12 September 2006

Regional Economic IntegrationRegional Economic Integration

Intra-Africa Region TradeIntra-Africa Region Trade

Competitive FDI Concessions Competitive FDI Concessions

Joel ChimhandaFounder & CEO

JC Capital – Sandton Jo’burg SA

A case for Africa’s Regional Integration

Africa’s Key Statistics & Economic Indicators

Why Integration, What Form of Integration

Benefits of Regional & Economic Integration

Share in Global Exports

Why Africa Has Lagged to Attract FDI

Lessons Learnt From Asia

Youth Contribution to Economic Prosperity – HIV Aids

1

2

3

4

5

6

7

Agenda

8

► Small national economies with uneconomical market size to support profitable/competitive production; limited/ outdated prodn structures

► Conflict still affecting 70-100 mln Africans; clear hope to see end

► Difficult trading environments, regulatory constraints and inconsistent legislation

► Uncompetitive cost of doing business due to poor infrastructure

► Uncompetitive investment concessions/ climate to attract global FDI, lowest literacy skills, technological proliferation, tele-density, employment

► Poor local savings culture, undeveloped capital markets and externalization of wealth by both foreign and African politicians and businessmen

► HIV Aids hit Sub Sahara Africa hardest – prohibitive cost per capita

A Case for Regional Integration in Africa

► Africa lags behind the rest of the world in a number of areas, and a quick glance at its statistics may make for bleak reading: BUT!

Africa’s Startling Statistics & Economic Indicators

Statistic Benchmark Africa

Per capita income US$ 5,000 < US$ 500

Average output/ worker > US$ 20,000 US$ 2,100

Agricultural productivity (yield)

4.8 Mt 1.4 Mt

Average capital per worker US$ 60,000 US$ 5,000

Africa’s Top 10 Economies by GDP

- 50 100 150 200 250

South Africa

Egypt

Algeria

Morrocco

Lybia

Nigeria

Tunisia

Ivory Coast

Kenya

GDP $ Bln

Share in Global Exports

6%

6%

18%

70%

0% 20% 40% 60% 80%

Africa

DevelopingAmerica

DevelopingAsia

DevelopedWorld

Share in Global Exports

Africa’s Economic (GDP) Growth Rates

0% 2% 4% 6% 8% 10% 12% 14% 16%

Angola

Mozambique

Tanzania

Botswana

Lesotho

Swaziland

South Africa

DRC Congo

Mauritius

Namibia

Zambia

Malawi

% Growth Rate

Africa’s Global Exports Growth Rate

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

China

India

USA

Spain

Italy

UK

France

Germany

% Exports Grow th Rate

Africa’s Share in Global GDP, Population & Trade

0%

10%

20%

30%

40%

50%

60%

70%

LatinAmerica

NorthAmerica

EasternEurope

Africa AsiaPacif ic

WesternEurope

Africa's GDP

Africa Population

Africa's Major TradingPartners

Africa’s Share of Global Resources Reserves

0% 20% 40% 60% 80% 100%

Chrome

Manganese

Platinum

Gold

Diamonds

Vanadium

Alumino Group

Silicates

Ziranium

% of Global Mineral Reserves

► Gains from new trade opportunities

► Larger markets

► Increased competition

► Increased return on investments

► Facilitation of larger Foreign Direct Investment (FDI)

► Facilitation of industry locations

► Broadening of consumer market

► Economies of scale in terms of labour

► Economies of scale in terms of profit margins and volume of goods produced

► Increased competition that improves quality of goods and prices.

Benefits of Regional & Economic Integration

► Preferential Trade Area: Lower tariffs on imports produced by other members

► Free Trade Area: No tariffs on imports produced by other members

► Custom Union: Common tariffs imposed on non-members. Members can cede sovereignty to a single customs administration.

► Common Union: When the customs Union allows free movement of factors of production

► Economic Union: When a common market has unified monetary and fiscal policies, including a common currency.

► Political union: This is the ultimate integration, when an economic union is fully integrated to become one nation.

Types of Integration

► Poor Governance and High Corruption

► Lack of Consistent and Sustainable Policies

► Inadequate protection of intellectual property

► Unfavourable/ unstable tax regimes

► Excessive levels of corruption/ regulation or political risk

► Poor levels of skills development and technology proliferation

► Macro economic policy failures

► Rule of Law – weak or judiciary systems subject to political interference

► Poor infrastructure and high cost of doing business in Africa

Why Africa Has Lagged to Attract FDI!

► Bretton Wood (IMF/ WB) liberalisation alone does not attract FDI

► Strong Investment in Human and IT Capital required

► Governance and Transforming Leaders – Kwame Khurumah, Nelson Mandela, Jomo Kenyatta, Patrice Lumumba, Martin Luther King, Indira Ghandi, Malcolm X

► Africa Intra-Regional investment is a critical success factor “Viable Economics & Social Relevance”

► High national or regional domestic saving culture

► Global Coffee Industry – US$50 bln (Africa realise less that 1 bln)

► Global Sugar Industry – 90% Controlled by Cartel on Quota System

► AGOA – Tax Saving on Failed/ Uncompetitive US Industries

► Cost of doing business – SA @ 14% compared to 6 – 8 %

Lessons Learnt on Liberalization in Asia

► Great Grand Father Politics – Liberation Fathers Kenyatta, Kaunda, Nyerere, Mugabe, Machel, Nkurumah, Lumumba, Banda, Mandela

► Grandfather Politics – Nationalistic - Mbeki, Chissano, Kibaki, Kabila (Joseph), Kagame, Mogae…

► Father Politics – AU & Nepad Peer Review Aspirants

► Son Politics – Pan-African Collaborate to distinguish Africans as equal, competent and responsible citizens

► Grandson Politics – African Political Value Systems informed by Africa’s Heritage - equivalent and successful Asia, Chinese, Japanese, Indian

► Great Grand Son Politicians – Global Leaders of the World – G8 of the future

Africa’s Political Transformation to Global Leader

► Sub-Saharan Africa has the highest HIV prevalence rate

► Data collated for the end of 2005 revealed that:

► 25 million Africans were living with HIV at the end 2005

► 2,7 million new infections occurred that year

► 2 million AIDS deaths were reported in 2005 alone

► 12 million children have been orphaned by the disease

► Southern Africa exhibits highest HIV prevalence rate in the world

+20% (Rates exceed values that were ever thought possible)

► East & West Africa has lower prevalence rate 6.0% and 6.8%source: UNAID Annual Report on HIV/AIDS

HIV/AIDS in Sub-Saharan Africa

How different countries in Africa are affected by HIV

23.2%

33.4%

20.1%

24.1%

5.4%

7.1%

7.9%

6.5%

3.9%

African Country

Perc

en

tage P

revala

nce

Africa’s Youth Contribution to reduce HIV/AIDS

► Most notably the cumulative impact of 20 million AIDS deaths on orphans, survivors, communities and national development

► Set back in economic development as a result of diminished labour force and decreased life expectancy

► As the epidemic matures the demand for health care rises significantly

► A study by the World Bank has revealed that the required number of beds for the treatment of AIDS patients in Swaziland is dramatically lower than what is needed

► Direct medical costs are reported to be US$ 30 per capita in Africa

► However overall health care spending is US$ 10 per capita for most African countries

Youth Contribution -HIV Aids Challenges in Africa

“….We cannot solve problems by using the same kind of thinking we used when we created

them…”

Albert Einstein

Physical The Forum, 12th Floor, West Wing

Address: 2 Maude Street, SandtonPostal: PO Box 783327, Sandton, 2146Switchboard: +27 11 883 3574Mobile: +27 82 778 8113Fax: +27 11 784 0814E-mail: joel.chimhanda@jccapital.co.zaWeb address: www.jccapital.co.za