The 38th Summit of Heads of State and Government of the Southern African Development Community (SADC), currently taking place in Namibia, is expected to address a wide range of issues of importance to the SADC region, most notably the status of implementation of the SADC Industrialization Strategy and Roadmap, as well as the current political situation and its effect on investment.

There is a common theme of political uncertainty having a detrimental effect on investment amongst all members of the SADC region, with the exception of the Botswana economy, which appears to be behaving differently.

Sometimes this political uncertainty in Africa has been successfully addressed, for example Kenya appears to be back on track after uncertainty surround its elections last year. However, the political issues that surfaced around the recent elections in Zimbabwe has put the country back in a cycle of uncertainty. The same applies to South Africa, where there was positive sentiment around the appointment of Cyril Ramaphosa as the country’s new president, but now reality has set in and investors are realising that Ramaphosa has to deliver on a very tall order.
With regards to the SADC Industrialization Strategy and Roadmap, which will be discussed at the Summit, there appears to be a big gap between the planning and implementation stages.

To-date, there has not been a big change in the levels of industrialization in the SADC region. For example, an important element for improving industrialization would be to bring manufacturing back to the region, which hasn’t happened yet. One hopes that the Summit will focus on the ways to move from strategy to implementation.

A good example of an industrialization strategy that is being implemented effectively, is the Zimbabwe Government’s partnership with commercial farmers to increase agricultural production in the country. This looks like it is working and that might produce a solution that could be implemented in other sectors as well.

Industrialization will most certainly be a priority agenda item at the Summit, considering the urgent need to foster economic growth and increase employment in the region. In addition, industrial growth has to take place having regard to advancements in technology, the movement to digitisation, the decarbonisation agenda and automation. It is also important for countries to ensure they have the required workforce that is skilled in the right areas, as opposed to skilled people in operations that are unlikely to last.
An example of the process involved in implementing an industrialization strategy is the role the Department of Trade and Industry in South Africa is playing in fostering industrialization, especially with regards to projects that increase youth employment and the creation of special economic zones and industrial parks. The Black Industrialists Scheme and the commitment to localisation, which involves the uptake of locally manufactured goods and services, are all part of the process to increase industrialization in the country.
The theme of this year’s SADC Summit is “Promoting Infrastructure Development and Youth Empowerment for Sustainable Development”. Developing infrastructure is vital for the improvement of economic growth , employment opportunities and the socio-economic conditions in the region.

An example of a proposed power infrastructure project in Namibia, the SADC Summit hosts, is the mooted Kudu Gas Project. The Namibian Minister of Energy recently referred to this project when he spoke at the African Energy Forum in Mauritius. This project is offshore, and they have to bring the gas onshore and find power or industrial offtakers not only in Namibia but in neighbouring countries as well. As such, industrialization will work only if there is an increase in intra-regional trade and dependency.

Another key challenge of industrialization is raising finance on acceptable terms. SADC noted when it launched the Industrialization Strategy and Roadmap that one of the biggest challenges to the growth of industrialization in the region was inadequate funding, and that they needed to consider innovative ways of financing industrialization.
Investments in infrastructure in particular are often big ticket, long term commitments with fixed locations, fixed revenue streams and structures, which will require substantial financial buy-in from all parties and stakeholders.

Because of market volatility, coupled with low credit ratings and a lack of exposure to private investors, emerging markets, and Africa in particular, require innovative financing solutions to bridge the gap between public and private investment. This is where the New Development Bank and other Development Finance Institutions (DFIs) play a pivotal role.

Apart from perceived or actual investment barriers, infrastructure projects have to identify and mitigate multiple risks notably completion risks, regulatory or policy uncertainty, performance risks and revenue risks to ensure that the project not only repays its debts, but also provides an adequate return for investors. The overall “bankability” and multi-faceted and inter-dependency of the components of the primary and enabling infrastructure of a project must not be underestimated.

The key role that DFIs have to play in making a project bankable include being able to provide a broad range of financing products, the ability to act as a loss absorber on both greenfield as well as brownfield projects, having developmental mandate which goes beyond pure funding, active engagement in creating enabling environments to address regulatory and institutional challenges, and risk mitigation.

SADC members will most likely also use the Summit’s platform to discuss the need for cross border and regional co-operation and collaboration, as well as the need for regulatory certainty and certain, independent, transparent and impartial regulation. Also under discussion will be the need to pursue a liberalised market to foster intra-Africa trade based on the recently signed African Continental Free Trade Area Agreement, the implementation of liberalised foreign exchange markets and convertibility of currencies, the status of bi-lateral investment treaties and security.

 
 
 
Written by Wildu du Plessis, Head of Africa, and Kieran Whyte, Head of Energy. Mining and Infrastructure at Baker McKenzie in Johannesburg