The Economic Gateway to Africa? (Excerpt)

Introduction

‘Our geographical positions as regional business hubs and gateways into our respective regions provide us with the muscle to increase our economic and trade outcomes.’

- Jacob Zuma, in his speech to the Members of the Abu Dhabi Business Chamber and South African Business Delegation at the Emirates Palace, United Arab Emirates.

Being a ‘gateway’ to Africa is, following President Jacob Zuma’s statement, a highly relevant feature of South Africa’s economy. A closer look at economic interactionin sub-Saharan Africa confirms that South Africa interlinks many of its neighbouring countries globally.

So far, the gateway role of South Africa has not been analysed systematically. This lack of research explains two weaknesses of the discourse on South Africa as a gateway. Firstly, it is unknown exactly what makes South Africa a gateway. Even though experts on South Africa’s economy can come up with various factors that explain plausibly why South Africa is a gateway, there is no scientific order in such accounts. Secondly, South Africa’s impact as a gateway is not spatially delineated, meaning that no one has specified which African countries are interlinked globally by South Africa.

The paper argues that being a gateway, and the range of a gateway, depends primarily upon physical and man-made geography. Geography provides opportunities and constraints that policy and private-sector strategies – the secondary factor of being a gateway – need to address. In other words, geography is the setting that enables a country to be a gateway; but without the right decisions taken by its politicians and businessmen, such a role will not be fulfilled in the long term. This approach allows for closure on the two essential weaknesses of the discourse on South Africa as a gateway. Hence, the paper investigates the following question: How does geography, in interaction with policy and private-sector strategies, shape South Africa’s role as a gateway?

South Africa’s role as a gateway consists of three components. First, location and physical geography provide opportunities and constraints for being a gateway, especially physical barriers that hamper transport by rail and road. Resources that can be integrated into commodity chains also play a certain role. Second, the states of Southern Africa depend upon South African transport infrastructure, ranging from railway lines and roads to airports and harbours, in order to connect to world markets. Regarding air transport, even the entire sub-Saharan region is tied to South Africa’s major airport, OR Tambo in Johannesburg. This indicates that the range of the South African gateway depends upon its specific functions.

Third, Johannesburg – and to a lesser extent, Cape Town – is the key location for overseas companies that set up regional headquarters for their business in sub-Saharan Africa, with South Africa doing relatively well in terms of logistics. Moreover, South African investment dominates throughout Southern Africa, most likely channelling overseas capital to the region. South Africa also serves as a hinge joint for commodity chains and the Johannesburg Stock Exchange (JSE) is a conduit for financial flows from the rest of the world to the entire African continent, although data constraints limit analysis in this regard.

Conceptual Frame

Saul Cohen, an American geographer, argues that gateways serve as transmission belts between the regional and the global level. This way, they open their region for external influences: goods, people and ideas. If the gateway role is accompanied by political power or hegemony, the respective state will be the core of a geopolitical region.[2] A geopolitical core outweighs its neighbouring countries in terms of territorial size, population, transport facilities and ideational dynamics. It possesses a leadership role and a nodal function. Regional clustering occurs around it. This clustering makes the core influential on the regional scale and an interesting partner for external powers. [3] Most interesting is Cohen’s argument that geopolitical cores have to be analysed by their success in achieving regional ‘nodality’.[4] Links to extra-regional partners are crucial for achieving nodality; so is regional connectivity.

Cohen’s description of nodality includes some dimensions of the gateway role that cannot be covered in the paper: as gateways, geopolitical cores play a key role in global governance. South Africa has recently joined the BRIC (Brazil, Russia, India and China) Summit and, as a member of the G20, shapes global economic governance more than any other African state. Established great powers and newly emerging powers consider South Africa a key political partner. The paper does not examine South Africa as a political gateway but as an economic one, with its analysis limited to how geography, interacting with policy and private-sector strategies, influences economics.

Moreover, because the paper focuses on analysing South Africa as an economic gateway, it concentrates on regional connectivity. Even though good regional connectivity boosts extra-regional links since external players seek to benefit from the regional connectivity, there are other factors that influence the attractiveness of South Africa as a conduit to the region for non-African companies. These factors, ranging from political stability to the degree of economic liberalisation, are addressed briefly in the last two sections of the paper. Analysing them in depth is a task for follow-up research.

Following Cohen, the paper argues that nodality – or the gateway role of South Africa – derives from naturally given and man-made geography. Geography, first of all, is understood as location and physical geography.[5] An advantageous location, eg centrality, boosts the gateway role of a state. Physical barriers, such as mountain ranges between the gateway and its neighbouring countries, limit the central states’ impact on its neighbours. Moreover, physical geography provides incentives for regional economic interlinking, eg resources that can be mined in one place and processed at another.

However, geography is much more than a naturally given setting. It includes material structures in geographical space that mankind has built. Hence, the paper takes a closer look at transport infrastructure, ie connections by rail, road, ships and airplanes. With this second step, it addresses probably the most evident component of being a gateway: the capacity to transport people and goods from one place to another.

The paper reinforces the argument that South Africa is an economic gateway to the region by examining, as a third step, regional commodity chains and patterns of investment. Commodity chains and investment add quality to the gateway because they turn it from a simple access point for transport into an economic hub that generates impulses for its periphery.

Putting its approach in a wider context, the paper deals with the impact of geography (the independent variable) upon economics and politics (the dependent variables). This makes its approach a geopolitical one – instead of a political one that would refer to politics as the independent variable. Famous adherents of geopolitics, such as Halford Mackinder[6] and Nicholas Spykman, [7] sought to explain the politics and economics of their time by location and physical geography. The paper expands this idea and brings in man-made structures in geographical space (eg railway lines). In other words, its approach is materialist and it seeks to find out how strategies interact with the fundament that geography provides. This ties up with Paul Krugman’s contributions to economic geography. In a nutshell, Krugman[8] argues that location, ie proximity, matters for international trade and that regional economic processes tend to favour polarisation, because of economies of scale and associated agglomeration, eg between a gateway as core and its periphery.

The World Development Report 2009 confirms this hypothesis: location and ‘economic distance’ (instead of Euclidean distance) matter. Trade intensity and proximity correlate,[9] at least for most of South Africa’s neighbours. With regard to the special role of regional cores, the experts of the World Bank introduce the term, ‘leading area’,[10] and call for regional clustering around strong markets such as South Africa.[11]

The paper’s concept concurs with these ideas: integration in Africa is most likely to be successful around geopolitical cores such as South Africa because these states are gateways and thus possess good regional and global connectedness. Integration around them should, however, not be measured by European standards of regulatory integration. It is about constructing and integrating networks such as railway lines, roads, transmission lines and various corporate services.[12] In other words, geopolitical cores integrate their region by building the geography that makes them gateways.

The division of geography into three components structures this paper and leads to a three-fold hypothesis. South Africa will serve as the gateway for other African countries:

• if South Africa’s location and the regional physical geography favour economic interaction between South Africa and the other countries;

• if transport infrastructure links the other countries closely to South Africa; and

• if there are compatible economic activities between South Africa and the other countries.

The paper uses the following indicators in order to shed light on the variables. First, it provides a description of South Africa’s location and the regional physical geography, which explains in a plausible way what impact related factors (eg the location of resources and physical barriers to movement) should have upon the economic gateway role of South Africa. Relevant information is based on existing literature, especially standard volumes on regional geography, updated by desk studies of newspapers from Southern Africa. Second, the paper outlines South Africa’s regional and global transport links. Web- based desk studies reveal connections by airplanes, the size of harbours in the region and shipping links. Much information has been gathered in various interviews conducted with organisations from South Africa’s business sector and government officials. The paper also draws from studies published by the African Development Bank (AfDB) and the World Bank, which host the ‘Africa Infrastructure Knowledge Program’. [13] Bringing in policy strategies, it takes a closer look at transport and development corridors to find out which places they connect and what role South Africa plays in them. Relevant information is taken from desk studies (existing literature and information available online). The authors also conducted interviews with organisations in charge of spatial development initiatives (SDIs), such as the Development Bank of Southern Africa (DBSA).

Third, the authors conducted problem-centred interviews with people from commercial offices, foreign chambers and embassies located in South Africa, as well as regional organisations, South African ministries and other governmental bodies involved in economics and trade to gain an understanding of how strategies of trade and investment interact with geography.[14] Furthermore, an attempt is made to analyse commodity chains in which South Africa interlinks its neighbours globally. Yet it appears impossible to establish precisely the extent to which South Africa is plugged into regional and global value chains because trade data does not lend itself to this kind of analysis. Instead, basic data on South Africa’s regional trade, ie quantity of trade and sort of goods traded, is used in order to justify the reasoning on South Africa’s role as a hinge joint in commodity chains. The elaboration on patterns of investment is based on expert interviews – again owing to a lack of data. Regarding both patterns of investment and commodity chains, the paper also elaborates upon challenges to South Africa’s role as a gateway and the respective effects of policy strategies, either carried out by the South African government or suggested by the authors and some of their interviewees.

As this combination of variables shows, not everything is derived from geography. Policy and private sector strategies, ie decisions taken by politicians and businessmen, matter for South Africa’s role as a gateway. Geography offers opportunities that politicians and businessmen may or may not take. It also constitutes a set of constraints that they should take into consideration. Although the purpose of the paper is to systematically analyse the factors that make South Africa an economic gateway and to delineate its range, its findings indicate what should be done to foster South Africa’s role as a gateway and how economic benefit can be derived from it.

Read the full paper here.

[2] Cohen SB, ‘Global geopolitical change in the post-cold war era’, Annals of the Association of American Geographers 81, 4, 1991, pp. 551–580 ; Cohen SB, ‘Geopolitics in the new world era: A new perspective on an old discipline’, in Demko GJ & WB Wood (eds), Reordering the World: Geopolitical Perspectives on the Twenty-First Century. Boulder: Westview, 1994, pp. 38–46.

[3] Cohen SB, ‘The contemporary geopolitical setting: A proposal for global geopolitical equilibrium’, in Fisher CA (ed.), Essays in Political Geography. London: Methuen, 1968, p. 66; Cohen SB, 1991, ibid.

[4] Cohen SB, ‘A new map of global geopolitical equilibrium: A developmental approach’, Political Geography Quarterly, 1, 3, 1982, pp. 223–241.

[5] Cohen SB, ‘Geography and strategy: Their interrelationship’, Naval War College Review, 10, 4, 1957, pp. 1–30.

[6] Ibid.

[7] Spykman NJ, ‘Geography and foreign policy’, American Political Science Review, 32, 1, 1938, pp.

28–50 and 32, 2, pp. 213–236; Spykman NJ & AA Rollins, ‘Geographic objectives in foreign policy I’, American Political Science Review 33, 3, 1939a, pp. 391–410 and 33, 4, pp. 591–614.

[8] Krugman P, Geography and Trade. Leuven: Leuven University Press, 1991a; Krugman P, ‘Increasing returns and economic geography’, Journal of Political Economy 99, 3, 1991b, pp. 483–499; Krugman P & A Venables, ‘Integration, specialization, and the adjustment’, European Economic Review, 40, 3–5, 1993, pp. 959–967.

[9] World Bank, World Development Report 2009: Reshaping Economic Geography. Washington, DC: World Bank, 2009, pp. 74–81, 108–109.

[10] Ibid., pp. 8–10.

[11] Ibid., pp. 260–285.

[12] Draper P, Rethinking the (European) Foundations of Sub-Saharan African Regional Economic Integration: A Political Economy Essay, OECD Development Centre Working Paper, 293, 2010, http://www.oecd-ilibrary.org/docserver/download/fulltext/5km5zrs9075k.pdf?expires=133 6994870&id=id&accname=guest&checksum=26A44D2C09C1F19F0D9296285284258A, pp. 21–23.

[13] For more information see AfDB’s website: http://www.infrastructureafrica.org.

[14] A significant constraint to analysis for the paper is that many interviewees were either not willing or not able to provide data. Contact with key MNCs could not be established.