SECRET BRANCH: AFRICA BRIEFING TO PARLIAMENTARY PORTFOLIO COMMMITTEE ON INTERNATIONAL RELATIONS AND COOPERATION ON REGIONAL ECONOMIC INTEGRATION   9 March 2016 SECRET

OVERVIEW: REGIONAL ECONOMIC INTEGRATION South African Foreign Policy is anchored in domestic priorities with the main aim of consolidating regional integration with particular emphasis on improving the political and economic integration of SADC. South Africa’s position is that regional integration process should be guided by developmental requirements to respond to the myriad challenges confronting the continent, namely multidimensional poverty, underdevelopment and Africa’s marginalisation.

OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT. Background Flows from the pan-African ideology that sought emancipation from colonial domination. Specific milestones and timelines SADC FTA by 2008; SADC Custom Union by 2010 (not achieved); SADC Common Market by 2015 (not achieved); Monetary Union by 2016 (not achieved).

OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT. SECRET OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT. The Free Trade Area (FTA) was launched in 2008 following the signing of a SADC Protocol on Trade by SADC Member States in Johannesburg, South Africa. It involves the strengthening of the capacity of individual states to fulfil their core functions. However, attempts at regional integration have been slow, with only 15% of trade being intra-regional. Full liberalization was not achieved by January 2012 as expected as some Member States had not yet signed the SADC Protocol on Trade (Angola and DRC). SECRET

OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT. 2013 SADC exports worth $218.6 billion, with 44% from SA and another 33% from Angola (a combined 77%). 2013 SADC imports worth $204.6 billion with 56% into SA and another 11.4% into Angola (a combined 67.4%). Major trading partners are the EU, USA, CHINA, JAPAN SADC and SACU are primary vehicles to regional economic integration - key building blocks to realizing the Tripartite Free Trade Area (TFTA) and the envisaged Continental Free Trade Area (CFTA)

OVERVIEW: REGIONAL ECONOMIC INTEGRATION, CONT. Challenges: SADC intra-regional trade remains relatively low with South Africa’s share in exports accounting for just over 46% and its share in imports accounting for just over 17% of this trade and over 50% of the regions GDP; Uneven trade which includes, amongst others; lack of industrialization, insufficient infrastructure, and Member States producing the same commodities (lack of diversity); Requests for derogations from Members; and Multiple membership with RECS – consensus a challenge.

TRIPARTITE FREE TRADE AREA The tripartite area involves a block of 26 countries, a combined population of 530million people and a GDP of $1trillion (2013). This political vision is aimed at consolidating: intra-regional trade Promote cross-regional infrastructure projects and Remove the costs of overlapping regional memberships The region had initial attempts to foster integration and only in 2011 did SADC, EAC and COMESA met to review their 2008 agreement involving a free trade area.

Overview: TRIPARTITE FREE TRADE AREA, CONT SECRET Overview: TRIPARTITE FREE TRADE AREA, CONT The final objective of the Tripartite FTA is to achieve Duty-Free and Quota-Free treatment on all products and without quantitative restrictions on goods that meet the Tripartite Rules of Origin. The COMESA-EAC-SADC Tripartite Free Trade Area (TFTA) negotiations continue to address outstanding issues to meet the 2017 deadline for formal establishment SECRET

Overview: TRIPARTITE FREE TRADE AREA, CONT The Tripartite FTA was launched in June 2015 at the Tripartite Summit of Heads of State and Government with the signing of the agreement establishing the FTA. RSA did not sign the agreement – pending finalization of outstanding issues in negotiations. The Rules of Origin, Trade remedies and Dispute settlement remain contentious issues in the TFTA negotiations. African Union CFTA processes to kick-start in April 2016

Overview: TRIPARTITE FREE TRADE AREA, CONT The main elements of the TFTA the draft Agreement for establishing the Tripartite FTA are the annexures. Some of the complementary areas covered include:

 Promotion of customs cooperation and trade facilitation;
 Harmonisation and coordination of industrial and health standards;
 Combating of unfair trade practices and import surges, Use of arbitration settlement mechanisms;
 


TRIPARTITE FREE TRADE AREA: CHALLENGES Most economies remains weak Historical divisions have worked against the process Lack of institutional capacity Overlapping membership Low levels of industrialization (hence Indus Strategy) Insufficient infrastructure Uneven levels of development Market integration still lags behind Lack of popular participation in integration process

CHALLENGES, CONT. Perceived/suspicion at SA’s market dominance Low levels of intra-trade Extreme low levels of diversification High prevalence of the informal sector Lack of political will by Member States to adhere to appropriate regional agendas

WAY FORWARD SA to continue participating in the SADC Ministerial Task Force on Regional Economic Integration as well as other SADC structures geared towards the formalization of the TFTA. SA continue to provide leadership during negotiations SA to continue using both the bilateral and multilateral fora to advocate for the conclusion of negotiations by June 2017. Missions and line-function departments will continue serving as early warning centers with respect to economic activities that may have an impact on economic integration.

GRAND INGA HYDRO POWER PROJECT IN THE DRC In 2011, South Africa and the DRC signed the Memorandum of Understanding with respect to the Grand Inga Project and this MOU established the foundation for the Treaty on the Grand Inga Hydropower Project between RSA and DRC signed in October 2013 and it entered into force in March 2015 following ratification by both countries. The Inga Project seeks to develop about 39 000MW of electricity on the Congo River, in numerous phases, of which the first phase of 5000MW will be split between RSA (2500MW) and DRC (1000MW for Kinshasa and 2100MW for the Katanga mining area). In terms of the Treaty RSA has conditionally committed to buying the 2500MW from the first phase, and also secured a right of first refusal in regard to buying 30% of power from any subsequent phases. The Treaty has established the Inter-Ministerial Committee (chaired by Energy Ministers) and the Joint Permanent Technical Committee (led by Senior Officials). RSA has secured provisions in the Treaty for benefitting SADC and RSA companies during project implementation, in preference to international companies and has the right to acquire project ownership to the extent of 15% equity in partnership with the developers to be selected as the preferred concessionaire by the DRC. The DRC will appoint a concessionaire who will act as Owner for the three Project infrastructures, but all structures necessary for development of the project will remain in the custody of the DRC State. Power to the benefit of RSA shall be delivered through the border between DRC and Zambia, through Zambia and Zimbabwe (or Botswana) into RSA. The scope of the works from the delivery point to RSA belongs to RSA. Task team has been formed to look into the project viability and bankability of the delivery of power and according to Eskom the transmission solution requires the collaboration of Zambia and Zimbabwe/Botswana authorities. Currently the work is being done to select preferred candidates/ companies to do the work and negotiations are being finalised on the PPAs between the selected private partner and the buyers (e.g RSA, SNEL and the miners in Katanga); The Inga Project is being led by the Department of Energy from the South African side