1. INTRODUCTION

 

TIFI Directorate’s primary function is to facilitate and coordinate trade and financial liberalization, competitive and diversified industrial development and increased investment for deeper regional integration and poverty eradication in the SADC region.

 

2. OVERALL OBJECTIVES OF TIFI DIRECTORATE

 

The overall objectives of the Directorate include among others:

 

a) Pursuing market integration through the establishment of the Free Trade Area, the SADC Customs Union and the SADC Common Market;

b) Attainment of macroeconomic convergence;

c) Development and strengthening of financial and capital markets;

d) Attainment of deeper monetary cooperation;

e) Increasing levels of investment in SADC including the Foreign Direct Investment;

f) Enhancing SADC competitiveness in industrial and mining and other productive activities for effective participation in the global economy; and

g) Ensuring compliance with international trade agreements.

 

3. MAJOR DEVELOPMENTS

 

3.1 The SADC Free Trade Area (FTA)

 

The SADC FTA, which commenced in 2000, with the signing of the SADC Trade Protocol, will officially be launched by the SADC Summit in August 2008, in South Africa. Twelve SADC Member States, with the exception of Angola and the DRC have ratified the Trade Protocol and have completed the process of tariff reduction schedules, paving the way for 85% of duty free trade of goods in the SADC Region.

 

In preparation for the FTA and for its official launch, the SADC Secretariat developed a Communications Strategy and Action Plan, with a view to create awareness in the SADC region and beyond. Some short term activities have been identified for implementation, leading up to the launch in August 2008, during the Summit. Long term activities are also planned for implementation post August 2008, which will see the FTA paving the way for the Customs Union in 2010.

 

Some of the short term activities that will commence in June 2008 include the commissioning of the SADC FTA Mini Web Site which will be operational by the end of June 2008; development of an Information Flyer and Brochure on the FTA with frequently asked questions (FAQs); and publication of a Business Guide to the SADC Trade Protocol. Involvement of the media is crucial to this process, and in this regard, the Secretariat will dialogue with SADC Media Coordinators to discuss how best to promote the SADC FTA. A week of activities will be planned in August 2008, coinciding with the SADC Week, to be coordinated by the SADC National Contact Points, SADC National Committees and the various stakeholders in the SADC Member States.

 

A comprehensive Programme will be developed post the SADC Summit, which will include more activities on the FTA. These will include visits to Member States; seminars; workshops; TV and Radio discussions. The SADC National Contact Points and the SADC National Committees will be consulted and are expected to play a key role in the activities to be carried out in all the Member States.

 

3.2 Financial and Capital Markets Development and Macroeconomic Convergence

 

Finance & Investment Protocol (FIP)

An EU-funded project to the value of €13.5 million under EDF 9 for the implementation of the FIP will be launched during the later part of 2008. The Secretariat and the EU are in the process of recruiting long term experts who will assist in the implementation of this project.

 

Exchange Controls

The SADC Exchange Control Committee has finalised the policy framework for the liberalisation of exchange controls. The purpose of the framework is to guide the Exchange Control liberalization programme in the SADC region.

 

Macroeconomic Policies and Convergence

The second comprehensive review of Member States’ performance relating to macroeconomic convergence was done in 2007 and reports of the review were finalized and presented to the Ministers of Finance and Investment on 27^th July 2007 for approval. An update of the Macroeconomic Convergence Review was completed by the Secretariat in April 2008.

 

With regard to macroeconomic convergence indicators, Member States have made noticeable progress and the general picture is that the region is converging to some extent. Considerable progress has been made in attaining reasonable levels of economic growth in the region, with most countries having recorded positive growth for five consecutive years. However, the level attained in economic growth falls short of the regional target of real GDP growth set at 7.0% for 2008. In 2007, regional growth averaged 5.9%, virtually the same rate that was attained in 2006. Regional average inflation slowed down to 8.3% in 2007 from 9.7% in 2006. This was in line with the regional inflation target for 2008 of below 9.5%. With regard to the fiscal balance, the region recorded an average fiscal surplus of 0.6% of GDP in 2007, lower than the 2.6% surplus achieved in 2006. Most Member States have made progress towards achievement of the MEC target of fiscal deficit of less than 5% of GDP in 2008. In line with this, Member States are also striving to attain the MEC target of public debt/GDP ratio of less than 60 percent and in 2007, the region recorded an average ratio of 50.9%. The region’s current account balance deteriorated from an average deficit of 0.7% of GDP in 2006 to an average deficit of 1.8 percent of GDP in 2007, largely on account of a surge in intermediate imports.

 

The Macroeconomic Policies and Convergence Section has also prepared the SADC Economic and Business Environment Outlook for 2007, which has been uploaded on the SADC website.

 

Macroeconomic Monitoring, Surveillance and Performance Unit (MSPU)

The purpose of establishing the SADC Macroeconomic Monitoring, Surveillance and Performance Unit was to coordinate macroeconomic surveillance process and provide policy guidance to Member States as well as providing secretariat and technical support to the SADC Macroeconomic Peer Review Panel.

 

Progress has been made in instituting the regional macroeconomic surveillance and peer review mechanism by constituting the Peer Review Panel which is a key structure in the operationalization of the peer review mechanism. The mechanism aims at fostering the adoption of policies, standards and practices that lead to macroeconomic stability, high economic growth, sustainable development, financial and capital market deepening and accelerated regional economic integration through sharing of experiences and reinforcement of successful and best practice including identifying deficiencies and assessing the needs for capacity building.

 

Tax Coordination

The Tax Subcommittee, through its Working Groups, has been able to enhance the tax database by populating three of the five Database chapters with the intention of fully populating the other two chapters by end of June 2008. The three populated Chapters are on Direct Taxes, Indirect Taxes, and Investment Incentives while the two outstanding Chapters are on Tax Agreements and Revenue Statistics The database is an eye-opener to the tax systems in the region and should provide investors with a summary of the laws prevailing in each Member State.

 

The Tax Subcommittee has also finalised a SADC Agreement for Assistance in Tax Matters geared at strengthening exchange of information and mutual assistance between revenue authorities in Member States particularly where no Double Tax Avoidance Agreement (DTAA) exists between those States wishing to exchange information or assist one another. The Agreement will also be useful even where a DTAA exists and will be ready for presentation for approval at the July meeting of the Ministers responsible for Finance and Investment.

 

The SADC Committee of Central Bank Governors (CCBG)

The CCBG Legal and Operational Steering Committee finalised the draft Framework to enhance consultations and co-operation between Central Banks and Ministries responsible for National Financial Matters. The draft Model Central Bank Bill as well as the Green Paper have also been finalised and were approved by Governors at their April 2008 meeting.

 

EU-SADC Investment Promotion Programme (ESIPP)

ESIPP was phased out at the end of June 2008 and there is a proposal for Pro€Invest to take over its activities pending the onset of the 2^nd ESIPP or SADC Invest Program that was recommended by the evaluation of ESIPP and approved by the European Commission. The following projects have been successfully completed from August 2007 to the time ESIPP closed its doors in June 2008:

 

• Agro-Industry 2008: This was the 5^th and final Sector Promotion Meeting organised by ESIPP. The meeting attracted over 400 participants and 128 SADC enterprises that promoted their business opportunities to 98 International Business Partners from the EU and SADC. This also involved over 60 representative Intermediary organisations from the SADC region, East Africa, West Africa and the EU. Over 1,400 scheduled business-to-business meetings were held and over 169 Letters of Intent (letters of cooperation) were signed.

• Agro-Industry Policy Dialogue Workshop: As part of ESIPP’s series of five regional and sector-focussed policy dialogue workshops, the 5^th and final sectoral dialogue workshop (agro-industry) was conducted. The workshop addressed policy challenges which are impacting on foreign investment within the sector in SADC, and made recommendations to address these challenges.

• 2010 Investment Conference: The conference discussed and identified investment and tourism promotion opportunities that will be presented by the 2010 World Cup in South Africa and the African Cup of Nations which will take place in Angola in 2010, and assessed how intermediary organisations can position themselves to maximise the potential benefits of these events.

• Users’ Guide for Intermediary Organisations (IOs): ESIPP has produced a practical guide for IOs on the provision of support services to their members as a way of generating sources of sustainable income.

• Association of SADC Chambers of Commerce and Industry (ASCCI) Small, Micro and Medium Enterprise (SMME) Toolkit: ESIPP has, in collaboration with ASCCI, produced an ‘ASCCI SMME Toolkit’ for six Member States, namely; Lesotho, Malawi, Namibia, Zambia, Swaziland and Tanzania. The toolkit is a highly-comprehensive document that gives a step-by-step guide to starting and operating a small business in the Southern African Region.

• Regional Private Sector Tourism Network: With the support of ESIPP, and in support of the SADC policy of economic integration, specifically with a view towards strengthening the tourism sector, several private-sector intermediary organisations in the SADC region formed a regional private sector tourism network, Southern African Tourism and Hospitality Business Initiative (SATHBI). SATHBI will engage with SADC through RETOSA

• Intermediary Organisation Support Grants: The following activities were undertaken through ESIPP grants; (i) Fair Trade in Tourism South Africa (FTTSA) organized a workshop to examine the issue of creating a sustainable tourism certificate for SADC, with a view to the future creation of a regional quality brand; (ii) the Southern African Biofuels Association organized and implemented a Policy Workshop for the support of a biofuels agro-industry in the SADC Region; and (iii) EU- Swaziland Partnership Mission and best practices in Investment Promotion and Investor Targeting workshop.

 

3.3 Enhancing Productive Competitiveness

 

The SADC Mining Programme

A comprehensive multi-year multi-partner implementation plan for harmonisation of mining policies, standards, legislative and regulatory frameworks in Southern Africa was developed with the support of the United Nations Economic Commission for Africa, Southern Africa Office. The plan has been developed as a direct response to the call by SADC mining Ministers to develop a comprehensive programme to ensure the implementation of the Mining Policies Harmonisation Framework in particular, and the Protocol on Mining in general. The comprehensive plan envisages the participation of multiple stake holders from the Member States and the international cooperating partners under one mining programme. The plan has eight themes or areas of work grouped into categories of related activities within which projects will be developed.

 

The eight themes are:

• Geological and Mining Information Systems;

• Value Addition, Innovation and Research and Development;

• Artisanal and Small-Scale Mining;

• Safety, Health and Environment;

• Human Resources and Institutional Capacities;

• Policy, Regulations and Administration;

• Social Issues and Gender; and

• Investment Promotion.

 

If successfully implemented, the harmonisation plan will make a major contribution to unlocking the abundant mineral wealth in the SADC region as well as contribute to the upliftment of the living standards of the people of the region.

 

SADC Industrial and Modernisation Programme

Having realised that the majority of companies in SADC region are not internationally competitive as they are unable to produce goods that can respond to the current market needs and meet international quality standards, sanitary and safety requirements, the SADC Secretariat with the support of UNIDO developed an Industrial Upgrading and Modernization Programme based on three sectors - agro-food processing, minerals processing, and pharmaceuticals.

 

The objective of the programme is to contribute towards strengthening of industrial capacities of the SADC countries to face the double-challenge of regional and world integration and, in particular, in the context of economic and trade liberalization and diversification, to support efforts to reduce poverty. The programme also aims to support the dynamics of upgrading and modernization of industries and related services, and to improve their competitiveness, growth and access to national, regional and international markets within the framework of trade liberalization and economic diversification.

 

The focus of the programme includes:

• SMEs management or organizational systems support by way of technical advice on industrial restructuring;

• SMEs skills upgrading by way of providing specialized or tailored training expertise deficient operational areas of industries;

• Technology modernization in the production systems by way of acquisition of new and advanced equipment or modernizing the existing equipment to a higher level of technology; and

• Capacity building of SMEs (Macro, Meso and Micro Level) support organisations especially technical institutions.

 

3.4 The SADC Standardization, Quality Assurance, Accreditation and Metrology (SQAM) Programme

 

In the last year, the SQAM Programme has facilitated the launch of a SQAM support programme funded by the European Commission to the tune of €14.2m designed to improve institutional and human resource capacity in SADC SQAM institutions. At the end of the three year project, SADC member states through their national SQAM institutions should be better able to fulfil the requirements of World Trade Organisation (WTO) agreements and also provide improved technical support to local industry in the areas of quality management, accreditation and measurement traceability.

 

The following have also been achieved:

• Increase of SADC harmonised standards to 84 with 50 more projects being processed by technical committees. The standards harmonised are those for commonly traded products like household goods, processed foods and auto-parts. Several standards for safety related products have also been harmonised;

• Increased reference of International Organisation for Legal Metrology (OIML) standards in national legal metrology regulations of member states resulting from harmonisation work by SADCMEL;

• Implementation of proficiency testing (PT) schemes for water by SADCMET. Such schemes help test laboratories in the region obtain more accurate results in their work and make test reports by SADC laboratories more acceptable internationally; and

• Setting up of the SADC Accreditation Service (SADCAS) in Botswana. SADCAS will provide internationally recognised accreditation for laboratories, certification and inspection bodies, again creating a platform where products produced in the SADC region gain more and more acceptability worldwide.

 

 

3.5 Interim Economic Partnership Agreement (EPA) Between the SADC EPA States and the European Community and Its Member States

 

Negotiations for the Economic Partnership Agreements (EPAs) were mandated by the WTO in order to ensure that ACP-EU trading arrangements are consistent with the legal disciplines of the WTO.

 

Eight SADC Member States, namely, Angola, Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland and Tanzania negotiated the EPA under the SADC configuration. The rest of the SADC countries negotiated in other configurations, mainly under the Eastern and Southern Africa (ESA) configuration.

 

The SADC EPA negotiations were launched in July 2004 in Windhoek-Namibia. By 31 December 2007, an Interim Economic Partnership Agreement had been concluded between five SADC EPA countries (Botswana, Lesotho, Mozambique, Namibia and Swaziland) and the European Union. This Interim Agreement was intended to safeguard against loss of preferential access in the EU market upon expiry of the WTO waiver on 31 December 2007, on which the ACP-EU trade arrangements were based. This problem would have been suffered by the developing ACP states that would otherwise have been left with no better trading alternative upon expiry of the Cotonou preferences. The Interim Agreement only covers trade in goods. Negotiations towards a full EPA are ongoing to extend the scope of the Agreement to cover other areas such as services and investment.

 

As an LDC, Angola has access to the EU Everything But Arms initiative which offers duty and quota free access to the EU market and has as a result not yet initialed the Interim EPA. South Africa has not only expressed difficulties with certain provisions of the Interim Agreement but is also still negotiating improved market access conditions in the European market. As a result, South Africa has not yet initialed the Interim EPA. Both these countries (Angola and South Africa) have committed to becoming parties to the full or final EPA. The Trade Development and Cooperation Agreement between South Africa and EU remains their legal basis for the conduct of trade. A process to address concerns on the Interim EPA is underway in parallel with phase two negotiations which are aimed at broadening the scope of the current Agreement. Tanzania ultimately joined its partner states in the East African Community to form the EAC-EU EPA configurations and have since launched negotiations towards a full Economic Partnership Agreement to be concluded in September 2009.

 

4. WAY FORWARD

 

Going forward on the issues reported above, the Directorate plans as follows:

 

FIP Implementation Project: The project is expected to commence later this year. The process of recruiting the five long-term technical assistants to the FIP project is underway.

 

Exchange Controls: An exchange control study on the status of current account liberalization in the SADC region has just been completed. Based on the results of the study, the Exchange Control Committee is in the process of developing a plan of action that will guide the individual Member States towards liberalization of exchange controls. The Committee will also make recommendations on a new deadline for the liberalization of the current account to the Minister responsible for Finance ad Investment, recognising that according to the RISDP, the Current Account should have been fully liberalised by December 2007.

 

Macroeconomic Convergence: The Directorate is currently preparing to undertake a major review of the Macroeconomic Convergence Programme for 2008, and the terms of Reference for this study have already been drawn up. This review will be conducted after 2008, in line with the decision of the Ministers of Finance and Investment at their meeting in July 2007 in Maputo.

 

A review of the relevance of the convergence criteria and numerical targets will also be undertaken after 2008. The terms of reference for this review have been drawn up.

 

Tax Coordination: The Subcommittee intends on applying its mind to the decisions emanating from the Consultative Conference on Poverty held in Port Louis, Mauritius in April 2008. The Subcommittee will also address the implications of the Free Trade Area and the forthcoming Customs Union on tax coordination.

 

Harmonisation of Mining Policies: The Harmonisation Implementation Plan for Mining Policies, Standards, Legislative and Regulatory Frameworks will be presented to SADC Ministers responsible for mining for their approval. The Secretariat in consultation with Member States will then embark on a theme-based resource mobilization programme to solicit support for multi-year projects that will be developed under the themes that the plan identifies.

 

SQAM: The SADC SQAM structures have worked hard to ensure that a regulatory framework for the implementation of harmonised standards and technical regulations is put in place. As a start, the technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) annexes to the Protocol on Trade have been finalised and are being submitted to the Ministers of Trade and Industry this year for adoption. Once adopted, member states will be expected to put in place enabling legislation and regulations at national level aimed at promoting adoption of harmonised standards and technical regulations and making the SADC free trade area and customs union a closer and closer reality.

 

EPAs: An important aspect in the second phase of the EPA negotiations would be to consolidate the SADC EPA grouping, with the ultimate objective being to have all SADC EPA states becoming parties to the final Agreement. The second important aspect is to continue negotiations in order to broaden the scope of the Agreement to cover, amongst others, services and investment. According to Article 67 of the Interim Agreement, a full EPA, covering liberalization of one services sector by the negotiating SADC EPA states and a stand still provision applied to all services sectors, plus an investment chapter should constitute a full EPA. Negotiations for progressive liberalization of the services sector to achieve substantial sectoral coverage in the services sector will continue until 2012.

 

Supporting implementation and monitoring of the EPA are now to become some of the integral functions of the SADC Secretariat. In this regard, permanent institutional arrangements within the Secretariat are to be put in place. An assessment of the appropriate institutional arrangements is ongoing.