course the practice of including business delegations in official state visits, rather than being construed as facilitating the exploitative expansion of SA business, should be seen as the South African indirect way of trying to give direction to its corporate interests, to better align them to its continental foreign policy objectives. In light of the foregoing, policy makers should consider the following: FIRST, working on perceptions and influencing corporate behaviour is imperative for the improvement of South Africa’s overall engagement with the rest of the continent; SECOND, strive to assist the South African government departments directing the country’s engagement with the rest of the continent, particularly the DTI and the DFA, to harmonise their African policy positions; THIRD, be more sensitive to host countries’ sensitivities and strive to address some of their justified concerns, particularly those relating unbalanced trade relations and sourcing of inputs from South Africa rather than from the host country; fourthly, sensitise the domestic public on the potential long-term dividends of South Africa’s involvement in the continent – particularly in peace missions. This will remove some of the pressures the government currently receives from the public, especially from labour that perceives South Africa’s involvement in the continent as a waste of tax-payers’ resources; and FOURTH, emphasise corporate social responsibility not only at home in South Africa, but also in host African countries – to give meaning to the notion of equal and mutually beneficial partnerships.

23

C.

CONCLUSION: COORDINATION OF SOUTH AFRICA’S ECONOMIC DIPLOMACY – THREE FUTURE CHALLENGES

1.

Better coordination with industrial policy and export and sector strategies

The first challenge is to better align the country’s multilateral, regional and bilateral economic diplomacy with the NIPF, the DTI’s export and sector strategies, and ASGISA. The DTI has long argued that industrial policy should serve as a strategic framework to guide the country’s global economic strategy (see DTI 2001a). More specifically, trade negotiations are to have industrial policy as both their starting point and overall objective (see DTI, 2007). Notwithstanding these injunctions, a major challenge has been the absence of a comprehensive industrial policy. Although South Africa experimented with various industrial policy initiatives since 1994 — such as the Integrated Manufacturing Strategy (IMS) and the competitiveness-enhancing Microeconomic Reform Programme — it was only in 2005 that a process commenced to develop the National Industrial Policy Framework (NIPF), released in 2007. Its main thrust is to build an export-oriented manufacturing economy premised on both labour and capital-intensity, which will support the economic target of 6% growth and halving unemployment by 2014. There are salutary signals that an industrial policy calculus has finally started to inform the country’s economic diplomacy. As previously discussed, South Africa ably coordinates the NAMA-11 in the WTO’s DDA, which demands the right to maintain tariff policy differentiation. This flexibility would give the DTI the option, as part of the NIPF, to make tariff reductions in key upstream sectors that are imposing import parity pricing, while defending higher tariffs on new dynamic or downstream sectors, particularly those that are strategic from an employment or value-addition perspective. Compared to previous years, there appears to be a greater appreciation of the role that a strategically-calibrated trade policy can play in fostering domestic production and competitiveness. In its bilateral and regional economic diplomacy, South Africa has now also started to strongly assert developmental principles and emphasised the need for more industrial policy space and flexibilities that are commensurate with the country, SADC and SACU’s respective levels of development. The collapse of the FTA negotiations with the US in April 2006 is symptomatic of this thinking. In the EPA negotiations with the EU, the SADC configuration initially crafted a similar defensive stance, although the group has now splintered. South-South bilateral trading agreements — particularly the mooted PTAs with India and China — have also been re-conceptualised from extensive tariff negotiations to cooperative agreements that should facilitate trade and better address non-tariff barriers (NTBs). As the NIPF (2007a:42) admits: ‘We have learned a series of important lessons to guide future bilateral engagements in a manner that will reflect our trade interests more precisely’. These may be succinctly summarised as follows: • •

PTAs, rather than FTAs, allow for more strategic integration among developing countries, particularly China and India. Trade negotiations must deal more effectively with NTBs as significant barriers in foreign markets. 24

• •

2.

Cooperative arrangements that include sectoral cooperation and mineral productsupply linked to investment in beneficiation are to be encouraged. More attention should be given to reducing the costs associated with trade diversion; the variable tariff positions with trading partners; and addressing complex customs administration and rules of origins (see DTI 2007). Strengthen consultation and coordination within and without government

The second challenge is to strengthen consultation and coordination of South Africa’s economic diplomacy within government, and with outside stakeholders, such as business, labour and civil society. Within government, the Permanent Trade Forum (PTF) was established to develop the country’s negotiating positions. The PTF offers an opportunity to discuss South Africa’s position in the international trade arena, to identify and articulate priority relationships and also key substantive issues for negotiations. This is particularly important when addressing services trade reform, since the latter largely entails regulatory issues that are dispersed among sector government departments. There is a need for the PTF to meet more frequently with committed participation from senior government officials (i.e. Chief Directors and Deputy Director-Generals) in order to effectively coordinate government’s economic diplomacy positions. At the same time, Parliament — particularly the Portfolio Committee on Trade and Industry — must play a greater role in oversight of all trade negotiations, and set mandates for the country’s negotiators. At present, it is unclear where negotiating mandates originate from, and how monitoring and evaluation (M&E) proceeds. NEDLAC provides a forum for dealing with external stakeholders. Within NEDLAC, discussions on industrial and trade policies reside with the Trade and Industry Chamber, which is assisted by two substructures. The first is the Fund for Research into Industrial Development, Growth and Equity (FRIDGE), which manages research projects that enhance the competitiveness of industry. FRIDGE has, for instance, commissioned studies to prepare various manufacturing sectors for effective bilateral trade negotiations with India and China. The second is the Technical Sectoral Liaison Committee (TESELICO), which seeks to enhance trade-related social dialogue, including the country’s trade negotiations. There are, however, concerns from the three social constituencies about how effective NEDLAC is in managing consultation around the trade and industry brief. There are perceptions that the DTI presents fait accompli, rather than strategically engaging and consulting. NEDLAC’s effectiveness is predicated upon the ability of all parties to articulate effectively specific concerns, the sharing of all relevant information, and effective consultation to reach agreement on how to proceed, in for example, an FTA negotiation. The DTI has made attempts to foster greater industry coherence on trade and also investment issues through the establishment of Export Councils. How effectively they are working to articulate industry views and concerns with respect to negotiations are not, however, very clear. It is also important that the DTI augments its own research capacity with the specialist expertise that resides in civil society. In this regard, the interface between research organisations (including universities, NGOs and think-tanks) needs to be developed and modalities for engagement to ensure that research addresses the specific needs of DTI in 25

negotiations, and modalities and the capacity to absorb such research should be developed or expanded. In addition, the government needs to make information on trade agreements and agreed tariff phase-down schedules, bilateral investment treaties (BITs) and double taxation treaties more readily accessible to businesses and other stakeholders, particularly through the DTI’s website. At present, the latter medium is not being optimally harnessed to support the country’s economic diplomacy. 3.

Better coordination with the SACU BLNS partner countries

The third challenge is to better coordinate South Africa’s economic diplomacy with its BLNS partners in the customs union, and to support the effective implementation and institutionalisation of all the SACU bodies. Article 38.2 of the new SACU treaty enjoins the member states to develop common policies and strategies with respect to industrial development. This is an area that is lagging, and should receive sufficient attention in the medium-term. In addition, South Africa has theoretically ceded its sovereignty over tariff policy to the SACU collective, but this raises key normative questions about institutional coordination and consultation among the five partner countries. Concerns have also been expressed by representatives from the Ministries of Trade and Industry in some of the BLNS countries that their specific interests are quite different from South Africa’s. The significant differences in levels of development as well as economic profiles and specific interests could pose challenges for South Africa in future negotiations.19

19

A specific challenge has arisen, for example as regards negotiations with China. Swaziland recognises Taiwan, and hence China does not want to negotiate with SACU.

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APPENDIX A

Table 1: South Africa’s trade with Africa (R Million)- Top 15 trading partners 1994 Country rank in 1994 Zimbabwe Mozambique Zambia Angola Nigeria Kenya Mauritius Tanzania Malawi DRC Ghana Botswana Namibia Swaziland Lesotho

Imports 1, 021.6 91.9 103.9 16.9 21.2 28.1 15.1 15.9 187 353.6 22.6 566.8 1, 414.8 1, 147.9 214.1

2006

Exports 2, 459.4 1, 406.8 1, 158.4 311.8 63.6 664.7 541.3 183.2 622 349.7 80.9 4, 171.5 4, 057.7 2, 816.4 2, 742.2

Imports 4, 633.3 318.6 1, 842.2 2, 486.1 9, 285.9 171.6 259.5 305.3 531 49.2 81.7 a a a a

Exports 7, 410.6 6, 240.4 7, 984.9 4, 739.1 4, 001.1 3, 244.0 1, 995.5 2, 765.2 1, 686.5 2, 554.5 1, 736.8 a a a a

Total trade 2006 12, 043.9 6,559.00 9, 827.2 7, 225.0 13, 287.0 3, 415.7 2, 255.1 3, 070.6 2, 217.1 2, 603.0 1, 818.8 a a a a

Rank in 2006 2 5 3 4 1 6 9 7 10 8 11 N/A N/A N/A N/A

% change in total trade 246 337 679 2098 15568 393 305 1442 174 270 1657 N/A N/A N/A N/A

a – there are no 2006 import and export figures for Botswana, Lesotho, Namibia and Swaziland, since these are SACU members Source: Apartheid Past, Renaissance Future: South Africa’s foreign Policy 1994-2004, pp 332-333

Table 2: Ranking of top South African TNCs among top 50 developing country TNCs/millions of dollars

Ranking by foreign assets 10 12 18 19 30 31 44

Corporation Sappi Sasol MTN Group AngloGold-a Naspers Barloworld Nampak

Industry Paper Industrial chemicals Telecommunications Gold ores Media Diversified Rubber and plastics

Total Assets 4 641 8 960 3 556 3 964 2 498 2 569 1 281

Total Sales 3 729 7 114 1 991 1 761 1 148 3 409 1 317

Total Employment 17 572 31 150 4 192 53 097 10 711 23 192 18 062

a - prior to the AngloGold Ashanti Gold merger of 2004 Source: World Investment Report 2004, pp 22-23

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