The Southern African Development Community (SADC) is a large and dynamic regional economic community that has been at the forefront of regional investment policymaking in Africa, with the Finance and Investment Protocol, the Investment Policy Framework, and the SADC Model Bilateral Investment Treaty. More recently, SADC Member States have worked to implement these frameworks at the national level through the National Action Programmes for Investment.
At the same time, like much of Africa, SADC faces difficulties in attracting foreign direct investment (FDI) which can contribute to sustainable development in the region. FDI flows into SADC have been volatile over the last decade, and concentrated in extractive industries, predominantly in countries with abundant fossil fuel and mineral resources. Job creation from these capital-intensive industries has been moderate, but there is evidence that foreign investors contribute significantly to innovation capacity and skills development in the region. Moreover, in recent years there has been a considerable surge in FDI in renewable energy technologies in SADC.
Attracting investment and reaping the maximum benefit in terms of sustainability depend first and foremost on the overall policy framework in which investment occurs. Policymakers need to maintain a sound, transparent and open investment climate, and adopt policies that ensure the benefits of FDI are maximised and their potential harm on the local economy, society and environment are minimised. Furthermore, targeted promotion tools and measures to enable responsible business conduct (RBC) are equally important for a sustainable investment framework.
This requires whole-of-government efforts, evidence-based policy-making and meaningful stakeholder consultations. This report looks primarily at what host governments can do to attract sustainable investment and promote the benefits of investment for social and environmental objectives, including how to facilitate and enable RBC. It provides an analysis to make SADC a preferred destination for national and foreign investment that is reinforced by effective governance that promotes sustainable and inclusive regional economic development. It is based on the OECD tools, including the Policy Framework for Investment and the FDI Qualities Policy Toolkit and Indicators. Key messages and main considerations that emerge from the report are the following:
Increase coherence between national legislation and regional and continental treaties. Greater coherence in approaches within and across regions in Africa at all levels could contribute to improved clarity and predictability for both governments and investors, although sufficient room should be left for further experimentation at national level
Consider further integrating SDG considerations into investment promotion strategies of SADC Member States and develop IPAs’ value propositions for sustainable investment opportunities accordingly. More targeted investment generation can also allow SADC agencies to select FDI projects that are more likely to contribute to the SDGs, including by prioritising investors with good sustainability track-records.
Put in place adequate KPIs to select priority investors and measure their sustainability impacts. SADC IPAs should also ensure that the KPIs used to select priority investments and measure their outcomes are aligned with national development objectives and the agencies’ overarching investment promotion priorities.
Use the SDGs to guide IPA aftercare services to existing investors who wish to expand or reinvest. IPAs in SADC could consider focusing aftercare activities on those investors with the highest sustainability impacts, and take advantage of these services to better promote responsible business conduct.
Assess whether investment tax incentives are aligned with investment promotion strategies and sustainable development goals, and whether they are the best policy instrument to achieve these goals. Economic, social and environmental goals might be better supported by regulations or other policies, and tax incentives should be used in complement with wider development strategies.
Design incentives to generate investments and related outcomes that would not materialise otherwise. Improving incentive design, by promoting desired outcomes through tax relief on qualifying expenditure, can help limit redundancies and encourage positive spillovers.
Improve monitoring of tax incentive uptake and costs, and evaluation of costs and benefits of policies. The SADC Secretariat can continue to advocate for improved monitoring and evaluation, including by supporting use of the recently reviewed SADC Tax Expenditure Model for Tax Incentives, and by further advancing cooperation on commitments related to incentives under the Protocol for Finance and Investment.
Strengthen NDC targets and develop long-term low-emission development strategies. Long-term strategies provide a pathway to a whole-of-society transformation and a vital link between shorter-term NDCs and the long-term objectives of the Paris Agreement. These strategies offer many benefits, including guiding countries to avoid costly investments in high-emissions technologies, supporting just and equitable transitions, and sending early and predictable signals to investors about envisaged long-term societal changes.
Use SADC as a platform to promote strategic environmental assessments (SEA) and transboundary environmental impact assessment (EIA). Recognition of transboundary SEA and EIA at the SADC level could encourage other SADC governments to adopt these tools in their national EIA systems.
Consider phasing out fossil fuel subsidies and using freed up funds to mitigate adverse social impacts of climate policies. Overall, fossil fuels remain highly subsidised in Southern Africa. Phasing out subsidies could free up public funds for targeted support to ensure vulnerable groups access clean and affordable energy, but adequate compensation and support measures for those affected by subsidy reform should be put in place.
Increase awareness and understanding of Responsible Business Conduct (RBC). SADC and its Member States can strategically enhance awareness of stakeholders on the importance of RBC in relation to trade and investment, through capacity-building activities and workshops on international RBC frameworks and risk-based due diligence.
Strengthen the domestic policy framework governing RBC. There is still a lack of comprehensive domestic regulations and specific action plans pertaining to RBC in the region. SADC governments can take the lead by developing and implementing National Action Plans on RBC, as well as sector-specific or issue-specific reforms.
Ensure policy coherence and harmonisation in line with international RBC standards. SADC serves as a platform for promoting policy coherence and harmonisation and can take further steps to achieve strong alignment and coordination of RBC policies among its Member States, ensuring a unified approach and a level playing field at the regional level.