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REGIONAL INTEGRATION and EMERGING MARKETS REGIONAL INTEGRATION and EMERGING MARKETS Tie South African Institute of International Affairs SOUTH AFRICA AND SOUTHERN AFRICA REGIONAL INTEGRATION AND EMERGING MARKETS edited by Antoinette Handley & Greg Mills with the assistance of Laurie Boulden ©SAIIA, 1998 All rights are reserved While copyright in the volume as a whole is vested in the South African Institute of International Affiars, copyright in the text rests with the authors, and no chapter may be reproduced in whole or in part without the express permission, in writing, of both authors and publisher. It should be noted that any opinions expressed are the reponsibility of the individual authors and not the SAIIA or any of the funders. ISBN: 1-874-890-76-5 First published by the SAIIA, January 1998 (Printed by Print Inc.) This publication is the result of a conference sponsored by: The Brazilian Embassy The British Council Eskom Friedrich-Naumann-Stiftung The Royal Netherlands Embassy The Standard Bank of SA Limited Cover designed by Brian Robertson Contents Notes on the Contributors vii Foreword viii Jack Spence Preface ix Greg Mills Part One: Regionalism in Africa Chapter 1: Introduction 1 Antoinette Handlev Chapter 2: Regional Integration in Africa: Lessons and Experiences 17 Christopher Ctapham Chapter 3: Developing Nations, Regional Integration and Globalism 29 Jeffrey Herbst Part Two: The Specifics of Regional Co-Operation in Southern Africa Chapter 4: South Africa and Southern Africa 40 Rob Davies Chapter 5: Financial Co-Operation in SADC 51 Timothy Thahane Chapter 6: The SA-EU FTA and Southern Africa 59 Talitha Bertelsmann Chapter 7: GEAR and Southern Africa 78 Stephan Malherbe Part Three: Lessons from 'New' Regionalism in Latin America Chapter 8: The Benefits of Tariff LiberalisatiomThe Chilean Experience 93 Jorge Heine Chapter 9: Coping with the Regional Hegemon: Mexico's NAFTA Experience 107 Cassio Luiselli Chapter 10: Mercosur: Lessons for Southern Africa 129 Jose Botafogo Gongalves Glossary 133 Notes on the Contributors Talitha Bertelsmann is European Union Research Fellow al the South African Institute of International Affairs. Dr Christopher Clapham is Professor of Politics and International Relations at Lancaster University, England, and President of the African Studies Association of the United Kingdom. DrRobDaviesisan ANC Member of the National Assembly. He is Deputy Chairperson of the Parliamentary Joint Standing Committee on Finance and a member of the Portfolio Committees on Foreign Affairs, and Trade and Industry. HE Dr Cassio Luiselli is Ambassador of Mexico to South Africa. Ambassador Jose Botafogo Goncalves is Undcr-Secretary General for Integration, Economic Affairs and Foreign Trade of the Brazilian Foreign Ministry. Antoinette Handley is Director of Studies at the South African Institute of International Affairs. HE Dr Jorge Heine is Ambassador of Chile to South Africa. Professor Jeffrey Herbst is an Associate Professor of Politics and International Affairs at Princeton University. Stephan Malherbe is an economist based in Johannesburg, South Africa. Dr Greg Mills is National Director of the South African Institute of International Affairs. Professor Jack Spence is Associate Feilow and Former Director of Studies at the Royal Institute of International Affairs. Timothy Thahane is Deputy Governor of the South African Reserve Bank. Foreword Jack Spence The current debate on the scope and substance of South Africa's foreign policy, where its key interests lie and how best to define and assert them has, at least, produced consensus on the critical importance of the Southern African region. No state can ignore its hinterland and the relationship between Pretoria and its neighbours - past, present and future - has produced over the years a wealth of analysis and fruitful speculation about the shape of things to come. The subject has obvious relevance for South African scholars as they wrestle with the relevance of traditional integration theory to the region's development, the need to redefine security in a Southern African context, and how best to translate President Nelson Mandela's injunction to treat neighbouring states with 'sensitivity and restraint'. The South African Institute of International Affairs, therefore, deserves congratulation for arranging a conference on South and Southern Africa: Lessons from Emerging Markets, and the published version of its deliberations will assist the theorist and the practitioner to come to terms with the complex realities of the Southern African scene. The editors, Ms. Antoinette Handley and Dr Greg Mills, have assembled an impressive range of expertise, and what makes this collection especially valuable (and possibly unique) is the emphasis on the experience of regional integration elsewhere. Moreover, the impact of global forces compels governments to recognise the incentives and constraints of inter-dependence and fashion appropriate institutional means for achieving the long term goal of closer union. If - as many commentators claim - the building blocks of a future 'new world order' are to be regional groupings, in varying degrees of economic and political integration, the Southern African states will have to co-operate effectively if their peoples are to prosper. Thus the more we understand the dynamics of transnational change, the better placed our political masters will be to carry the enterprise to a successful conclusion - acknowledging, of course, that as institutional structures follow the substance of co-operation, the process remains open ended. The hope must be that an emerging pattern of co-operation will be firmly based on local experience and skills drawing on overseas counterparts whenever and wherever relevant. This volume, inter alia, makes a superb contribution in that regard. Preface Greg Mills The rapidly evolving process of global integration and liberalisation has posed a number of key economic challenges for South and Southern Africa. This process, known commonly as 'globalization', has resulted in a rapid acceleration of economic activity across borders, an increasing mobility of knowledge, and a situation where geographic location and time-zones no longer prove to be obstacles. Globalization has, inter alia, manifested itscif in:' increasing capital mobility, where over US$1 trillion is traded on a typical day; • increasing trade. In 1963, world exports stood at US$154 billion. This has grown to over US$2.5 trillion today, and it looks set to expand further as the 132 member WTO's tariff reductions kick in; • the increasing importance of stockmarkets world-wide in the search for higher returns. Today about 14% of American holdings of foreign equities (some US$50 billion) is invested in emerging markets. Estimates show that around US$300- 350 billion from the US alone could move into foreign stocks by the year 2000, with 25% going to emerging markets; • the increasing use of a common language (English) and international media sources; and • growing consensus as regards economic policy, particularly in emerging markets. Globalization, by its very nature, illustrates continually that the world's economics now have a shared interest in stability and growth. This will increase rather than diminish as emerging stockmarkets become critical to developed countries in the search for higher returns, particularly as ageing populations make such returns on investments all the more important. In a world characterised by increasing capital mobility and trade, and an emerging consensus on a recipe for economic success including deregulation, privatisation, fiscal austerity and currency exchangeability, there has been a new emphasis, too, on regional groupings in Europe. Asia, and Latin America as well as Africa. But in Africa these groupings face seemingly peculiar challenges. For instance, the small size of African economies does not create an imperative for these states to engage with each other, whereas links with developed countries apparently offer access to larger, and potentially more lucrative markets. Moreover, Southern Africa would appear to suffer from unique circumstances: the devastation wrought by thirty-something years of conflict coupled with poor post-colonial governance has left behind a difficult legacy. South Africa's relative economic giantism - where in GDP terms its economy is roughly four times larger than those of the remaining 13 members of the Southern African Development Community (SADC) lumped together - has had a marked influence on Pretoria's official relations with the sub-continent after 1994. Yet clearly South Africa now shares its greatest interests with Southern Africa: a common understanding and appreciation of democracy, human rights, the rule of law, market economics, and stability and peace are prerequisites for growth and development. With this in mind, the South African Institute of International Affairs (SAIIA) convened a conference on South Africa and Southern Africa: Lessons from Emerging Markets in July 1997 to examine some of the questions that arise concerning regional integration in Southern Africa. For one, what is the state of play with regard to formal integration schemes in Southern Africa, and what can these hope to achieve? How can such schemes manage South Africa's regional economic dominance, and what are the areas that they should focus on? Most important, how can South Africa affect positively what happens beyond its borders? Africa's biggest problems today hinge around effective governance, the provision and utilisation of
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