This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 PRETORIA 003014 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/S; AF/EPS; EB/TPP/MTA; EB/IFD 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
COMMERCE ALSO FOR HVINEYARD 
TREASURY FOR BRESNICK AND CUSHMAN 
DEPT PASS USTR FOR PCOLEMAN 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON EAID KMCA SF USTR
SUBJECT: ECONOMIC IMPORTANCE OF SOUTH AFRICAN TRADE AND 
INVESTMENT TO SADC AND THE REST OF SUB-SAHARAN AFRICA 
 
REF:  (A) PRETORIA 2977 
 
      (B) PRETORIA 2971 
 
(U) This cable is sensitive but unclassified.  Not for Internet 
distribution. 
 
¶1. (SBU) Summary.  When South Africa grows, so does Africa.  A 
main challenge for South Africa is how it can use its engine of 
trade to benefit its own poor as well as the poor on the 
continent.  The South African government regards trade and 
investment with the rest of Africa with increasing political and 
economic importance.  South African trade with SADC has doubled 
from R16 billion in 1996 to R32 billion in 2004 while South 
African foreign direct investment (FDI) stock in Africa has 
increased from R4.7 billion to R15.8 billion during the same 
period.  The dominant position of the South African economy in 
southern Africa has resulted in an imbalance in the country's 
trade relationship with sub-Saharan Africa and is regarded as one 
of the greatest challenges for trade and industrial integration 
in the region.  South Africa's ten major African trading partners 
(including eight countries in SADC) account for 88% of all South 
African trade with sub-Saharan Africa.  End summary. 
 
The importance of South Africa to sub-Saharan Africa 
--------------------------------------------- ------- 
 
¶2. (SBU) When South Africa grows, so does Africa.  South Africa 
is a regional economic power, representing over 35% of sub- 
Saharan GDP.  In 2003, 14% of South African exports went to other 
African countries. South Africa is the major foreign investor in 
every southern African country, and now the major foreign 
investor in the rest of sub-Saharan Africa.  The Economist 
reports that South African firms have invested approximately $1 
billion annually in other African countries.  South Africa also 
serves as a base for many non-African companies wanting to 
operate in the region and is an increasingly an important 
training hub.  An IMF study showed that an increase in South 
Africa's growth rate of 2-3 percentage points, if sustained, 
would result in a 1 point increase in SADC exports to South 
Africa, and an equal increase in SADC GDP. 
 
¶3.  (SBU) South Africa is a model for the rest of the continent 
on what can be accomplished through implementing good economic 
policies and developing strong institutions.  At the same time, 
as the other cables in this series show, South Africa's second 
economy is an unfortunate match for the misery of millions living 
in least developed countries.  A main challenge for South Africa 
is how it can use its engine of trade to benefit its own poor as 
well as the poor on the continent.  Increasing its imports from 
the rest of sub-Saharan Africa would be one way to do this. 
While there are efforts in that direction as discussed below, 
much of the trade relationship is skewed in favor of South 
Africa's exports.  More needs to be done by South Africa in 
removing trade barriers to regional trade. 
 
¶4. (SBU) The South African government states that its global 
economic strategy can be viewed through the lens of an 
economically reinvigorated Africa, which forms part of the goal 
of the New Partnership for Africa's Development (NEPAD).  It 
regards trade relations with African states of increasing 
political and economic importance to South Africa.  Investors 
regard South Africa as the stepping-stone or gateway for trade 
and investment in sub-Saharan Africa. 
 
¶5.  (U) South African Revenue Service (SARS) data indicates that 
Africa's share of South Africa's export trade has grown 
significantly from 4% in 1991 to 13% in 2004.  The Department of 
Trade and Industry expects that exports to Africa will continue 
to increase in the immediate future, as massive opportunities for 
South African capital are opening up with peace in Angola and the 
prospect of peace in the Democratic Republic of Congo (DRC). 
According to the South African Reserve Bank (SARB), the year-end 
stock of foreign direct investment in Africa from South Africa 
has increased from R4.7 billion in 1996 to R15.8 billion in 2004. 
(Data in this cable refers to continental Africa.) 
 
¶6.  (U) An article published in the African Business Journal 
states that few anticipated the rapidity with which South African 
corporates would exploit African trade and investment 
opportunities.  The article offered four reasons for South 
Africa's rapid market penetration into sub-Saharan Africa.  The 
first was the surplus of investment capital that South African 
corporations had after apartheid sanctions were lifted.  The 
second was that the end of the Cold War convinced many African 
countries to accept market economics and relax barriers to trade. 
The third was the many opportunities to rehabilitate and 
modernize the Africa's deteriorating and outdated infrastructure. 
The fourth was the gap created by the developed world becoming 
increasingly disillusioned with Africa, but increasingly 
interested in eastern and central Europe as an investment 
destination. 
 
The importance of South Africa in SACU 
-------------------------------------- 
 
¶7. (SBU) South Africa's greatest economic influence resides in 
southern Africa.  Within the Southern African Customs Union 
(SACU), South Africa has unimpeded market access to the Namibian, 
Botswana, Lesotho, and Swaziland markets under a common external 
tariff.  Because of the size of South Africa's economy, SACU is 
the dominating economic force within the Southern African 
Development Community (SADC). In fact, SACU trade with SADC 
countries has doubled from R16 billion (put in dollars) in 1996 
to R32 billion in 2004, accounting for 62% of SACU's total trade 
with Africa 
 
¶8.  (SBU) Reflecting the dominant market position of South 
Africa, SACU enjoys an overwhelming trade surplus with the rest 
of sub-Saharan Africa.  Total SACU trade with sub-Saharan Africa 
in 2004 amounted to R36.7 billion in exports against R12.7 
billion in imports.  A trade surplus with SADC countries mostly 
in manufactured goods, intermediate inputs, and capital 
equipment.  The trade imbalance is complemented by SACU outward 
investment in infrastructure, water and waste management, 
agribusiness, and mining.  Paul Kalenga, senior researcher at the 
University of Cape Town, feels that one of the greatest 
challenges for trade and industrial integration in Southern 
Africa relates to the dominant position of the South African 
economy in southern Africa and that it does not exacerbate 
existing inequalities. 
 
The importance of South Africa to SADC 
-------------------------------------- 
 
¶9.  (SBU) Implementation of the SADC Protocol on trade, which 
sets out the terms and conditions for the reduction and 
elimination of tariffs among members, began in 2000 and includes 
the establishment of a SADC free trade area by 2008.  According 
to Paul Kalenga, the SADC Trade Protocol has contributed in 
reducing the trade imbalance by improved access to the South 
African market for SADC exports.  SARS trade data indicates that 
exports by SADC countries to SACU have increased substantially 
from R2.6 billion in 2001 to R6.5 billion in 2004. 
 
¶10.  (SBU) According to a researcher at the Human Sciences 
Research Council in Durban, a key feature of the investment drive 
into sub-Saharan Africa has been its broad and diverse nature: 
all six primary sectors of the South African economy (mining, 
retail, construction/manufacturing, financial services, 
telecommunications, tourism) have worked hand in hand in securing 
South African investment throughout the continent.  For example, 
major retailers such as Shoprite, Metro Cash and Carry and Pep 
stores as well as the food chains Nando's and Steers have opened 
their stores across the continent.  An accompanying movement of 
South African property developers who build shopping centers to 
house these chains has mirrored this development.  In addition, 
burgeoning business travel stemming from trade and investment 
from South African groups like MTN, Vodacom, M-Net, Shoprite, 
ABSA and the mining conglomerates, coupled with the growth of 
regional tourism, has created new opportunities for hotel 
interest like the Protea group which has expanded a line of 
hotels across Africa.  South African Airways expanded throughout 
the continent, including purchasing Air Tanzania, to become the 
dominant air carrier in the region. 
 
¶11.  (SBU) According to Lumkile Mondi, Chief Economist at the 
Industrial Development Corporation (IDC), South Africa's growing 
penetration of the African economy has been characterized by the 
promotional role played by the South African government through 
the IDC.  He explained that the IDC not only provides funding but 
also shares the risk by taking a direct stake in some projects. 
He said that in cases where the IDC has not been available, South 
African operatives have been keen to invest new capital in 
refurbishing and expanding local businesses and infrastructure 
through joint venture arrangements with African partners. 
 
¶12. (U) SARS and SARB data for South Africa's ten key trading 
partners in Africa follow.  Trade with these ten sub-Saharan 
African countries account for respectively 85% and 94% of all 
SACU exports and imports to and from sub-Saharan Africa.  Nigeria 
and Kenya are the only major trading partners outside SADC. 
(Note: Technically the data is for SACU, but as South Africa 
accounts for the vast majority of trade captured in the SACU 
statistics, it is a good proxy of South African trade.) 
 
Zimbabwe 
-------- 
 
¶13. (U) Despite political instability, Zimbabwe remains South 
Africa's largest trading partner in Africa.  Zimbabwe was the 
largest export destination for South African goods in 2004, 
accounting for R5.96 billion or 16% of all South African exports 
to Africa.  Imports from Zimbabwe amounted to R2.76 billion in 
the same year.  FDI stock from South Africa at the end of 2003 
amounted to R2.03 billion. 
 
Nigeria 
------- 
 
¶14. (U) The South African government regards bilateral and 
multilateral relations with Nigeria as strategically important, 
particularly in a forum such as Nepad.  South African companies 
have been successful in several sectors in Nigeria, namely the 
hospitality, financial services, communications and energy 
sectors.  Nigeria accounted for R2.85 billion worth of South 
African exports, while R5.19 billion or 41% of all of South 
Africa's sub-Saharan African imports came from Nigeria in 2004. 
Nigeria is South Africa's only sub-Saharan trading partner in 
which the trade balance shows a deficit 
 
Zambia 
------ 
 
¶15. (U) Trade data indicates that trade and investment between 
South Africa and Zambia has increased substantially since 1993 as 
both countries are taking advantage of existing bilateral 
agreements.  South Africa's third largest trading partner, Zambia 
imported goods worth R4.7 billion in 2004, while Zambian exports 
to South Africa amounted to almost R1 billion in 2004.  Total 
year-end stock of South African FDI in Zambia at the end of 2003 
amounted to R415 million. 
 
Mozambique 
---------- 
 
¶16. (U) South African exporters regard Mozambique as a key 
African export destination.  South African exports, R5.05 billion 
in 2004, accounted for 13.2% of its total exports to Africa. 
South African imports from Mozambique measured only R196 million 
in the same year.  South African foreign direct investment stock 
into Mozambique amounted to R5.07 billion in December 2003, 32% 
of total South African FDI stock in Africa.  According to 
Department of Trade and Industry officials, the skewed trade 
balance (heavily in South Africa's favor) can be attributed to 
Mozambique's under-development. 
 
Angola 
------ 
 
¶17. (SBU) Angola accounts for 9% of total South African trade 
with Africa.  Exports to Angola amounted to R3.08 billion in 
2004, while imports from Angola amounted to R1.68 billion.  South 
African businesses view the post-war Angola as a huge 
construction site strewn with lucrative contracts to be signed. 
Government expects trade and investment to Angola to increase in 
future. 
 
Kenya 
----- 
¶18. (U) Like almost every African trading partner, the trade 
balance with Kenya is strongly in South Africa's favor. 
Exports to Kenya amounted to R2.89 billion in 2004 while imports 
were only R324 million. 
 
Tanzania 
-------- 
 
¶19. (U) Exports totaled R2.19 billion in 2004 and imports R206 
million.  Tanzania and South Africa have signed a Memorandum Of 
Understanding (MOU) on trade and industry programmes and a 
general agreement on economic, scientific, technical and cultural 
co-operation. 
 
Malawi 
------ 
 
¶20. (U) The financial, retail, construction and telecommunication 
sectors are providing strong opportunities for investment in 
Malawi.  In 2004, exports to Malawi totaled nearly R1.6 billion 
and imports were R429 million. 
 
Mauritius 
--------- 
 
¶21. (U) After Mozambique, Mauritius is South Africa's favorite 
destination for foreign direct investment.  The total South 
African FDI year-end stock in Mauritius amounted to R4.1 billion 
at the end of 2003.  Exports to Mauritius amounted to R1.73 
billion in 2004. (Note:  part of these exports include South 
African fabric that goes into Mauritian apparel exported duty- 
free to the United States under AGOA.) 
 
Democratic Republic of Congo 
---------------------------- 
 
¶22. (U) Despite an unsettled time in the DRC, exports to the 
country were worth R1.33 billion and imports R44 million in 2004. 
With the prospect of peace, the DRC should provide massive 
opportunities for South African capital in future. 
 
HARTLEY