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Tutu Fellows

Why South Africa is not the world’s gateway to Africa

By Jacqueline Muna Musiitwa and Charles Wachira

South Africa’s election into the Brics bloc of big emerging economies (along with Brazil, Russia, India and China) comes with many expectations and obligations. As Africa’s only Brics member, we need to ask whether SA’s inclusion is solely for its own benefit or as the gateway to the rest of Africa, as SA would have us believe. There are many reasons, however, why SA should not be considered the world’s gateway to Africa.

As different countries and regions in Africa continue to improve their individual competitiveness, the need for a gateway is being diminished. Proposing SA as a gateway implies that African countries are not capable of accessing the world, which is not the case. African countries are making great strides to integrate into the global economy. Further, SA does not have sufficient soft power to act as a gateway between Africa and the world. And finally, SA has myriad domestic issues that hinder it from being a continental gateway. SA has the highest GDP in Africa, but it must be asked how long it can maintain its lead. Other parts of the continent are continuing to integrate, increasingly operating as unified trading blocs linked by efficient transport systems, an uninterrupted and affordable supply of electricity, and telecommunications.

Other countries are also eliminating barriers to trade. If SA does not improve its competitiveness, it might flounder. Furthermore, many African countries are taking advantage of their links to China and India. Ethiopia, for example, is increasingly diversifying its economy and expanding growth after the global recession, which continues to diminish SA’s economic power. The Economist recently ranked the world’s fastest-growing GDPs from 2001 to 2015, and SA was not on its list. So why would the rest of Africa need SA as its gateway? Other African countries need to focus on increasing their own competitiveness in order to attract more investment for their development directly. Nigeria, an African country that did make it onto The Economist’s list of fastest-growing economies, is continuously ranked as the second largest African economy behind SA.

Considering its large population, a rapidly growing middle class, an increase in domestic industries and the expansion of Nigerian companies across the continent, Nigeria is a force to be reckoned with, especially as it is expected to restructure the basis of its GDP calculation, enabling it to pass SA in 2014 – a major psychological barrier. However, like SA, Nigeria is plagued by corruption and crime. Nevertheless, as evident on the streets of Lagos, which are overflowing with businesses of all sizes, Nigerians are an entrepreneurial people, very focused on making money by whatever means necessary. This contrasts sharply with SA, which is likely to be distracted for some time by major disputes over issues such as nationalisation, the legacy of apartheid and distributing wealth to the marginalised. For SA to be a successful gateway to Africa, the Africans on the other side of the fence, so to speak, must agree to confer on it that status. While it is true that SA has been the default “Africa brand” on such matters as hosting international sporting events, Africa has never chosen SA to be its stepping stone on other matters.

SA’s failure to win anything close to the support needed to get Home Affairs Minister Nkosazana Dlamini-Zuma elected as chairwoman of the African Union in January was a glaring demonstration of the weakness of Pretoria’s soft power. SA’s “exceptionalism”, which often causes South Africans to talk about Africa as though it was another continent, also counts against this country being accepted by other Africans as their gateway. At its extreme, of course, this sense of otherness manifests itself as xenophobia, a disease which doesn’t seem to want to go away. SA also has to solve its many domestic issues before taking on Africa’s problems. Since the ANC took power in 1994, unemployment has increased substantially, while the few who have the right political connections have grown immensely wealthy.

With about 20 percent of the population owning 80 percent of the country’s wealth, future political stability is becoming a growing issue for investors – as is crime, especially violent crime. Though official figures claim a small decline of just over 6 percent in murders in the year to March 2011 compared to the previous year, even the government acknowledges that rape is increasing. A survey of 4000 women by the Community of Information, Empowerment and Transparency in SA indicated that one in three had been raped. Coupled with SA’s status of having the highest number of HIV infections in the world, this is not attractive to foreign business people.

SA needs to shake off its complacency. Other countries on the continent are finding solutions to their own problems and are prospering. This is reflected by progress in Rwanda, Botswana, Zambia and elsewhere. Due to globalisation and technological advances, African countries do not need a go-between. African countries are ready to face the world, on their own, regionally and continentally.

Hubs can exist only in regions that are generally fragmented and disorderly. In developed regions, the market for hubs is closed – London, Frankfurt, Zurich, New York and Los Angeles are fully established. It is important to state upfront that countries are not hubs or gateways, but rather cities are. A key trend in high growth emerging regions in recent times has been the creation of new hub cities – Dubai servicing the Middle East, Singapore in Southeast Asia, Hong Kong for Greater China, and Shanghai as a new emerging hub for central and northern China.

Africa does not have a hub. African countries are only beginning to compete with each other for capital and investment. African cities have yet to start competing – this will be a driver of competitiveness and growth for the continent in future. No African city has seized the “first mover advantage” and staked its claim to be a gateway to the region: it should be us. The opportunity cost loss of the government (with support from business) not pursuing this truly strategic prospect will be high and long term.

Africa is at the beginning of a long-term growth trend that might naturally result in the deepening integration of Africa into the global economy. While SA’s geography is not in our favour – located at the southern tip of the continent – our cities should be leveraging their comparative advantages to create clusters of service excellence. Johannesburg should be the corporate HQ for multinational business expanding into Africa. The financial services, capital market and professional services clusters that exist in Sandton could be bolstered through creative tax incentives to attract multinationals to establish their regional headquarters. Singapore’s Economic Development Board has attracted over a third of Fortune 500 firms to the city state – attracting companies, capital and, most importantly, talent.

The World Economic Forum has stated: “Hubs and clusters are about people .. they should be places where good people want to go.” Policies help, but success will always be determined by talent. We seem to be unwilling to attract global talent into our economy, rather adopting a narrow zero-sum perspective, believing that a “foreigner” will take a local job. Mauritius is increasingly offering an alternative financial services hub for Africa. Joburg’s “hardware” is excellent. The world-class OR Tambo International Airport and connectivity through the Gautrain reinforces Joburg’s claim to gateway status – but far more work is needed on the policy “software”. Durban is a logistics hub for the region, but only by default. Its port was the 46th busiest port in the world in 2010. But it enjoys this position only because other potential competitors in the region have yet to grasp the importance of competitiveness. Maputo, Beira, Dar es Salaam and Mombasa are all underperformers.

As a result, Durban is not truly competitive in global terms. Bloomberg reported in August last year that state-owned Transnet charged an average container vessel $182 151 (R1.372-million) to dock at Durban port. This is more than double the global average of $86 251 and the highest of any of the top 100 harbours. This is the price of nationalisation – higher costs and lower efficiency due to the stifling of competition. With the drive to regionally integrate the economies of southern and East Africa, Durban must improve its competitiveness to continue to be the logistics services hub for the region. With greater focus and effort, Maputo may usurp that position. With booming oil- and gas-driven economies along the west coast of Africa, Cape Town should be competing to be the corporate and oil and gas services hub for the region. Infrastructure, services and living environment are all comparative advantages. But increased port efficiencies and policy incentives to attract companies are required to bolster Cape Town’s claim.

The competition will come from Walvis Bay and perhaps Luanda, again because West African countries have been unable to create a regional hub – Singapore-style – in the region. Accra, Libreville and Port Harcourt have all failed to seize the firstmover advantage. Cultural and linguistic differences are the most difficult challenge for South Africans to overcome in Francophone and Lusophone countries. There are 404-million English-speaking Africans. This in itself is a sizeable market. The trend towards consolidation of businesses in the tax, audit and legal sectors across Africa will over the medium term reinforce SA’s claim. Every region needs hubs of service, and to be driven by talent. SA cannot claim to be the gateway to the continent unless we begin to understand this imperative and also realise that the region will increasingly compete with us.

Our competitors have traditionally been a minimum of nine hours’ flying time away – now, for the first time, they are emerging in our own region. Africa is changing rapidly, and competition is no longer just between companies. The SA government must be more agile to create the enabling environment for clustered business to build recognised hubs. Through the creation of efficient, competitive and attractive hubs, SA should be the gateway to the region, which remains very much a frontier market.

Jacqueline Muna Musiitwa is founder of Hoja Law Group and a Mo Ibrahim Leadership fellow at the World Trade Organisation. She co-wrote this article with Charles Wachira who is a journalist in Kenya. This article was first published in The Star.

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