The nature and potential of industrial development within the Southern African Development Community (SADC) and the facilitating role of trade liberalisation and foreign direct investment in selected countries

To date the SADC region has managed to develop a manufacturing base but this base is still small as evidenced by its low contribution to GDP. For example, only three out of the fourteen SADC countries, viz. Mauritius, South Africa and Swaziland, had over 20 percent of their GDP originating from the manufacturing sector throughout the 1990s. Also to note is that while the manufacturing sector is quite diversified, the sector is dominated by industrial processes which are more of resource and labour-intensive in nature than those processes of scale-intensive, differentiated and science based in nature. TIle trade performance of the manufacturing sector supports these observations and as such the region is heavily dependent on imports for scale-intensive, differentiated and science based commodities. However, despite the fact that the region tends to focus more on resource- and labour-intensive manufacturing activities, products from these manufacturing activities are still significant components of manufactured goods imports into the region. Also to note is that since resource- and labour-intensive industries dominate manufacturing activities; these are the areas in which investment opportunities abound. For example, agro-based manufacturing presents most of the investment opportunities, with food processing presenting the majority of the investment opportunities followed by garments and textiles production. Mineral processing also presents significant investment opportunities. The analyses of the nature of the manufacturing sector also show that in a few SADC countries, viz. Mauritius, South Africa and Zimbabwe; scale-intensive, differentiated and science based industries also form a significant component of the industrial base implying more technologically complex manufacturing sectors. Since high technology and technologically complex manufacturing activities are limited, investment opportunities in these manufacturing sub-sectors are also limited to just a few countries However, with the SADC ITA in place, opportunities could arise for these limited technology-related manufacturing facilities to expand or engage in import substitution production so as to meet the demands of the growing regional market. It is also important to note that, while the region may not have as competitive advantage in these industries as in the resource- and labour-intensive industries, there is a need for the region to selectively identify and target such industries for priority development, a lesson SADC could learn from the East Asian NIC's took in their industrialisation strategy. The study also shows that the manufacturing sector has been a priority sector for both domestic and foreign investors. This has implications for industrial development because a strong and dynamic manufacturing sector would be developed, forming a sound basis for industrialisation as well as being able to effectively link and support all the other sectors of the economy. FDI could help the region to fully utilise the labour-intensive industries and use them as a stepping-stone to higher levels of industrial development. This is a lesson to SADC from the experiences of the East Asian NICs where while industrialisation was initiated by labour-intensive manufacturing, the countries were able to move into capital-intensive manufacturing due to FDI as it enabled the establishment of the industrial bases, thus leading to a rise in the share of manufactured exports. FDI could also help to develop the resource-intensive industries further by promoting further processing of raw materials into products of more value, thus propelling industrialisation through a resource-led industrial development programme as the current resource-intensive industries become fully utilised. The raw materials which occur in great abundance in the region's primary sector would have a ready market in the manufacturing sector where they would serve as inputs to the production of high value products. The currently smaller industrial base for scale-intensive products, differentiated and science-based manufactured products would benefit from the improved technological capabilities and managerial skills that result from FDI. Therefore, by impacting positively on manufacturing activities of both low and high MVA, FDI would thus have a facilitating role in establishing a more solid industrial base, broadening the current manufacturing base, and improving installed capacity utilisation. The study also shows that investment in productive capacity in the form of machinery and equipment is of great importance in the sampled SADC countries. Investment towards the acquisition of this capital is very important as this is directly relevant towards improving productive capacity. FDI could thus play a facilitating role by augmenting the current domestic investment in machinery and equipment. While the manufacturing sector within the region is still small and the current utilisation of installed industrial capacity is low, there is potential for further industrial growth. The current process to usher in the SADC Free Trade Area would have a facilitating role through various ways: viz. increasing the market size and enabling easier access through the reduction of tariff and non-tariff barriers, promoting regional competitiveness, improved utilisation of regional corridors, increasing opportunities for utilising identified intra-industry trade potentials, and providing opportunities for increased regional cross-border investment. Apart from the SADC FTA, the USA African Growth and Opportunity Act (AGOA) and the Cotonou Agreement will also motivate the identification and utilisation of existing and new potentials within the manufacturing sector in SADC. In order to improve the current nature of industries in the region, there is also a need to design and implement appropriate industrial policies and strategies. Such policies should consider the region's trade policies and the recently launched Regional Indicative Strategic Development Plan (RISDP) so as to complement them. The industrial policies should also address issues relating to industrial investment, technology and local technological capabilities development, human resources development, the structure and nature of industry, the competitiveness of industries, as well as facilitating the complementarities between the agricultural and manufacturing sectors. To this end therefore, instead of relying solely on individual national industrial policies, SADC is in the process of formulating a regional industrial policy and strategies which seek to promote and support sustainable industrial growth across the region, thus facilitating industrial development