Regional Economic Development: The Case of Southern Africa

UNIVERSITY OF CAMBRIDGE

Global Security Fellows Initiative

Occasional Paper No. 8

Regional Economic Development: The Case of Southern Africa

Logan Rangasamy

November 1998

ISBN# 900741 20 2

©Logan Rangasamy

Back To GSFI Homepage

Section 1: Introduction

Section 2: Stylised Facts of Development

Section 3: Integration as a Means of Achieving Economic Development

Section 4: Empirical Data: The Case of Southern Africa

Section 5: Conclusion

Bibliography

Notes

Section 1

Introduction

In recent times, regional arrangements have transformed international trading relations through the formation of trading blocs and the proliferation of free trade agreements. These include the signing of the North American Free Trade Agreement (NAFTA) in 1993; the expansion of the European Union in 1995 to include three new members (Austria, Finland and Sweden); Latin American integration efforts and moves by the members of the Association of South East Asian Nations (ASEAN) to create a regional free trade zone by the year 2000. For Thailand's foreign minister, Kasem Kasemsri, 'Economic harmonisation among our countries [members of ASEAN] is no longer a question of choice but one of necessity' (Herald International Tribune, 1995, 9). The Southern African Development Community (SADC) in its declaration of 17 August 1992, views economic integration of the region as being a natural response to similar developments in the international arena. For the Organisation of African Unity (OAU) regional economic integration is seen as a building block towards an African Economic Community.

This study focuses on the factors influencing the economic development of the Southern African region.1 In Section Two, some stylised facts of development are highlighted. The rationale for this section is to obtain an indication of how well the countries of the region fit these predictions. Section Three considers the theoretical justifications for economic integration - the development path that the region has chosen. Section Four provides an analysis of the prevailing economic conditions in the different countries of the region with an emphasis on the implications of the prevailing conditions for economic integration. Finally, some concluding remarks are made in Section Five.

Go to Top

Section 2

Stylised Facts of Development

Development is associated with structural transformation of the economy. Analyses of structural transformation can be traced to Fisher (1939) and Clark (1940). Clark's contribution involved an analysis of the effects of differential productivity growth on structural change. Houthakker (1957) considered the changing patterns of consumption accompanying structural change. Kuznets (1960, 1964) was the first to formally establish what has become known as the 'stylised facts' of structural transformation. The use of statistical techniques to measure structural change has increased in importance (Chenery, 1960; Chenery and Taylor, 1968; Syrquin and Chenery, 1975, 1989). In this section, stylised facts of development associated with country size and per capita income are highlighted.

Influence of country size

Geographical territory, size of the domestic market, gross national product and per capita gross national product have been used to classify countries into either developing or developed; large or small; First or Third world and the like. The influence of population size on economic structure has been the focus of much economic analysis (Kuznets, 1951, 1960; Chenery, 1965; Chenery and Syrquin, 1975). However, the dividing line between what is considered to be a large country and a small country varies over time (Perkins and Syrquin 1989) and is also open to different interpretations.2

Share of foreign trade in GDP A robust proposition in the economic literature is that nations with large populations tend to have a lower share of foreign trade in GDP as compared to nations with smaller populations. The explanation for this tends to be that large countries generally seem to have both the market size and resources to sustain domestic production. Economies of scale is seen as the main reason for large countries having low foreign trade ratios (Kuznets, 1960). It is thought that large countries, because of their large demand, enable producers to build plants to take advantage of economies of scale. Small countries on the other hand require foreign demand (and hence trade) to realise such scale economies. However, 'it is the absolute size of the GNP, not per capita GNP, that influences the size of the market and there is some negative correlation between trade shares and the absolute size of GNP' (Syrquin and Perkins, 1989, p1713). Per capita income influences the structure of demand with demand for sophisticated products increasing with per capita income. Developing countries tend to focus initially on the domestic market as the impetus for manufacturing production. However, import substitution policies if not implemented on the basis of the infant industry argument could mean that the developing countries remain dependent on the export of primary products to meet foreign exchange requirements. It is unlikely that countries with low per capita incomes will have the infrastructure (transport, communications, cheap electricity) to enable the exploitation of economies of scale. It is difficult to predict what size of population or GNP is needed to allow for the realisation of economies of scale. However, empirical evidence reveals that as population and GNP increases, the consequent increase in demand allows for economies of scale in production. Also, given the restrictions in international trade, it is easier for large countries to achieve economies of scale in production. Large countries may have to invest in a wide range of industries in order to use up unemployed resources and achieve the required growth rate. However, the strategy of devoting resources across a wide range of activities may lead to efficiency losses in production.

Composition of foreign trade: Country size has a profound impact on the composition of foreign trade. Large countries have a higher level of manufactured exports than small countries, particularly at low levels of per capita income (Keesing, 1968; Chenery and Syrquin, 1975; Perkins and Syrquin, 1989). Large domestic markets provide a stimulus for manufacturing export because of economies of scale (Balassa, 1969). The higher the 'population density' (ratio of population to total or arable land area), the higher the share of manufactured exports and the lower the share of primary exports in GDP (Perkins and Syrquin, 1989, p1723). Countries with high 'population densities' have a higher ratio of labour to natural resources and hence would import primary products for processing.

Per capita considerations

Development has also been associated with increases in per capita gross national product. More specifically, it is claimed that as a country's per capita income increases, certain features of structural transformation are common to all countries (Taylor, 1989; Syrquin, 1987, 1989; Chenery and Syrquin, 1975, 1989).

The share of agriculture in terms of both total output and employment decreases continuously as per capita income increases. At the same time, industry's share in output and employment rises, with the share of manufacturing increasing at a faster rate relative to mining. At very high levels of per capita income, the service sector surpasses the industrial sector as the main contributor to total output and employment. Import substituting production precedes export expansion (Urata, 1986). At a sectoral level, food products and textiles dominate production at low income levels (Hoffman, 1958; Chenery, 1979). With rising income, intermediate goods and finally, capital and high technology goods are produced (Taylor, 1989; Killick, 1990). For Killick (1990, p6) a decline in the 'informal sector' activities relative to those in the formal sector is another characteristic accompanying per capita income increases.

The share of intermediates in total gross output increases as production shifts from primary to manufactured goods. The rise in intermediate demand is the direct result of specialisation in production. National saving as a share of gross domestic product (GDP) rises as per capita income increases. The diversification of the production process in turn necessitates increased levels of investment spending which result in the ratio of investment to GDP increasing with rises in per capita income.

Trade: For Syrquin (1989, p57) trade is the 'most variable element influencing a country's structure of production'. Primary exports decrease in importance as development occurs. The composition of imports shifts from consumer goods to intermediate goods and then to capital goods. At high levels of income, intra-industry trade becomes an important feature of trade, with manufactured exports dominating trade. Population size and the availability of natural resources influence the timing of the shift from primary to manufactured exports. Small countries with their relatively small domestic market size have production structures that are more specialised than larger countries. With increases in per capita GDP and the availability of capital, exports become capital intensive (Killick, 1990, p15).

Go to Top

Section 3: Integration as a Means of Achieving Economic Development

Motivation for Integration

Economic and political considerations are generally the main motivations for integration. Political considerations may include the desire to use integration to increase a country's negotiating power with third parties or as a means of improving political relations among the integrating states. However, the desire to achieve industrial development and technological development has been one of the main motivations for integration. Small countries see increased market size and preferential access to a protected market as an almost immediate spur to industrial development. The larger the size of the integration area and the more homogenous the participants are in terms of degree of economic size and degree of industrial development achieved at the onset of the integration process, the more likely it is that the integrative process would prove successful. The increased market size allows for the implementation of infant industry protection in a regional union. Infant industry protection allows for improvements in quality control, marketing techniques and competitiveness which are vital ingredients necessary for success on world markets (Linder 1966; Jaber 1970).

For Morawetz (1974) intra-regional trade could provide a stimulus for product diversification and improved competitiveness and allow for entry onto the world market. The increased size of the market after integration also permits the realisation of economies of scale. Economies of scale has been viewed as one of the dynamic effects of integration, particularly applicable to countries with small domestic markets (Pearson and Ingram, 1980).

Developing countries may regard industrialisation as a rational social choice and may be willing to bear the costs of not importing from the cheapest available source, or, specialise in activities in which they do not have a comparative advantage (Langhammer and Hiemenz, 1990, pp6-7). However, the idea of reciprocity to balance the costs (that is, countries importing industrial products from each other) demands preference for industrial products among members. However, it may be the case that countries possess no or few industrial products that they could produce at lower prices (costs) than other member(s) in the group. This raises the issue of how the costs and benefits of regional integration should be equitably distributed among the members. This is one of the most contentious issues resulting from integration. Customs union theory attempts to address this issue through the estimation of 'trade creating' and 'trade diverting' effects. The Vineran argument that trade diversion was welfare-reducing and that trade creation was welfare- enhancing (from a world welfare point of view) has provided fertile ground for much debate, with inconclusive results being achieved (Gehrels 1956/57; Lipsey, 1957, 1960; Meade, 1955; Krauss 1972). Once trade creating and trade diverting effects are estimated, policies could be implemented to compensate those countries that are forced to bear costs due to integration. These may take the form of subsidies or a larger share of the collected customs revenue (in the case of a customs union).

Since industrial development is one of the main motivations for integration among developing countries it is not the mere size of trade flows that is important but rather the composition of those flows (in terms of new products, especially manufactured products). Integrative efforts are influenced by the capacity of the countries to accommodate industrial development. In this respect, the level of industrial development prior to the initiation of the integrative process is one of the main determining factors of the success or failure of the integrative process. Smaller countries have a lower capacity to industrialise on their own, so it is important for the integrative process to address the issue of capacity of industrialisation of the concerned countries. This may entail favourable policies that attempt to redress the disadvantages that the smaller countries have at the onset of integration. The failure to ensure that industrial development occurred in smaller and weaker countries was one of the main reasons for the stagnation of the integrative process in the Latin American Free Trade Area (LAFTA) in the 1970s. This was despite the fact that non-reciprocal concessions were allowed. In Africa, compensatory mechanisms (for example, the distribution of customs revenue) have also not proved successful in addressing the issue of unequal industrial development.

The role of state intervention: With regard to the participation by the state in production and distribution of goods, the degree of state intervention influences the integrative process. This is so since production by the state is not governed by the usual cost and price decisions of the market. The degree of state intervention in economic activities (particularly trade) could negatively influence the process of integration. For example, State trading activities (especially the control of imports by the State Trading Corporations) by the United Republic of Tanzania, Kenya and Uganda was the subject of much controversy and finally led to the collapse of the East African Community (Hazlewood, 1979).

Dependence, Interdependence and the Integration Process

'Dependence' prevails when one party is reliant on existing relationships or exchanges to the extent that it is forced to bear costs if there is a breakdown or interruption in the relationship (Blumenfeld 1991). Different interpretations of the term 'interdependence' can be found in the academic literature. For Rosecrance et al (1977) interdependence refers to the situation where the actions of one state influence the outcome(s) in other state(s) in the same direction. This usually exists when high levels of trade and investment flows characterise the relationship between countries. For Keohand and Nye (1977) interdependence imposes costs on the interrelated parties; costs that may not be equally shared between the parties. Cooper (1977) argues that in an interdependent world (region), institutional interdependence (through the coordination of economic policies) may be needed to balance the costs resulting from the actions of one party. In some sense these issues have been captured in the Gesellschaft and Gemeinschaft models of societal relations.3 The Gesellschaft model views society as comprising individuals with competing and conflicting interests. It is argued that the market if properly managed could adequately resolve the competing interests of the interacting parties. The Gemeinschaft model on the other hand stresses the need for consensus building in achieving a lasting solution. In this case, loyalty, obligation and duty are seen as reasons for modifying 'self interests' in the interests of preferred relationships. The Gesellschaft model focuses on competitive interests rather than common and compatible interests. The Gemeinschaft model calls for a 'modification of perceptions of self interests by such factors as emotional ties, preferences, "we feeling" or the identification of mutual values' (Taylor, 1980, p373). Thus, the Gesellschaft model is concerned with the maximisation of benefits in transactions whereas the Gemeinschaft model advocates a preference for cooperation with certain parties. For Taylor (1980, p374) interdependence is part of (international) integration. However, the cooperative arrangements determine the nature of the interdependence between the members of the union.

Neo-Marxist interpretations have centred on the social processes and class relations governing 'dependent relations'. More specifically, international capital concentrates on the development of the 'centre' through the exploitation of the 'periphery'. This is done through the expansion of monopoly practices; once monopoly practices become entrenched with demand and investment opportunities becoming saturated in the 'centre', the attention shifts to exploitation of the periphery. While this argument was used to explain how the world economy operated, it was extended to explain the development process at the regional level (Blumenfeld, 1991). In this case, it is argued that international capital having established a base in the 'centre' (for example, South Africa) would then expand its influence to the periphery (Southern African region) through the establishment of subsidiaries in the periphery. These subsidiaries are effectively controlled from the headquarters in the centre and through business practices like 'transfer pricing', the centre continues to expand and grow through the exploitation of the periphery. Stated differently, what this means is that the centre through its economic clout is able to exert significant influence on the development path that the periphery takes. According to the neo-Marxist paradigm, this development path is inappropriate for the needs of the developing country, with the benefits in the main accruing to the capitalist elites based either in the 'periphery' or in the 'centre'.

While interdependence is not incompatible with vested national self interest (Blumenfeld, 1991), national self interests could conflict with the interests of trading partners. Keohane and Nye (1977) emphasise that interdependence does not mean an absence of conflict. In the case where conflicts do exist the nature of the relationship depicting the interdependence may be complex and governed by legal commitments. This complexity may be primarily due to each partner attempting to safeguard its national self interest.

Interdependence, Economic Power and Political Lverage

For Michaely (1984), market power permits the manipulation of the terms of trade and hence the benefits of the gains from trade. Hirshman (1945, p95) goes one step further by asserting that economic power enables a country to extract political concessions from its less powerful trading partners. However, the link between economic power and political power is not always so simple and explicit (Wagner,1988). First, commercial policies could be used to control exports or imports and hence these policies could be used to manipulate trade relations in a nation's favour. Second, even if market power enabled a country to influence the terms of trade in its favour, this does not necessarily translate into greater bargaining power on the political front. Political factors may be valued higher than economic influences. Third, Wagner uses bargaining theory to demonstrate that political concessions may have to be preceded by concessions over the terms of trade. In other words, a trade-off results with the more dependent country able to extract economic concessions in return for making some political concessions.

Go to Top

Section 4: Empirical Data: The Case of Southern Africa

The table below indicates the economic hegemony that South Africa commands in the region.

Table One: Basic Economic Indicators, 1992

Country

Area (000 sq.

kilometres)

Population

millions

GDP ($USb)

Per capita

GDP $US)

HDIB

HDPIC

AngolaA

1247 (18.0)

9.7 (7.7)

7.72 (5.7)

610

0.143

0.73

Botswana

582 (8.4)

1.4 (1.1)

3.70 (2.7)

2790

0.552

0.87

Lesotho

30 (0.4)

1.9 (1.5)

0.54 (0.4)

590

0.431

1.13

Malawi

118 (1.7)

9.1 (7.2)

1.67 (1.2)

210

0.168

0.88

Mauritius

2 (0.02)

1.1 (0.9)

2.57 (1.9)

2700

0.794

0.95

Mozambique

802 (11.6)

16.5 (13.1)

0.97 (0.7)

0.154

0.69

Namibia

824 (11.9)

1.5 (1.2)

2.11 (1.6)

1610

0.289

0.79

South Africa

1221 (17.6)

39.8 (31.5)

103.65 (76.8)

2670

0.673

0.85

SwazilandA

20 (0.3)

0.8 (0.6)

0.80 (0.6)

900

0.458

0.82

Tanzania

945 (13.7)

25.9 (20.5)

2.35 (1.7)

110

0.270

1.39

ZambiaA

753 (10.9)

8.3 (6.6)

3.83 (2.8)

390

0.314

1.63

Zimbabwe

391 (5.6)

10.4 (8.2)

5.04 (3.7)

570

0.398

1.10

Notes: Afor the year 1991; Bhuman development index; Chuman development performance index

Source: World Bank (1993, 1994)

The figures in brackets represent the per centage of the group total. South Africa has 17.6 per cent of the land area and 31.5 per cent of the total population but accounts for 76.8 per cent of the regions GDP. However, while these figures paint a picture of economic superiority of South Africans over the peoples of the rest of the region, economic disparities between black and white South Africans are among the largest in the world (World Bank, 1994, p18). Hence the per capita calculations that usually appear in the economic literature (including the one reflected in the table above) do not accurately depict the economic welfare of South Africans vis a vis the peoples of the rest of the region. This is not to suggest that conditions in the rest of Southern Africa are on par with that of South Africa but rather that economic disparities prevail within countries as well as between the countries of the region. A broader (albeit not comprehensive) measure of economic welfare is the human development index (HDI). Influences other than economic factors are taken into account in the calculation of the HDI. The HDI measures human development by combining indicators of life expectancy, educational attainment and income into a composite index (World Bank, 1994, p90). The higher the value of the index the higher the level of human development. In order to ascertain how well a country is performing in terms of human development, a comparison is made with other countries which have a similar level of per capital gross national product.4 The justification here is that countries with a similar level of per capita GNP have the same ability or capacity to promote human development and hence countries with similar per capita GNP levels should have similar levels of human development (as reflected in HDI). The last column in the Table One above reflects the ratio of each country's HDI to the average HDI for countries having similar levels of income. This ratio is termed the human development performance index (HDPI). A ratio above 1 implies that the country's performance (in terms of human development) was better than the expected level of development. Table One reveals that the performance of Lesotho, Tanzania, Zambia and Zimbabwe in terms of human development exceeded those of countries with similar levels of per capita GNP. The performance of all other countries of the region was below the expected levels. It is interesting to note that Zambia, while having one of the lowest levels of human development relative to the other countries in the group, far exceeds other countries with similar levels of income. It could be argued that countries with HDPI's above one are countries which are efficient in their expenditures relating to human development.

Table Two: 'Stylised Facts of Dvelopment' of Countries of the Southern African Region

Country

Pop

mill

Population Density

Imports (% of merchandise imports)

Exports (% of

merchandise exports)

aver annual growth rate

tot area

Agr

land

Trade

ratio

Primary

Manf

Primary

Manf

Per capita GNP

GDP

Agr

Ind

Manf

Services

1992

80-92

Angola

9.7

n/a

Botswana

1.4

1.06

n/a

6.1

10.1

3.4

10.1

8.9

11.7

Lesotho

1.9

1.43

n/a

-0.5

5.4

0.5

8.5

12.3

5.3

Malawi

9.1

219

0.63

3(1)

4(3)

-0.1

2.9

1.4

3.5

4.0

3.8

Mauritius

1.1

550

979

1.91

2(1)

67(54)

5.6

6.2

2.1

9.2

10.1

5.6

Mozambique

16.5

0.99

n/a

-3.6

0.4

1.3

-0.4

n/a

-1.5

Namibia

1.5

1.19

n/a

-1.0

1.0

-0.5

-1.1

2.5

2.6

South Africa

39.8

0.44

47(1)

0.1

1.1

1.7

-0.1

-0.2

2.1

Swaziland

0.8

1.82

n/a

Tanzania

25.9

0.79

13(2)

16(7)

0.0

3.1

3.8

2.2

0.6

2.2

Zambia

8.3

0.67

100

-2.6

0.8

3.3

0.9

3.7

0.2

Zimbabwe

10.4

136

0.75

35(4)

32(6)

-0.9

2.8

1.1

1.9

2.8

3.8

Notes: Manufactured exports include SITC Series M, No 34, Revision 1 and includes SITC 5+6+7+8+9-68

: Import and export figures for South Africa are in effect figures for the South African Customs Union

: Figures in brackets represent the share of textile and clothing exports as a per centage of merchandise exports

: tot area = persons per square kilometre of total land ; agr land = persons per square kilometre of arable land

: Agr = agriculture; manf = manufactures

Source: World Bank, 1994, 1995

The trade ratio (sum of exports and imports as a ratio of GNP) measures the degree of trade dependence and is sometimes used as a proxy for the welfare effects of trade. The higher the ratio, the greater the dependence on trade. It should be noted that imported intermediate goods used in export production result in the ratio assuming a greater value than is actually the case. However, it is unlikely that the ratios will be severely overstated for semi-industrialized and low income, primary exporting developing countries (Blumenfeld, 1991). The trade ratio conforms to the stylised fact of development, namely that large countries would tend to have lower trade ratios.5 All the countries with relatively small populations (less than two million) have large trade ratios (ratios above one). In this regard it is interesting to note that South Africa, with the largest population of the group, has the lowest trade ratio. Mauritius on the other hand is heavily dependent on trade. Of interest also is that the Southern African Customs Union (SACU) countries (namely, Botswana, Lesotho, Namibia, Swaziland) all have ratios exceeding one, thus signifying that these countries are heavily dependent on trade.6

The large countries (namely Tanzania, South Africa, and Zimbabwe) also have a higher share of manufactured exports than the rest of the group. Mauritius is the exception in this case: with a population of approximately 1.1 million people, its manufactured exports as a share of merchandise exports has increased significantly from 2 per cent in 1970 to 67 per cent in 1992. Of this, approximately 54 per cent is accounted for by clothing and textile exports. One explanation for this is the high population density of Mauritius.

Another characteristic conforming to the 'stylised facts' mentioned in the first part of this paper is that per capita income increases have been accompanied by larger increases in manufactured output relative to agricultural output. This is particularly evident for Botswana and Mauritius; with average annual per capita GNP increases of 6.1 per cent and 5.6 per cent, manufacturing output increased by over 8.9 per cent and 10.1 per cent respectively for the period 1980 to 1992. The corresponding figures for agricultural output growth were 3.4 per cent and 2.1 per cent for Botswana and Mauritius respectively.

Tables Three and Four capture the structure of production and manufacturing production in more detail. With the exception of Tanzania, Zambia and Zimbabwe, most of the other countries have experienced a decline in agriculture's contribution to GDP during the years 1970 to 1992. The ratio for Tanzania increased significantly from 41 per cent in 1970 to 61 per cent in 1992. This is somewhat surprising since Tanzania has been (and still is) responsible for coordinating industrial development in the Southern African Development Community (SADC). As pointed out above, industrial development is associated with economic development. Manufacturing is generally the most dynamic part of the industrial sector (World Bank, 1994, p167). While there have been significant increases in manufacturing value added for almost all of the countries of the SADC, the dominance of South Africa's manufacturing sector vis a vis other countries in the region could be gauged from the absolute value of manufacturing value added (US$24107 million in 1991) which was approximately 15 times the value of Zimbabwe (US$1629 million) which had the next highest manufactured value added in 1991.

At a more disaggregate level, Table Four reveals the importance of the clothing and textile industries for Mauritius, Zambia and Zimbabwe. For Mauritius and Zambia, the share of clothing and textile value added in manufacturing value added has increased during the period 1970 to 1991 (over 800 per cent in the case of Mauritius). Tanzania is the only country in the sample that has experienced a decline in absolute terms of manufacturing value added: from US$118 million in 1970 to US$91 million in 1991.

TABLE THREE: STRUCTURE OF PRODUCTION

COUNTRY

% Distribution of gross domestic product

Agriculture

Industry

Manufacturing

Services

1970

1992

1970

1992

1970

1992

1970

1992

Angola

BotswanaA

Lesotho

Malawi

n/a

Mauritius

Mozambique

n/a

Namibia

n/a

South Africa

Swaziland

n/a

Tanzania

ZambiaA

Zimbabwe

Notes Acalculations at purchaser values

FOUR: STRUCTURE OF MANUFACTURING PRODUCTION

Country

Food, bev

and tobA

Text and

clothA

Mach, trans

equipmentA

ChemicalsA

Manf value added

US$millions

1970

1991

Angola

n/a

BotswanaB

n/a

158

Lesotho

n/a

Malawi

n/a

259

Mauritius

529

Mozambique

n/a

Namibia

n/a

110

South Africa

3892

24107

Swaziland

n/a

Tanzania

n/a

118

ZambiaB

181

1392

Zimbabwe

293

1629

Notes A % distribution of manufacturing value added; Bcalculations at purchaser values: Source: for both tables, calculated from World Bank, 1994

Intra-regional trade in the Southern African region is approximately 5 per cent of total trade. Table Five expresses the export destinations and import source of the countries in the region. The European Union is the region's largest trading partner, accounting for over 29 per cent of exports and 35 per cent of imports in 1992. It is interesting to note that for all the countries for which data is available for the years 1981 and 1992, there has been an increase in intra-regional trade. Botswana and Swaziland (both SACU countries) stand out in this regard. South Africa is the SACU countries' main trading partner (see below). By 1992, Zimbabwe was conducting a significant proportion of its trade with SADC countries. More specifically, 30.2 per cent of its exports were destined to countries in the region whereas 27.6 per cent of imports were sourced from countries in the region. It is apparent that on the whole, the countries of the region conduct much of their trade with the West. This is mainly due to trading relations being well established with previous colonial powers. Any attempt to promote intra-regional trade has to contend with this competition. It is important to bear in mind that much of the trade with the West is characterised by primary exports and manufactured imports. While a significant share of exports may be justifiably directed at specific markets, what is needed is an orientation of production towards the region. The identification of niche products for the region should become one of the focal points of entrepreneurial activity. Production geared to meet regional demand should be aggressively promoted.

As far as export diversification is concerned, a lack of export diversity exposes a country to a greater degree of risk in the event of fluctuations in demand. The more diversified a country's production or export structure, the greater the chances are that any preferential trading arrangement would be to the benefit of this country. A diversified production structure not only means that there are a greater variety of products being produced but also that the technological capabilities are likely to be more advanced than a country with a less diversified production structure. For the six countries for which disaggregate data is available the six largest export commodities accounted for over 50 per cent of total exports in 1990-91. The corresponding figures were: Angola (99.9%), Malawi (91.2%), Zambia (96.1), Mauritius (77.5%), Zimbabwe (60.4) and South Africa (51.7). These figures show

Table Five: Trade of Southern African Countries

Country

Exps to the SADC

Imps from the SADC

AfricaC

European UnionC

USAC

JapanC

1981

1992

1981

1992

exps

imps

exps

imps

exps

imps

exps

imps

Angola

n/a

0.7

n/a

0.8

1.3

31.1

79.4

60.8

7.0

0.1

2.2

Botswana

9.0

11.8

6.0

97.3

n/a

Lesotho

0.4

14.7

n/a

Malawi

10.0

10.3A

8.0

43.2A

15.1

44.9

45.9

25.5

12.9

2.4

14.0

7.1

Mauritius

n/a

5.2

15.3

79.6

34.8

9.9

1.5

0.4

6.6

Mozambique

9.0

n/a

3.0

n/a

6.2

12.2

30.1

33.9

6.2

18.8

4.6

3.2

Namibia

n/a

South Africa

n/a

6.4

n/a

1.4

6.7

3.2

25.3

37.1

5.4

13.1

5.8

9.3

Swaziland

2.6

86.8B

0.6

96.1B

n/a

Tanzania

0.9

2.0A

0.8

1.4A

12.6

4.0

44.1

37.4

2.5

2.7

6.9

8.8

ZambiaA

4.0

5.0

35.0

4.4

44.1

23.6

26.7

5.6

6.7

19.5

5.6

Zimbabwe

10.0

30.2

6.0

27.6

29.2

35.2

36.7

25.1

6.8

8.1

7.2

4.8

Afor the year 1990

B for the year 1993

Notes: Cfigures represent SADC country exports and imports to country listed at head of column for the year 1992.

Source: Amin et al 1987 p150, SADC Secretariat, Euromonitor, 1995

that Zimbabwe and South Africa have by far the most diversified export structure. Hence if a free trade area were to be established it would be very likely that this would benefit Zimbabwe and South Africa more than the other countries in the region.

Table Six reflects the extent and nature of government involvement in the economies of the countries of the region. Unfortunately, a familiar constraint once again inhibits analysis, namely the unavailability of data for some countries. In the light of this constraint, the most that can be achieved is a cursory analysis of the available information. The extent of government involvement in the economy varies quite widely across the different countries in the region. Government expenditure as a per centage of GNP varies from approximately 25 per cent for Mauritius to approximately 49 per cent for Angola and Mozambique in 1992. Government expenditure on economic services provides an indication of the extent of direct involvement by the state in the regulation of business activity. Economic services capture government expenditure associated with the regulation and support of businesses; the redress of regional imbalances; and creation of employment opportunities. This may take the form of research, trade promotion, geological surveys and inspection of particular industry groups. For the four countries (Botswana, Lesotho, Malawi and Mauritius) for which data is available for the years 1980 and 1992, both the Lesotho and Malawi governments exert a greater direct influence on business activity.7 Of the four, only Mauritius has increased its expenditure in economic services during this period. Botswana and Malawi have on the other hand decreased their involvement quite significantly, from approximately 27 per cent and 44 per cent in 1980 to approximately 17 per cent and 36 per cent respectively in 1992.

Table Six: Government Expenditure

COUNTRY

Govt expend

Per centage of total expenditure

% of GNP

Defence

Education

Health

Welfare

Econ services

1980

1992

1980

1992

1980

1992

1980

1992

1980

1992

1980

1992

Angola

n/a

49.3*

n/a

Botswana

36.6

40.4

9.8

13.3

22.2

21.0

5.4

4.7

7.9

14.0

26.9

17.2

Lesotho

22.7

33.2

0.0

6.5

15.3

21.9

6.2

11.5

1.3

5.5

35.9

31.6

Malawi

37.6

26.6

12.8

4.8

9.0

10.4

5.5

7.8

1.6

4.2

43.7

35.6

Mauritius

27.4

24.7

0.8

1.5

17.6

14.6

7.5

8.1

21.4

19.5

11.7

16.6

Mozambique

n/a

49.7**

n/a

Namibia

n/a

44.2

n/a

6.5

n/a

22.2

n/a

9.7

n/a

14.8

n/a

17.3

South Africa

23.5

34.5

n/a

Swaziland

n/a

Tanzania

28.8

n/a

9.2

n/a

13.3

n/a

6.0

n/a

2.5

n/a

42.9

n/a

Zambia

40.0

n/a

0.0

n/a

11.4

n/a

6.1

n/a

3.4

n/a

32.6

n/a

Zimbabwe

35.3

34.8

25.0

n/a

15.5

n/a

5.4

n/a

7.8

n/a

18.1

n/a

* for year 1990 and sourced from World Bank 1995, p189.

** sourced from World Bank, 1995, p189.

Source: World Bank, 1994, 1995

In order to gain an indication of the stance of trade policy, a trade liberalisation index was calculated.8 Table Seven below reflects the liberalisation index for the countries in the region.

TABLE SEVEN: LIBERALISATION INDEX

Country

Index

Namibia

43.3

Malawi

43.3

Mauritius

43.3

Swaziland

43.3

Lesotho

30.0

Angola

23.3

South Africa

23.3

Tanzania

23.3

Zimbabwe

23.3

Botswana

20.0

Zambia

10.0

Mozambique

n/a

The higher the value of the index, the more trade liberalisation the economy is assumed to have implemented during the period 1985 to 1990. Namibia, Malawi, Mauritius, Swaziland and to a lesser extent Angola have liberalised their trade regimes at a far quicker rate than the rest of the SADC countries. It is interesting to note that South Africa has one of the lowest index values and given that the period for which the index was calculated coincided with the period of sanctions, South African producers have been operating behind highly protective barriers. It is therefore not surprising that South African producers are resisting trade reforms which open up the economy to outside competition. Any measure which aims to promote intra-regional trade will have to take these developments into account. It may be the case that South Africa may have to open up at a faster rate than the other countries in the region.

South Africa's role in the Southern African Region: There are essentially three views concerning South Africa's role in the Southern African region. One asserts that South Africa's fate is inextricably linked to that of the region. In this case, it is argued that South Africa cannot develop in isolation from the rest of the region. For example, the economic development of South Africa while the rest of the region lags behind economically will only serve to exacerbate the problem of illegal migration. Further, if the region is to provide demand for South African products then it is imperative that South Africa's neighbours (region) also develops economically. Thus, it is argued that South Africa should play a leading role in the development of the Southern African region.

The other view centres on the belief that South Africa should position itself on the world market. This view forcefully argues that the prevailing favourable international climate should be exploited to South Africa's benefit. In this regard, donor aid, favourable trade arrangements, concessionary loans and foreign capital should be used (while they are still available) to lay the basis for the economic development of the South African economy. While this view does not exclude the interests of the region, the Southern African region does not form the focal point of this strategy. This view is entrenched in the belief that if South Africa is to be a major player on the world market in the medium to long term then, the scarce resources (both in terms of financial and human skills) should be used to prepare and position South Africa for her role in the world arena. Benefits would accrue to the region but this would not be as a result of deliberate policy measures. The envisaged benefits to the region would be the result of trade and investment barriers being lifted so as to allow South African companies to make inroads into the region.

The third view centres on the 'twin track' approach. This advocates South Africa committing herself to the economic development of the Southern African region but simultaneously negotiating with major players on the world market with a view towards securing conditions conducive to the development of the South African economy. From

Table Eight: SACU Trade

Sect-

Total

Per centage of section total (exports)

Per centage of section total (imports)

ion*

Exps

Imps

Afr

SAR

Ang

Mal

Mau

Moz

Tan

Zam

Zim

Afr

SAR

Ang

Mal

Maur

Moz

Tan

Zam

Zim

1137

706

20.0

11.1

0.7

1.1

0.5

6.3

0.3

2.2

7.3

6.8

2.6

0.1

4.1

4197

1640

15.1

6.2

1.4

0.5

0.7

2.2

0.5

0.3

0.6

12.2

9.6

1.4

1.1

0.1

0.6

6.4

159

1021

57.2

49.2

3.9

4.0

3.6

17.8

0.1

8.7

11.1

2.7

19.0

0.2

18.8

2826

1673

25.2

19.2

3.0

0.9

2.4

8.0

1.0

1.9

2.0

16.6

12.4

2.7

0.2

0.3

0.2

0.1

8.9

7712

642

2.9

1.9

0.1

0.3

0.6

0.3

0.6

24.4

10.0

0.3

9.7

4757

8292

26.3

13.5

0.3

2.6

1.3

2.2

0.4

6.7

8.9

0.7

0.3

897

3256

54.9

43.4

0.5

5.7

4.3

4.8

0.9

8.2

19.0

1.4

0.9

0.2

0.3

0.4

767

494

1.0

0.8

0.2

0.1

0.5

7.4

7.0

0.1

0.6

6.3

772

624

12.3

9.0

0.7

0.2

1.5

4.7

0.2

1.7

17.2

13.9

1.5

0.1

0.6

0.8

10.9

10.

2666

2183

22.4

19.1

0.1

1.6

1.3

9.1

0.3

2.2

4.5

0.9

0.7

0.1

0.6

11.

1923

3295

17.6

15.0

2.5

1.3

1.1

1.7

1.8

1.5

5.1

12.3

11.2

2.5

0.1

0.9

0.2

0.7

6.8

12.

109

520

27.6

13.8

2.0

3.1

0.4

4.6

1.4

2.3

7.3

7.0

6.9

0.1

6.8

13.

465

4885

27.9

11.7

0.2

2.5

3.8

3.5

0.4

4.3

8.5

0.2

14.

10213

2077

0.3

22.5

1.2

0.8

0.1

0.3

15.

11853

3400

10.2

14.5

0.2

0.6

1.1

1.0

0.1

0.8

3.5

5.4

4.6

0.1

1.2

3.4

16.

3253

24805

41.2

35.4

0.4

3.1

1.8

4.0

1.0

7.8

17.3

0.5

0.2

17.

2771

11284

30.1

25.6

0.2

3.2

0.7

4.5

0.3

4.3

12.3

0.5

0.2

18.

302

3300

34.3

30.4

1.5

3.7

1.1

6.3

0.5

4.0

13.6

0.7

0.1

20.

866

855

18.8

14.6

3.0

1.2

1.1

4.9

0.2

2.2

2.0

5.0

4.5

0.1

4.4

21.

11.7

10.9

0.2

10.7

10.4

4.8

0.2

4.6

22.

32641

4545

0.3

0.1

0.2

Tot94

90328

79542

9.6

0.3

0.7

0.6

1.6

0.2

1.3

2.7

3.0

1.7

0.2

0.1

1.3

Tot93

80937

59078

8.4

0.3

0.7

0.6

1.2

0.1

1.6

2.2

2.8

1.6

0.3

0.1

1.1

Trade balance

Rmill : 1994

10786

6278

4848

295

437

526

1315

167

1055

1438

Trade balance

Rmill : 1993

21860

5197

4102

262

434

452

902

1231

1083

Notes: *section of CCN nomenclature

Source: adapted from Customs and Excise, Monthly Abstract of Trade Statistics, December 1994

developments thus far it would seem that South Africa is pursuing this 'twin track' approach to achieve economic development.9

The effects on the Southern African region of South Africa concentrating on developing and expanding its trade relations with the West (rather than concentrating on the region) depends on the nature of the prevailing economic links with the countries of the region. The following analysis focuses on the prevailing trade relations between South Africa and the countries in the region. In 1985 SACU trade with Africa amounted to only 4 per cent of total SACU exports, it accounted for much of SACU manufactured exports including machinery (36 per cent), chemical products (28 per cent), vehicles and transport equipment (27 per cent) and processed food (10 per cent).10 By 1990 total SACU exports to Africa had increased to 10 per cent of total exports. This trade accounted for approximately 32 per cent of South Africa's manufactured exports.

Table Eight demonstates that SACU trade with Africa and other SADC countries is heavily skewed in its favour. In 1994 SACU exported approximately four times more than what it imported from other SADC countries. The total trade balance has decreased from approximately R21.9b in 1994 to R10.8b in 1993 (a 50.7 per cent decrease). However, SACU's trade balance with Africa and SADC has increased by 21 per cent and 19 per cent respectively during the years 1993 to 1994. What these figures reveal is that Africa and Southern Africa have increased in importance as trading partners for the SACU countries. More importantly, Table Eight reveals the importance of the African market for SACU manufactured products. This is particularly the case for products classified under section 4 (prepared foodstuffs and beverages), section 6 (chemical products), section 7 (artificial resins, plastics), section 16 (machinery), section 17 (transport equipment) and section 18 (optical and medical equipment). These figures confirm the dual nature of SACU trade, namely that SACU exports primary products to the First World while manufactured exports are destined to the Third World (mainly its neighbours).

Go to Top

Section 5: Conclusion

This paper has focused on issues affecting the economic development of the Southern African region. Some 'stylised facts' of development were highlighted and it was shown that on the whole the development path of the countries of the region tended to conform to the 'stylised facts'. There are (in some cases very large) economic disparities among the counties in the region. This could prove to be the major constraint affecting the economic integration of the region. While South Africa is relatively more economically developed than the other countries in the region, it was shown that her manufacturing sector is still heavily dependent on the region for its demand. Thus, there are areas of potential mutual benefits. However, what is needed is a more disaggregated analysis in order to identify other areas of mutual benefit. The biggest challenge facing the integration of the region would be the distribution of the costs and benefits arising from integration. Given the enormous pressure that all the countries face with regard to the need for social uplift, economic integration is going to demand a high level of political commitment, a commitment that may be needed for a considerable time in the future.

Go to Top

Bibliography

Amin, S., Chitala, D., and Mandaza, I. (1987). SADCC: Prospects for Disengagement and Development in Southern Africa. (London: Zed Books).

Arad, R., Hirsch, S. and Tovias, A. (1983). The Economics of Peacemaking: Focus on the Egyptian-Israeli Situation (London: Macmillan).

Balassa, B. (1969). 'Country Size and Trade Patterns: Comment', American Economic Review, Vol. 59, pp.201-204.

Blumenfeld, J. (1991). Economic Interdependecne in Southern Africa: from Conflict to Co-operation. (London: Royal Institute of International Affairs).

Chenery, H. and Taylor, L. (1968) 'Development Patterns Among Countries and Over Time', Review of Economic and Statistics, August, pp.966-1006.

Chenery, H.B. (1960). 'Patterns of Industrial Growth', American Economic Review, Vol. 50, pp.624-654.

Chenery, H.B. (1979). Structural Change and Development Policy. (New York: Oxford University Press).

Clark, C. (1940). The Conditions of Economic Progress. (London: Macmillan).

Cooper R.N. (1977). 'Economic Interdependence and Foreign Policy in the Seventies', World Politics, January.

Davies, R.. (1993). 'Emerging South African Perspectives on Regional Cooperation and Integration after Apartheid', in Oden, B. (Ed.) South Africa After Apartheid: Regional Integration and External Resources. (Upsalla: Scandinavian Institute of African Studies).

Fisher, A.G.B. (1939). 'Production, Primary, Secondary and Tertiary', Economic Record, June, pp.24-38.

Gehrels, F. (1956/57) 'Customs Union from a Single Country View-Point', Review of Economic Studies, Vol. 24, pp.61-64.

Hazlewood, A. (1979). 'The End of the East African Community: What are the Lessons for Regional Integration Schemes: Part 1', Journal of Common Market Studies, Vol. XIX, No 1, pp.65-76.

Hazlewood, A. (1979). 'The End of the East African Community: What are the Lessons for Regional Integration Schemes: Part 2', Journal of Common Market Studies, Vol. XIX, No 2, pp175-188.

Hirschman, A.O. (1945). National Power and the Structure of Foreign Trade. (Berkeley:

University of California Press).

Hirschman, A.O. (1970). 'Interregional and International Transmission of Economic Growth', in McKee et al (Eds), Regional Economics: Theory and Practice (London: Collier-Macmillan Limited).

Hoffman, W.G. (1958). The Growth of Industrial Economies. (Manchester: Manchester University Press).

Houthakker, H.S. (1957) 'An International Comparison of Household Expenditure Patterns Commemorating the Centenary of Engel's Law', Econometrica, Vol. 25, pp.532-551

International Herald Tribune (1995). 'ASEAN Puts Free Trade on Fast Track', Business Finance, 31 July, p.9.

Jaber, T.T. (1970). 'The Relevance of Traditional Integration Theory to Less Developed Countries', Journal of Common Market Studies, Vol. 9, pp.254-267.

Kaiser, R.D. (1972). 'Toward the Copernican Phase of Regional Integration Theory', Journal of Common Market Studies, March, pp. 207-32.

Keesing, D.B. (1968). 'Population and Industrial Development: Some Evidence from Trade Patterns', American Economic Review, June, pp.956-961.

Keohane R. O. and Nye J.S. (1977). Power and Interdependence. (London: Little, Brown and Company).

Killick, T. (1990). Structure, Development and Adaptation, Special Paper No 2 (Nairobi: African Research Consortium).

Kirkpatrick, C and Weiss, J. (1995). 'Trade Policy Reforms and Performance in Africa in the 1980s', Journal of Modern African Studies, Vol. 33, No. 2, pp.285-298.

Krauss, M.B. (1972). 'Recent Developments in Customs Union Theory: An Interpretative Survey', Journal of Economic Literature, Vol. 10, pp.161-172.

Kuznets, S. (1951). 'The State as a Unit in the Study of Economic Growth', Journal of Economic History, Vol. 11, pp.25-41.

Kuznets, S. (1960). 'Economic Growth of Small Nations', in Robinson E.A.G. (Ed.), Economic Consequences of the Size of Nations. (London: Macmillan).

Kuznets, S. (1964). 'Quantitative Aspects of the Economic Growth of Nations: IX Level and Structure of Foreign Trade: Comparisons for Recent Years', Economic Development and Cultural Change, Vol. 13, pp.1-106.

Lall, S. (1975). 'Is Dependence a Useful Concept in Analysing Underdevelopment?', World Development, Vol.2, no.11, pp.799-810.

Langhammer, R.J. and Hiemenz, U. (1990). Regional Integration Among Developing Countries: Opportunities, Obstacles and Options. Institut fur Weltwirtschaft an der Universitat Kiel, J.C.B. Mohr (Paul Siebeck) Tubingen.

Linder, S.B. (1966).'Customs Unions and Economic Development', in Wionczek, M.S. (Ed.) Latin American Economic Integration.

Lipsey R.G. (1957). 'Mr Gehrels on Customs Unions', The Review of Economic Studies, Vol. 24, pp.211-214.

Lipsey, R.G. (1960). 'The Theory of Customs Unions: A General Survey', The Economic Journal, Vol. 70, pp.496-513.

Marquand, J. (1980). 'Spatial Change and Economic Divegence in the EEC', Journal of Common Market Studies, Vol. XIX, No1, pp.1-20.

Meade, J. E. (1955). The Theory of Customs Unions.

Morawetz, D. 'Extra-union Exports of Industrial Goods from Customs Unions among Developing Countries', Journal of Development Economics, Vol 1, pp.247-260.

Pearson, S.R. and Ingram, W.D. (1980). 'Economies of Scale Domestic Divergences and Potential Gains from Economic Integration in Ghana and the Ivory Coast', Journal of Political Economy, Vol 88, pp.994-1008.

Perkins, D.W. and Syrquin, M. (1989). 'Large Countries: The Influence of Size", in Chenery, H. and Srinivasan, T.N. (Eds), Handbook of Development Economics, Volume II. (Amsterdam: North Holland).

Rosecrance, R., Alexandroff, A., Koehler W., Kroll J., Layne S. and Stocker J. (1977). 'Whither Interdependence', International Organization, Summer.

Syrquin, M. (1989). 'Sector Proportions and Economic Development: the Evidence Since 1950', in Williamson J.G. and Panchamukhi U. R. (Eds) The Balance between Industry and Agriculture. (London: Macmillan).

Syrquin, M. and Chenery, H.B. (1975). Patterns of Development, 1950-1970. London: Oxford University Press).

Taylor, L. 'Theories of Sectoral Balance' in J.G. Williamson and U.R. Panchamukhi (Eds), The Balance Between Industry and Agriculture. (London: International Economic Association and Macmillan Press).

Taylor, L. (1989). 'Theories of Sectoral Balance' in Williamson J.G. and Panchamukhi U. R. (Eds) The Balance between Industry and Agriculture. (London: Macmillan).

Taylor, P: ((1980). 'Interdependence and Autonomy in the European Communities: The Case of the European Monetary System', Journal of Common Market Studies, Vol. XVIII, No. 4, pp.370-387.

Urata, S. (1989). 'Sources of Economic Growth and Structural Change: an International Comparison', in Williamson J.G. and Panchamukhi U. R. (Eds) The Balance between Industry and Agriculture. (London: Macmillan).

Wagner, R.H. (1988). 'Economic Interdependence, Bargaining Power and Political Influence', International Organization, Vol. 42, No.3, pp.96-105.

World Bank. (1993). World Development Report. (New York: Oxford University Press).

World Bank. (1994) World Development Report. (New York: Oxford University Press).

World Bank. (1995) African Development Indicators 1994-95. (Washington D.C.: World Bank).

Yeats, A. (1995). 'What are OECD Trade Preferences Worth to Sub-Saharan Africa?, African Studies Review, Vol. 38, no. 1, pp.81-102.

Go to Top

Notes

1 For the purposes of this paper, the Southern African region is taken to include all the countries comprising the Southern African Development Community namely, Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

2 For Kuznets (1960), the dividing number was 10 million in the 1950s whereas Chenery and Syrquin (1975) set the number at 15 million for 1960 and for Perkins and Syrquin (1987) 50 million represents the dividing line between small and large countries.

3 See Taylor (1980) and Kaiser (1972) for a discussion and application of these concepts.

4 The HDI indexes are for the year 1991 and country groupings were determined by considering real per capita deviations of US$200.

5 The dividing line between a large and small country (in terms of population size) is less ambiguous in the case of the group of countries in this analysis.

6 The SACU countries conduct most of their trade with South Africa.

7 While it is not expenditures per se but rather the efficiency of expenditures that determine the success or failure of enterprises, these figures give an indication of the extent of government involvement in the regulation of business.

8 The methodology proposed by Kirkpatrick and Weiss (1995) was used in the calculation of the index. Proxy measures for trade reform included changes in the share of imports in GNP; changes in the share of taxes on international trade and transactions as a per centage of government revenue and average foreign exchage premium in the black market. The period 1985-90 was split into two sub periods namely, 1985-87 and 1987-90.

9 Political committment to regional economic development was expressed at the SADC summit in August 1995 while the trade negotiations with the EU is an example of the latter.

10 The figures reflected in this paragraph have been sourced from Davies, 1993, p 73.

Go to Top