31 May The Trouble With Southern African Economies

How Southern African Economies Affect Their Neighbours And The Rand

As world-wise expats, most of us have a sound view of the dominant news stories from around the globe: politics in the US, the UK economy, elections in Europe and unrest in the middle east. And although we also keep an eye on the news from back home, it’s easy to miss out on some of the lesser-known stories and events which impact on South Africa’s economy.

Rand Rescue looks at some noteworthy events at play in the southern part of Africa, and how those events affect South Africa’s economy.

What’s happening in Southern Africa: 4 things affecting South Africa’s economy

The electricity conundrum: the power struggles of Africa’s southern nations

It’s a well-known fact that South Africa’s electricity provider, Eskom, has been struggling to fuel the increasing need for electricity within South African borders. Such struggles have led to widespread loadshedding throughout the country – in particular its economic hubs. 

Eskom has once more raised electricity rates by 2.2% (effective 1 April 2017), which was approved by NERSA (National Energy Regulator of South Africa), Although this increase is less than the 2016/2017 increase, an investigation into the power provider’s failure to deliver or improve its infrastructure by Dentons two years ago had raised worrying issues around the state of the provider. Among other things, Dentons had questioned why South Africa’s electricity rates are constantly raised well above the global average. This is telling, especially since South Africa’s rates have been hiked steeply from 2011, while the global coal prices had fallen steadily from a record high in 2011 to a record low in 2016.

Of course, what’s even more perplexing is the perpetual “power-exchange” at play in Southern Africa. Countries in the region have had power-supply agreements in place for several years, and although this isn’t out of the ordinary, it difficult not to scratch one’s head at the terms of these agreements, especially in relation to other agreements.

Eskom has supplied electricity to neighbouring countries for several years, and South Africa is said to provide approximately 50% of Africa’s energy (the remainder of which comes mainly from Nigeria, Kenya, Ivory Coast, Ethiopia and Ghana). According to Engineering News, South Africa provides approximately  1 000 MW of power to Zimbabwe, 580 to Zambia and 420 MW to Botswana, Swaziland, Namibia and Mozambique. And yet amid its power cuts and infrastructure failures, Eskom had also signed agreements with 26 independent power suppliers for providing electricity to its grid – including deals to purchase power from Namibia and Botswana.

Furthermore, although Zimbabwe owes a purported R118 million to South Africa for electricity which had seen Zim facing threats of power cuts, Eskom has already stated that it will renew its power supply deal with Zimbabwe.

South Africa had also signed a new power supply agreement with NamPower from Namibia which would supply the country with an agreed (consistent) 200MW as well as additional energy dependent on its transmission capacity. What makes this deal so significant compared to previous agreements, is that it bars Eskom from purchasing surplus power from NamPower as the provider has previously done during crisis periods. Eskom would therefore be assured of income from Namibia, but should it face another energy crisis, this is one country it would not be able to turn to for assistance.

Weathering the brunt of the weather – whether we want to or not

As Capetonians have found of late, the weather (or climate) can have a very direct and detrimental effect on livelihood. With dam levels now at 11% the City of Cape Town has issued several warnings to the public about water usage. Of course, this is not all to do with weather – as poor planning is as much to blame for the current crisis. For although the population of the city has increased by more than 50% over the past two decades, water storage has only increased by 15%. Water desalination is on the cards, but such a solution is said to be very costly and therefore not a feasible solution as yet.

Despite what seems to be a strategic faux pas on the municipality’s part, it remains that one of the primary threats to economies in the Common Monetary Area is climate change.

A report by Times Live earlier this year cited research by the World Meteorological Organisation stating that 2016 had been the warmest year since records began and that Southern Africa in particular is seeing unprecedented drought and agricultural losses since the end of 2015.

How, you may ask, does this impact the different economies in Southern Africa? Well, one of the ways in which this harms our economies and trade agreements comes down to our first topic covered above – power.

Zimbabwe is one of the countries under threat by the persistent drought – an understandable fate seeing as the country had relied on hydroelectricity to supply approximately 60% of their electrical capacity, and its neighbour, Zambia, has also relied on the Kariba Dam for electricity and water supply. Dried up river beds and empty dams have pushed the countries to purchase surplus electricity from Eskom as well as costly fossil fuel generators. Seeing as the Zimbabwean economy has been on its knees for eons, the additional funds it’s had to fork out for electricity is compounding their economic losses. Not surprising then that the country owes South Africa millions for electricity already supplied. And we needn’t mention that South Africa certainly can’t afford further financial losses either. As for Zambia – the falling metal prices has seen the country face an economic dilemma of its own.

Additionally, climate change has several other significant consequences for Southern Africa. According to the Mail & Guardian, the drought in neighbouring countries leads to overloading at our ports, mass migration as well as significant food insecurity.

40% of the maize consumed in the Southern African Development Community has historically been supplied by South Africa, and yet with recent droughts, farmers have not been able to meet these yields – during the 2016 period they’d only been able to plant half of the original 2.6-million hectares of maize. Not only has this pushed South Africa to import maize usually supplied from within country borders, but it’s cut our income from the approximately 630 000 tonnes of maize sold to Botswana, Namibia, Lesotho and Swaziland every year. The lack of animal feed has impact on the rest of the farming industry as well. Abattoirs are struggling with the influx of animals sent for slaughter – a necessity for farmers who can no longer feed their animals.

Professor Nicholas King who focuses on environmental science states that Southern Africa has seen marked increases in mean annual temperature and more variable rainfall.

According to Al Jazeera, up to 27 million Southern Africans had already required emergency food aid by the end of 2016.

The transnational tourism dilemma

They say it doesn’t take a village to raise a child, when it comes to international tourism in Southern Africa, it doesn’t take one country to sate a jetsetter. Tourism in Southern Africa from international sources tends to include tours and travel plans which span several countries in the region.

The choice of destination is usually determined by the cost, the aesthetics of the regions in question, the political and economic stabilities of the areas, possible health hazards, luxuries or lack thereof due to economic or infrastructure shortfalls and, of course, the remoteness and exclusivity of the experience.

When it comes to the latter, Africa still offers foreigners a significantly unique experience. Our biodiversity and cultures are top of mind for many tourists from abroad wishing to sample the real safari.

But of course, these tourists as well as tour operators and travel agents will necessarily weigh up the cons of an African experience against the pros – and the list of cons has increased of late. Not only is crime a persistent issue in South Africa itself, but economic drawbacks have lead to several Southern African countries neglecting critical infrastructures – making travelling both more expensive and less comfortable. Another emotive factor which impact tourism is the reality of poverty – it may be a reality, but it’s not necessarily something which rests well on the mind of the tourists wishing to have a lovely time.

Another hazard to the tourism industry is the loss of biodiversity due to poaching. A study conducted by researchers using the Bayesian statistical modelling of tourist visits to protected areas indicated losses of up to R334 million per annum to regions leveraging off endangered wildlife for tourism – and the study focused on the poaching of elephants alone. The study also revealed that these losses exceed anti-poaching costs, which means the tourism industry would not be able to recover costs of anti-poaching initiatives. 

Local is lekker, but not always wise

A Business Day report from April 2017 cites another issue rather unique to African nations. It’s something South African ears have heard time and again – “support local”, “local is lekker” and “homegrown is best” are some of the terms pushed on citizens of respective countries by their leaders, policymakers and industry giants. The message is clear – we must support our own industries and protect our own interests first.

The problem, of course, is not in supporting local businesses and service providers, but the methodologies and strategies applied which essentially exclude “foreigners” and amplify trade barriers.

According to the World Bank, a single truck carrying goods across African borders could be required to carry up to 1 600 documents to do so. Some countries go as far as to impose import restrictions and exchange control regulations to inflate their exchange rates artificially. Trade restrictions imposed on South Africa have been blamed on South Africa prioritising its Brics membership and global agendas over its pan-African agendas, and the country’s pervasive xenophobic psyche is not doing much to alleviate our neighbours’ angst.

Political alliances: making foes of friends and vice versa

One of the more complex issues affecting Southern African Development Community are the individual trade alliances between the respective countries and other non-African countries.

The biggest trading partners for countries in the SADC are:

South Africa

• China
• The USA
• India
• The UK
• Germany
• Nigeria
• India

Namibia

• Botswana
• South Africa
• Switzerland
• South Korea
• Spain
• The Bahamas
• The USA
• China
• Zambia

Botswana

• The UK
• South Africa
• Namibia
• Nigeria
• Israel
• Zimbabwe
• The USA
• India
• China

Mozambique

• South Africa
• The Netherlands
• India
• Belgium-Luxembourg
• Italy
• China

Swaziland

• Nigeria
• The USA
• China
• India
• Mozambique
• South Africa
• Zambia
• Malaysia

Lesotho

• The USA
• South Africa
• China
• The Republic of Korea
• Germany
• India
• Zimbabwe
• Japan
• Pakistan

Zimbabwe

• South Africa
• Mozambique
• China
• The UAE
• Zambia
• Singapore
• China
• India

Zambia

• Switzerland
• China
• Singapore
• South Africa
• The DRC
• India
• Mauritius
• Kenya

Angola

• China
• India
• The USA
• Spain
• France
• South Korea
• Portugal
• South Africa

Madagascar

• France
• The USA
• Germany
• China
• South Africa
• Bahrain
• India
• The UAE

Mauritius

• Zambia
• The USA
• The UK
• France
• The UAE
• China
• India
• South Africa
• Vietnam

Seychelles

• The UAE
• France
• The UK
• Japan
• Mauritius
• Spain
• France
• South Africa

Of course, the trade agreements between individual countries aren’t necessarily significant, but when one looks at the implications of corresponding or opposing alliances and agreements, it becomes a bit more complex.

There’s no way of understanding how deep the various rabbit holes truly go, but it’s clear that there are various international tensions which undoubtedly impact the economies of Southern Africa.

We can but touch on these topics lightly. There’s Zimbabwe’s clear and highly public critique of “western society” including any alliances with the USA, Europe and the UK. As one of South Africa’s neighbours, these tensions have undoubtedly had an impact on international relations both local and abroad. South Africa has furthermore announced an end to the special dispensation for Zimbabweans earlier this year. This dispensation had afforded special permits to Zimbabweans to live and work in South Africa. Once it’s annulled in December 2017, approximately 200 000 Zimbabweans will face deportation should they not follow the official channels for work and study visas in South Africa.

Then there are other puzzling developments internationally which undoubtedly impact the SADC. For one, the standoff between the USA and China over the South China Sea (among other things), as well as the perplexing Russia-USA he-said-she-said political “squabble” (to say the least) over the situation in Syria, the South China Sea, old Cold War wounds as well as the continued clashes in their policies, world views and values.

In fact, it would seem the USA had pre-empted Southern African alliances with these other superpowers – so much so that the US had constructed one of their biggest embassies in Swaziland in the past few years. Such was the secrecy and confusion about the construction of the mammoth embassy that rumours had abounded that the US had planned on moving Africom from Stuttgart to Ezulwini. The project had received significant criticism from the Swazi community who’d not been offered opportunities for tendering on construction. Of course, this is all mere speculation – as much as the US fear of the strengthening ties between China and Russia.

Whether these speculations have merit remains to be seen – but one thing’s for sure, the cancellation of the South African-Russian nuclear deal, the Mozambican debt scandal which sees the country owing upwards of seven billion dollars to Russia, the cancellation of the Chinese-Namibian arms deal due to US Treasury interference, the closure of the Chinese embassy in Botswana last year and renewed Chinese interest in Zimbabwe are among the issues contributing to economic instability in Southern Africa.

Time to move your rands abroad?

For South Africans living abroad, these stories just seem to strengthen the view that it may be a better call to move our funds from South Africa to our new homes. If anything, it may mitigate some financial risk to keep your nest egg in a place which offers greater stability.

If you need assistance transferring your funds abroad, Rand Rescue can help. We specialise in helping South Africans like you repatriate their rands abroad. Complete the contact form with your details and we’ll assist you with your international financial transactions.