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Friday, 27 July 2018 12:50

Unpacking the SADC Regional Development Fund: A timely alternative to existing infrastructure funding models?

Written by Chelsea Markowitz and Ali Parry
Trans-Kalahari Highway Trans-Kalahari Highway © Flickr, Pe_Wu

All SADC governments recognise that infrastructure development is crucial for creating momentum in their economies, which will help to swell the number of sustainable jobs and alleviate poverty.

The operationalisation of the SADC Regional Development Fund (RDF) has the potential to address the region’s infrastructural weaknesses (from road transport to water, energy and telecommunications), offering an alternative to the bilateral and multilateral funding models on which many SADC countries have come to rely.

The motivation for the creation of the RDF was to mobilise finance for several SADC regional integration initiatives and strategies, including the Regional Infrastructure Development Master Plan (RIDMP) which oversees infrastructure projects in six sectors: energy, tourism, transport, ICT, meteorology and water. The RIDMP also serves as an implementation vehicle for the SADC Regional Industrialisation Strategy and Roadmap (RISR), providing the supporting infrastructure for industrial plants in the energy and water sectors as well as the transport infrastructure necessary to move primary, intermediate and finished goods. Through its connection with the latter, the RDF aims to contribute to the realisation of the following RISR goals:

  • Increase the region’s share of manufacturing value added in GDP (from less than 20% in 2015) to 30% by 2030 and to 40% by 2050;
  • Increase the share of medium and high technology (from less than 15% currently) to 30% by 2030 and 50% by 2050;
  • Increase the regional economic growth rate (from 4% currently) to 7%; and
  • Increase the share of industrial employment to 40% of total employment by 2030.

A recurring theme in SADC’s industrialisation efforts, and which will be echoed in the RDF, is the forging of greater intra-regional trade. Through stronger regional integration, SADC member states will be better placed to participate in regional and global value chains.

In terms of the structure of the RDF, SADC member states will have a majority share (51%), followed by the private sector (37%) and development finance institutions (12%). Of the initial seed funding requirement of $1 billion, SADC member states will be required to contribute $120 million. In many ways, the RDF is more ambitious than international cooperating partner (ICP) funding facilities. For example, it requires a greater financial contribution from member states, and it is intended to become financially sustainable (and not grant-dependent).

One of the main drivers behind the conceptualisation of the RDF was the desire for a regionally owned and managed fund, with strong emphasis on financing projects with regional impact, which are often still funded by ICPs. Even South Africa, which has the strongest economy in the SADC region, sourced nearly 30% of its funding for infrastructure projects from bilateral and multilateral ICPs in 2016. Although there are clear benefits associated with ICP finance, such as concessional terms and the availability of technical assistance, there are invariably ‘strings attached’ or conditionalities which may be onerous and at times conflict with countries’ national and regional development objectives. The RDF will aim to be more flexible in its funding requirements than bilateral and multilateral funders. This is not to say that ICP funding does not – and will not continue to ‒ have an important role to play in the SADC region, but the additional member state contributions to the RDF should help ensure that the interests of SADC member states are at the forefront of their infrastructure development and industrialisation activities. Moreover, as international donor funding is somewhat precarious in the face of many donors’ lack of appetite for perceived risky ventures, the RDF could be a more certain and enduring source of funds for SADC’s infrastructure development.

In our next blog, we will look at some of the biggest challenges or stumbling blocks to effective infrastructure development in SADC and how these are likely to impact the mandate and ultimate effectiveness of the RDF.

Authors: Chelsea Markowitz and Ali Parry

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