New Regionalism In Southern Africa: Functional Developmentalism And The Southern

New regionalism in southern Africa: functional developmentalism and the Southern African Power Pool Harry Stephan* and Angus Fane Hervey** *Department of Political Studies, University of Cape Town ** Centre for the Study of Global Governance, London School of Economics (Corresponding author: [email protected])

Abstract This article is a treatment on how southern Africa might best develop a regional response to mitigate the vagaries of globalisation. It opens with a review of the literature set on regionalism. The authors then explain that in southern Africa regional interaction is at present best characterised by what is known as market-driven or open regionalism. Although this form of regionalism has resulted in both external and internal increases in trade and investment, it is not sustainable. As a consequence, the authors argue that the South African government is leading a new thrust within the region in the form of developmental regionalism that marries the state to the market. After tracking the theoretical developments of this new departure, they demonstrate clearly how change is taking place in practice, by looking at the case of regional electricity generation. Keywords: developmental integration, market integration, open regionalism, political spill-over, regionalism, regional theory, southern Africa, Southern African Development Community, southern African power, Southern African Power Pool.

1  An Introduction to Regional Theory The World Trade Organization estimated that by the end of 2005 the number of regional trading agreements in place worldwide exceeded 300. In many ways, this increasingly prevalent phenomenon evokes a certain sense of déjà vu – the early successes of European integration efforts in the wake of the Second World War inspired a similar wave of enthusiasm for regionalism in the 1960s and 1970s, yet in the end, most of these came to nothing. Today, however, the context in which regionalisation takes place is markedly different. The rules have changed and it seems that what is now called the ‘new regionalism’ is a very different creature from the ‘old regionalism’ of the post-war years. Increasingly, 54

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regionalism is viewed by many states as a solution to many of the ills engendered by a new international economic order. For most states, the pressing question now is not whether regionalism is desirable, but rather how its potential may best be harnessed. From a South African perspective, regional integration has been a cornerstone of the post-apartheid government’s foreign policy since 1994. In the initial postapartheid years, the government repeatedly advocated the establishment of closer political and economic ties with neighbouring states in southern Africa, although this was later superseded by a focus on regionalism at the continent-wide level, culminating in the formation of the African Union (AU) and the creation of the New Economic Partnership for Africa’s Development (NEPAD) in 2000. Once again, attention is now returning to the priorities of regionalism closer to home, no doubt brought about by the stalling of pan-African regional initiatives and a newfound appreciation for the need to create a strong southern African regional organisation before attempting integration on a continental level. World-wide, regionalism is most often talked about as taking the form of market integration, which is designed to move through progressive stages of free trade agreements, customs unions and monetary unions, before culminating in overall economic and political integration. The Southern African Development Community (SADC) is no exception. In 2004, the SADC Executive announced the Regional Indicative Strategic Development Plan (RISDP) that sets out a time frame for the economic integration of the region. The main economic targets are a free trade area by 2008, a SADC customs union by 2010, and a SADC common market by 2015, culminating in a monetary union in the SADC region by 2016. Nevertheless, elements of what can be referred to as ‘developmental regionalism’ have remained within SADC, and evidence, spelt out below, proves that these are fast becoming the new drivers of southern Africa’s regional development strategy.

2 Old Regionalism In the modern era, Europe provides the most successful example of regionalism at work. Early theories of regionalism were almost entirely Eurocentric, and many of the ideas which first emerged in response to the European experience are still influential today. In particular, Haas’s (1958 and 1964) concept of functional spillover represents a watershed in the development of the literature, and, as we argue later, is still of central importance to the case of southern African regionalisation.

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Haas is generally regarded as the ‘father’ of a theory called neo-functionalism. His theory (and its theoretical antecedent, functionalism) arose out of the European integration experiences in the early post-war years. The idea of a united Europe has historical roots that predate the twentieth century, but in its modern form, it began as the European Coal and Steel Community (ECSC) in 1951, which expanded to become the European Economic Community (EEC). The original intent of the ECSC was to stabilise the production of steel across Europe in order to prevent ruinous competition during the 1950s, and its importance was two-fold. First, by creating solidarity between governments, the possibility of war would become extremely improbable. Second, the joint regulation, and the ending of tariffs and border controls, laid out a model for the rest of Europe where national interests could still be met by giving up regulation to a supra-national authority (Jones 1996: 9–10). While functionalism was limited to the formation of non-political institutions, neo-functionalism built on it to eliminate the artificial separation of politics from economics, by including the notion of ‘functional spillovers’. Haas (1958 and 1964), using the framework of functionalism and building on the theories of Deutsch, Sidney and Kahn (1958), suggested that increased trans-border exchanges and cooperation in technical areas (such as the production of coal and steel) would lead to increased transnational interdependence and in turn create functional spillovers into other realms, essentially allowing the integration process to be driven under its own steam. Haas (1964: 38) noted that ‘certain kinds of organizational tasks most intimately related to group and national aspirations can be expected to result in integration even though the actors responsible for this development may not deliberately work towards such an end’. According to the theory, initial cooperation on the creation of common institutions in non-political (and hence non-controversial) policy areas is, over time, not only deepened, but also widened to include the realm of other connected policy areas. The deliberate design of institutions is seen as the most effective means for solving common problems, and these, in turn, are instrumental to ‘the creation of functional as well as political spill-over and ultimately to a redefinition of group identity around the regional unit’ (Fawcett and Hurrell 1995: 59). Importantly, governments of member states are locked into the integration process and have little room to maneuver. The structural and functional implications of trans-border exchanges inevitably coerce national governments into greater degrees of cooperation, coordination and integration.

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3 The Old Regionalism in the Developing World Early attempts at south–south cooperation produced organisations such as the G-77, the Non-Aligned Movement, the United Nations Conference on Trade and Development (UNCTAD) and the Organisation of African Unity (OAU); all operating under the similar notion that organising regionally was one way to improve their economic lot in the global order. Significantly, these organisations were grounded in the preferred method of state industrialisation at the time, namely import-substitution strategies. Accepted wisdom suggested that the optimal route to economic development lay in the imposition of strong regional tariff barriers which would, over time, allow industries to grow strong enough to compete internationally. For developing countries, regionalisation seemed to offer protection from the ‘cold winds of intensifying world-market competition’ (Arrighi, Silver and Brewer 2003: 23), while allowing infant industries to take advantage of expanded regional markets behind high protectionist barriers. A case in point is early attempts at regional integration by Africa.1 For African countries in the wake of liberation from colonial powers, the need to regionalise seemed obvious. Given their weak economies and overwhelming dependence on the export of low-cost primary commodities for trade, it was argued that only through integration and cooperation could Africa hope to achieve the benefits of larger markets, economies of scale and functional spillovers from cooperation. Countries could pool benefits arising from a greater exploitation of comparative advantage, and Africa’s highly mobile labour forces would be freed from the artificial barriers to movement imposed by colonialism. Also, solidarity would allow for cooperation on the international stage, and give Africa a much stronger voice in bargaining with powerful developed economies. The economic and political rationale for regionalism was further reinforced by the apparent success of European integration, and at home, given impetus by the popular ideology of ‘pan-Africanism’ – the prospect of reuniting and knitting together all African peoples artificially separated by cultural and geographical borders imposed during colonial rule. Despite a proliferation of well-intentioned regional initiatives by African leaders proclaiming the need for regional integration, the historical track record reveals an overwhelming preponderance of failed or ineffective organisations. The blame can be partially attributed to the structural characteristics of post-liberation African economies, which had extremely low levels of industrialisation and technological capability. This meant that opportunities to create technological spillover effects and economies of scale by integrating common productive processes were scarce,

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and hence the spillover of political cooperation from technical cooperation predicted by functionalist and neo-functionalist theories failed to materialise. Another major factor in the failure of early African schemes was their reliance on ‘inward-looking’ regionalism. Elements of this approach, justified by popular dependency theories, suggested that African countries could liberate themselves from the exploitation to which they had been subjected during colonialism by closing themselves off to outside countries and relying on the expansion of a large internal market to generate growth and development. Individual African countries, however, were so small in economic terms that even when taken as a whole, entire regions were relative lightweights compared to developed countries. In addition, the reliance of African countries on north–south trade was too great to allow for isolation. Finally, there was what some have called the ‘central problem of regionalism’. Quite simply, regionalism requires member countries to cede some level of authority and sovereignty to the regional level. In Africa, initial attempts at integration usually intensified rather than reduced differences between countries. This was because in non-core countries, such as those in Africa, socioeconomic conditions were quite different from those in Europe. The decision to engage in areas of low politics, as described by neo-functionalism, was highly politically charged, as national governments were required to concede certain degrees of autonomy over domestic matters, even if they were primarily technical (Axline 1979: 5).

4 Regionalism and the End of the Cold War A number of changes in the international political economy of the 1980s saw a worldwide resurgence of interest in regionalism, concurrent with the rise of neoliberal economic theory as the dominant new force in the global economic system and changing global power relations. This second wave of regionalism was given added impetus with the end of the Cold War and the new wave of democratisation which swept through Eastern Europe, Africa and Latin America in the late 1980s and early 1990s. Elsewhere, this ‘second wave’ is referred to as new regionalism – a multi-faceted approach to regional integration which moves away from the conventional state-centric and formalistic notions of old regionalism. New regionalism has seen the development of new roles for civil society, market forces, transnational activist networks, informal cross-border networks, and professional and business associations (Hettne 1999: 45). There is considerable debate, however, on how to characterise new regionalism. In the case of southern Africa, two main perspectives dominate. The first is market58

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led neo-liberal regionalism, also known as ‘open regionalism’. This perspective owes much to the original economic theories of market integration and enjoys a dominant status within policy-making circles today. The second is more in line with critical theories on regionalism, and is best labeled ‘developmental integration’, which suggests that while integration can occur through the operation of market forces, there must be explicit political cooperation both before and during the process. In this regard, it has much in common with theories of the developmental state, in that it brings the political back in and places the emphasis on state-led, rather than market-led processes of integration.

5 Market-Based Theories of Regionalism Since the 1980s, regional integration theory has been dominated by a focus on its effects on trade, financial flows and economic integration, as well as increasing concern over its relationship with forces of economic globalisation and multilateralism. The debate over this aspect has been of particular concern to economists, especially with regard to the patterns of interaction between regional and global trade. Theories on regional market integration (often grounded in the tradition of neoliberal economics) thus play a central role in the contemporary debate on regionalism, as they focus attention on the formation of preferential trading agreements commonly termed ‘trading blocs’ – the most common form of regional organisation in the modern international system. Extending this theory to the new wave of regionalism, the economic school defines it as having taken the form of what has been called ‘open regionalism’. This is a form of market integration which extends and applies the central assumptions of neo-liberal economics at the regional and global level. Unlike old regionalism, which was protectionist, inward-looking and relied on collective strategies of selfreliance, new regionalism is open, outward-looking and inclusive (Mistry 1999: 123). It prescribes that policy should be directed towards the incorporation of the region into the world economy – a goal best achieved through the elimination of obstacles to trade and investment. Emphasis is placed on export-led growth, and greater priority is given to extra-regional, rather than intra-regional trade. Thus integration is consistent with ‘an outward-oriented strategy that promotes incentives, that is neutral between production for the domestic market and export’ (Oden 1999: 18). In line with neo-liberalism, the main concern of open regionalism is with economic efficiency or, more broadly, with ensuring economic growth through participation in global wealth-creating activities (Nesedurai 2003: 237). Open regionalism, then, views regionalism as a means via which neo-liberal economic policies can be implemented, and its appeal lies in its ability to allow 59

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countries to integrate more fully into the global economy through the twin processes of trade and investment. This is in line with the ‘stepping stone’ argument that regionalism represents an important step to global economic integration (Bhagwati 1991). This process is driven by the private sector and market forces, hence ‘neo-liberal regional integration shifts emphasis from an imagined historical and political community to a spontaneous, self-selected and self-interested marketdriven community of states and non-state actors’ (Ideheru 2003: 154). While market integration and associated theories of open regionalism have tended to be the predominant forms of new regionalism and have dominated the debate among regional organisations such as the Southern Common Market (MERCOSUR) and the Association of Southeast Asian Nations (ASEAN), they have tended to come under fire from analysts for their tendency to over-emphasise the potential benefits of market reform, without taking into account the often detrimental effects that rapid liberalisation can produce, especially in developing countries. Unlike governments, the market is an impersonal force which cannot be voted out of power because of the harm it causes, and while market forces certainly hold the potential for significant gains, it should be remembered that when left to function on their own, they often tend to widen the economic differences between less and more developed areas (Haarløv 1997: 30). While authors tend to differ on the degree to which the market or state should be held responsible for the polarising effects of globalisation, there is general agreement in the postWashington Consensus era that a major shortcoming of development policy was its ‘one-size-fits-all’ approach – the idea that all economies are fundamentally the same, and that a universal set of good policies exists for all countries, no matter how big or small (Stiglitz 2003). Thus, it is important to identify actors and motives, outside of the economic sphere, that have an interest in regionalism.

6 Developmental Integration The developmental integration model derives from the notion of the developmental state, and encapsulates the idea of state intervention in markets to promote national development agendas (Leftwich 1996). Like open regionalism, it is based on the idea that market expansion can create opportunities for firms to become internationally competitive, but seeks to redress many of the problems associated with openness. Specifically, it has been proposed as a corrective to the static character of the market approach and its sole focus on trade creation and trade diversion, and open regionalism’s one-sided goal of market liberalisation and tendency to widen economic differences between lesser and more developed areas. In this sense it has much more in common with new regionalism than with market-based theories 60

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of integration. It also goes beyond more popularly accepted theories of the ‘new regionalism’ in carving out a far greater role for the state. It acknowledges that social and political forces matter, but that the state is still seen as the driving force behind regional projects. The developmental integration approach is characterised by a number of central propositions. First, the objective of the integration process is economic and social development – a major departure from other economic models of integration, with their emphasis on efficiency maximisation (Lee 2002). For countries with low levels of industrialisation and little productive capacity, increased efficiency through regional market expansion is often meaningless. Instead, integration is more likely to further exacerbate underdevelopment by removing the few remaining barriers protecting domestic industries. Unable to compete on a level playing field with other regional and international industries, what little productive capacity a country has is either absorbed by firms with headquarters in other countries, or migrates elsewhere in the region. While this might result in the enhancement of total regional efficiency and expansion in production, the reality is that most of the benefits accrue to those areas of the region which are already the most developed, and not those most in need of development. In order for domestic industry to take advantage of expanded markets, productive capacity must first be enhanced through such measures as improved infrastructure, policy coordination, state loans, and subsidy incentives. Since regionalisation often results in a polarising effect between member states with differing levels of industrial capability, developmental integration includes the implementation of compensatory and corrective measures to redress the balance (Lee 2002: 24–27). Such compensatory measures include financial transfer and tax transfer mechanisms, while corrective measures include planned regional industrial development, priority loans, improved conditions for development, and differing reductions on tariffs and common fiscal incentives to invest. This requires an approach to integration with greater state involvement in economic and social matters, in order to allocate industry and development funds within a liberalising regional economy. The need for the redistribution of gains and the enhancement of productive capacity suggests a further departure of developmental integration from traditional economic models, namely the role played by explicit political commitment and state involvement in the regionalisation process. In contrast to open regionalism, developmental integration views these factors as the ‘backbone’ of the process (Mittleman 1999: 48). Both intra- and inter-governmental cooperation is required to establish adequate redistributive mechanisms and coordinate policy. For example, a major feature of developmental integration is planned regional 61

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industrial development, often in the form of economic ‘zones of development’, ‘development corridors’, or ‘growth triangles’ which may transcend state borders and rely on a combination of public and private capital, and intergovernmental partnerships to succeed. Industries are allocated to specific areas of the region on the basis of comparative advantage, not only to supply the needs of the region on a more efficient basis, but in the process to result in employment creation, technology transfer and infrastructure development. Developmental regionalism is, therefore, neither complete resistance to globalisation, nor complete acquiescence to global market forces. Instead, it encompasses a period of temporary and limited resistance to aspects of globalisation during which capacity is enhanced to ensure that domestic businesses can eventually participate in global market activities (Nesedurai 2003: 214).

7 Regionalism in the Southern African Development Community (SADC) In 1992, SADC was established and in 1994 South Africa became a member following the collapse of apartheid. Mauritius, Namibia, and the Democratic Republic of Congo (DRC) joined the organisation later. The inclusion of South Africa in SADC transformed its original purpose and signalled a gradual shift in emphasis towards market integration in the region. Lee (2002) has pointed out a number of reasons for this change, amongst which is the realisation by member states that they could no longer adhere to the major objective of decreasing their dependence on the apartheid regime. Also, SADC had to diminish its reliance on outside funding from international partners whose emphasis was on trade liberalisation, and there was a growing perception that market integration was necessary to avoid further marginalisation from the world economy. While many of the developments over the past decade indicate that regional integration in SADC has followed the tenets of open regionalism, there have been other elements to its approach which have led Oden (1999: 170) to label SADC a ‘two-track organisation’ – on the one hand following the principles of open regionalism in the areas of trade, investment and capital flows; and on the other, following more regionally based activities in regional goods sectors, security, environment and energy – a strategy more strongly rooted in new regionalism and developmental integration approaches. Overall, the argument presented here is that for most of the 1990s and the early years of this decade SADC policy has largely followed the dictates of market integration, but elements of developmental integration have remained in place which are now increasingly coming to the fore. The evidence suggests 62

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that regionalism seems to work best in southern Africa when it is driven by cooperation between states, in technical sectors such as transport, water, energy, and telecommunications. Progress in this area may be termed ‘developmental functionalism’ – a model of integration which, we argue, will increasingly play a central role in southern Africa’s future attempts at regional integration, development and growth. The model returns to Haas with his notion that economic integration will result in political spill-over. However, whereas Haas’s theories rely on the action of technical markets for economic integration, the thrust of southern Africa’s development will be derived from government-led initiatives.

8  South Africa, Open Regionalism and SADC South Africa, the most dominant economy in Africa, has seen significant expansion in its trade and investment flows into the continent as a result of the emphasis on trade liberalisation and the relaxation of controls on foreign investment during the 1990s. South Africa’s exports to the rest of Africa grew between 1990 and 2004, and currently exceed those to the United States and the European Union, typically accounting for about 15 to 20 per cent of total exports. For many South African companies such as, for example, MTN, Vodacom, Shoprite, Anglo American and SABMiller, Africa has provided the springboard for global expansion. Their success has paved the way for the expansion of other companies to the rest of the continent in the areas of mining, civil engineering and construction, agriculture, tourism and hotels, manufacturing, services, transport, telecommunications, and the oil and gas sectors (Business Day 13 April 2004). Some African countries have also hosted South African investments in the commercial and retail sectors. In 2004, the top Johannesburg Securities Exchange-listed companies doing business in Africa had profit margins two or three times higher than the profit margins in their South African operations (Games 2004: 11). Over the past ten years, the number of companies with operations in Africa has more than doubled, and these companies now have a presence in 27 African countries and between them employ more than 70 000 people. South Africa was also the largest investor in the rest of Africa during the period 1990 to 2000, with investments averaging about US$1.4 billion annually, or a total of about US$12.5 billion over the decade. Much of this investment was in the second half of the 1990s, and the South African Reserve Bank estimates that South African foreign direct investment (FDI) to the rest of the continent tripled from ZAR0.8 billion in 1996 to ZAR2.6 billion in 2000.2 This is a trend which has continued into this decade. In 2004 alone, South African FDI into Africa was US$4.1 billion. Furthermore, this investment has been concentrated 63

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primarily in the SADC region. In a recent survey, only one non-SADC country, Kenya, featured in the top destinations (United Nations Conference on Trade and Development 2005). In 2004, the World Investment Report estimated that South Africa’s investment in the continent grew to seven per cent of its total FDI abroad in 2002 (Business Day 1 June 2005). The increase in South African investment in Africa over the past four years, from three per cent to seven per cent, shows that although South African investors do not necessarily assess risk in Africa that differently from overseas investors, there is growing confidence in the region’s prospects. In addition, the fact that South African companies have made more new investments in Africa between 2002 and 2005 than in the five years before 2002 suggests that these cross-border investments have yet to peak. However, neo-liberal reforms on the continent have largely failed to live up to their promises. Although they have certainly been successful in creating stable macroeconomic conditions and freer markets in southern Africa they have not been accompanied by significant increases in FDI or increased growth. A combination of continued marginalisation from the global economy, and the lack of many of the conditions necessary for effective market integration, as laid out in the literature, has meant that open regionalism has largely been to the exclusive benefit of private companies, and there has been little evidence of trickle-down effects. For SADC, two key problems may be identified. The first is the lack of significant levels of intra-regional trade, while the second is the skewed nature of that trade. In 2003, trade among sub-Saharan African countries accounted for 12 per cent of sub-Saharan exports, up only three per cent from 1989. The major established regional arrangements did not contribute to the increases – their shares of Africa-to-Africa trade were either stagnant or declining between 1989 and 2003 (Economic Commission for Africa 2003: 38). The result has been that the touted benefits of expanded trade, in accordance with normal trade integration theory, have failed to materialise. Quite simply, if there is little demand among regional partners for each other’s goods, then the lowering of barriers to trade will not, by itself, lead to dramatic increases in volumes of cross-border trade. The problem is further compounded by other structural weaknesses. Yeats (1998), in an exhaustive analysis of African and southern African trade, has shown that the exchange of intra-regional trade preferences does not appear to have the potential to make an important impact on these countries’ trade, due not only to low levels of pre-existing trade, but also to the high non-complementarity of the regions’ exports and imports, and the lack of appropriate infrastructure to support this exchange. He concludes that, given the structural characteristics of typical SADC countries, liberalisation purely at the regional level will invariably lead to trade diversion, rather than trade creation. Yeats’s findings support a general consensus 64

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in the literature that static gains from regionalism are unlikely to have much of an impact in Africa. The other major problem for SADC is South Africa’s hegemonic status. It maintains a trade surplus with every country in SADC, and its economic power grossly outweighs that of its neighbours. At the sub-regional level, some attempts have been made to mitigate the negative effects for smaller countries of dependence on South Africa in the form of the renegotiated Southern African Customs Union (SACU) agreement, which encompasses South Africa, Botswana, Namibia, Swaziland and Lesotho, and provides the latter four with a disproportionate share of tariff revenues (Kirk and Stern 2005; McCarthy 2003). The prospect, however, of extending a similar arrangement to the SADC-wide level is not a viable option right now. What is needed is a change in trade patterns – a substantial increase in intra-SADC trade flows, and a reduction in the trade imbalances between South Africa and its neighbours.3 And, as the literature has shown, leaving this to the markets alone is not a viable solution. Increased trade flows will only come about through increased government support of industries, higher levels of foreign direct investment and inter-governmental cooperation on major developmental projects. Private-sector-led expansion into Africa and southern Africa has also delivered mixed results. On the one hand, South African investment clearly has some positive effects, such as increasing revenue generation for governments, transferring technology and business skills, ensuring the reindustrialisation of some economies through the acquisition and revitalisation of over-regulated and inefficient stateowned enterprises, creating employment, introducing good corporate practice, and boosting investment confidence from other foreign investors who have piggybacked on South African FDI (Business Day 1 June 2005). On the other hand, South Africa is often accused of economic neo-colonialism. The growing perception that South African companies act in a high-handed manner and prey on weaker domestic industries, has resulted in something of a backlash in SADC and the rest of Africa. This poses a significant challenge to the South African government to manage increasingly negative attitudes towards South African business on the continent. Where contracts were once easy to win, they are now much harder, and include strict provisions on equity and local partnerships. This begs the question of what form regional strategy will take, given the growing realisation that open regionalism alone is not sufficient.

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9 Developmental Integration in Southern Africa Making SADC policy just about trade and economics and leaving political reform out of the equation is like trying to perform Hamlet without the Prince. – Gerrit Olivier4 Thus far we have looked only at how open regionalism has played out in southern Africa. Theory, however, tells us that the new regionalism in southern Africa may also be characterised by what is known as developmental integration, which criticises the failure of open regionalism to correct for market failures and for not placing enough emphasis on the role played by states in the regional process (Thompson 2000). SADC has seen, in addition to the open regionalism measures described earlier, the implementation of important regional projects which have involved states, rather than markets, as the main driving force. In southern Africa a strong case may be made for the assertion that states are the main actors in new regionalist blocs, ‘sometimes responding to the demands generated within society, sometimes in response to external pressures, and sometimes as a result of a particular regionalist vision of relatively autonomous state elites’ (Grugel and Hout 1999: 4). The state remains a central coordinator, quite capable of derailing or promoting the regional cooperation of other actors. There are numerous examples of southern Africa’s innovative approach to maintaining state agencies, including cooperation on drought relief and food supply, regional environmental security in the form of water management, infrastructural coordination on telecommunications, tourism, postal services and transport, the creation of transport corridors and related spatial development initiatives (SDIs), and cooperation on regional security, including interventions and conflict resolution management in Lesotho and the DRC. However, the degree to which these projects have enjoyed success has varied. In some cases, the commitment to cooperation – as spelled out in SADC documents – has turned out to be worth little more than the paper it is written on, while in others – most noticeably in the areas of regional security and in SDIs such as the Maputo Corridor – there have been some significant achievements.5 With regard to the latter, however, there is some debate on whether SDIs are not merely outgrowths of the South African government’s Growth, Employment and Redistribution: A Macroeconomic Strategy (GEAR), given the high levels of private sector involvement, and the emphasis on growth over development in those macro-regions that have been identified as possible economic hubs (Söderbaum and Taylor 2003; Bond 2000; Taylor and Williams 2001). 66

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There are areas of inter-governmental cooperation, however, in the regional power sector, which have received a lot less attention in the literature despite universal acclaim for their achievements. This next section takes a closer look at the development of the regional southern African power grid over the past ten years. The goal is to identify a form of regional integration in which many of the problems that have hampered other efforts, have been circumvented. The idea is to demonstrate why this might be a more effective form of regional integration, and why we might possibly see a lot more evidence of moves by state-led companies into the region in the near future.

10 Regionalism and the Power Sector in Southern Africa The need to accelerate development in Africa is widely recognised, and access to clean, reliable energy is vital to developmental schemes: it improves the standard of living in underdeveloped areas, stimulates the establishment of smallscale enterprises, and eliminates the health hazards and environmental problems associated with wood fuel (still by far the most common energy source on the continent). Yet Africa, while being home to 13 per cent of the world’s population and producing seven per cent of its commercial energy, accounts for only two per cent of the world’s gross domestic product (GDP) and three per cent of global commercial energy consumption (World Energy Council 2003: 3). Much of the commercial energy Africa produces is exported to other continents, sometimes with minimal benefit to local populations. Moreover, the commercial energy that is used is generally expensive by world standards. For southern Africa, resources required for the provision of cheap and efficient energy are in abundant supply, with significant deposits of coal, water, gas and uranium. The massive flows of the Zambezi and Congo rivers carry an estimated 150 000mW of generating capacity between them. Projections for the Inga Dam in the DRC suggest that it has the potential to generate 50 000mW alone – an amount equal to Africa’s entire current electricity needs. The Kudu gas fields in Namibia and the Tamane and Pande fields in Mozambique contain significant deposits in excess of 50 billion cubic metres. Further south, South Africa is blessed with abundant coal reserves. It is responsible for around 90 per cent of coal production in Africa, generating almost 50 per cent of the continent’s electricity needs (The Times 16 February 2005). Thus the potential for power generation in the region is overwhelming, and provides SADC member states with a strong incentive for the exchange of electricity. According to the World Energy Council (2003: 4), regional electricity trading schemes make sense, for the following reasons: 67

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• As the geography of energy supply options in no way corresponds to political boundaries, the cheapest and cleanest energy source for a given area may well lie just across the national border, rather than in a distant area of the same country; • Many national markets in southern Africa are too small to justify the investment needed to develop particular energy supply opportunities. In the DRC, for example, local demand alone would not justify further development of the Inga scheme. Joining national markets can provide the economy of scale to overcome this; • Cross-border energy supply often also provides greatly enhanced diversification of the energy source – a key component of energy security; • In a regional power pool, countries like the DRC and Mozambique would derive enormous revenues by selling hydro power to South Africa which would, in turn, enjoy major economic benefits from the lower costs involved. For example, suppose a dam could generate electricity for two cents a kilowatt hour, and South Africa were generating electricity at ten cents a kilowatt hour. If South Africa were able to strike a deal such that it could buy electricity from the new low-cost power source at six cents a kilowatt hour, the suppliers would make four cents and South Africa would save four cents; • Less tangibly, but importantly, joint energy project development can help build closer ties between countries through closer collaboration and increased interdependence.

11 The Southern African Power Pool (SAPP) On 28 September 1995, the Southern African Power Pool (SAPP) came into effect with these reasons in mind, and moved towards implementation in December 1995 when the national utilities of nine SADC members signed an Inter-Utility Memorandum of Understanding. It was the first formal international power pool established outside Europe or North America. In terms of its constitution, only utilities, not individual power stations, are allowed to join. At present its members are the utilities and ministries involved in energy usage in the 12 member states.6 The SAPP is based on cooperative principles, i.e. the utilities coordinate and cooperate in the planning and operation of their systems to minimise costs and maintain reliability, and there is full recovery of costs and equitable sharing of profits (O’Leary, Charpentier and Minogue 1998). In June 2001, SADC Energy 68

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Ministers also supported the proposal for the establishment of a Regional Electricity Regulatory Association (RERA) for the SADC region. The objectives of the association cover three main areas: capacity building, coordination of regional policy/strategy/legislation, and regulatory cooperation (World Energy Council 2003: 36). Regional cooperation on electricity supply has allowed for the furtherance of a long-held vision in the electricity supply industry – the Southern African Grid. An ingenious and effective way of countering crippling shortages of electricity by moving power around the sub-continent, the Southern African Grid has long been seen as a vital tool to improve relations between African states and encourage economic and social advancement. To date, most of the efforts have focused on increased transmission capacity, and there has been significant progress. Currently, every country in the southern African region is connected either directly or indirectly to all other member states, and the volume of regional electricity trade has grown by 20 per cent a year since 1998. The benefits from the regional power grid have been significant. Coal-fired power stations in South Africa, hydro power on the Zambezi River (Zambia– Zimbabwe border), the Kunene River (Angola–Namibia border), and on the Congo River, potential oil and gas-fired stations in Angola, and gas in Namibia and Mozambique, provide a diverse mix of primary energy resources. This should help free electricity supply in the SAPP countries from the impact of drought and other natural disasters, particularly as the interconnections allow for the routing of power under almost all circumstances. In drought periods, for example, cheap coal-fired power from South Africa has been used to save water in Kariba Lake, with the Kariba Power Station being used at such times for peaking purposes only. Technical coordination and cooperation are already at an advanced stage. For example, the Mozal Aluminium Project in Mozambique required the construction of a line from Mpumalanga in South Africa to Mozal near Maputo. The line is owned jointly by South Africa’s power utility, Eskom, the Swaziland Electricity Board, and Electricidade de Mozambique, and the shortest route was through areas of Swaziland that need power. Substations were created on the line to divert electricity for Swaziland’s power needs, and the same happened along the line from South Africa to Zimbabwe, extending to Botswana with a similar spin-off (Nevin 2001). Another good example is South Africa’s provision of technical and other support for the refurbishment of the Hwange Power Station, designed to reduce Zimbabwe’s dependence on power purchases from its neighbours (World Energy Council 2003: 35–36). Potential for future benefits is equally impressive. A twenty-year generation and transmission plan has been developed, which 69

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indicates that a saving of some US$3 billion can be achieved through coordinated planning.

12 The SAPP and Political Spill-over The potential impact of regional cooperation in the electricity sector on the overall regionalisation process in SADC is of particular significance. The establishment of the SAPP required explicit political commitment on behalf of all member states at the outset – a task which was made much easier by the sector’s technical nature. The shades of Haas’s neo-functionalism are unmistakeable. Electricity generation is relatively uncontroversial in terms of African politics, and because there was overwhelming consensus for the provision of cheap and reliable electricity, the idea of a regional electricity grid went from conception to practice remarkably quickly. Once all the state utilities had embarked on the process, coordination and cooperation devolved from the state level to that of the utilities themselves, insulating sectoral development from later regional security problems and personal rivalries between African leaders. A case in point was the 1998 crisis in the DRC, in which a number of SADC member states found themselves involved in opposing alliances. At the time, the situation posed a serious threat to the existence of SADC itself (The Economist 1 October 1998). Despite frigid diplomatic relations between their countries, though, utilities from all member states continued to work on the furtherance of the regional power grid. The result was an unprecedented situation where SADC technicians found themselves cooperating on daily exchanges of electricity through the power pool, while their respective military forces were engaged against each other. Another way in which the SAPP represents an important element of the regionalisation process is in its capability to create new trade and investment flows between SADC member states, while encouraging investment from outside Africa. The scale of some of the bigger projects such as Inga in the DRC and CahoraBassa in Mozambique requires cooperation between two or three utilities from the region. With a regional power pool in place, there is greater incentive for cross-border investment. The Inga III project, for example, is being undertaken by a joint venture company called the Western Power Corridor (Westcor), to be owned by Eskom, the Botswana Power Corporation, Empresa Nacional de Electridade of Angola, Namibia’s power utility, NamPower, and Société Nationale d’ Electricité of the Congo. There has also been significant involvement from Siemens and the French state power utility, Electricité de France. Once other SADC member states bring their potential generating capacity online, there will be an opportunity to generate significant revenue through the 70

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export of power to other member states connected to the power pool, as well as countries outside the pool in northern Africa and Europe. With its current projected levels of capacity, South Africa should be a net importer of electricity. If the country is able to source more electricity from beyond its borders, this will hopefully go some way towards alleviating the chronic trade imbalances between SACU and the rest of SADC, and encourage other forms of regional trade in which non-SADC countries have significant comparative advantages.

13 Conclusion While the main purpose of this article has been to provide a literature review of regional theory which is of relevance to the dynamic process of new regionalism in southern Africa, the idea has also been to suggest that we are likely to see a particular ‘way forward’ for southern African regionalisation that is quite different from what has taken place over the past decade or so. A point which has been repeatedly driven home throughout this discussion, is that regionalism in Africa has yet to live up to its promise. Whether it has been the failure of older inward-looking schemes, or the inability of African countries to take advantage of newer outward-looking ones, the point is that regionalism in Africa, in all its manifestations, seems to have always been approached in the wrong way. Despite past failure, though, there is still consensus that regionalism is an important and viable strategy for achieving development, and African leaders and governments still espouse it as an important goal. Policy documents for NEPAD and the AU consistently refer to the need to promote regional and African economic strategies, yet there is little in them which lays down guidelines on how this is supposed to occur. One tried and tested strategy has been to promote regionalism through the integration of markets. In southern Africa, as in many other places, there is a strong case for saying that over the past decade or so regional strategy has been driven by the idea of ‘ever-expanding circles of free trade’ – the idea of open regionalism. The message has been simple: liberalise regional barriers to trade and investment, set loose the forces of the market, and watch the regional economy grow. This article has reviewed the theory behind such a move and demonstrated why, in the case of Africa and southern Africa, such a narrow focus on trade and investment is simply not enough. It might be true that open regionalism has been good for the private sector, especially in South Africa, but if the government is serious about a regional development strategy, then regionalisation can no longer continue in this way. Continued reliance on the forces of the market to bring about regional development on its own will ultimately result in increased antipathy from other 71

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African states towards South African business, and will do little to boost the low levels of existing intra-SADC trade and investment. However, this article has also shown that SADC might best be termed a ‘twotrack organisation’, since it has followed strategies rooted in the theory of development integration while still managing to adhere to a neoliberal agenda. Cooperation in the southern African power sector has been examined in order to demonstrate how explicit political cooperation in a common technical sector between countries can promote a regional agenda, even during security tensions between member states. This is not a new idea; it is the same premise on which the old theories of functionalism and neo-functionalism in Europe are based. Theoretical and practical antecedents exist for what we suggest may be an increasingly important element of regional initiatives in southern Africa. In the future, it seems likely that we will see greater cooperation between southern African governments in technical sectors, especially in infrastructure, power, water and telecommunications. South African industry and expertise will play a central role, and a key feature will be the involvement of South African parastatals in regional projects, specifically companies like Eskom, Transnet and oil company SASOL. The priority is to now make these organisations more competitive and efficient, with the purpose of using them as engines for future growth. In the past, South Africa adhered strictly to a neoliberal mode, but with the change to an investment model via parastatals in southern Africa, this could be the blueprint for investment in SADC. The beauty of such a move is that the South African government controls both sides of the spill-over effect. On the one hand, by heavily involving parastatals and driving economic rationalisation, it can more tightly control how the spill-over effect occurs. Also, side payments in the form of new forms of employment might help ease pressure on the government from its coalition partners, and major regional infrastructural projects will certainly create a large number of jobs. At the same time, government reaps the benefits of political integration in the form of greater policy credibility and the furtherance of a crucial element of the pan-Africanist vision – the consolidation of the southern African region and the establishment of a strong regional entity which provides a model for the rest of Africa. Finally, we can argue that the South African-led strategy has the potential to mitigate the core restraints that are marginalising Africa in general. Core development projects like the Inga dam on the Congo River will bring muchneeded investment into the region, primarily through international financial institutions (IFIs), but also increasingly through commercial institutions. The IFIs are intent on bridging the equality gap within the SADC region, and this 72

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is a sure way to create the necessary trade flows that are so skewed in South Africa’s favour. Second, the constraints on trade that are in place through the institutional bias within the World Trade Organisation (WTO) can be reduced by creating more intra-regional trade. By developing a whirlpool effect within SADC, southern Africa can play a more strategic game with the developed countries in terms of its strategic minerals. Given the interest and ever-increasing investment by China, SADC can trump OECD (Organisation for Economic Cooperation and Development) intransigence on agricultural subsidies and finesse better terms of trade through the WTO. Third, by creating a stronger internal market across the region, southern Africa can finally settle the problem of small markets that has been such a stigma or legacy of colonialism.

NOTES 1. Regional initiatives are certainly nothing new to Africa. Two of the oldest regional organisations, the Southern African Customs Union and the East African Community, can trace their roots to the beginning of the twentieth century, while early post-Second World War efforts saw the creation of the Southern Rhodesian Customs Union in 1949; the African Common Market linking Algeria, Egypt, Ghana, Guinea, Mali and Morocco in 1962, and in the same year, the Equatorial Customs Union of Central African States, joining Cameroon, the Central African Republic, Chad, Congo and Gabon. Two of the historically more important African regional organisations, the Organisation of African Unity and the East African Community (comprising Kenya, Tanzania and Uganda) began in 1963 and 1967 respectively, and 1975 saw the establishment of the Economic Community of West African States (ECOWAS) which was intended to create a single economic bloc extending across 15 states. In 1980, the OAU formulated the Lagos Plan of Action, which promised to bring about an African Common Market by 2000. 2. This figure represented only three per cent of South Africa’s global foreign direct investment (FDI), as many South African firms are still investing predominantly in Europe, the United States and Asia. But the figure does exclude significant investments over the past four years, including the expansion of the Mozal aluminium smelter (US$2,2bn); the laying of the Sasol pipeline (US$1,2bn) in Mozambique; the AngloGold Ashanti merger (US$1,4bn); and the continental expansion of banks, retailers and telecommunications companies such as MTN and Vodacom. 3. There is certainly scope for this to occur – a study undertaken by the International Trade Centre of UNCTAD has determined that significant potential for increased trade exists between SACU and the non-SACU SADC countries. However, this would require SACU countries to source competitive products from their neighbours instead of the US and the EU. 4. Gerrit Olivier of the University of Johannesburg, Johannesburg, South Africa, 5. The Maputo Corridor provides a good example of what can be achieved with partnerships between the public and private sector, political will, and commercial demand for services. Started in August 1995, the corridor involves upgrading road and rail links

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between South Africa and Mozambique and dredging the port of Maputo. The corridor has spurred other developments such as the Mepanda-Unca hydro-electric project on the Zambezi River, to be developed at a cost of US$200 million to supply electricity to Mozambique. Another is the joint venture effort involving the electricity utilities of Mozambique, Swaziland and South Africa, to supply power to the new Mozal plant in Mozambique through the construction of two 440 Kv lines at an estimated cost of $105 million. The Mozal Aluminium Smelter plant is a huge investment valued at $1.3 billion. In total, the Maputo Corridor has 180 projects at an estimated cost of $7 billion. Already, $2 billion has been committed with 8 000 new jobs. There are numerous spinoffs to both the formal and informal, sector resulting in increased incomes. The corridor is considered a model for other development corridors in the region. The fact that the project has been able to move so quickly from conceptualisation to actualisation is testimony to the momentum of projects driven by partnerships between the public and private sectors, and political commitment at the highest level. 6. Botswana Power Corporation (BPC); Electricidade de Mocambique (EDM); Angola’s Empresa Nacional de Electricidade (ENE); Electricity Supply Commission of Malawi (Escom); South Africa’s Eskom; Lesotho Electricity Corporation (LEC); Namibia’s NamPower; Swaziland Electricity Board (SEB); the Democratic Republic of Congo’s (DRC) Société Nationale d’ Electricité (SNEL); Tanzania Electric Supply Company (Tanesco); Zimbabwe Electricity Supply Authority (ZESA) and Zambia Electricity Supply Corporation (ZESCO).

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