17 July 2013

Southern Africa: SA-EU Summit 2013 - Investment and Jobs in South Africa and SADC?

Photo: Lonely Planet
Cape Town, South Africa

analysis

South Africa hosts the 6th South Africa (SA)- European Union (EU) Summit on 18 July 2013, symbolically, on former President Nelson Mandela's 95th birthday. At the end of the apartheid period, the Mandela administration began to negotiate the terms of the Trade, Development and Cooperation Agreement (TDCA), and signed with the EU in 1999. This freed up trade between SA and the EU region with a planned phase-in over 12 years.

Some challenges remain with respect to trade in certain products and services but the EU continues to be an important economic partner of South Africa. In terms of trade, the EU remains South Africa's leading regional partner and three-quarters of the foreign direct investment stock in the country originates from the EU. The European Investment Bank (EIB) has also been an active lender since 1995 with total investments (predominantly in municipal infrastructure, small and medium enterprise development, roads, telecommunications, water, and renewable energy) surpassing the €2 billion mark in December 2011.

In recognition of this relationship, the SA-EU Strategic Partnership was forged in 2007 - the first EU bilateral partnership with an African country. The intention was deepening the engagement of the EU region vis-á-vis South Africa beyond trade and investment; importantly focusing on governance issues as well as peace and security on the African continent. The agenda of the Strategic Partnership is broad and encompasses dialogue in a range of social, political and economic areas that involve many different government departments and other stakeholders. It demonstrates the depth of the interactions between South Africa and the EU.

SA emerging as global player and regional leader

Since the launch of the SA-EU Strategic Partnership in 2007, South Africa has matured in its ability to provide input to the global economic governance agenda. Its emergence beyond the Southern African region as a global player - in forums such as the United Nations Security Council (UNSC), the Group of 20 (G-20) countries and the Brazil, Russia, India, China, South Africa Grouping (BRICS) - has altered the terms of engagement in the strategic partnership with the EU. Through the partnership with its BRICS associates, South Africa is part of the "new economic order" which represents some of the most dynamic economically active countries and leaders in their respective geo-political regions. All of the BRICS have strategic partnerships with the EU.

With South Africa as an economic and political leader of the African sub-continent, it is determined to bring other African countries along to relevant settings - like extending the BRICS Summit, which it hosted this year, to include 'BRICS in Africa' on the agenda. African priorities will no doubt also feature in this week's discussions under the EU-SA Strategic Partnership even if the engagement is at the bilateral level.

EU-SA Summit - Jobs and FDI

The theme of this year's EU-SA Summit is 'Job Creation through Inward Investment.' In the wake of the global economic crisis and the austerity measures introduced, the EU has experienced at least 18 months of economic contraction. Eurostat estimates EU unemployment at around 12.2% in May 2013, up from 10.4% in May 2012. More concerning in most EU countries, including France, Spain and Italy, is youth unemployment topping 26% in many urban areas and reaching as high as 40% in rural regions.

In June 2013, EU leaders launched a €8bn plan to counteract youth unemployment, by redirecting money from the EU budget towards regions where youth unemployment is more than 25%. In addition, the EIB will borrow on the markets to increase lending to small businesses in an attempt to bypass the credit crunch and promote the employment of school-leavers. How this process will unfold and whether this will have lessons for the SADC region, only time will tell.

Similarly in the Southern Africa Development Community (SADC) region, youth unemployment is perceived as a significant threat to development, regional integration, as well as peace and security. This flowed from the May 2013 meeting in Maputo of the SADC Ministers and Social Partners for Employment and Labour. In the region, national unemployment rates range from 17.5 % in Botswana, 25.5% in South Africa, 37% in Namibia and 70% in Zimbabwe. Youth unemployment in most African countries is above 25%, and in South Africa it is estimated to make up at least 60% of the unemployed numbers; thus, over 7.5 million people.

SA - Source of migrant work and remittances

At the national level, two of the leading policy documents providing strategic direction to the South African economy - the 2010 New Growth Path (NGP) and the 2011 National Development Plan (NDP) - give great emphasis to job creation. The NDP is also unequivocal about the vision to improve South Africa's growth in order to improve its integration into the SADC region.

In terms of the implementation of the NDP which is envisioned over a 17 year period to 2030, the government intends to shift resources gradually towards investment in areas that will grow the economy. Both private and public investment is to be encouraged as critical actions to support the creation of 11 million jobs by 2030. Presumably, this will take into account the jobs held by foreigners, especially from the region.

For many ordinary South Africans, regional integration is of little consequence - or more accurately a notion they can do without. There are however regional linkages that exist and impact on the daily lives of many. For example, the country has a history of migrant labour influx from the SADC region. Over the past several years, violence against foreign workers or shop owners has been classed by many as simply xenophobic attacks by the local unemployed. Another school of thought is that this is a growing sign of the systemic failure of an economy with no real expansionary growth - certainly not sufficient to absorb a growing number of school-leavers, as well as foreign workers crossing the border into South Africa with the hopes of sustainable employment.

The economic impact of this migration is not only felt in South Africa. A February 2012 report by FinMark found that approximately 3.3 million economically active individuals were migrants in South Africa, of which approximately half are Zimbabweans. A total remittance market estimate of R11.2 billion was reached, of which around R6.7 billion flows to Zimbabwe alone, and an estimated R7.6 billion travels by informal channels. At the level of the African continent as a whole, remittances are now the most important source of funding beyond both aid and foreign direct investment. Migrant labour and foreign remittances from South Africa will continue to be a reality, as is the case in all regional economic hubs.

Linking Jobs to FDI

How South Africa and the EU will link their respective job creation programmes to inward investment during the upcoming summit will be of great interest to many, especially in light of the 24% plummet in South Africa's foreign direct investment (FDI) figures. According to figures by the United Nations Conference on Trade and Development, FDI dropped from US$6bn in 2011 to US$4.57bn in 2012; that's a difference of US$ 1.43 billion.

The EU has a long history of linking investment with job creation through its cohesion policy. This is a mechanism to transfer funds to those parts of the EU region that are poorer than others and struggling with employment. It has also applied to neighbouring countries which may have some lessons for South Africa in the region.

In addition, the delay in issuing the new South Africa FDI Investment Code and the Model Bilateral Investment Treaty (BIT) will likely come under the spotlight especially in light of the non-renewal of several BITs with European countries. It will be important to see the extent to which industrial relations crises in South Africa, for instance in the extractives and agriculture sectors, will be addressed to create a conducive environment for sustainable inward investment including from the EU. The outcomes of the Summit will be watched closely by stakeholders in South Africa but will also have resonance with the region beyond.

Lesley Wentworth is Programme Manager with SAIIA's Economic Diplomacy Programme. Talitha Bertelsmann-Scott is Research Associate with the same programme.

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