Iump Sadc-15 Prodoc Eng 0

DRAFT
Programme on Industrial Upgrading and

Modernization in SADC Countries
March 2009
Draft Programme on Industrial Upgrading and Modernization in SADC Countries 1
Programme on Industrial Upgrading and Modernization in SADC Countries 2
DRAFT
Programme on Industrial Upgrading and
Project Title: Programme on Industrial Upgrading and

Beneficiaries: - Member States of the Southern African

Development Community (SADC): Angola,
Botswana, DR Congo, Lesotho, Madagascar,
Malawi, Mauritius, Mozambique, Namibia, South
Africa, Swaziland, Tanzania, Zambia and
Zimbabwe
- SADC Secretariat
- The regional and national industrial support
institutions in the SADC countries
- The Ministries of Industry and Trade and SMEs
- Industrial companies
- Non-Governmental Organizations (NGOs)
Funding institution: International Cooperating Partners (ICPs)
Implementing SADC
organization:
Executing SADC
organization:
March 2009
CONTENTS
LIST OF ABBREVIATIONS...................................................................................................................................... 7
EXECUTIVE SUMMARY.......................................................................................................................................... 9
SECTION 1: BACKGROUND AND SITUATION ANALYSIS........................................................................11

1.1 African Context................................................................................................................ 11
1.1.1 Background................................................................................................... 11
1.1.2 Action Plan for the Accelerated Industrial Development of Africa..................13
1.2 The SADC Context.......................................................................................................... 14
1.2.1 Economic situation........................................................................................14
1.2.2 Foreign Trade................................................................................................ 17
1.3 Industrial sector analysis................................................................................................. 20
1.3.1 General overview..........................................................................................20
1.3.2 Manufacturing Sector....................................................................................22
1.3.3 Priority Sectors.............................................................................................. 26
1.3.4 Informal sector............................................................................................... 33
1.4 Strengths and challenges of manufacturing sector..........................................................34
1.4.1 Advantages and opportunities.......................................................................34
1.4.2 Weaknesses and challenges.........................................................................35
1.5 Factor costs and competitiveness of manufacturing sector.............................................37
1.6 Technical support institutions........................................................................................... 40
1.7 EPA impact analyses....................................................................................................... 42
1.8 Financial mechanisms..................................................................................................... 43
1.8.1 Current situation in private sector financing...................................................43
1.8.2 The Regional Industrial Development Fund..................................................44
1.8.3 Schemes and mechanisms for funding upgrading and competitiveness.......45
SECTION 2: CONTEXT AND JUSTIFICATION OF THE PROGRAMME....................................................47

2.1 SADC: Background, Strategy, Priorities and Challenges.................................................47
2.1.1 SADC Regional Integration Process.............................................................47
2.1.2 Regional development strategies and objectives..........................................48
2.1.3 SADC-EU EPA Negotiating Principles and Objectives..................................54
2.1.4 The major problems to be solved..................................................................55
2.2 Programme justification................................................................................................... 55
2.2.1 The EPA Context........................................................................................... 55
2.2.2 Lessons learned............................................................................................ 56
2.3 UNIDO Initiative............................................................................................................... 57
2.4 Main beneficiaries of the Programme..............................................................................58
2.5 Articulation of the Programme between regional and national levels...............................58
2.6 Complementary activities to Upgrading Programme........................................................60
2.7 Coordination of potential donors......................................................................................60
SECTION 3: OBJECTIVES, COMPONENTS AND OUTPUTS OF THE PROGRAMME.............................61

3.1 Objectives........................................................................................................................ 61
3.1.1 Global objective............................................................................................. 61
3.1.2 Specific objectives......................................................................................... 61
3.2 Programme components and outputs..............................................................................61
SECTION 4: APPROACH AND CRITERIA OF ELIGIBILITY TO THE PROGRAMME................................67

4.1 UNIDO Approach............................................................................................................. 68
4.1.1 Upgrading and Restructuring.........................................................................68

4.1.2 Upgrading technical support institutions........................................................69
4.1.3 Strengthening economic information infrastructure (Strategic positioning
studies).......................................................................................................... 71
4.1.4 Development of consortia and export promotion infrastructure.....................71
4.1.5 Promotion of partnership and industrial coaching..........................................72
4.1.6 Establishment of traceability system.............................................................73
4.1.7 Supporting the informal sector SMEs............................................................74
4.2 Criteria of eligibility to the Programme.............................................................................75
4.2.1 Upgrading the formal sector SMEs................................................................76
4.2.2 Financial restructuring...................................................................................76
4.2.3 Assistance to informal sector SMEs..............................................................77
4.2.4 Examples of eligibility criteria applied in previous upgrading programmes....78
SECTION 5: FUNDING AND BUDGET OF THE PROGRAMME.................................................................79

5.1 Funding of the Programme.............................................................................................. 79
5.1.1 Upgrading activities.......................................................................................79
5.1.2 Funding of upgrading activities......................................................................80
5.1.3 Average budget of the immaterial investments activities...............................81
5.1.4 Budget for group actions...............................................................................83
5.1.5 Investment and operations budget estimates for Upgrading Offices:
Case of Senegal............................................................................................ 83
5.1.6 Proposed funding scheme.............................................................................83
5.2 Budget of Upgrading and Modernization Programme......................................................84
5.3 Detailed description of the budget...................................................................................85
5.4 Expected impact of the Programme.................................................................................87
SECTION 6: MANAGEMENT AND COORDINATION OF THE PROGRAMME...........................................91

6.1 Regional level.................................................................................................................. 91
6.1.1 The SADC Secretariat...................................................................................91
6.1.2 Regional Steering Committee........................................................................92
6.1.3 Technical Unit for Upgrading and Modernization...........................................92
6.1.4 Technical assistance.....................................................................................93
6.2 National level................................................................................................................... 93
6.2.1 Member States.............................................................................................. 93
6.2.2 National Steering Committees.......................................................................93
6.2.3 Offices for Upgrading and Modernization......................................................93
6.3 Management, Monitoring and Evaluation of the Programme...........................................95
6.3.1 Management of the Programme....................................................................95
6.3.2 Monitoring and Evaluation.............................................................................95
6.3.3 Reporting....................................................................................................... 96
6.4 Assumptions and risks..................................................................................................... 96
6.5 Factors for success.......................................................................................................... 97
ANNEXES
Annex I: Terms of Reference for the Programme Formulation

Annex II: Logical Framework of the Programme
Annex III: Programme Activities by Outputs
Annex IV: Programme Implementation Schedule
Annex V: Examples of Immaterial Investments Activities
Annex VI: Examples of Technical Centers for Sectoral Support
Annex VII: Country Reports
Annex VIII: Bodies and Persons Interviewed
Annex IX: Scenarios for Indicative Budget of the Programme

LIST OF ABBREVIATIONS
AB Accreditation Body
ACP/EU African Caribbean Pacific/European Union
ADB African Development Bank
AFD French Development Agency
AGOA Africa Growth and Opportunity Act
APCI African Productive Capacity Initiative
APSP Association for the Promotion of the Private Sector
ARSO African Regional Organisation of Standards
ASYCUDA Automated System for Customs Data
AU African Union
BDS Business Development Services
CA Conformity Assessment
CAB Conformity Assessment Body
CAI Conformity Assessment Infrastructure
CAP Conformity Assessment Procedures
CDE Center for the Development of Enterprise
CB Certification Body
CEMAC Economic and Monetary Community of Central Africa
COMESA Common Market for East and Southern Africa
CSIR Council for Scientific and Industrial Research
DANIDA Danish International Development Agency
DFID UK Department for International Development
DBSA Development Bank of Southern Africa
ECA Economic Commission for Africa
ECCAS Economic Community of Central African States
ECOWAS Economic Community of West African States
EIB European Investment Bank
EPA Economic Partnership Agreement
ESIPP EU SADC Investment Promotion Programme
EU European Union
FDI Foreign Direct Investments
FTA Free Trade Area
GCC Global Commodity Chain
GHP Good Hygiene Practice
GSP Generalized System of Preference
GTZ German Agency for Technical Cooperation
HACCP Hazard Analysis and Critical Control Points
HIPC Highly Indebted and Poor Countries
IB Inspection Body
ICT Information and Communication Technologies
IDC Industrial Development Corporation
IDF Industrial Development Forum
IFIs International Financial Institutions

ILAC International Laboratory Accreditation Cooperation
IMF International Monetary Fund
IOC Indian Ocean Commission
ISO International Organisation for Standardisation
ITPO Investment and Technology Promotion Offices
JCDCMAS Joint Committee on Coordination of Assistance to Developing
Countries in Metrology, Accreditation and Standardization
LDCs Least Developed Countries
MCA USAID Millennium Challenge Account
MDGs Millennium Development Goals
MERCOSUR Southern Common Market (Latin America)
MFIs Micro-Finance Institutions
NEPAD New Economic Partnership for African Development
NGO Non-Governmental Organization
NIC Newly Industrialized Country
NMI National Metrology Institute
NSB National Standards Body
NTBs Non-Tariff Barriers
NTEs Non-Traditional Exports
OECD Organization for Economic Cooperation and Development
OIML International Organization of Legal Metrology
PPP Public Private Partnership
PRSP Poverty Reduction Strategy Paper
PSDP Private Sector Development Programme
QI Quality Infrastructure
RATES Regional Agriculture Trade Expansion Programme
RECs Regional Economic Communities
RIDF Regional Industrial Development Fund
RISDP Regional Indicative Strategic Development Plan
SACA Standards and Conformity Assessment
SACU Southern African Customs Union
SADC South African Development Community
SADC-DFRC SADC Development Finance Resource Centre
SAGCH Southern Africa Global Competitiveness Hub
SAPs Structural Adjustment Programmes
SDS Spatial Development Strategy
SMEs Small and Medium Enterprises
SPS Sanitary and Phytosanitary Measures (under WTO regulations)
TBT Technical Barriers to Trade
TNCs Transnational Corporations/Companies
UEMOA West African Economic and Monetary Union
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organisation
USAID United States Agency for International Development
VAT Value Added Tax
WB World Bank
WTO World Trade Organization

EXECUTIVE SUMMARY
In the Southern African Development Community (SADC) region, the industrial

sector, in particular, small and medium-sized manufacturing enterprises play an
increasingly important role in employment and wealth creation through value-addition
and diversification of exports.
However, in the context of globalization of the world economy and trade, a lack of
productive capacities, supply-side constraints and low quality, as well as inadequate
institutional and technical support infrastructure constitute the main constraints to
SME development in SADC countries, and restricts their ability to take advantage of
better access and integration into the global market.
At the request of the SADC Secretariat, UNIDO has formulated the present
Programme for Industrial Upgrading and Modernization in the SADC region.
The objective of this programme is to contribute to the strengthening of industrial

capacities in SADC countries to enable them to face the double-challenge of regional
and world integration and improve competitiveness, thus supporting efforts of growth,
employment creation, export promotion and poverty reduction.
Specifically, the Programme aims at generating the momentum for upgrading and
improving the competitiveness of industries and related services. This will improve
industrial competitiveness, growth by improving productivity and quality to enhance
access to national, regional and international markets in the context of globalization
and trade liberalization and economic diversification.
The programme intervenes through the following two components:

1. Support for upgrading and improving competitiveness of industries;
2. Establishment/upgrading of the technical support institutions.
Current Programme proposal covers:

Phase 1, the “start-up” or “pilot” phase of a 3-year period, which will kick-off
the industrial upgrading and modernization activities at the regional and
national levels for the pilot manufacturing enterprises and technical support
institutions called to insure implementation and sustainability of the
Programme. This phase intends searching and developing the “success
stories” through running some possible experiments.
Phase 2, the “roll-out” phase of the Programme will draw on lessons learnt
during Phase 1 and will be opened to all the remaining enterprises and
support institutions, It will have a duration of 3 years with possible
extension.

This programme takes a multi-disciplinary approach involving SADC Secretariat,
their Member States, technical support institutions, investment promotion agencies
and export consortia to enhance capacities of both formal and informal priority sectors
manufacturing enterprises. The approach is based on UNIDO’s previous experience in
carrying out industrial upgrading and modernization programmes in Tunisia, Algeria
and Senegal.
On 31st March – 2nd April 2008, in Johannesburg, South Africa, the SADC Secretariat
held the Regional Validation Workshop which approved the draft programme. The
SADC Secretariat, delegates from Member States, representatives of private sector
and UNIDO took part in this workshop.

SECTION 1: BACKGROUND AND SITUATION ANALYSIS
1.1 African Context
1.1.1 Background
Despite the liberalization of the world market, which offers significant opportunities
for the advancement of trade and industry in Africa, most countries in the region have
not been able to effectively benefit from trading opportunities in expanding markets in
spite of emphasis in multilateral trade negotiations on the development dimension and
some concessionary schemes available to African countries.
At present, Africa has one-sixth of the world’s population but a third of the world’s
poor. This fact is linked to the continent’s weak and deteriorating share of global
trade and industrial output. While the number of people living in absolute poverty in
Africa has increased from 42% to nearly 50% within the past two decades, Africa’s
share of world exports has fallen from 4.5% to 2.9%. In terms of manufactured
exports, Sub-Saharan Africa lags behind every other region – its share in world
exports of manufactures is a mere 0.9%. Only in a few of the Sub-Saharan Africa
countries the manufacturing value added/GDP ratio is above 20%. In a large number
of African economies, the manufacturing sector’s contribution to GDP is less than
15% and in some cases lower than 5%.
Chart 1:
Africa’s share of world merchandise trade, 2005
38.9 39.4 1990
2000
2005
26.4 27.4
21.8
19.5
16.6
14.5
5.3
4.1 4.3 3.1 3.1 3.5 3.3 3.1 2.9
2.3 2.3
1.7
EU (25) As ia North America Middle Eas t Latin America CIS Africa
Source: WTO International Trade Statistics, 2006

Chart 2:
Africa’s share in world exports of manufacturing goods, 2005
Asia
31.6%
North America
15.1%
Middle East, 1.9%

Latin America, 1.7%
Europe (25) CIS, 1.3%
47.7% Africa, 0.9%
Source: WTO International Trade Statistics, 2006
The major reasons for Africa’s failure to benefit from these opportunities are largely
linked to the lack of supply capacity needed to ensure necessary quantity and quality
of products for export, technology gap and inability to demonstrate conformity of
potential export products with international standards and the problems of integration
into the multilateral trading system. The African economy is heavily dependent on the
production and exports of primary products and the majority of African countries are
yet to be involved in any significant sense in the medium- and high-technology
segments of global manufacturing.
The greatest potential for economic and trade development of African countries lies in
the manufacturing sector and in the transformation of African raw materials into semi-
finished and finished products. African enterprises need to develop regional value
chains and link with global supply chains to market their products internationally.
The small and medium-sized enterprises, which predominate in African economies,

have inherent difficulties with access to capital, productive capacity, technology and
services because of resource limitations. If these enterprises are to trade in global
markets, they need to increase and upgrade their supply capacity, quality,
competitiveness and conformity with importer-mandated product standards. This
involves both increased investment at the enterprise level and government support in
improving productivity and technology extension services, training, export consortia
and cluster development. Clearly, in the present global setting the role of such trade
support infrastructure becomes even more important. It can provide support for
building capacities to use new technologies, adapt and improve processes and
products and move up the value chain into more sophisticated production activities.

1.1.2 Action Plan for the Accelerated Industrial Development of Africa
In response to these challenges and as a result of a series of sub-regional meetings

held across the continent during 2002 and 2003, the African Ministers of Trade and
Industry (CAMI) initiated the African Productive Capacity Initiative (APCI) to define
the concept, strategies and concrete actions to strengthen industrial production and
competitiveness in Africa.
To assist the continent to take advantage of new opportunities offered by globalization

and to meet the challenge of progressive industrialization as the essence of
development, UNIDO, in cooperation with African Union (AU), Economic
Commission for Africa (ECA) and NEPAD, co-organized consultations and four
Expert Group Meetings (EGMs) in various sub-regions. These consultations
culminated in the key issues discussed by the 18th CAMI Extraordinary Conference
held in Midrand, South Africa, on 24-27 September 2007.
This Extraordinary Session brought together African Ministers of Industry, African

experts in industrial development and African industrialists to brainstorm on some of
the key issues for Africa’s industrial development. One of the major outputs of the
CAMI-18 conference was the formulation and adoption of the AU Action Plan for the
Accelerated Industrial Development of Africa.
This Action Plan covers the following critical areas:

 Upgrading productive and trade capacities;
 Investment promotion, facilitation and governance enhancement;
 Creating productive, decent and sustainable work for the youth;
 Promoting energy security and powering industrial growth;
 Strengthening regional industrial innovation systems.
It also tackles a number of critical priorities at national, regional, continental, and

international levels to promote the coherent industrial development of Africa. The
major issues that need to be addressed include:
i. Policy on Product and export Diversification, Natural Resources Management

and Development;
ii.Infrastructure Development;
iii. Human Capital Development and Sustainability, Innovation, Science and
Technology;
iv. Development of Standards and Compliance;
v. Development of Legal, Institutional and Regulatory Framework;
vi. Resource Mobilization for Industrial Development

The Action Plan for acceleration of Africa’s industrialization presumes that specific
measures and actions should be adopted and implemented at the national, regional,
continental and international levels. National governments, in collaboration with the
private sector and civil society, are expected to lead the Member States in the
initiation and implementation of these activities. The Regional Economic
Communities (RECs) will serve as the main agents for the promotion of
industrialization at the regional level while the AU and NEPAD will, with the support
of UNECA and ADB, play a similar role at the continental level.
The Action Plan recognizes UNIDO’s specific technical know-how, thorough

expertise and experience in industrial programme development and implementation as
a key action component for Africa’s industrialization at the international level.
The proposed Programme on Industrial Upgrading and Modernization in SADC

Countries represents one of 4 sub-regional initiatives covering the Upgrading
Productive and Trade Capacities area of the Action Plan. It addresses all critical
priorities of the Action Plan (Priority No. ii – indirectly) and intends to develop and
put in place policies and activities for upgrading manufacturing capacities,
modernization of productive facilities, reinforcing the institutional support
infrastructure, developing human resources, and strengthening the capacities for
innovation.
1.2 The SADC Context
1.2.1 Economic situation
The Southern African Development Community (SADC) is composed of fifteen

countries at various levels of industrial development. They are: Angola, Botswana,
Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius,
Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and
Zimbabwe. Among these Member States, with a total of more than 200 million
inhabitants, there are large differences in size, economic development, trade patterns
and factor endowments. SADC comprises least developed countries, developing
countries and one Newly Industrialized Country (NIC), South Africa, which accounts
for over two-thirds of the region’s economy.
In spite of the economic imbalances amongst its Member States and the relatively
small size of the market (only comparable to Belgium or Norway), in the African
context SADC's aggregate GDP of USD 989 billion (in 2000 prices) is more than
double that of ECOWAS, and equivalent to more than half the aggregate GDP of Sub
Saharan Africa (SSA). It also has the highest GNI per capita in the whole of SSA.
Thus, despite a relatively small market size, SADC region can still reap significant
gains from regional integration, provided supply side constraints are adequately
addressed.

Figure 1:
Regional Configuration of SADC Countries
COMESA
SADC
RDC Egypte
Malawi Libye
Mozambique Zambie Burundi
Zimbabwe Rwanda
SACU
IDC
Afrique du Sud Madagascar
Botswana Swaziland Maurice Comores
Lesotho Seychelles
Namibie
Angola
Djibouti
Erythrée
Tanzanie Ethiopie
Kenya Soudan
Uganda
EAC
The average regional GDP growth rate during the 1990s and early 2000s was
significantly positive despite a slow start in 1990-1992. Economic recovery in the
region started showing strong signs in 1993 and gained momentum in 1996 with a
SADC average GDP growth rate of 5% (see Table 1 and Chart 3).
Table 1:
Basic Macroeconomic Indicators of SADC Region, 1997-2007
1997-
2002 2003 2004 2005 2006* 2007*
2001
Real GDP Growth (%) 2.3 3.7 3.1 5.1 5.7 5.5 7.1
Real Non-Oil GDP Growth (%) 2.4 3.2 3.4 4.9 4.6 6.0 8.1
Real Per Capita GDP Growth (%) 0.7 2.3 1.8 3.8 4.4 4.1 5.6
Real Per Capita GDP (USD)** 889 917 927 955 989 1,022 1,069
Consumer Prices (Annual delta in %) 21.4 17.8 16.7 10.8 10.6 14.6 17.3
Total Investment (% of GDP) 17.7 13.3 17.1 18.3 18.1 20.0 20.1
Domestic Saving (% of GDP) 17.6 14.0 16.8 18.6 18.7 20.2 18.8
Government Revenue, Excluding Grants 23.4 22.3 23.4 24.5 26.4 28.2 28.5
(% of GDP)
Reserves (months of imports of goods 3.4 3.6 3.1 3.4 3.6 3.9 3.7
and services)
* Estimates
** At constant 2000 prices
Source: IMF Regional Economic Outlook, 2007

Chart 3: Economic Growth Trends in SADC Region, 1997-2007
30
Government Revenue, Excluding
Grants (% of GDP)
25 Total Investment (% of GDP)
Domestic Saving (% of GDP)

20
Consumer Prices (Annual delta in %)

15
Real Non-Oil GDP Growth (%)
10 Real GDP Growth (%)
Real Per Capita GDP Growth (%)

5
Reserves (months of imports of

0
goods and services)
1997-2001 2002 2003 2004 2005 2006* 2007*
The improvement in economic performance is largely attributed to the stable and

democratic political environment in the region as well as to the introduction of
macroeconomic reforms in most Member States, at the end of the 1980s and
beginning of the 1990s.
However, in the following years the growth pattern fluctuated considerably from year
to year and reached 5.7% in 2005. Economic performance on the whole has remained
fragile and most SADC countries continue to be exposed to natural disasters and
adverse external shocks. Table 2 reflects the current ranking of the SADC Member
States in terms of the gross domestic product as whole and per capita as of 2006 year
results.
Table 2: GDP Ranking of SADC Member States in 2006*

GDP at market 2006 GDP per 2006
price, million USD Ranking capita, USD Ranking
Angola 1 47 260 2 2 882 6
Botswana 2 10 050 5 5 711 2
DRC 8 798 6 148 15
Lesotho 1 443 14 806 9
Madagascar 5 493 11 288 13
Malawi 2 193 13 167 14
Mauritius 2 6 424 9 5 115 4
Mozambique 7 262 7 360 11
Namibia 2 6 248 10 3 045 5
Seychelles 1 746 15 9 172 1
South Africa 2 251 099 1 5 276 3
Swaziland 2 533 12 2 461 7
Tanzania 12 847 3 329 12
Zambia 10 945 4 923 8
Zimbabwe 7 034 8 538 10
Total SADC 379 629
SADC Average 27 116 2 004
AFRICA Total, 2006 1 092 772 1 182
* At constant 2000 prices; 1: GDP at market price; 2: GDP at basic price
Source: African Development Bank

Driven by the need to rapidly reduce poverty, like other SSA regions, SADC has
embarked on the implementation of a number of reform measures aimed at promoting
macroeconomic stability and higher growth combined with the improvement in the
delivery of social services.
1.2.2 Foreign Trade
Foreign trade plays an important role in the economies of SADC Member States.
Trade data on SADC Member-States reveal a number of features. Firstly, trade is
relatively a more important component of GDP in small countries like Lesotho and
Swaziland than in large countries like South Africa.
Available data on the terms of trade show that most SADC Member States alongside
with the majority of other African States have been experiencing a long-term decline
in their terms of trade. This trend has been particularly persistent between 1980 and
2000. Since mid-1990s, while South Africa’s trade has surged under the post-
Apartheid regime, the SADC region has remained a marginal player in the
international market. With a relatively stable 0.80% share of total world exports over
the decade 1992-2002, SADC has not yet been able to fully benefit from the global
trade liberalization trend.
South Africa's intra-regional trade is mainly with other SACU countries 1 due to the
existence of a customs union and a common monetary area. The SADC region
accounts for 19% of South Africa's total exports. Of this, about 68% (i.e. 13% of total
exports) goes to other SACU Member States. Also, South Africa's imports originating
from the SADC region accounts for 7% of the country’s total imports. Of this, 71%
(i.e. 5% of total imports) comes from SACU member countries. Lesotho depends
overwhelmingly on South Africa for its export market. Of the non-SACU members of
SADC, Zimbabwe and to some extent Malawi export significant proportions of their
goods and services to Southern Africa, mainly in South Africa.
For the majority of the countries in Southern Africa, however, the EU is a major
export market. Asian export destinations are significant for Angola, Mauritius,
Mozambique, South Africa and Tanzania. The bulk of imports of SADC Member
States originate in EU, USA and increasingly China (see Chart 4). For Mauritius and
Tanzania, Asian sources account for significant proportions of their imports; while for
Angola and South Africa, NAFTA is a significant source of their imports.
Intra-regional trade in SADC is influenced by both the SADC Trade Protocol and
bilateral trade agreements, which Member States have negotiated prior to entry into
force of the Trade Protocol. The Trade Protocol provides for the continuation of
existing bilateral arrangements as long as they do not contradict the protocol. Intra-
SADC trade is estimated at 24%, which means that the major share of trade is still
with the rest of the world.
1 SACU Member States: Botswana, Lesotho, Namibia, South Africa and Swaziland

Chart 4:
Main Trade Partners, 2005
SADC Exports EU 31% USA 24% Other 45%

Destinations
SADC Imports
Origins EU 31% USA 28% China 24% Other 17%
0% 100%
Source: Comext (2005), EU Declaration and IMF (2004).
Total merchandise trade of the SADC increased between 1991 and 2003. SADC
exports only to EU have increased by more than 173% between 1998 and 2003. The
export trade for Angola, Botswana, Namibia and South Africa is dominated by oil or
mineral exports. The oil and mining industry play significant roles as major foreign
exchange earners and are sources of inputs for industrial development. While oil and
mining ventures are capital intensive, they still generate substantial employment
opportunities directly and indirectly through linkages with other supply and input
sectors.
Chart 5:
SADC Main Exported Products to EU, 2005
Fish Sugar
Aluminium 5.2% 1.4% Other
11.7% 9.6%
Petrol
29%
Diamonds
43.5%
Source: European Commission, 2005

In other countries, agricultural commodities and other unprocessed goods dominate
export trade. Approximately 85% of SADC non-petrol exports are mineral and
agricultural goods. The bulk of imports of SADC Member-States are intermediate and
capital goods. Only South Africa and, to a limited extent, Zimbabwe have the capacity
to produce such goods. This has a negative impact on the development of the region
and leads to imbalances in economic levels. Furthermore, the region produces similar
primary goods, which are mainly agro and mineral based.
National trade statistics show the limited diversification of exports of industrial

products across the region. In most of the Member States, a few major exports
constitute over half of total exports. This however varies between countries
(see Table 3).
Table 3:
SADC Basic Exports Commodities, 2005
No of products
The main 3 products exported, with their share in total exports accounting for
more than 75% of
Product I Product II Product III exports
Angola Crude petroleum (95.8%) 1
Botswana Diamonds.excl.industrial (88.2%) Nickel mattes, sintrs.etc (8.1%) 1
DRC Diamonds.excl.industrial (42.6%) Oth.non-ferr.ore, concntr (17.2%) Crude petroleum (16.7%) 3
Lesotho Jersys, pullovrs, etc. knit (29.2%) Trousers, breeches, etc. (22%) Diamonds.excl.industrial (15%) 4
Spices, ex.pepper, pimento
Madagascar Jersys, pullovrs, etc. knit (19.4%) Crustaceans, frozen (13.2%) 14
(9%)
Tobacco, stemmed, stripped Sugars, beet or cane, raw
Malawi Tea (7.6%) 4
(59.2%) (5.3%)
Mauritius Sugars, beet or cane, raw (21.4%) T-shirts, othr.vests knit (18.7%) Shirts (7.6%) 10
Alum., alum. alloy, unwrght
Mozambique Crustaceans, frozen (4.7%) 2
(73.4%)
Namibia Diamonds.excl.industrial (39.1%) Radio-active chemicals (11.4%) Zinc, zinc alloy, unwrght. (9.7%) 5
Fish, prepard, presrvd, nes
Seychelles Fish, frozen ex.fillets (27.5%) Ships, boats, othr.vessels (11%) 3
(44.1%)
Gold,nonmontry excl ores
South Africa Platinum (12.5%) Oth.coal, not agglomeratd (8%) 39
(7.9%)
Swaziland Sugars, beet or cane, raw (14.1%) Food preparations, nes (9.3%) Flavours,industrial use (9%) 20
Gold, nonmontry excl ores Copper ores, concentrates
Tanzania Fish fillets, frsh, chilld (9.7%) 15
(10.9%) (8.6%)
Cotton, not carded, combed
Zambia Copper; anodes; alloys (55.8%) Cobalt, cadmium, etc.unwrt (7%) 5
(5.7%)
Tobacco, stemmed, stripped Nickel ores, concentrates
Zimbabwe Nickel, nckl.alloy, unwrgt (12.6%) 16
(13.9%) (12.3%)
Diamonds.excl.industrial (3.7%) Nickel ores, concentrates (2.8%)
Africa* Crude petroleum (49.2%) [18%] 26
[12.6%] [17.5%]
* Figures in [ ] represent the share of Africa in the World export for each product.
Source : PC-TAS 2001-2005 International Trade Center UNCTAD/WTO.
The following table provides the exports diversification indicator measuring

the extent to which exports are diversified. It is constructed using
disaggregated exports at 4 digits (following the Standard International Trade
Classification Revision 3 (SITC3)). A higher index indicates more export
diversification.

Table 4:
Exports Diversification Index in SADC Member States, 2000-2005
Exports Diversification index Annual export

growth,
2001 2002 2003 2004 2005 2001-2005
Angola 1.3 1.2 1.1 1.0 1.1 51.0%
Botswana 7.5 1.3 1.3 1.4 1.3 369.7%
DRC 2.4 1.8 2.8 3.8 4.1 3.5%
Lesotho 5.2 5.1 5.4 5.1 5.6 25.5%
Madagascar 9.2 8.4 7.6 10.7 12.2 0.1%
Malawi 2.9 2.9 3.3 3.7 2.8 5.7%
Mauritius 12.6 12.2 11.8 10.3 9.9 1.4%
Mozambique 2.9 2.7 2.3 1.9 1.8 28.9%
Namibia 7.1 7.2 10.3 7.0 5.2 56.5%
Seychelles 2.6 2.8 2.4 3.1 3.5 17.4%
South Africa 33.2 31.2 27.7 25.3 23.1 11.2%
Swaziland 8.8 13.9 15.7 15.0 18.9 28.4%
Tanzania 19.0 21.0 24.1 22.0 18.7 21.1%
Zambia 4.2 4.3 5.0 3.6 3.1 32.7%
Zimbabwe 9.8 7.8 10.7 12.2 13.9 0.1%
Africa 8.1 8.0 6.3 5.1 4.1 21.4%
Source: PC-TAS 2001-2005 International Trade Center UNCTAD/WTO.
The reason for such a poor exports pattern mainly consists in the fact that SADC
exporters have no or small experience of international markets standards, and an
insufficient knowledge of the demand to adapt their production accordingly. The non-
tariff obstacles (standards for instance), the insufficient quality, quantity and
competitiveness limit the possibilities to access foreign markets like EU.
As many other developing countries, the SADC countries will have to improve their
commercial policy and strategy, legal environment for international trade and
investments, institutional support to industry, public-private partnership in order to
realise the desired impact on their international trade.
1.3 Industrial sector analysis
1.3.1 General overview
The industrial base of Southern Africa is weak and its contribution to the GDP is
minimal. Most countries in the region are characterized by the predominance of small
industrial units, which mostly produce for the national and regional markets. The
industrial sector of the region is nearly excluded from international competition,
especially where protectionist policies are practiced.
The structure of SADC countries output is typical for a developing region where large
shares of GDP originate from primary sectors. Thus, agriculture plays a key role in
forming the national product in Tanzania, Malawi and Madagascar and mining sector
leads economies in Botswana and South Africa, where total contribution to GDP is
greater than the half of cumulated value-added. At the same time, most of the crops,

livestock and fish, for instance, are marginally exported and just few mining products
are not locally processed.
Table 5:
Structure of GDP in SADC, 2006
of which
Agriculture Industry Services
manufacturing
Average Average Average Average
2006 2006 2006 2006
2000- 2006 2000- 2006 2000- 2006 2000- 2006
ranking ranking ranking ranking
2005 2005 2005 2005
Angola 7,6 6,7 11 63,3 59,5 1 3,6 3,4 15 29,2 33,8 14
Botswana 2,4 2,4 15 55,4 52,8 2 4,3 3,9 14 42,2 44,9 10
DRC 51,1 44,9 1 21,8 25,3 11 5,2 5,7 13 27,1 29,8 15
Lesotho 17,0 16,4 8 41,7 42,4 4 18,4 15,4 4 41,3 41,3 11
Madagascar 29,2 27,5 4 15,1 15,7 14 11,9 12,5 8 55,8 56,7 6
Malawi 38,4 35,6 3 17,2 18,6 12 11,7 11,7 10 44,4 45,8 9
Mauritius 6,5 5,3 12 29,9 27,3 9 21,9 19,6 2 63,6 67,4 2
Mozambique 22,3 19,9 6 25,7 25,8 10 13,0 12,9 6 52,0 54,3 7
Namibia 11,1 12,1 9 29,6 28,4 8 11,5 11,6 11 59,3 59,5 5
Seychelles 2,8 2,7 14 29,0 28,8 7 17,2 15,2 5 68,1 68,5 1
South Africa 3,4 2,7 13 31,7 30,6 6 19,1 18,3 3 64,9 66,7 3
Swaziland 12,9 10,1 10 46,8 50,5 3 37,3 36,6 1 40,3 39,4 12
Tanzania 45,3 45,9 2 16,3 17,0 13 7,2 7,0 12 38,4 37,0 13
Zambia 22,6 21,3 5 27,0 31,2 5 11,7 11,9 9 50,4 47,5 8
Zimbabwe 20,0 18,1 7 14,5 15,4 15 11,1 12,7 7 65,4 66,5 4
SADC
19,5 18,1 31,0 31,3 13,7 13,2 49,5 50,6
Average
AFRICA 13,8 41,5 10,9 44,7
Source: African Development Bank, 2007.
The above figures show that only Swaziland and Mauritius possess considerable
manufacturing sectors producing around 20-35% of GDP. The Swaziland’s industrial
performance is mostly due to the emerging textiles sector, which benefited from the
favourable export framework within AGOA agreement with USA. The once
significant manufacturing sector of Zimbabwe has stalled under the several factors,
including the flow of cheap foreign merchandise, higher input costs and shortages in
foreign exchange for imported raw materials and components. Its national economy
has gradually become more reliant on services. The rest of SADC countries have
relatively small manufacturing sectors relying mostly on services, agriculture or
mining.
Angola has developed its industry essentially based on raw petroleum and non-
manufacturing production, and Botswana bases on services, which represented 45%
of its GDP (2006). Other SADC economies are just below the African average, and
Tanzania up to now has never been a large manufacturing country.
Referring to the contribution of manufacturing sector to the annual GDP growth in

2006, Swaziland registered an increase of 36%, followed by Mauritius (19,6%) and
South Africa (19,3%). However these figures are not representative of the entire
region as Swaziland’s economy is relatively small whilst Mauritius and South Africa
have longer “industrial” traditions and permanent support in developing national
productive capacities and as result, their regional leadership in industrial and overall
economic performance.

The chart below shows that in SADC countries, the industrial sector’s contribution to
the GDP varies from 15.4% in Zimbabwe to 59.5% in Angola (2006). On average, the
industrial sector of SADC countries represents 31.5% of the GDP.
Chart 6:
Share of Industry and Manufacturing Sector to National GDP, 2006
60%
50%
40%
30%
20%
10%
0%
Manufacturing Industry
Source: African Development Bank, 2007.
The share of manufacturing sector in GDP is also quite dissimilar and rarely correlates
with industrial sector’s contribution due to the part played by extraction industries in
economies of some SADC countries. In particular, it ranges along 3.4% in Angola
with its strong oil production sector to 36.6% in Swaziland with the SADC average of
only 13,1%, which is above the African average of 10,9%.
With its vast amount of natural resources, trained manpower and a market of several
millions of people, the Southern Africa region possesses a great potential to succeed
in all segments of industrial value chain.
Along with national industrialization strategies, the regional distribution of the value
chain cannot be neglected, as it could provide additional value-added to the region if
such issues as harmonization of industrial and trade policies as well as competitive
trade and manufacturing of goods are addressed.
1.3.2 Manufacturing Sector
The “formal” manufacturing sector in SADC is largely dominated by the textile

sector, followed by the agro-food processing industries. Mineral processing, chemical
and pharmaceuticals, contribute relatively little to the regional value-added, each
bringing only about 1-2% on average to SADC manufacturing value-added.

Most of the geographical clustering within the formal sector is centered around
primary industries, i.e. mining, agriculture and the primary agro-food processing
industry. With the exception of the mining industry, the private sector in Southern
African region has not been instrumental in creating and sustaining successful and
competitive manufacturing networks within formal environment due to the relatively
high taxes and other numerous cost-increasing factors. Thus, SADC’s formal
manufacturing sector has not developed much against the background of emerging
informal sector.
Table 6:
Manufacturing Companies in certain SADC countries, 2007
Mozambique
Madagascar
Swaziland
Botswana
Tanzania
Mauritius
Namibia
Lesotho
TOTAL
Angola
Malawi
DRC
Textiles, weaving apparel, carpets/rugs - 1350 3 30 557 92 371 898 18 20 49 3388

Food, beverages and tobacco 50 363 24 239 470 127 116 30 148 1567
Sawmill, wood and furniture 6 42 208 138 46 23 28 491
Processing of minerals metallic & non- 10
8 120 23 95 410 28 71 765
metallic
Domestic plastic and rubber products 16 90 117
11
Chemicals and pharmaceuticals 20 24 68 3 24 28167
Pulp, paper, printing and publication 10 8 40 33 20 47158
Fabricated metal products 12 12 14 38 79 155
Other manufacturing 8 982 14 12 50 89 49 191 1395
Total 130 2695 110 44 1304 811 908 1311 278 241 371 8203
Source: Data collected from different sources by UNIDO Programme Formulation Mission
Angola once had one of Africa’s most developed manufacturing industries, but the
civil war led to a prolonged phase of negative growth. There are signs, however, that
production is picking up in certain industries, as consumers’ purchasing power
recovers in Luanda and other major urban centres. The sector recorded a cumulative
growth rate of 67.4% in real terms for the 2000-04 period, 24.9% in 2005 and 30.7%
in 2006. The beverages sector, for instance, grew by 8% in 2005 and is estimated to
have grown even more in 2006. In general, agribusiness is expected to benefit from
the recent opening of cold-storage facilities in Luanda and the announcement of a
rehabilitation programme for the national cold-storage network.
The industrial sector of Botswana is dominated by textiles production with 1350

enterprises representing almost half of the country’s manufacturing companies and
employing a third of the local working-age population (2005), followed by the food
and beverages manufacturing companies with 363 enterprises operating and 18% of
the total labor employed in the sector.
Industrial sector of Democratic Republic of Congo supplied 13.7% of GDP in 2005

and grew 9.3% in volume, with construction and beverages taking the lead. Alcoholic
beverages, especially beer, showed a 18.9% growth rate in 2005; cement production
grew in volume by 26.2% mainly due to the country’s reconstruction and huge needs.
Log production increased substantially, by 16.8% in 2005 and by 54% in the first five

months of 2006. The DRC possesses enormous mineral and agricultural potential,
serving as the basis for industrial diversification and deeper local transformation.
Traditionally, numerous entrepreneurs in DRC operate small- (3-4 employees) and
medium-sized businesses in the informal sector.
Manufacturing sector of Lesotho is mostly active in and relying on textiles and

garment branch (60% of enterprises and 95% of employment) as country continues to
enjoy the benefits of AGOA agreement. However, there is a fear that Lesotho and
Madagascar could become too dependent on this particular productive activity and
therefore vulnerable to trade liberalization.
The manufacturing landscape in Madagascar can be divided into various industrial

groups and sub-groups, where textile sector is, as mentioned above, one of the socio-
economic pillars giving employment for 62% of the working-age population and
accounting 557 producers (43% all formal sector local companies). In general, the
industrial sector of Madagascar is significantly more diversified relative to the
common SADC pattern. Mining sector is represented by a significant number of
manufacturing enterprises operating mainly in gemstones processing. In general these
companies employ less than 10 persons.
Malawi’s manufacturing sector is small and accounts for just about 11% of GDP.
The sector is dominated by agro-processing industries. These include tea factories,
spinning and weaving, tobacco processing, sawmills and plywood, oil and grain mills,
meat processing. Other industries include soaps and detergents, cement, textiles and
clothing, footwear, leather processing, fertilizer compounding, brewing, distillery and
structural works. The manufacturing sector is also inward-looking as shown by the
fact that only 14% of manufacturing output is exported.
The traditional productive sectors in Mauritius, sugar and textile, have accounted for
12-14% of GDP, 20-25% of employment and 40-50% of foreign exchange earnings.
With its highly qualified human capital, good road network, modern
telecommunications facilities, modern airport, deep-water harbour, island-wide
electricity and adequate water supply, Mauritius has what it takes to develop its
industrial sector.
Mozambique has an agriculturally based economy thus its manufacturing industry is

centred mostly in food processing and beverages (food, beverages, and tobacco
processing account for 62% of all manufacturing). Mozambique's manufacturing
sector is primarily engaged in the processing of locally produced raw materials, such
as sugar, cashews, tea, and wheat. Brewing and textile production emerged in the
1980s, along with cement, fertilizer, and agricultural implement manufacturing. Other
industries produce soaps, oils, ceramics, paper, railway equipment, radios, bicycles,
and matches. Production of aluminum by Mozal makes Mozambique one of the
world’s leading aluminum exporters.
Namibia has a relatively small manufacturing sector, which is largely based on its
natural resource endowment and mainly concentrated on processing fish, fisheries
products, livestock and livestock products and minerals. Other manufacturing
activities include food, beverages, textiles, wood and wood products. In 2005-2006

manufacturing accounted only 11% of GDP and recorded growth of -0.6%, owing to
the poor performance of fish processing.
Seychelles has a small manufacturing and processing sector, oriented towards

supplying the domestic market. Most of the industries are of small and medium scale.
The sector consists a brewery SeyBrew which is part of the Guinness group, a
cigarette factory Amalgamated Tobacco, the Seychelles Marketing Board responsible
mainly for Agro-food processing such as jam, juices, yogurt, water, crisps and snacks,
etc. and a number of small enterprises making soap and detergents, processing
corrugated iron sheets, assembling televisions, fabricating boats and furniture, mixing
paints, and distilling local liqueurs. At the fringe of the "industrial sector" is the
handicraft sector dominated by the SMEs. Some of its products are effectively
exported (sold to tourists) and are included into the tourist sector accounts.
South Africa has developed an established, diversified manufacturing base that has
its resilience and potential to compete in the global economy. The sector is dominated
by agro-processing, automotive, chemicals, ICT and electronics, metals, textiles,
clothing and footwear and heavily concentrated in the urban areas especially in the
industrial region around Johannesburg, Cape Town, Port Elizabeth and East London.
As the manufacturing sector expanded, the sector became increasingly capital
intensive despite the availability of the large labor pool in South Africa. Country’s
manufacturing sector provides a locus for stimulating growth of other activities, such
as services, and achieving specific outcomes, such as employment creation and
economic empowerment. This platform of manufacturing presents an opportunity to
significantly accelerate the country’s growth and development.
During the last decade, Swaziland’s productive sector has been characterized by a
slow-down in growth and stagnation in FDI flow into the sector. The country’s top
three exports in total value over the last five years are edible concentrates, sugar and
wood pulp. The mining sector, which is focused on coal and diamonds for export,
contributes a mere 1.8% to GDP and has been declining in importance in recent years.
The sectors that take up a major part of the industrial pool are food processing (i.e.
food, beverages and dairy), engineering and construction, textile and clothing.
Industrialization in Tanzania is relatively lower, with a heavy emphasis on traditional

agriculture. Tanzania’s manufacturing is one of the least developed and stagnating in
Sub-Saharan Africa producing only US $15.5 as manufacturing value added (MVA)
per capita. Tanzania relies on its agriculture, trade, and strong tourism sector
(restaurant and hotels).
The leading manufacturing sub-sectors of Zambia are food, beverages, and tobacco,
accounting for over two-thirds of total value added, followed by textiles, leather, and
leather products where Zambia has comparative advantage. The performance of the
food, beverages, and tobacco sub-sector is driven by the strong agricultural sector,
increases in domestic demand and exports to regional markets. Textiles and leather
were stimulated by the increased production of cotton lint and yarn, direct exports to
the USA under the AGOA arrangements and increased investments in cotton
processing. The other significant sub-sectors are chemical rubber and plastics and
wood and wood products.

Since the beginning of 1999, the Zimbabwean productive sectors became embroiled
in a series of economic challenges continuously affected by a drastic upsurge in the
inflationary pressure. The real state of manufacturing sector has declined over the
years in response to trade liberalization in general and to negative trading
environment caused by foreign currency shortages, power cuts, loss of credit lines,
and escalating costs of raw materials over the past four years. Nonetheless,
Zimbabwe’s manufacturing production structure remains diversified from consumer
goods to a wide range of intermediate and capital goods. The largest industries are
iron, steel, metal products, food processing, chemicals, textiles, clothing, furniture and
plastic goods. The three most promising cluster-based sub-sectors are engineering and
metal working industries, agro-industries/food, and textile and garments.
1.3.3 Priority Sectors
The study undertaken by UNIDO in 2003 under African Productive Capacity

Initiative (APCI) has identified nine priority sectors to kick-start the regional
industrialization process. Following several meetings at both Regional and Sub-
regional levels, the SADC Ministers of Industry and Trade adopted the following sub-
sectors as strategic: Agro-food processing; processing of Minerals (metallic and non-
metallic) products; Leather and leather products; Forestry; Fisheries; Chemicals,
Petroleum and Pharmaceuticals; Textiles and garments; Machinery and Equipment;
and Services.
The SADC Ministers of Industry and Trade decided that strategies and action plans
should be developed, with the assistance of UNIDO, at both the SADC Regional level
and national levels to improve industrialisation and promote employment in the
SADC region.
Of the nine priority sectors, the pilot phase of the Programme will focus – subject to
degree of importance for the certain countries – on the following three: agro-food
processing, minerals processing, and pharmaceuticals.
Agro-food processing has the potential for ensuring food security, employment
creation, especially at the rural level, improving household income, contributing to
economic diversification. Minerals processing will increase the foreign exchange
earning potential of SADC Member States, facilitate infrastructure development, as
well as provision of social facilities, and attract FDI. Developing the pharmaceuticals
sector will provide medicines for ailments such as HIV/AIDS, tuberculosis, and
malaria, exploit potentials for developing the local cosmetics industry, employment
creation especially for rural women, sustainable harvesting of natural medicinal plants
and herbs, environmental protection and promotion of medical tourism.
In addition, sectors possess a great growth and export potential. The specific feature
of agro-food and mineral processing sectors consists in relative advantage of gaining
in competitiveness at fewer costs through adapting the final production to
international quality and security standards.
The following is a brief summary of the current situation overview followed by

SWOT analysis for each of three priority resource-based sectors:

A. Agro-food processing
Like most developing countries, agriculture is the cornerstone of the SADC countries
economies. Unfortunately, agriculture alone is no longer able to provide reliable
livelihood for the growing population in SADC. In spite of its tremendous potential,
agricultural goods account for only 8% of the region’s overall exports trade with the
EU.
Success in the agri-business at the global export level lies in a world-class research
system, priority attention to phytosanitary and sanitary issues, and well-established
networks in key markets. Therefore, to achieve success in the agro-food processing
sector in Southern Africa, the two non-negotiable pre-requisites – before one can even
begin to contemplate exporting food (fresh or processed) – are Quality and
Phytosanitary and Sanitary Assurance.
Development activities should concentrate on creation of the regulatory environment

favorable to the agro-food industry, including the up-keep of exports of non-processed
food products for a period of at least 5 years; adoption of more flexible labor
regulation, which come across with seasonality of the sector; establishment of
processing incentives and institutional capacity building for coordination and
leadership of the technical, technological, and industrial framework. In particular, a
lot of effort is needed in the following areas: Inspection, control and testing of
products; Reduction of post-harvest losses; integral management of food crops; micro
finance (credit)/rural finance (credit); export marketing research; and environmental
protection.
The following strengths, weaknesses, opportunities and threats associated with the
agro-food processing industry in SADC were identified.
SWOT and Challenges of SADC Agro-food Sector

Strengths Weaknesses
 Existence of raw materials/conditions for  Unintegrated industrial development
production of raw materials structures
 Production of some world-class products  Limited value addition
 Support at all Governmental levels  Inadequate marketing and export
- Programmes market access
- Financial support  Lack of farming infrastructure
 Existing processing plants/capacity  Lack of technical & management skills
 Fairly large market in SADC; Africa  Lack of external trade strategy (strategic
protection, promotion, market intelligence, etc)
 Low R&D (infrastructure and spend)
 Poor/inadequate, disintegrated transport
infrastructure (ports, rail, air-cargo, road)
Opportunities Threats
 Growing demand for finished products  Low quality & quantity of raw materials
worldwide  Unstable supplies of raw materials
 Growing SADC & African market  Recurrent drought and seasonality of
 Labour-intensive production processes supplies
 Growth opportunities in China and India  High transportation costs
market  Lack of credit facilities
 Existence of TBTs, NTBs/SPS
 Interventionist policies of export
countries
 HIV/AIDS
Challenges
 Poor product quality
 Limited market access due to barriers to trade (TBTs; NTBs/SPS)
 Limited marketing due to problems with pricing, limited margins and inadequate promotions
strategies
 Inadequate/weak Human Capital development
 High transaction costs
 High transportation and logistics costs
 Weaknesses in provision of relevant information
 Poor/lack of coordination in infrastructure development
 Restrictive regulatory environment
 High cost of doing business
 HIV / Aids
B. Minerals processing
The Southern African region produces significant quantities of major metals and
minerals. It contributes about 53% of vanadium, 49% of platinum, 40% of chromite,
36% of gold, 50.1% of diamonds and 20% of cobalt to the world production. A
number of countries in Southern Africa rely on this sector for their foreign exchange
earnings and there is potential for investment and wealth creation opportunities.
Table 7:
SADC Mineral Production, 2003
Units SADC Africa % Africa

Aluminium tonnes 1 146 500 1 440 000 79.6
Bauxite tonnes 11 793 15 500 76.1
Chrome tonnes 8 071 748 8 130 000 99.3
Coal tonnes 242 572 778 244 000 000 99.4
Cobalt tonnes 15 775 25 000 63.1
Copper tonnes 535 131 551 000 97.1
Diamond cg 80 084 603 82 755 603 96.8
Gold kg 436 237 587 000 74.3
Iron Ore tonnes 38 485 855 53 100 000 72.5
Nickel tonnes 77 742 85 300 91.1
Palladium kg 74 116 74 116 100
Platinum kg 152 746 152 748 100
Uranium tonnes 3 419 5 940 57.6
Source: Mintek, South Africa, 2006
Mineral processing continues to be a major sector of the economies of the region,

contributing an average of about 60% of foreign exchange earnings, 10% of gross
domestic product and 5% of employment in the region.
The strengths, weaknesses, opportunities and threats associated with the mining and
minerals processing industry in SADC were identified. These include:
SWOT and Challenges of SADC Mineral Processing Sector

 Rich endowment with various minerals  Unintegrated industrial development
deposits structures (i.e. weak linkages)
 Conditions for its production  Limited value addition in downstream
 Strong capabilities in upstream industries
industries  Poor quality of products
 Support at all Governmental levels  General lack of QC & QA no common
 Primary production being done quality standards
 Limited production at downstream levels  Slow speed of delivery due to
 Existing processing plants/capacity poor/inadequate, unitegrated transport
infrastructure (ports, rail, road)
 Low investment in minerals processing
 Shortage of skills – artisan, technical,
engineering, managerial levels => low production
capabilities in downstream industries
 Lack of technology support structures
 Low R&D (infrastructure and spend)
 Inadequate marketing and export market
access
 Lack of external trade strategy (strategic
protection, promotion, market intelligence, etc)
 Lack of credit facilities
 Growing global demand for finished  Import-parity pricing of basic metals by
mineral products upstream minerals processing companies who are
 Growing global trade in scrap & very few, but have significant price-setting power
recycling  Interventionist policies (e.g. subsidies) in
 Growing African market scrap importing countries
 Labour-intensive production processes  Increasing emphasis on environmental,
 Under-developed downstream industries health and safety standards => higher costs
(electronics, industrial machinery and equipment,  Differential pricing of inputs (e.g.
transportation, construction, automotives, etc) electricity: pre-negotiated prices for upstream
 Growth opportunities in Asian market companies; municipal rates for downstream
(esp. China and India) companies)
 High transportation costs
 Aging workforce
 Existence of TBTs, NTBs
 HIV/AIDS
Challenges
 Skills development and training
 Improving logistics to reduce the cost of manufacturing
 Facilitating import replacement
 Enhancing production capabilities
 Encouraging advanced manufacturing and technologies
 Building a competitive foundry industry
 Provide information/data on imports to industry (Early Warning System)
C. Pharmaceuticals
The global pharmaceutical industry (i.e. discovery, development and distribution) is
characterised by its large size, high growth, globalisation and high investment in
R&D. It is a multinational industry that is highly regulated, capital intensive and
driven by large R&D expenditures. The global market (pharmaceutical and bio-
technology) is estimated to be currently valued at about $552 billion in 2006 and

growing at approximately 8 percent. The U.S. market accounted for about 41 percent
of the global pharmaceutical sales, followed by Europe (23.5%) and Japan (15.9%).
Globally, the pharmaceuticals industry operates as a cartel, with only a few
manufacturers (i.e. Merck, Bristol-Myers Squibb, GlaxoSmithKline plc, Pfizer Inc.,
Johnson and Johnson, AstraZeneca, Bayer, Novartis, Aventis, etc) dominating and
literally dictating the pace and level of development. Naturally, entry into the industry
is very restricted and requires political will and great determination if one is to break
into the elite club of industry leaders. Much of the growth during the next 5 to 10
years will come from the Asia-Pacific and Latin America regions. The Indian
pharmaceutical industry currently estimated to be worth about $6 billion, and growing
at about 12% annually, is expected to reach $9.48 billion in the next four years.
The pharmaceuticals industry in SADC is somewhat fragmented and there is only

limited local production of generic active ingredients. However, formulation and last
step synthesis is common among the local subsidiaries of multinationals.
The scope for development of pharmaceutical products is very large in SADC and the
rest of Africa. Products such as gelatine capsules, bulk drugs, medicaments,
disposable syringes, perfusers and diffusers are in high demand in the domestic as
well as export markets. However, the sector’s part in the SADC cumulative exports to
the EU, the region’s main trade partner, is miserable and estimated below 0.5%.
The potential exists in SADC and Africa for developing a vibrant

pharmaceuticals/medical/biotechnology industry. More importantly, the importance of
the concept of value chain within the Pharmaceutical sector is recognized.
The strengths, weaknesses, opportunities and threats of a SADC/African

pharmaceuticals sector were identified as follows:
SWOT and Challenges of SADC Pharmaceutical Sector

 Abundant raw materials available in the  Shortage of experience amongst
region technical staff in commercializing research
 Existing processing plants/capacity  Un-integrated industrial development
 Existence of a large pharmaceutical- structures
manufacturing sector in the region  Varied regulatory and procedural
 Existence of Standards Bureaus to foster requirements of each member state
acceptance and implementation of Quality  Fragmentation of various industrial
Systems components
 High quality of technical and science  Lack of access to capital
skills in South Africa, Zimbabwe and Mauritius  Lack of technical & management skills
universities  Low R&D (infrastructure and spend)
 Prevalence of curable diseases in Africa  Aggressiveness of international drug
and LDCs manufacturing companies towards new entrants
 Pharmaceuticals products worth billions  Existence of strict regulations in export
of US$ imported by SADC member states annually markets
 Sector has tremendous potential for  HIV/AIDS
making signify-cant contributions to SADC
economy, but much has to be done to make sector
viable and sustainable
 Region imports pharmaceutical grade
sugar and starch readily available in the region
 Int’l segmentation of the production
process
 Potential for developing biotech industry
Challenges
 Attracting and retaining skilled workforce
 Controlling operating and marketing costs
 Competition from Generics
 Intellectual Property protection
 Managing regulatory compliance
 Pricing pressures and shrinking margins
 Marketing (Pricing; Margins; Promotions)
 Realising tangible value from strategic alliances, joint ventures and partnering arrangements
 Reputation management
 Successfully developing innovative drugs and enhancing Research & Development productivity
 Sustaining growth in global markets
 Information
 Infrastructure
 HIV/Aids
D. Textiles and Garments

In addition to the priority sectors determined by the Regional Road Map, some SADC
Member States could express significant interest in improving capacities of textile and
garment production facilities. In the last several years, some of the region’s
economies (Lesotho, Madagascar and Swaziland) have recorded considerable growth
in textile sector outputs largely due to preferential trade in the framework of AGOA
White Paper. The textile sectors of Botswana, Lesotho and Madagascar account
respectively 51%, 68% and 43%2 of all manufacturing companies currently operating
2 Based on data collected by UNIDO Programme Formulation Mission

in these countries. The Programme considers upgrading and modernization activities
for the SADC textile companies indispensable looking forward the possible
liberalization of trade and intensified pressure from the Asian competitors. Below is a
short summary of the current situation in SADC textiles and garments sector.
Chart 7:
Increasing Share of Textiles in Exports, 2006
Source: IMF, 2007

The textile production in SADC region is mostly concentrated in Botswana, Lesotho,
Mauritius, Madagascar, Swaziland and South Africa. Although SADC produces
cotton, textiles and clothing they are not necessarily linked in the value chain.
Exports focused on preferential markets, hence are mainly basic items that have long
production runs, low labor content and few styling changes.
The textiles and clothing originated from SADC countries are mainly exported to
OECD countries. The United States and European Union are the largest buyers of
Southern African (see table below).
Table 8:
Region’s largest exporters of textiles and garment
SADC largest exporters SADC largest exporters

to the USA to the EU
Lesotho Mauritius
Mauritius Madagascar
South Africa South Africa
Source: Imani Development
In spite of relative gains of certain producers in international markets the textile sector
of the region faces some typical for Sub-Saharan Africa and for other sectors principal
challenges. Notably, they are:
 Lack of investment and often obsolete technologies,

 Low professional skills base and lack in on-job training facilities,
 Nearly inexistent innovation and design capacities,
 Production and design of higher value added products currently being shed
by advanced economies,
 Internal firm-level competitiveness and inability to compete internationally,
 Weak or extremely spread value chains,
 Trade distortions, growing illegal imports and preference erosion,
 Complex and restrictive Rules of Origin in the main importing countries.
Meanwhile the region posses a number of inherent competitive advantages based on:
 Low wages and taxes in some countries,
 Stable secondary supply base for large global retailers who seek to diversify
their sourcing and spread their risk,
 Proximity to the raw material sources,
 Proximity to Europe and the east coast of the US,
 Language and time zone advantages,
 Ethical production.
To compete within the new open-market environment most of the SADC

manufacturers will need to reengineer and upgrade their operations through
development of an integrated value chain and advanced supply chain management.
1.3.4 Informal sector
Based on the interviews undertaken during the formulation mission, it has been noted
that no exhaustive study of the informal sector for the SADC region has ever been
made. However, the results of surveys conducted in Namibia (in 2004) and
Mozambique (in 2005) can provide guidelines for general conclusions for most
countries in the region.
The industrial base of the SADC region is characterized by a significant number of

small and medium enterprises (SMEs) operating in the informal sector. Despite the
absence of accurate statistics, it has been observed that the informal sector is
relatively dynamic in basic transformation activities and services. Indeed, the myriad
of “informal” small craftwork shops, workshops and small industries cannot be
ignored. The size of the informal sector determines its impact on the economies in
most of the SADC countries. The informal sector does not only deprive the Member
States of important fiscal revenues but also weaken their efforts to formulate and carry
out sound structured economic and development policies.
One of the major reasons for not registering with the authorities is the fear that
registration might lead to disadvantages. The registration process 3 is seen as a burden
and represents an operating disadvantage. “Informal enterprises” do not have to
operate under the same standards (safety, quality) and regulations and have an unfair
advantage over the formal enterprises that do comply with the system’s regulations
and fiscal rules.
3 Concerning the informal sector, the major reasons for not registering with any authority is often a lack of
knowledge on how to register and the procedures involved.

Whether in the rural or urban areas, most enterprises operating in the informal sector
usually employ unskilled and uneducated workers. Also, some educated young
graduates have (or will have) to enter the informal sector as the opportunities in the
formal sector are limited and do not enable all graduates to find a job. This educated
youth often see the informal sector as an opportunity to become entrepreneurs.
The Industrial Upgrading and Modernization Programme does not aim to solve all the
problems of and linked with the informal sector. However, the Programme sees the
informal sector as a pool of potential entrepreneurs, which can become effective
businessmen. With some assistance, they could integrate into local value chains,
become key actors in the fight to alleviate local poverty, contribute into the local
development, especially in rural areas, ensure the modernization of the most remote
areas through technology transfers and the introduction of basic standards and new
techniques, and improve social security by creating sustainable activities.
The basic features of informal sector companies in SADC could be in general

summarized as follows:
 the majority of businesses are small with high competition among each
other;
 a large number of operators started a business due to a lack of alternatives or
other reasons, but not because of a personal motivation;
 the fact of having informal competitors represents a competitiveness
disadvantage for formal businesses;
 most businesses are less than 5 years old and there are no moderate start-up
and closure rates;
 the employment dynamics for the SMEs are moderate: contrary to popular
belief, they do not seem to be a powerful job engine;
 the usage of existing financial services among SMEs is fairly modest but this
is mainly due to fundamental structure and character of SMEs operators;
 only very few businesses have business linkages;
 in addition, these linkages are of a very simple nature and have limited
profits;
 the majority of businesses do not make use of BDS, but a large proportion
uses market-related business services.
1.4 Strengths and challenges of manufacturing sector

1.4.1 Advantages and opportunities
The SADC region possesses a great economic and industrial potential with abundant
natural resource base. Its comparative advantages include also the low-cost and
qualified labour force and high opportunities for economies of scale within the
growing and liberalizing regional market. The key challenge for the region is to boost
economic growth through effective integration of available resources and building
intra-regional industrial value chains under the leadership of region’s top economy
South Africa.

SADC minerals and agro-food processing sub-sectors in particular have significant
local and global comparative advantages, which can easily transform into real net
winning advantages if value chains approaches are introduced and implemented
gradually as a new systemic approach to sustainable industrial performance in
Southern Africa.
Moreover, there is a clear perception and strong commitment by the regional

authorities to industrialize. Current policies and strategies being pursued in the region
under the auspices of SADC focus on export promotion, promotion of industrial
linkages, efficient import substitution, improvement of the investment climate,
facilitation of imports of essential goods, regional human development, enhancing
industrial support services, equitable distribution of industrial activity and adopting
flexible market oriented exchange rates. The Regional Indicative Strategic
Development Plan (RISDP) is, in a sense, a strategic framework pointing the general
direction in which SADC would like to move with respect to the identified priority
industrial issues.
The energy sector, telecommunications and water supply are also largely supported by
the political environment, and therefore enjoy relative advantage compared to the
average picture for Sub-Saharan Africa. The transport infrastructure, including roads
and ports, which are also supported by governmental schemes, are generally well
developed, even if the countries are not at the same level of economic performance.
However, to date, SADC industrial policies and strategies have not contributed
significantly to the development of industry in the region. There is need therefore to
ensure a balanced and mutually beneficial industrialization in the region with focus on
the promotion of productive industrial linkages and efficient utilisation of regional
resources for the creation of productive employment opportunities across the region.
1.4.2 Weaknesses and challenges
Despite all the above, economic and industrial development of the region is limited by
numerous factors at the macro, sectoral and micro levels. Across the region these
problems mainly converge to the common industrial scenario, where:
 most of the mineral, agricultural and fish production manufactured in the
region is still exported in a primary or unfinished form. About 90% of SADC
exports comprise of mineral and agricultural goods and its imports are mainly
capital and intermediate goods. Only the Republic of South Africa and to
some limited extent Zimbabwe have the capacity to produce capital and
intermediate goods. This impacts negatively on the development of the region
and leads to imbalances in economic levels. There is need to further process
the primary goods to add value, increase employment levels and increase the
contribution of locally produced goods to the regional economy;
 small size of local markets and low purchasing power inhibit economies of
scale. Political instability in some SADC countries, growing informal sector
and poverty level predetermine narrow market for industrial goods;
 escalating costs of raw materials, labour and other inputs, including energy
and other utilities, threaten companies’ financial viability;

 poor infrastructure networks (roads, rail and inland river transport) work
against exporters as well as importers. Even in South Africa, the region’s
number-one economy, infrastructure represents a bottleneck for industrial
development;
 limited access to medium and long term capital and funding. SMEs are
frequently complaining of a lack of development finance, absence of long-
term capital for industrial development and insufficient resources. Bank
credit is not easily accessible, especially to SMEs;
 high dependence on imports as regards inputs, including equipment and high
duties on imported materials. Due to shortage of foreign currency, enterprises
find difficult to import raw materials and execute their export contracts. The
region is highly dependent on imported goods, mainly from South Africa;
 currently overvalued exchange rate in some Member States puts most
companies operating internationally under extreme pressure. It has become
30% more expensive to produce in Swaziland, while China has become 20%
cheaper than average world conditions. In Zimbabwe, the hyper inflationary
rate has nearly destroyed the monetary system;
 legal and regulatory obstacles for business together with high fiscal pressure.
There is a long turn-around time in company registration and obtaining
industrial and trading licenses. Procedures for intra regional or international
trading generally take a long time, which is a negative factor of the regional
competitiveness (see Chart 8);
 inadequate institutional and technical support infrastructure characterize
existing industrial support services. Public or private institutions supporting
industry (e.g. technical centres, chambers of commerce and industry,
professional associations, employers associations, consultants associations)
often lack adequate human and financial resources, institutional capacity and
necessary equipment;
 nearly non-existent conformity and quality infrastructure which excludes the
big part of the region’s production from the world market. Manufacturing
companies operating, in particular, in the agro-processing sector and
marketing their production internationally experience difficulties in
maintaining the necessary quality level and conformity to internationally
accepted standards and norms (SPS, ISO management systems);
 lack for internationally recognised accreditation due to use of poor and
obsolete technologies and poor packaging practices;
 lack of qualified personnel and poor corporate governance represent a great
challenge for industrial growth and further development of the private sector.
The low capacity of professional training and business advisory institutions
are one the key reasons for the low productive performance of local
companies. There is, hence, a strong need to strengthen capacities and
provide institutional support to consulting and professional training
institutions;
 in order to sustain an environmentally friendly industry, there is need to
introduce measures aimed at safeguarding the adverse impact of industrial
operations on the environment.

Chart 8:
Trading Across Boarder - Time for Export/Imports (Days), 2006
Swaziland
90
SADC average Mauritius
70
Angola Tanzania
50
30
DRC South Africa
10
-10
Zambia Namibia
Zimbabwe Botswana
Madagascar Mozambique
Lesotho Malawi
Time for export, days Time for import, days
Source: African Development Bank

The industrial sectors in the region need to withstand the challenges of globalisation,
which range from competitiveness to industrial and product diversification,
productivity, technology transfer and research and development. This can only be
achieved with an overall improvement in productivity and competitiveness combined
with a diversified and balanced industrial growth in a wider, well-linked economic
space that allows for the efficient and effective use of factors of production on the
basis of increased value addition.
SADC should pay particular attention to investment promotion, entrepreneurship

development and ensuring that the manufactured products meet internationally
recognised standards and quality in order to compete favourably in the global
economy. In this regard, the upgrading of national and regional institutions providing
technical assistance to the industrial sectors is particularly critical for value addition.
The challenges in the manufacturing sector include the acquisition of environmentally

friendly industrial technologies and know how to ensure sustainable development in
the region.
1.5 Factor costs and competitiveness of manufacturing sector
Development of infrastructure and services is critical for promoting and sustaining

regional industrialization, trade and investment growth. The potential for deepening
integration through sharing of production, management and operations of
infrastructure facilities, hubs, development corridors or poles is considerable.

While the overall picture in SADC is one of inadequate coverage, poor maintenance,
weak financing and inefficient management systems, differences do exist across the
Member States. Many countries have been able to upgrade and expand their
infrastructure assets and improve services through a combination of policy changes,
institutional reforms and favourable investment climate. These policy reforms have
paved the way for increased private sector involvement in the provision of
infrastructure resulting in commercialisation and cost recovery measures being put in
place. The major challenge now facing Governments is to establish regulatory
frameworks to foster fair competition, support the emergence of a regional market and
ensure that end users obtain the expected benefits.
In order to enable the region to meet the challenges of infrastructure development,

SADC has put in place legal and policy frameworks through the formulation and
adoption of appropriate instruments such as protocols and policy and strategy
guidelines.

Table 9:
Access to the Basic Infrastructure Services, 2000-2004
Access to electricity Water supply

Final consumption Distribution losses coverage
(GWh) (GWh) (%)
2000 2004 2000 2004 2004
Angola 1 157 1 799 211 325 53
Botswana 1 959 2 041 164 131 95
DRC 2 442 2 254 228 211 22
Lesotho … … … … 79
Madagascar … … … … 31
Malawi … … … … 67
Mauritius … … … … 100
Mozambique 1 013 7 019 243 1 187 40
Namibia 2 386 2 790 260 304 87
Seychelles … … … … 88
South Africa 162 516 197 497 17 053 14 710 88
Swaziland … … … … 62
Tanzania 1 913 1 927 555 578 52
Zambia 6 039 7 712 249 338 62
Zimbabwe 10 494 10 117 1 422 1 472 81
AFRICA 345789 431683 53377 59758 62
Sources: Electricity: IEA - online database, 2006; Water supply coverage and sanitation coverage: WHO and UNICEF, 2006.
Tables 10 and 11 give comparative analysis of the prices on basic production utilities
and transaction costs in some SADC and OECD Members States, as well as
throughout the African Continent.
Table 10:
Production Utility Costs, 2005
Internet Water
Telecom Costs (USD/ minute) costs Electricity costs costs
High Usage Demand
International Water for
International bandwidth charge for charge
Local call to industrial
call Internet industrial for indust-
calls adjacent use
to the USA (USD/ use rial use
country (USD/m³)
mo.) (USD/kWh) (USD/kVA)
Lesotho 0.33 0.36 1.08 814 0.04 7.07 0.49
Madagascar 0.08 0.75 0.90 840 0.08 12.02 0.26
Mauritius 0.03 0.19 0.19 188 0.06 3.25 0.38
Mozambique 0.06 0.42 0.77 594 0.05 5.25 0.88
South Africa 0.06 0.26 0.54 42 0.08 0.88 1.38
Tanzania 0.07 0.47 1.11 1900 0.06 6.01 0.67
Comparator country
Tunisia 0.01 0.48 0.52 18 0.07 1.48 0.68
France 0.02 0.17 0.17 34 0.07 n/a 1.99
Ireland 0.05 0.15 0.19 43 0.12 8.70 1.63
Ghana 0.02 0.28 0.39 252 0.05 12.29 0.77
Kenya 0.04 0.16 0.88 1690 0.06 3.68 0.42
Mali 0.03 0.59 0.89 1089 0.12 2.91 0.56
Senegal 0.23 1.07 1.07 57 0.14 13.10 1.56
Nigeria 0.16 0.43 1.45 236 0.28 n/a 0.91
Uganda 0.07 0.38 0.76 3548 0.10 2.33 0.76
Source: Snapshot Africa (2007), World Bank

Table 11:
International Sea Freight Rates (USD Per 40 foot container)
To Rotterdam To New York To Long Beach To Yokohama To Singapore

Container
Standard Refrigerated Standard Refrigerated Standard Refrigerated Standard Refrigerated Standard Refrigerated
Type
Lesotho 1450 2900 3500 7000 3700 7000 1250 2500 1100 2000
Madagascar 1948 5948 5445 None 5755 None 2484 5084 1684 5284
Mauritius 1161 1161 5050 5050 5815 5815 n/a n/a n/a n/a
Mozambique 3123 4842 4621 5146 5071 6546 2131 5456 1731 5256
South Africa 2606 3750 3540 4405 3850 5500 1700 3600 1500 3000
Tanzania 1118 2118 4286 6786 4350 6900 n/a n/a n/a n/a
Comparator country
Tunisia 2000 5475 4900 5675 5400 7075 2200 6275 1400 6075
France 3111 2940 4552 7975 5600 4775 2852 5800 1700 4800
Ireland 3500 6500 6800 8400 7000 8800 3500 4500 3500 4500
Ghana 1953 4948 3500 4500 2900 4200 3500 4500 3500 2600
Kenya 3800 9500 3800 10691 4100 10691 3200 10691 3000 10491
Mali 4392 5218 6926 7754 8525 9377 4703 7168 4393 7061
Senegal 2193 4239 4500 5902 6477 9362 2431 6706 2106 6206
Nigeria 2161 3824 4756 7256 5456 7956 n/a n/a n/a n/a
Uganda 1097 1097 2891 2891 n/a n/a n/a n/a n/a n/a
Source: Snapshot Africa (2007), World Bank
The general picture of competitiveness indicators in SADC countries could be

summarized in the following table, where the Sectoral Effect Indicator reflects the
contribution to a country’s export growth and the Global Competitiveness Effect, or
the balance (export growth minus world growth and sector effect), measures the
contribution of changes in sectoral market shares to a country’s export growth.
Table 12:
Competitiveness Indicator in SADC Member States, 2000-2005
Global competitiveness
Sectoral effect
effect
Angola 13.5 23.4
Botswana 9.7 488.1
DRC 5.8 -16.4
Lesotho -10.2 26.1
Madagascar -8.7 -5.4
Malawi -11.9 3.5
Mauritius -5.6 -7.2
Mozambique -4.1 18.9
Namibia -0.8 60.2
Seychelles -5.3 8.5
South Africa 2.1 -5.0
Swaziland -5.9 20.2
Tanzania -2.5 9.5
Zambia 7.3 11.2
Zimbabwe -2.5 -11.6
AFRICA 4.5 2.8
Source: PC-TAS 2001-2005 International Trade Center UNCTAD/WTO.

Summarizing the overall picture of competitiveness in SADC countries we refer to the
World Bank’s Doing Business indicators in the table below where all 15 Member
States of the region are classified in decreasing order according to the cumulative
business climate indicator.
Table 13:
World Bank’s 2008 Doing Business Ranking
Mozambique
Madagascar
South Africa
Seychelles
DR Congo
Zimbabwe
Swaziland
Botswana
Tanzania
Mauritius
Namibia
Lesotho
Zambia
Malawi
Angola
Ease of Doing Business 24 32 38 51 100 104 108 123 127 134 141 144 158 168 181
Starting a Business 7 47 80 112 71 68 153 125 109 122 144 58 164 156 154
Dealing with Licenses 36 48 119 38 146 56 21 150 172 156 153 102 174 125 141
Employing Workers 64 102 73 34 135 120 40 63 140 96 161 153 127 174 175
Registering Property 127 87 29 129 91 55 153 135 142 96 149 145 85 173 152
Getting Credit 84 2 43 12 68 163 43 84 84 84 123 172 84 84 163
Protecting Investors 11 9 38 70 70 53 178 142 88 70 38 53 113 53 150
Paying Taxes 11 23 17 96 38 40 52 54 109 58 88 92 157 130 153
Trading Across Borders 20 147 149 150 153 90 154 141 103 167 140 109 162 172 160
Enforcing Contracts 76 82 92 36 87 62 129 104 33 138 124 153 77 179 173
Closing a Business 70 73 26 52 80 181 65 69 111 135 133 181 154 142 150
Source: World Bank Doing Business 2009 Report
1.6 Technical support institutions
Existing institutions providing technical support for industries in SADC countries can
be generally classified in following categories:
 Ministries of Industry and/or Trade and their departments;
 Investment and Export promotion agencies;
 Chambers of Commerce, Industry and Agriculture or other agencies in charge
with SMEs;
 Agencies in charge of SME development;
 Professional associations;
 Consultants associations;
 Technical centres;
 Development banks, financial institutions and funds.
Institutional background, scope of activities and support capacities of such institutions

vary from one country to another. In some cases sectoral and assistance mandates are
overlapped by different public and private institutions, several departments within one
ministry or general directorate. This often results in either a lack of or ineffective
coordination and common approach in bringing technical support to the local
operators. It largely explains the absence of effective mechanisms of investments and
export promotion at regional level.

Concerned ministries or other official bodies are not independent enough to build
their own development and support strategies as linked with political decisions. As a
result there is a shortage in institutional cooperation and experience exchange with
international and foreign partner organisations.
Regarding the Chambers of Commerce and Industry and other sectoral or professional
associations of non-governmental sector, since they are mainly self-supporting or
funded by members - mostly small and medium enterprises, such support institutions
are usually limited in human and financial resources, although strongly committed to
deliver support services and build public-private partnership.
The consultants associations are facing the following major obstacles: the SMEs
cannot afford consultants services even if subsidized; enterprises are seeking for
assistance from international donors to cover consultants’ fees; the larger enterprises
prefer to appeal to international consultant firms. In most cases, the companies
encounter difficulties in implementing consultants’ recommendations due to the lack
of internal capacities, as such services as coaching and follow-up are usually
neglected.
Development banks, financial institutions and funds as Development Bank of

Southern Africa (DBSA) located in South Africa or SADC Development Finance
Resource Centre with headquarters in Botswana, in the limits of their mandate, are
called to bring indirect assistance mostly through providing financial support to
development activities in the framework of thematic programmes and initiatives.
The national Centers of Technical Support to industries carry tremendous potential in

providing direct and most tangible assistance to the local producers and exporters.
Such large sectoral centers as Grain SA or the Citrus Growers Association of South
Africa hold technical support portfolio comparable with services offered by
professional organizations in developed countries. They could serve as models to
develop or establish industrial support network throughout the SADC region.
At regional level some centers represent a strong force in achieving SADC regional
objectives of trade facilitation and exports growth. Examples of existing regional
sectoral centers include:
 Council for Scientific and Industrial Research (CSIR), based in South Africa;
 MINTEK, South Africa;
 Southern and Eastern African Minerals Centre (SEAMIC,) Tanzania;
 Mauritius Sugar Industry Research Institute (MSIRI), Mauritius.
Well structured and possessing considerable human and institutional capacities, these
centers benefit from intensive international cooperation and remain up-dated in terms
of methods and technologies applied.
The existing national technical support centres in SADC are as listed in Annex VI.
In most of the developed and developing countries, technical centres and so-called
“Business Development Services” (BDSs) play an important role in supporting

industrial enterprises and related services. Such technical support institutions can
provide the following services.
Diagram 1:
Typical services provided by the technical support centers
MONITORING & FOLLOW-UP TECHNICAL ASSISTANCE

Patents
Pre-normalization, national & regional Testing, Measuring, Analyses
regulation
Platform and on-site evaluations
Environment, sustainable development
Consultations, Audit and Expertise
Product safety, consumer protection, security at
civil works
RESEARCH & DEVELOPMENT TECHNICAL EXPERTISE
Inputs, production, process Consulting and audit: standardization,

Calculation methods and tools regulations
Quality security Occupational safety
Methods, techniques and platform for testing Environmental assessment
Methodologies for feasibility studies Energy efficiency
PARTNERSHIP INFORMATION AND TRAINING
Project design and management in cooperation Media, dissemination activities, forums

with:
Professional training for companies
Companies and associations
Regions Training programmes for high and secondary
education institutions
Public research centres
1.7 EPA impact analyses
Historically, progress towards harmonised and integrated sub-regional markets

amongst ACP countries has been slow and difficult. Regional institutions and
secretariats have lacked financial and technical resources to supervise and coordinate
cooperation, and the political will to implement decisions. EPAs have a legal
obligation to support and strengthen regional integration which would provide
benefits to ACP countries through the pooling of resources, the expansion of markets,
increased trade and investment, and greater diversification and value addition.
Moreover, given the historical experience and the financial and technical capacity of
the EU, EPAs also offer great scope for cooperation in regard to inter-regional
cooperation. EPAs could provide the opportunity to create a more credible and
rationalised system of supra-regional integration between different regional groupings
throughout Africa, in line with, for instance, the African Union agenda for the
rationalisation and coordination of African RECs.
Some studies have been undertaken to assess the possible impact of EPA on regional
integration within SADC and on national economies in particular. However their
results and estimations vary from one study to another. The major outputs of

conducted analyses could be summarised in following recommendations addressing
regional and national dimensions:
- To strengthen capacities of political institutions (national governments, at
SADC extent),
- To support economies, their priority and contributing sectors,
- To develop exports in order to maximise the benefits from liberalised access to
European markets,
- To exclude some non-competitive products and diversify industrial pattern and
the rhythm of openness of regional market,
- To compensate the losses in customs revenue,
- To negotiate trade issues leading to development of agricultural and export
sectors.
1.8 Financial mechanisms
1.8.1 Current situation in private sector financing
Foreign Direct Investments (FDI) are a central determinant of the rate and pattern of
economic growth in SADC economies. By increasing external capital flow and using
the resources in productive domestic investment, SADC economies intends to
strengthen the region's prospects for accelerated economic growth, poverty
eradication and sustainable development.
In 2001, the average SADC Gross Domestic Capital Formation (GDCF) was 16.8% of
GDP. Among individual countries, there were wide disparities in foreign investment
rates, with most countries recording low DI flow.
As far as FDI is concerned, SADC as a Community attracted on average only US$

691 million in the early 1990s, but FDI to the region quadrupled in the second half of
the 1990s standing on average at US$ 3061 million during 1995-98. This figure
accounts for more than half (55%) of all FDI flows directed to Sub-Saharan Africa.
Southern Africa has emerged as a strong pole for attracting foreign investment to Sub-
Saharan Africa (SSA). From 1995 to date, more than 25% of FDI to Sub-Saharan
Africa region were directed to Southern Africa. Individual SADC countries appear to
have performed relatively well compared with other Sub-Saharan countries. For
example, six SADC Member States (South Africa, Angola, Zambia, Lesotho,
Tanzania and Namibia) were among the top 10 recipients of FDI in Sub-Saharan
Africa during the second half of the 1990s.
The outlook for investment in SADC would not be complete without bringing the
cross-border regional dimension into the picture. South Africa, Mauritius and
Zimbabwe are the main sources of cross-border investment into other SADC
countries. Currently, intra-regional investments in the SADC-region are concentrated
in the following sectors: mining, tourism, transport, finance, manufacturing, retail,
telecommunications, agriculture and fisheries.

The main avenues for FDI in SADC are privatisation and public-private provision of
infrastructural services. Most countries are also attracting resource-seeking foreign
investment flows. In general, efficiency and market-seeking investment flows remain
proportionately small.
A number of regional and international financial institutions and development

agencies like KFW, GTZ, Agence Française de Développement, Danida, European
Investment Bank are currently developing or implementing programmes to facilitate
the private sector’s access to funding through development of local commercial
banking infrastructure. Participation of the local commercial banks in companies
financing is crucial for different reasons:
 the banks are called to exclude insolvent and other ‘doubtful’ companies at
the very early stage of selection process;
 the banks will largely contribute to effective financial monitoring and follow-
up of Programme implementation;
 the banks could serve as sustainable source for funding going beyond the
limits and goals fixed by the Programme. They can participate at funding the
lease or purchase of complementary equipment.
Meanwhile, the banking sector in the SADC countries is generally weak and does not
provide the local operators with internal funds sufficient to meet domestic financing
needs for economic growth.
In addition, the regulatory constraints of national monetary policies do not allow the
banks to transform their liquidity. There are only a few financial products available
and the financial institutions that would be able to offer diverse financial products are
either non-existent or offer a limited service portfolio. In most SADC countries, the
interest rates are high, which discourages demand for loans.
Having the credit level below the current needs in investments, the local enterprises
do not benefit from long-term funding and, as result, depend mostly on auto-
financing.
Other problems resulting from the poor performance of the financial sector in SADC
countries include number/volume of financial transactions being undertaken outside
the formal banking sector and the scarcity and high costs of such transactions.
Due to these constraints, it is suggested that the current Programme uses the following
financial mechanisms.
1.8.2 The Regional Industrial Development Fund
A Regional Industrial Development Fund has been proposed as a tool to finance

industrial development programmes through mobilizing and coordinating
development partners’ contributions. Inter alia, the Regional Fund is expected to
finance initiatives aimed at upgrading and improving competitiveness of industries.
Financial resources of Regional Industrial Development Fund are envisaged to

originate from various sources, including the followings:

 SADC funds;
 Regional financial institutions (African Development Bank, Development
Bank of Southern Africa, Industrial Development Corporation, PTA Bank,
etc.);
 International Financial Institutions (World Bank, International Finance
Corporation, European Investment Bank, Islamic Development Bank, OPEP
Fund, etc.);
 European Community with Contribution Agreement;
 EU Member States;
 Other development partners (USA, China, Canada, etc.);
 Members of the African Diaspora;
 Benevolent donors/organizations.
The Fund will operate at regional and national levels. The SADC Secretariat must
ensure the synergy between diverse sources of funding and the Regional Industrial
Development Fund.
Predetermined scope of the Regional Fund’s activities makes the latter the principal
funding source for the current Programme implementation at regional level.
1.8.3 Schemes and mechanisms for funding upgrading and competitiveness
Within the Pilot Phase of the Programme implementation, it is also proposed to

undertake feasibility study on establishment of the national financial mechanisms for
funding of upgrading programmes in every Member State. The results of this study
will determine the needs in upgrading of existing national mechanisms or
establishment of the new ones. The study will also fix the number of such units to be
created in each country. For example, Tunisia, which has already successfully
implemented the national upgrading programme, had decided to create a unique
national fund.
The financing of these mechanisms could be provided through the governmental

allowances, transfers from the Regional Industrial Development Fund, regional and
international financial institutions, the EC and EU Member States in the framework of
bilateral cooperation, European Investment Bank and other development partners
(governments of USA, China, Canada, etc.).
The main purpose of the national mechanisms is to cover financial costs of upgrading
and modernization actions mainly related to initial assessment, design and
implementation of related activities. All investments associated with upgrading and
modernization plans that meet eligibility criteria will also be considered for funding.
Some of such activities could include:
 purchase and delivery of equipment (manufacturing equipment, tools,
machinery and spare parts);
 engineering works,
 equipment installation,
 recruitment and training,

 implementation of management systems,
 feasibility studies and business plans,
 market studies.
Unless the national regulations provide compensations, certain costs will not be
covered, notably:
 repayment of debts;
 covering loan interests and provisions;
 costs already financed by other sources;
 purchase of realty (land parcels or buildings) unless the latter is indispensable
for companies’ operations;
 covering different fiscal fees and taxes, VAT…

SECTION 2: CONTEXT AND JUSTIFICATION OF THE PROGRAMME
2.1 SADC: Background, Strategy, Priorities and Challenges
2.1.1 SADC Regional Integration Process
Established in 1992 and originated from the Southern Africa Development

Coordination Conference (SADCC), the Southern African Development Community
is pursuing intra-regional trade integration, forming a free trade area (FTA), with the
ambition of moving towards a customs union. In parallel, several SADC members are
involved in negotiations with other regional organizations.
Initially SADC was seen as a vehicle for political integration. This political platform,
which is still SADC’s strong suit, then took on trade matters. The SADC Trade
Protocol was adopted in 1996 and came into force in September 2000. It envisions the
formation of an FTA, with liberalization of 85% of all intra-regional SADC trade by
2008.
During the transition period towards the FTA, SADC countries may trade on
preferential terms in an asymmetrical manner. Under these arrangements, South
Africa (and indirectly its customs union partners Botswana, Lesotho, Namibia,
Swaziland) is expected to open its market faster than the other SADC members.
Although the trade protocol does not mention a customs union, there has been a
proposal for the formation of a SADC customs union by 2010 and a common market
by 2015.
The SADC Trade Protocol contains provisions not only on market access for goods,
but also arrangements for rules of origin, Technical Barriers to Trade (TBT), and
Sanitary and Phytosanitary (SPS) measures. The protocol also promotes cross-border
investment and future trade liberalization in services.
All indicators suggest that the SADC countries as well as the SADC region as a whole
have increased their openness. However, trade flows among SADC countries are still
relatively low. During the 1990s, SADC intra-regional trade as a percentage of total
trade more than doubled, reaching 20% in 1997. The overall figure for intra-regional
trade stood at roughly 25% by 2003 4. These figures however take South Africa into
account. South Africa experienced a disproportional increase in trade after the change
of political regime in 1994 and now accounts for over 70% of intra-SADC exports,
enjoying a large trade surplus with the other members.
In spite of the SADC Trade Protocol’s ambitious agenda, limited progress has been
made in regional economic integration. The trade policy of several SADC members
has not been consistent with their tariff reduction schedules. Furthermore, some of the
most important product lines have been excluded from liberalization. The volume of
goods that SADC countries wish to leave out of any regional liberalization is also
worth more than the agreed 15%.
4 SADC Press Briefing, 9 March 2004:

It is important to note that most SADC members belong to at least one other regional
grouping. This is perfectly consistent with the principles of an FTA, where each
member remains in charge of its own trade policy towards non-members. A country
can thus belong to several different FTAs, as is often the case. However, in the case of
customs unions, where members adopt a common external tariff and policy, a lack of
coherence leads to conflicting obligations.
A sub-group of SADC members, South Africa and the BLNS (Botswana, Lesotho,
Namibia and Swaziland) countries, have formed the Southern African Customs
Union. A possible SADC customs union will thus require alignment with the SACU
common external tariff. To complicate matters further, several SADC members also
belong to the Common Market of Eastern and Southern Africa (COMESA), which is
set to become a customs union by December 2008. Also, Tanzania, in addition to its
SADC membership, is also part of the East African Community (EAC), which
became a customs union in 2005, but the country is not a COMESA member, like its
two EAC partners, Kenya and Uganda (see Figure 1, page 15). This has led to
unavoidable conflicting economic integration commitments and objectives.
Besides the lack of harmonized inter- and intraregional trade policies, there has been
little progress in formulating a coherent trade policy among SADC members, despite
the SADC Trade Protocol.
All SADC countries are members of the World Trade Organization (WTO) and
participate in the Doha Development Round. They are also signatories to the Cotonou
Partnership Agreement and are thus currently negotiating an EPA with the European
Union. The exception is South Africa, which, as a “qualified” member only under the
ACP-EU partnership agreement, does not benefit from the EU non-reciprocal trade
preferences. Instead, it has concluded an FTA with the European Union. This Trade,
Development and Cooperation Agreement (TDCA), has been in force, provisionally
and partially since January 2000 and fully since May 2004. Besides, SADC members
take part in bilateral agreements with one another and with other countries. Several
SADC countries benefit from preferential market access to the United States under the
African Growth and Opportunity Act (AGOA). SACU is also negotiating a possible
free trade agreement with the United States, and one with MERCOSUR, and a future
trade agreement with India is also possible.
2.1.2 Regional development strategies and objectives
In SADC, industrialization has been pursued vigorously through various policies and
programmes, with various objectives such as import substitution, employment
creation and export promotion, with varying degrees of success.
The SADC Regional Indicative Strategic Development Plan (RISDP)

Approved by the SADC Council of Ministers at their meeting in Dar Es Salaam,
Tanzania, in August 2003 and launched in March 2004, the SADC Regional
Indicative Strategic Development Plan (RISDP) focuses on promoting trade,
economic liberalization and development as a means of facilitating trade and financial
liberalization, competitive and diversified industrial development and increased
investment.

In order to attain this goal, RISDP is pursuing, inter alia, competitiveness
enhancement through:
 industrial development and increased productivity in all sectors;
 private sector development;
 diversification of regional economies;
 trade liberalization and development;
 liberalization of factors of production;
 research science and technology innovation, development and diffusion;
 enabling institutional environment for technical support.
Following several meetings at both Regional and Sub-regional levels, the SADC
Ministers of Industry and Trade adopted a methodology based on the value chain
(global/local) of specific industry categories in order to identify priority segments
where comparative advantage exists, so as to make specific and appropriate
interventions.
The following 9 strategic sectors were selected as those offering the most global
comparative advantage and growth potential:
1. Agro-food;
2. Processing of Minerals (metallic and non-metallic) products;
3. Leather and Leather products;
4. Forestry;
5. Fisheries;
6. Chemicals, Petroleum and Pharmaceuticals;
7. Textiles and Garments;
8. Machinery and Equipment; and
9. Services.
The SADC Ministers of Industry and Trade decided that strategies and action plans
should be developed, with the assistance of UNIDO, at both the SADC Regional level
and national levels to improve industrialization and promote employment in the
SADC region.
The SADC Regional Road Map

At the request of SADC Secretariat, UNIDO undertook a survey to assist in value
chain studies for two out of three priority sectors in each SADC Member State. With
financial support from South Africa, Regional Strategies and Action Plans for all the
nine priority sectors were developed. The latter were aggregated and adopted by the
recent Inaugural Meeting of SADC Industrial Development Forum (7-8 June 2007) as
the SADC Regional Road Map.
This document provides the detailed plan of actions to be taken at the regional level in
the three top-priority sectors, namely: agro-food processing, minerals (metallic and
non-metallic) processing and pharmaceuticals.

The following is a brief summary of the relevant actions recommended by the
Regional Road Map for the three priority sectors:
A. Agro-food processing
1. SME Development
Recommended actions:
i. There is need to develop an SME programme with emphasis on
Women in food processing industry as well as a special programme for the people
who are physically challenge. This reflects the fact that agro-processing industry
has more women players; particular emphasis should be placed on enhancing
their skills capacity and income.
ii. Undertake entrepreneurship development and capacity-building
in agro-food sector.
iii. Establish agro-food processing related skills development
programmes to promote technology, technical skills acquisition and technology
diffusion.
2. Undertaking integrated infrastructure development
i. Physical infrastructure projects should be linked with each
other. For example, the ports should be linked with the rail networks, which
should also lead to the industrial estates and sources of agro-food raw material
ii. The existing physical infrastructure should be revamped to
reduce turnaround time and reduce transportation and logistics costs in SADC.
iii. Develop of industrial clusters and encourage collaboration
among the members.
iv. Communication, energy supply, water and other infrastructure
and technology should be provided and linked to these industrial clusters.
3. Developing market access
i. Develop quality infrastructure (through SQAM - conformity,
mutual recognition, equivalence and confidence building; Sanitary and
Phytosanitary Systems) and promote compliance with quality standards.
ii. SADC Member States should address the Technical
Regulations and Technical Barriers to Trade (TBTs); they should accelerate the
reduction and eventual total removal of all tariffs/ NTBs in this sector within
SADC.
iii. Encouraging producers to improve packaging, distribution and
marketing of their products.
iv. With regard to global markets, Member States should assist
private sector companies to participate in international trade fairs in order to
promote their products.
v. Business delegations should visit target markets to promote
their products.
vi. Strategic alliances should be encourage between local
companies and foreign companies in the value chain.
4. Development/management of water resources
i. Address shortage of water in the region by establish of a
regional water commission for river basins in line with the SADC Protocol on
Shared Water Courses.
ii. Improve management of the Regional shared water resources.

iii. Ministers of Industry should discuss this with the Ministers
responsible for Water.
5. Improving the industrial governance
i. Harmonization strategies and policies on agro-processing
sector
ii. Involve Sector Associations and Trade Unions in decision-
making on the agro-food sector
iii. Establish Performance Monitoring Committee at both regional
and national levels. Membership of this committee should be competitive and
must be paid in order to attract high-calibre people. Individuals with technical and
managerial expertise should be headhunted to serve on this committee.
6. Provision of industrial and market-sensitive information
i. Facilitate the gathering and dissemination of technical and
marketing information and knowledge on the agro-food sector, through regional
and national centres.
ii. Promote networking and backward linkages (through Joint
Ventures) among private sector stakeholders in agro-food sector.
iii. Improve capacity of Statistics Unit of SADC Secretariat to
collate industrial statistics. National Statistics Offices should be obliged to
provide current industrial statistics on time to this unit.
iv. Promoting positive media reporting about Africa.
v. Develop a regional data bank for equipment and machinery
suppliers and disseminate information on their products.
7. Improving Research and Development
i. Increasing investment in R&D.
ii. Provide of proactive incentives favoring agro-food processing
sector.
iii. Undertake an assessment of the identified Centres of
Excellence and provide support for any weaknesses identified.
iv. Promote and rewarding innovation.
B. Minerals processing
i. Enhance and broaden the skills base.
This should involve:
- regional collaboration in HRD (especially at the technicians and engineers level);
- address the bottle-necks in the HRD pipeline (especially in mathematics and
science);
- harmonizing HRD accreditation systems in Member States;
- assessing regional HRD capacity to produce requisite skills for value-addition;
- addressing the HIV/AIDS pandemic to minimise its impact on skills availability.
ii. Promote beneficiation of minerals and scrap metals.
iii. Increase investment in and coordination of R&D.
iv. Forster innovation (i.e. promote and reward innovation).
v. Develop vibrant and competitive downstream manufacturing industries (mostly
SMEs).
In that regard, Member States should re-negotiate any current agreements with the
main mining companies in order to ensure buy-in.

- Develop strong foundry industry (1st Stage in beneficiation chain);
- Develop of industrial clusters; promote networking and collaboration;
- Subsidize electricity cost to downstream producers;
- Provide coordinated technical support services;
- Improve technological capabilities of downstream industries (fundamental to
increasing competitiveness);
- Assist firms to upgrade equipment/Invest in new technologies.
vi. Translate existing linkages into joint growth and development.
vii. Precious Metals and Minerals
- Establish requisite refining capacity;
- Establish semis production capacity;
- Assess regional design and marketing collaboration.
viii. Market Access (Trade Barriers; NTBs).
ix. Marketing (Pricing; Margins; Promotions).
x. Involve Sector Associations and Trade Unions in decision-making.
xi. Centres of Excellence
Centres of Excellence should be identified and assisted to play their role in improving
industrial performance. Such centres should be at both regional and national levels.
(a) Regional Centres of Excellence, e.g.
- SEAMIC, Tanzania;
- Mintek;
- CSIR.
(b) National Centres of Excellence, e.g.
- Assess capacities and capabilities to play roles;
- Improve capacities and capabilities.
xii. Enhance collaboration between Regional and/or National Centres of Excellence &
Industry players (e.g. Project AuTek between Mintek and AngloGold).
xiii. Establish Agency for Registering Patent Rights.
xiv. Regulatory Environment and Cost of doing business.
xv. HIV/Aids.
xvi. Promote positive media reporting about Africa.
xvii. Infrastructure development: Without the infrastructure in place, becoming
competitive will only remain a dream.
C. Pharmaceuticals
i. Collaborate to develop a regional chain for the pharmaceutical industry
ii. Undertake detailed study of pharmaceuticals industry in Angola, DRC, Lesotho,
Madagascar, Mauritius, Mozambique, Namibia, South Africa, Tanzania, Zambia and
Zimbabwe (May 2007).
iii. To facilitate the above process, there is need to establish technical working committee
whose mandate would be to set up the modalities for the development of the
pharmaceuticals sector in SADC (April 2007).
iv. Explore the possibility of integration of indigenous herbal and traditional knowledge
and practices into the healthcare industry.
v. The SADC pharmaceuticals industry must aspire to be U.S. FDA and European
Medical Evaluation Agency (EMEA) compliant in order to harness the growth
opportunities in areas of contract manufacturing and research.
vi. A study should be undertaken to assess the quality of drugs from India. This is to
prevent dumping of low quality drugs onto the market in SADC (June 2007).

vii. Develop internships and mentoring programmes to close the gaps in technical skills.
In that regard, there is need for collaboration between government, the private sector
and academia to build capacity for quality analysis.
viii. Establish an Africa-wide Medical Evaluation Agency, with the power to grant drug
approval for the continent. In doing so, there is need to explore the Chinese model of
healthcare provision so that SADC can understand out how China managed to
provide pharmaceutical products and healthcare services to its large population
without depending on the West countries. SADC can also learn from Algeria’s
pharmaceuticals industry (July 2008).
ix. Shift the focus of the industry from being research/supply driven to being
commercial/demand driven.
x. For a start, concentrate on the development of generic drugs (tablets, injections and
liquid formulations), and the assembly of medical equipments and instruments.
xi. Improve distribution throughout SADC and internationally.
xii. Pharmaceutical companies to invest heavily in R&D. A significant increase in the
level of funding is required.
xiii. Establish duty-free pharmaceutical zones, with attractive incentives, in Angola, DRC,
Lesotho, Madagascar, Mauritius, Namibia, South Africa, Tanzania, Zambia and
Zimbabwe. A reduction in restriction, such as exchange controls, would also
encourage foreign investment in the local industry.
xiv. Research and develop the use of locally available raw materials and local knowledge.
xv. Certain parts of the value chain should be located in SADC member states where
there is comparative advantage.
xvi. Member States should create the appropriate regulatory environment for developing
the sector to become commercially and export oriented.
xvii. Using NEPAD as a platform, set up an Africa-wide technical working committee on
the Pharmaceutical sector to oversee the harmonization of the sector and establish a
Mutual Recognition Arrangement for the registration of medicine, inspection of
manufacturing facilities, funding of medical research and development, regulation,
patent rights, etc.
xviii. Certain parts of the value chain should be located in SADC member states where
there is comparative advantage. That is, it might be necessary for SADC/African
countries with a similar resource base collaborate in developing the value chain (or
segments of the value chain). This approach has he advantage of allowing the
transformation of African raw materials into finished goods within Africa, hence
benefiting both the producers and consumers. Raw material producers benefit from
the immediate market access for their produce; while consumers benefit from the
relatively low prices for the finished products. Several other benefits (e.g. foreign
exchange savings, employment creation, development and protection of indigenous
plant species, preservation of indigenous intellectual property, etc) accrue to the
SADC/African countries involved.
xix. The African market is potentially huge and holds a lot of promise for pharmaceutical
products that provide immediate cures for common diseases like malaria, Aids, etc.
This should be the main focus for development of the pharmaceutical products,
medical equipments and instruments;
xx. Establish an aggressive capacity building programme, hosted by the identified
Centres of Excellence, and supported by a special fund for innovation, skills
development, and research and development in the Pharmaceutical Industry.
xxi. For the production of export-oriented industries, African countries should agree to
grant tariff exemptions to imported goods considered to be inputs for the local
industry and which will be packaged, processed and re-exported. This would help
contribute to the diversification of the manufactured exports within priority industrial
sub-sectors. The reduction in tariff barriers would promote intra African and sub-
regional investment and trade within the African continent.

xxii. African countries should be proactive and take advantage of the fragmentation of the
industrial production, which has a direct correlation with the diffusion of technology
and transfer of know how.
xxiii. Incentives must also be provided at the policy level for which intermediary goods are
structured in a manner so as to attract more medium to high technology content
products in order to foster the upgrading process.
xxiv. Governments should act as facilitators of economic activities and empower the
private sector to be the major operator in production and distribution. However,
Government has to intervene in activities where there are market failures or where
economic returns are negative.
xxv. Accreditation of laboratories (including private sector laboratories) and provision of
technological infrastructure will help to boost the long-term viability of the
pharmaceuticals sector.
xxvi. Development of the Pharmaceutical Sector to carry out, inter alia, Clinical Research
Outsourcing, production of Generics as well as addressing the Phytodrug sector.
xxvii. The Biomedical Industry is rapidly emerging as an engine of growth for the future. In
that regard, there is need to identify and select a number of institutions/organisations
which should be developed into regional centres of excellence for high-technology
medical and biotechnological activities.
2.1.3 SADC-EU EPA Negotiating Principles and Objectives
In previous ACP-EU cooperation agreements, all ACP countries enjoyed non-

reciprocal tariff preferences for their exports to the EU market. Under the Cotonou
Agreement, this has changed in 2008, when reciprocal free trade arrangements (under
so-called Economic Partnership Agreements (EPAs) negotiated at the regional level
between the EC and the six ACP regions) should replace the previous preferential
trade regime. The new agreements must be compatible with the rules of the WTO,
development-oriented and build upon ACP regional integration initiatives. The new
trade regime must also incorporate and improve upon the Lomé/Cotonou instruments
regarding access to the EU market for the ACP countries.
The Cotonou Agreement and the ACP guidelines for EPA negotiations state the
general objectives and principles the SADC members will adhere to in the EPA
negotiations. Based on the Cotonou Agreement and the outcome of the first phase
negotiations, both sides agree that the overall objectives of the SADC-EC EPA will be
sustainable development of SADC countries, their smooth and gradual integration into
the global economy, and to contribute to the eradication of poverty.
Trade liberalization is one of the intended means to achieve these goals, but given the
structural frailties of the SADC economies, it is clear that trade liberalization in itself
will not lead automatically to growth and sustainable development. Therefore, the
EPA, together with other bi- and multilateral trade and development initiatives (as
AGOA, “Everything But Arms”), is intended to tackle trade and development
weaknesses in a more significant way than the Lomé conventions. By adopting a more
holistic approach, the EPA can help SADC economies surmount their various supply-
side constraints and build a more diverse and competitive production basis.
More specifically, the SADC-EC EPA will:

 promote sustained growth,

 contribute to enhancing the production and supply capacity of the SADC
countries,
 foster the structural transformation of the SADC economies and their
diversification, and
 support regional integration initiatives in the SADC region.
The new SADC-EU Economic Partnership Agreement (EPA) will contribute to

SADC regional integration process particularly in enhancing the diversification,
production and supply capacities of SADC countries in line with the objectives and
goals of the SADC Regional Indicative Strategic Development Plan.
2.1.4 The major problems to be solved
Like most developing countries, agriculture is the cornerstone of the SADC countries
economies. Unfortunately, agriculture alone is no longer able to provide reliable
livelihood for the growing population in SADC.
The manufacturing sector and transformation of the local raw materials represent the
greatest potential for employment and trade development in SADC countries.
However, production of manufacturing goods and their commercialization on the
regional and international markets suffer of the following key constraints:
 Poor product quality;
 Poor productivity, competitiveness and attractiveness of industrial sectors,
especially those identified as priority;
 Limited market access due to barriers to trade (TBs and NTBs/SPS);
 Lack of international quality and service standards;
 Lack of reliable and mutually supportive relationships up and down the
supply chain;
 Limited marketing due to problems with pricing, limited margins and
inadequate promotions strategies;
 Inadequate/weak Human Capital development;
 Shortage of energy supply;
 High transaction costs resulting from high transportation and logistics costs;
 Weaknesses in provision of relevant information;
 Limited promotion of networking partnerships among African entrepreneurs
within the region;
 Poor/lack of coordination in the regional infrastructure development;
 Restrictive regulatory environment;
 High cost of doing business.
2.2 Programme justification
2.2.1 The EPA Context

The prospects of the EPA’s entry into force reveal concerns and expectations, which
seem contradictory and complementary at the same time:
 Certain fear that EPA turns only into a free trade agreement increasing
difficulties for local companies;
 Anticipation that EPA will be a tool for the economic development and
regional integration, which would provide the capacity building for national
and sectoral institutions in order to improve the business environment able to
promote the national value chains, regional integration and convergence.
As to the tariff disarmament, on the contrary, “the EU has clearly said that long
transition periods, a phased introduction of tariff dismantling, exemptions from
liberalization for sensitive products and a strong asymmetry between EU and ACP
opening are perfectly acceptable and reasonable”5.
“The EC market access offer to ACP countries in EPAs consists of duty-free, quota-
free treatment for all imports. This treatment would apply from entry into force of the
agreements for all products except for sugar and rice. For these two products, duty-
free, quota-free treatment would be phased in over a transition period.
This offer includes the elimination of all tariffs and tariff rate quotas on products not
fully liberalized under the Cotonou trade regime such as bananas, beef and other
meat, dairy products, wheat and all other cereals, as well as all fruits and vegetables.
The EPAs are intended to be broad agreements, helping first of all to build regional
markets and diversify economies in the ACP regions before opening up trade to build
increased, balanced and sustainable trade between the two regions.”6
In order to reach its effectiveness, the policy of liberalizing intraregional trade and
interregional exchange with EU, needs to be supported by the permanent
implementation of Upgrading Programme for the private companies, technical support
institutions and their institutional environment so that the companies are able to better
face an international competition at regional and international levels.
The development goals have an absolute priority in the EPA negotiating process and
serve as the basis for the future relationship between EU and ACP grouping of
countries. The new agreement performs thus as a response to the challenges of the
world globalization and international development processes. In the spirit of the new
partnership, the EPA negotiations and its implementation must be accompanied by
appropriate policies implemented by ACP States, on the one hand, and by support
measures provided by EU, on another hand. It is from this point of view that the latter
committed it to help the Southern Africa region to improve its competitiveness,
diversify its exports, create new jobs and to build its regional market. The objective is
to develop fair partnership adapted to the specific conditions of the Southern African
region that would go beyond such issues as market access and would take into
account and focus on the constraints limiting production and exports through
improving both quality and quantity.
5 Communiqué of Peter Mandelson's Press Office

6 Idem

2.2.2 Lessons learned
The general approach developed by the Programmes on Industrial Upgrading and

Modernization takes into account the experience gained by UNIDO in implementing
several thematic programmes in the context of trade liberalization with increasing
emphasis of companies’ participation in international trade and their increased
competitiveness. The lessons learnt from the experiments carried out by UNIDO in
upgrading industries in UEMOA region as well as in other different countries
(Tunisia, Morocco, Algeria, Jordan, Portugal and Senegal) were cumulated in the
strategic approach and methodologies of formulation and implementation of the
Programmes on Industrial Upgrading and Modernization. The major results of
performance evaluation of UEMOA and EBAS quality programmes were also used.
The key principles of the lessons learnt are, in particular, as follows:
 To encourage strong political will to improve business environment by
reducing administrative obstacles and eliminating barriers to trade;
 To promote the better participation of all parties interested in companies
development in all phases of Programme’s implementation, including
entrepreneurs themselves and professional associations. The evaluation of the
projects intended to support the private sector has brightly demonstrated that
the obstacles to which the businesses face are difficult to be revealed unless
the entrepreneurs and trade associations identify them, assist in searching the
possible ways of their solutions in close partnership with the public
administration;
 To highlight the need in continuous and sustainable character of upgrading
process;
 To stimulate visibility and effective involvement of the private sector and
financial institutions with the aim to improve an access to credits;
 To promote effective and operational decision-making process based on good
analyses of specific situation and national context leading to decentralize the
Programme management process with putting the special emphasis on
targeting national actors in every beneficiary country of the region;
 To ensure effective distribution of roles among regional, sub-regional and
national institutions in management and implementation of the Programme
with a clear definition of competences and areas of activity for each
institution involved.
2.3 UNIDO Initiative
The present Programme has as an objective to support the efforts of SADC countries
in reducing constraints and difficulties encountered by industries of the region as the
result of trade liberalization. Nevertheless, liberalized markets are creating new
opportunities to implement new industrial policy for enhancing the companies’
competitiveness and access to the new markets.
In parallel with other bilateral and multi-lateral programmes the UNIDO Initiative on
Industrial Upgrading and Modernization could perform as one of effective tools in

meeting challenges set-up by sub-regional and national competitiveness development
initiatives. In particular, the Programme will aim to:
 Provide companies with technical assistance and financial support in
implementing restructuring projects to improve their competitiveness and to
better response to the new challenges of liberalized market;
 Reap significant benefits from trading opportunities created by trade
liberalization through getting better access to both regional and international
markets;
 Provide capacity building to specialized public agencies and industrial
support institutions (technical centers and associations), whose weaknesses
do partially explain the lack of performance in the most of SADC national
industries;
 Enhance competitiveness of the greater part of the region’s industrial sectors;
 Promote diversification of the regional economy and encourage local
processing of raw material;
 Improve business environment to make it favorable to the private sector
(administrative procedures, access to credit, etc.).
UNIDO’s experience in implementing industrial upgrading programmes has

demonstrated immediate effect on acceleration of industrial sector growth, and
thereby contributing to the overall socio-economic growth and employment creation.
Held on 7-8 June 2007 in Gaborone, Botswana the Inaugural Meeting of SADC
Industrial Development Forum (IDF) welcomed UNIDO’s initiative and approved the
development of the proposed Industrial Upgrading and Modernization Programme.
On 31st March – 2nd April 2008, in Johannesburg, South Africa, the SADC Secretariat
held the Regional Validation Workshop which approved the draft programme. The
SADC Secretariat, delegates from Member States, representatives of private sector
and UNIDO took part in this workshop.
2.4 Main beneficiaries of the Programme
The main beneficiaries of the Programme are:

 Manufacturing companies, formal and informal SMEs and companies
providing related services: The SMEs from each SADC member country
eligible to the Programme will directly benefit from the UNIDO’s approach
and methodology and will improve their productivity, quality management
and export capacities, upgrade their equipment and enhance competitiveness.
 The regional and national institutions providing industrial support and
professional education in SADC countries: These institutions will receive
the technical assistance (in the form of institutional support and equipment) in
formulating policies and procedures, implementing activities related to
industrial upgrading, providing professional trainings and innovations, and
improving competitiveness.
 The Ministries of Industry and Trade: They will directly benefit from the
technical assistance provided within the Programme implementation. This

will include capacity building programmes for the staff of ministries, national
associations, private sector and consultants.
2.5 Articulation of the Programme between regional and national levels
The institutional nature of the Programme leads to the mobilization and involvement
of all actors in the upgrading and modernization process into methodology based on:
 Indispensible complementarities between the regional and national
institutions;
 The Programme presentation to the development partners as complementary
to and coherent with the national programmes initiated and carried out in the
Member States taking into consideration the national specificities of each
country.
The SADC Secretariat will facilitate the following activities shared by all
participating countries at the national level:
 development of information systems;
 development of the consultants database;
 conducting sectoral and other related studies;
 development and management of follow-up and evaluation mechanisms;
 supporting development of the national capacities.
At the national level, each Member State should select priority sectors for the pilot
Industrial Upgrading and Modernization Programme development. The ministries
responsible for industry have to ensure establishment of appropriate mechanisms,
giving them maximum autonomy and initiatives, allocating all necessary resources,
associating the stakeholders, and setting-up the follow-up and evaluation mechanisms.
The National Steering Committees will be composed by representatives of the public,

private and financial sectors. The National Offices for Upgrading and Modernization
should be managed by experienced and autonomous experts.
Taking into account the sensitive and confidential character of information on

companies’ upgrading and modernization, each file will be studied directly by the
local committee. It will act as the exclusive counterpart of the companies at national
level.
The Programme should be flexible and adapted to the changing socio-economic and
political environment. The following Diagram represents the repartition in
Programme coordination between regional and national levels.
Diagram 2:
Programme Coordination at Regional and National Levels

Regional Steering
Committee
Regional
Level
Technical Unit of
Regional Coordination
National Steering
Committee
National
Level
Technical Unit of
National Coordination
2.6 Complementary activities to Upgrading Programme
The Industrial Upgrading and Modernization Programme is directly oriented towards

companies and their immediate environment. Meanwhile, several other development
institutions are acting in favour of competitiveness development and support to the
productive sector in SADC countries. Those activities are developed at the regional
and national levels and lead to improve business environment, infrastructure, human
resources, competitiveness, investment and export potential, access to credit,
microfinance, agro processing sector, institutional development, promotion of SMEs
and craft industries.
In addition to the EU and its member states together with their specialized
development agencies financing and implementing development programmes in the
Southern Africa region, the other major donors and IFIs contributing to the socio-
economic growth in the region at the macro-, sectoral and micro-levels include the
World Bank, the European Investment Bank, the African Development Bank, UNDP,
the United States and Canada through their international development agencies
USAID and CIDA, respectively.
While the short-term, concretized, selective support programmes are less efficient,
this Programme proposal offers a global approach, which will implement in its
operational mechanism the complementarity strategy with the related activities of
EDF, EU members and other financing institutions. It will aim at involving other
financial partners to reach a multiplying effect of all programmes.
The programmes complementary to the current initiative are numerous and largely
spread among various sectors of manufacturing and services. The programmes are
partially funded by national governments or regional institutions as SADC DFRC,
with predominance of international and foreign donors such as EU, ESIPP, CDE,
World Bank, USAID, IFC, MCA, FAO, UNDP, UNIDO, AfDF, GTZ, AFD.

2.7 Coordination of potential donors
The Programme activities to be implemented jointly with International Cooperation

Partners will be coordinated during the regular meetings initiated by the SADC
Secretariat every three months.

SECTION 3: OBJECTIVES, COMPONENTS AND OUTPUTS OF THE
PROGRAMME
3.1 Objectives
3.1.1 Global objective
The overall objective of the Industrial Upgrading and Modernization Programme is to

contribute to the strengthening of industrial capacities of the SADC countries to face
the double-challenge of regional and world integration and, in particular, in the
context of economic and trade liberalization and diversification, to support efforts to
reduce poverty.
3.1.2 Specific objectives
Specifically, the Programme aims to support the dynamics of upgrading and

modernization of industries and related services, and to improve their
competitiveness, growth and access to national, regional and international markets
within the framework of trade liberalization and economic diversification, in
particular, through improving productivity and quality, job creation and strengthening
of technical support infrastructure.
Current Programme proposal covers:

Phase 1: The Programme will be piloted at the regional and national levels for a
period of 3 years. The Pilot Phase will consist of industrial upgrading and
restructuring at the enterprise level and development of regional and
national institutions supporting implementation and follow-up of the
Programme. This phase intends searching and developing the “success
stories” through running some possible experiments.
Phase 2: The Roll-out Phase of the Programme will draw on lessons learnt during
Phase 1 and will be opened to all the remaining priority sectors. The
duration of this phase is 3 years with possible extension.
Each phase of the Programme will end with a comprehensive evaluation and review
commissioned by the SADC Industrial Development Forum.
The outputs and respective activities could also be reviewed subject to the results of
intermediate evaluations of the Programme implementation and/or according to the
specific development priorities of the Member States.
3.2 Programme components and outputs
The Programme will be implemented through two integrated components:

1. Support for upgrading and improving competitiveness of industries and related
services;
2. Establishment/upgrading of the technical support institutions.

The Programme is expected to be implemented through achieving the specific outputs
described in the next section.

Component I
Support for upgrading and improving
competitiveness of industries
This component covers the key activities on upgrading and modernization 7 of industrial companies in strict
sense. The major beneficiaries are the companies of the priority industrial sectors largely contributing to
national economies. They will benefit from activities on restructuring, upgrading and improving of their
competitiveness. Together with the direct interactions with beneficiary companies, this component intends to
target an institutional and legislative framework necessary for the success of the Programme. This component
follows the various stages to be crossed within the Programme implementation. Several activities can be
launched simultaneously as the component covers activities relating both to the pilot and roll-out phases of
the Programme implementation.
Support the dynamics of industrial upgrading and improving

competitiveness, overall economic growth and access to the national,
Immediate Objective regional and international markets. Development of the regional and
national institutions for implementation and follow-up of the
Programme on Industrial Upgrading and Modernization.
- To restructure and upgrade the industrial network to make it more

competitive at the national and international levels;
- Absence of policies, legal framework and mechanisms enabling
Problems to be solved funding of upgrading and modernization activities;
- Lack of institutional capacities necessary to support upgrading
and modernization activities.
Strategic positioning study of 20 priority and contributing

products/sectors (e.g.: agro-food, processing of metallic, non-metallic
Output I.1 and chemical products, pharmaceuticals, leather and hides, cotton and
textile, poultry farming, fisheries, etc.) taking into account national
specificities and capacities determining industrial specialization.
Thorough diagnosis and restructuring plans for beneficiary

Output I.2 companies.
Thorough diagnosis and upgrading plans for the companies eligible to

Output I.3 the Programme (global approach8 and specific approach9)
Technical support and coaching of SMEs for the implementation of

Output I.4 the upgrading activities in the beneficiary companies (priority to
immaterial investments activities).
Capacity building for the ministries in charge of industry, upgrading

Output I.5 centres, SME, employer associations, banks, experts/consultants and
trainers for the implementation and follow-up of the Programme.
7 In the programme, ‘Upgrading’ refers to immaterial investments activities, while ‘Modernization’ stands for
material activities involving providing new equipment. ‘Restructuring’ aims at resolving financial problems.
8 The global approach of companies upgrading includes global strategic diagnosis, formulation of upgrading
programme, and technical assistance in implementing priority activities.
9 The specific approach consists in diagnosis of the company’s specific problem and assistance in implementing
activities, which lead to solve this problem.

Formulate national Industrial Upgrading and Modernization
Output I.6 Programme for each Member State.
Design and provide assistance for the establishment of a legislative

Output I.7 framework and procedures for the regional Industrial Upgrading and
Modernization Programme at regional and national levels.
Design and implementation of the regional and national programmes

of communication and promotion of the Programme (development of
promotional materials and thematic website for the SADC Secretariat
Output I.8 and each country) and undertaking of “SADC Upgrading Tour” for
the managers of industries at the regional and national levels and
organization of information and dissemination seminars on
Programme’s results for the different production.
Promotion of projects on industrial partnership/industrial coaching

among the companies eligible to the Programme. Providing support
Output I.9 to negotiating process (business-plan and fund-raising)/strategic
coaching.
Feasibility study and establishment of financing schemes to facilitate

Output I.10 access of local SMEs to funding necessary to implement upgrading
and modernization activities and to fulfill their investment plans.
Setting-up of a Monitoring Framework for Industrial Upgrading and

Output I.11 Modernization Programme at national and regional levels.
Strengthening of capacity of enterprises, associations and related

Output I.12 services in the informal sector (entrepreneurship, bookkeeping,
financing, management, marketing, production management, etc.).

Component II
Establishment/upgrading of the technical support institutions
This component is a matter of activities complementary to upgrading actions, dealing basically

with environment of the Programme, notably, through providing activities related to strengthening
capacities of the technical support institutions and those of quality promotion.
Upgrading and modernizing industrial support institutions

Immediate Objective
Improving quality of business-climate and exports capacity.
- Weak capacities of institutions for technical assistance in

upgrading and exports promotion;
- Deficiency in institutions providing technical and professional
Problems to be solved education and training;
- Narrow range of business support services;
- Limited support for promoting company competitiveness;
- Non-conducive business and macro environment.
Thorough diagnostics, formulation and implementation of the

upgrading plans for technical centres promoting priority and key
export sectors (sectoral technical centres, research institutions, export
Output II.1 promotion agencies, test and analysis laboratories, specialized
institutions for vocational training, national technical expertise,
networks and information systems).
Launch of the HACCP and certification ISO 22000 for selected

Output II.2 companies.
Assist with the implementation of programmes of traceability for

Output II.3 specific and priority products having high potential for export (meats,
fish, fruits and vegetables, flowers, cashew nut, coffee, cocoa…).
Implementation of Quality Management Systems and certification of

Output II.4 ISO 9001 QMS at beneficiary companies.
Networking of intermediary organizations from SADC region and

Output II.5 EU and strengthening professional organizations.
Promotion, creation and assistance for the establishment of export

Output II.6 consortia. Formulation of support measures and a favourable legal
framework for the export consortia (at regional and national levels).
Strengthening capacities of investment promotion agencies and

establishment of an investment platform in order to respond to the
Output II.7 needs of investors and operators in the area of upgrading and
modernization.
Output II.8 Establishment of Subcontracting Exchanges and “aftercare” services.

Support to and industrial coaching of investments for developing new
Output II.9 products in Southern Africa and promoting industrial diversification.
Strengthening and upgrading of the technical and professional

Output II.10 training institutions.
Annex III of the document provides the detailed list of activities leading to the
achievement of the above outputs, whereas Annex IV presents their implementation
schedule.

SECTION 4: APPROACH AND CRITERIA OF ELIGIBILITY
TO THE PROGRAMME
The Industrial Upgrading and Modernization Programme developed for SADC

countries is mainly based on the various experiences of enterprises upgrading
implemented in several countries notably Tunisia, Algeria, Senegal, and currently
underway in UEMOA countries. It also takes into account the recommendations of
evaluations made by the EU10 and UNIDO particularly for upgrading projects in
Tunisia, Algeria and Senegal.
These approaches aim to upgrade and improve competitiveness of companies with

potential to further development through strengthening productive capacities, on one
hand, and improving quality of related services and business environment in general
on another. This will allow companies to build capacities necessary to produce
manufacturing goods in compliance with different international technical regulations
and quality standards.
The approach also calls for undertaking actions that intend to improve the financial
situation of companies, their productive performance and energy efficiency, ability to
produce according to international standards and technical requirements and to
facilitate their integration into the world market. The figure below gives an overview
of UNIDO’s Upgrading Approach.
Diagram 3:
Process of industrial upgrading and modernization
ENTERPRISE ENVIRONMENT
Strategic diagnostics
Institutional & regulatory environment
Formulation of the upgrading plan
and financing scheme
Approval of the upgrading and

Technical support institutions
modernization plan
Decision on release of grants

Incentives and promotion
Implementation and follow-up of of investments to industrial upgrading
the upgrading and modernization plan and modernization
Organis ation & Qua lity, Ma rke ting,

Equipme nt P roduction, Tra ining
management Ce rtifica tion, Cons ortium, P a rtne rs hip
re ne wa l technique s
Ene rgy pla n
Tra ce a bility Communica tions
COMPETITIVENESS
EMPLOYMENT LOCAL MARKET/EXPORT
10Evaluation of European Community Support to Private Sector Development in Third Countries

(http://www.oecd.org/dataoecd/32/25/36029538.pdf)

4.1 UNIDO Approach
UNIDO’s approach leads not only to providing direct assistance to the companies but
also to strengthening of institutional environment and technical support institutions,
consolidation of economic data and its dissemination, and to development of specific
and tailored programmes. The approach is based on the following components:
4.1.1 Upgrading11 and Restructuring
This approach has four consequent steps: the pre-diagnostics, the strategic
diagnostics, the formulation and implementation of the plan for restructuring and
upgrading.
1. The pre-diagnostics consist in conducting research campaign based on

questionnaires, which are administered (1) to determine the eligibility of the
enterprises to the plan for restructuring and upgrading, and (2) to identify the
field of survey to formulate and adopt the diagnostics and plan for
restructuring and upgrading. The declaration of interest will be a part of the
questionnaire to serve as an attribute of enterprise’s fully voluntary
participation in the current Programme.
This step of the process determines whether the company needs to go through
a prior stage of restructuring to benefit ultimately from the upgrading stage.
2. In the context of globalization and rapid technological progress, the strategic

diagnostics aim to analyze competitiveness of the local companies. The special
emphasis will be put on launching the Free Trade Zone within SADC in
August 2008 and application of the Common External Tariff (CET) by 2010.
The diagnostics will thus reveal the strengths and weaknesses of the
companies and will allow identifying the strategies to be followed as well as
the short and medium-term actions for upgrading and modernization to be
implemented within this Programme. The diagnostics will also propose a
financial plan to carry out the selected actions.
3. The restructuring plan covers mainly the structural and financial adjustments
which could lead only to conversion or liquidation of nonviable activities or to
financial reorganization of the enterprise. The objective of restructuring plan is
to enable companies to become financially sustainable and to meet the
eligibility criteria to benefit from the upgrading plan.
Once the enterprise implements its restructuring plan, it is eligible to subscribe
to the upgrading plan. In this case, it will first update the initial diagnostics
followed by elaboration of upgrading plan.
4. The upgrading plan will mainly cover or review:
11 In the UNIDO terminology upgrading is a continuous process aimed at « preparing and adapting the
enterprise and its business climate to the demands of free trade and introducing an approach for progress-driven
actions, strengthening the enterprise’s strong points while eliminating its weak points ». Thus, it entails
improving enterprise competitiveness in all dimensions such as: production, organization and management
systems; quality and certification; training and retraining of human resources; energy saving, marketing and
market research; strategic alliances and partnership.

 The short- and medium-term strategy and objectives;
 Already implemented activities to raise the companies’ interest;
 The action plan of immaterial investments activities with special accent on
companies’ competitiveness;
 The plan of financial sustainability of the company.
There are two types of upgrading activities:

Material upgrading activities in the form of acquisition and installation of the
upgrading, laboratory and production equipment;
Immaterial upgrading activities: which may include training of companies’
staff, direct assistance of experts in the establishment or development of the
production, sales and quality management systems, support in ISO 9001,
14000, 17025, 22000 certification, introduction of HACCP system, purchase
of software, establishing accounting system, audit on energy management,
energy saving activities, etc.
The UNIDO approach considers also assistance in the implementation of upgrading

action plans according to:
The global approach of companies upgrading, which includes global
strategic diagnostics, formulation of upgrading plans and technical assistance
in implementing priority activities; and
The specific approach, which consists in assessment of company’s specific
problem and assistance in implementation of related activities.
4.1.2 Upgrading technical support institutions
Upgrading technical support institutions is a key prerequisite to improve marketing

and productive capacities and competitiveness of industries.
The majority of companies in SADC region suffer from considerable technology gaps
mainly characterized by a lack of know-how on technical procedures and
quality/safety management systems along with the absence of innovation initiatives in
introducing new products and technologies. Moreover, ineffective exploitation of
productive capacities and inadequacies in equipment maintenance lead to fabrication
of defective goods or to the total suspension of production process.
Often overwhelmed by these technical and organizational shortages, the companies

are limited in their capacities to optimize their technological process that determine
their competitiveness and their place in the market. As a result, these companies are
unable to produce goods that can respond to the current market needs and meet
international quality standards, sanitary and safety requirements.
One of the main reasons for this appears in the weak technical skills and qualification
of the technical support institutions. Their technical capacities are insufficient to
satisfy the real needs of the industrial sector.

The current situational analysis shows that the national R&D and training institutions,
the specialized technical centers and laboratories, the controlling, auditing and
certification bodies do not possess the necessary capacities to support the companies,
which, in consequence, have to seek the foreign expertise that brings to the companies
additional costs and thus affects their competitiveness.
It is, therefore, crucial to address capacities of technical support institutions within the
implementation of the Upgrading and Modernization Programme. The proposed
approach, in particular, recommends:
Step1: To assess current situation in the area of the technical support to industrial
sector and priority related services. This step should indentify (i) the number and list
of technical support structures to be strengthened within technological upgrading
activities and (ii) the nature and extent of needs in technological upgrading.
Step 2: To prepare the plans for technological upgrading for each of the beneficiary
structures. These plans, prepared in close cooperation with the national counterparts
and Programme beneficiaries, will particularly include the first-priority immaterial
and material investments activities as well as the action plans.
Step 3: To implement technological upgrading plans through:

 Upgrading infrastructure and equipment to attain compliancy with
international standards and technical requirements;
 Upgrading methodologies for operations and technological process;
 Organization of trainings in horizontal and sectoral competencies
(technology, quality, safety, standards/certification, etc.);
 Direct assistance and training throughout the exploitation process.
The following results are expected:

 Technical centres and training institutions strengthened or established in
various industrial branches;
 Critical mass of national and/or regional expertise trained and operational;
 Regional network of institutions for technological support established and
operational.
The technical support institutions will also play the role of centers for Business
Development Services (BDS) providing institutional and technical support for
strengthening the business-support infrastructure as well as directly for the
establishment and operations of small and medium enterprises in the manufacturing
sectors.
The technical support or training institutions will be established for sectors which
provide a critical mass of enterprises sufficient for financial sustainability of such
institutions. For the sectors/countries with a lower number of enterprises the
Programme will establish the BDS Centres to respond to the needs of local SMEs
operating in various manufacturing sectors.
Annex VI gives examples of the sectoral support institutions.

4.1.3 Strengthening economic information infrastructure (Strategic positioning
studies)
An access to the economic data and information has always served as an essential
element in decision-making process both for political and business leaders helping
them to build their development strategies at regional and national levels.
However, such economic information in several SADC countries is often vast, non-
systematized or sometimes even missing, especially when it refers to the sectors
defined as of priority or contributing the most to the national economy or playing the
key role in country’s socio-economic development.
In order to address this information gap, it was decided to conduct the survey on
identification and strategic positioning of around 20 priority and contributing sub-
sectors/products taking into consideration the regional and sub-regional contexts to
match the countries’ specific product line (i.e. food processing, cotton and textiles,
minerals processing, pharmaceuticals, etc.).
The results of this survey reflect the basic features of industrial sectors or their
branches by each country or throughout the region. They track an evolution of the key
economic indicators over the last several years and reveal the investment
opportunities in emerging sectors. Besides, the survey enables analysis of intra- and
interregional competitiveness of the local companies and proposes the actions to
improve their position.
4.1.4 Development of consortia and export promotion infrastructure
Several countries that already implemented the programmes on upgrading have an

experience in establishing consortia in order to strengthen export capacities of the
national small and medium size companies.
The consortia give the best fit to SMEs that have already reached an appropriate
production level and, possibly, have some experience in exports, but still need
assistance to face the challenges of globalization and trade liberalization processes.
These conditions are usually met by manufacturing or services companies. On the
other hand, small agricultural producers or crafts workmen do not possess the
necessary production capacities, human and financial resources to face the demand
and competition of the world market. The export consortia can also be established for
cooperatives that meet the criteria set up for the SMEs.
The benefits of establishing and joining the exports consortia or exports promotion
network comprise:
 diversification in goods supply;
 better negotiating capacities while bargaining with potential buyers;
 prospects to expand the exports destinations to remote regions;
 better understanding of markets and reduction of business risks;
 reducing the costs of promotional activities (common website/production
catalogue, exhibition booth, etc.) and less risks related to exploring and
exporting the new business opportunities abroad.

Current approach offers the following 4 steps of establishing exports consortia and
export promotion networks:
 Identification of national partners in public and/or private sectors (export
promotion agencies, sectoral associations, chambers of commerce and
industry…);
 Training of export consortia’ leaders to support in their creation and ensure
their sustainability;
 Awareness raising activities and identification of target groups: to organize in
cooperation with national partners the seminars and meetings which will
present the concept, services and benefits of export consortia;
 Distribution of questionnaires to companies participating in the seminars
inquiring about the interest expressed;
 Selection of the companies interested in creating an export consortium. The
selection process will gather together a group of companies coherent in terms
of activities/production, size, organizational structure and human resources,
knowledge of export techniques, their current and targeted markets, required
services, etc.;
 Assistance to selected companies in establishing and launching the export
consortia and export promotion networks notably in fixing their:
- common objectives;
- services offered;
- organization (human resources, logistics, etc.);
- the most appropriate juridical status;
- mechanisms of self-financing (membership fees, possibility of external
funding, etc.);
- business plan, promotion programme and budget;
- assistance needed to carry out the business plan and promotional
activities.
 Assistance to the national partners in establishing the legal and financial
assistance measures.
The awareness raising activities as well as the launch of 2 to 3 pilot exports consortia
are envisaged within the Phase 1 of the Programme implementation.
4.1.5 Promotion of partnership and industrial coaching
Investment and technology promotion is one of the most efficient ways to ensure
companies’ development, acquire advanced experience and capacities and to gain
access to new markets.
This is especially pertinent to the SMEs in SADC countries where imperfections in

business environment largely affect the companies’ growth. The bottlenecks for the
business development, in particular, include:
 an absence of technical and markets monitoring;
 difficulties to access the technical or normative information;
 lack of well-qualified staff;
 lack of specific skills, notably in the field of quality or safety procedures;
 difficulties in accessing financial resources.

The partnership with similar companies or being a part of the global supply chain can
be used as a “strategic arms” promising the quick solutions to the above problems.
The more the companies are homogeneous, the more relations are facilitated among
them and the stronger is partnership.
Despite the existence of historical background in business ties between the companies
of SADC countries and European Union, there is still a big gap between them in the
terms of performance and overall development. Moreover, notwithstanding the
regular character of those ties they are often few, short-lived and unfavorable to
African companies.
After initial assessment of existing companies, the original methodology of

technological and managerial upgrading will promote the volunteer partnership
among the participating companies. This methodology pursues favoring development
of interregional cooperation through experience exchange between entrepreneurs of
EU and SADC countries, conducting industrial coaching missions, etc. It is also
intended to establish a network of support institutions for private sector development
in order to ensure sustainable contribution to the partnership promotion.
These activities could be carried out through and by UNIDO’s Investment and
Technology Promotion Offices (ITPO), the Centers for the Development of Enterprise
(CDEs) and the support institutions and investment promotion agencies of SADC
countries.
Notably, these activities will comprise:

 Identification of market opportunities and technological scenarios and
analysis of existing companies’ capacities for partnership;
 Development of partnership and investment strategies and formulation of
related projects and putting them on the platform;
 Training of business executives on negotiation skills and formulation of
partnership contracts and development of promotional materials necessary
for communication of partnership policies;
 Organisation of promotional and mobilization seminars abroad and
identification of potential partners;
 Support in searching for financial partners;
 Supporting enterprises in effective accomplishment of their partnership
agreements/contracts.
4.1.6 Establishment of traceability system
Traceability is a preventive system that deals with quality and safety management of
foodstuffs production. Once the food quality/security alarm system alerts, a good
traceability system facilitates the callback of risky production and helps to localize the
point-of-origin of the problem.
The capacities to undertake the trace-back and trace-forward activities at every stage
of the food production and distribution chain are crucial to boost the customer
confidence in alimentary products especially in developed countries.

Agro-alimentary traceability consists in tracking of and demonstrating the good agro-
alimentary practices including collection, documentation, maintenance and use of
information related to the entire process of food supply chain - from provision and
production of food-staffs to their sales. This system will not only provide the safety
and quality guarantees to the customers or business partners, it will also inform the
users on the history, origin and life duration of manufactured goods. It also facilitates
the management procedures during crisis situations related to the breach of the safety
or quality rules.
This activity thus includes:

Identification of the sensitive and priority agro-food production/sectors and
analysis of production/distribution chains for selected products;
Organization of information seminars on traceability and access to European
market;
Development of a traceability manual (according to ISO 22005 Standard) and
training of trainers;
Implementation of a (manual/automatic) traceability system in the selected
pilot companies;
Empiric verification of effectiveness and performance of traceability systems
(farm-to-fork);
Adaptation of the procedures for the implementation of traceability systems.
If the companies of SADC agro-food supply chain wish to export their production to
EU and international markets, the introduction and establishment of such systems
appear therefore indispensable and critical.
To accomplish this task, the several pilot companies of agro-sector will serve as the
models for establishing such systems and development of integrated programme
covering the largest part of the agro-alimentary sector in all SADC countries.
4.1.7 Supporting the informal sector SMEs
The industrial sector in SADC countries is dominated by the small and medium size
enterprises operating mostly in informal sector, which is a product of rational
behavior of entrepreneurs that desire to escape state regulations. Information on these
companies is thus rare and nearly absent although the sector represents a great interest
as a base for the socio-economic development of the region.
In order to overcome the constraints of this sector and to take advantage of its
opportunities, the Upgrading and Modernization Programme intends to assist the
companies of informal sector as well as to undertake various activities (awareness
raising, technical assistance and development programmes) to involve and integrate
the local companies into the formal economic environment.
These actions will include, most notably:

 Undertaking studies of the informal sector in each SADC country where such
a study has not been carried out in the last five years;

 Awareness raising among informal sector companies on the benefits of
joining the formal sector (access to financing, security, visibility, etc.);
 Industrial coaching for groups of craftsmen (joinery, weaving, garment, dye-
works, small production of furniture, jewellery, etc.);
 Modernizing the methodologies of the products design to ensure conformity
with the modern hygiene and safety standards;
 Improving conditioning and packaging of production to facilitate its
preservation and sales;
 Providing premises for companies and purchase of small equipment;
 Technical assistance in searching and acquisition of modern equipment more
adapted to the local conditions and of better performance;
 Assistance in the field of manufacturing methods and in development of the
new products;
 Providing basic accounting and technical trainings;
 Assistance on formulation of the requests for funding;
 Assistance in establishing the labour unions and/or associations of suppliers
and retailers to facilitate access to funding and to improve availability of the
raw materials.
4.2 Criteria of eligibility to the Programme
The criteria of the companies’ eligibility to the Programme will be finalized and
validated by the National Steering Committees, which will take into account the
specificities and the size of industrial sector in each of beneficiary states.
In general terms, eligibility to the Programme is open to any interested and voluntary
small and medium-sized enterprise if:
 it was created according to respective national legislation (including
industrial enterprises that may have part of their production systems in non-
SADC countries);
 it belongs to manufacturing sector or it provides services related to industrial
activities.
The proper definition of SMEs varies from country to country, depending on the
purpose for which the definition is used, the overall level of economic development (a
large enterprise in Malawi may be considered a small one in South Africa) and using
different criteria like employment or capital invested. Generally however, in most
developing economies the following broad categories would appear to apply within
this Programme:
 Micro enterprises: employment level below 10;
 Small enterprises: employment level from 10 to 49;
 Medium enterprises: employment level from 50 to 249.
Additional programme eligibility criteria are listed below.

4.2.1 Upgrading the formal sector SMEs
 2 years of productive activity is a requirement;

 Employing (over the year under review) a total staff complement of:
- 10 or more for the enterprises in manufacturing; and
- 5 or more for the firms supplying services to industries;
 Meet the following financial performance criteria for the year under review
named hereafter year n-1:
- A positive net worth for the year under review or year n-1,
- A positive turnover for the last financial year.
In the countries of less than 100 enterprises, the criteria of minimum staff level will be
decreased.
The Programme allows conducting simultaneously both the global and specific
upgrading plans. The company, according to its performance level and priorities, will
be able to choose the best possible solutions proceeding through a short and free-of-
charge pre-diagnostics.
Implementation of the global upgrading plan will improve company’s entire

performance dealing with its management and production systems, whereas the
specific upgrading plan will only touch the particular functions through the specific
activities.
Skipping the long diagnosis or the business-plan elaboration, the specific approach
will allow the rapid introduction of the state-of-the-art management systems (CAM,
CAMM, ERP, ITC), marketing techniques, cost calculation tools, quality management
methodologies and techniques, etc.
4.2.2 Financial restructuring
The SMEs not meeting the financial performance criteria to be eligible to the
Upgrading Programme will be able to benefit from the Restructuring Programme. The
latter will assess the technical, financial and managerial capacities of the company in
order to identify the actions necessary to enable the company to carry out financially
sustainable and profitable business. Such company will be a subject of financial aid
provided within the plans of material and immaterial investments necessary to restart
company’s activity.
Thus, a company eligible to the Restructuring Programme has unbalanced financial

structure but still possesses the strong development and export potential.
To benefit from the Restructuring Programme, a company should not have the
insolvency status or be bankrupt.

4.2.3 Assistance to informal sector SMEs
The Small and Medium Enterprises (SMEs) of the informal sector can benefit from
specially tailored upgrading activities.
The eligibility criteria to participate in these activities are:
 the real productive activity with its physical acknowledgment;
 new jobs creation or existence of at least 4-5 permanent or associated
positions;
 acceptance of transparency conditions and openness towards national and
international economic environment.
Targeted sectors
The Programme will target the informal sector companies that constitute the nascent
value chains based on local resources and raw materials. Such sectors include, but are
not limited to the following activities:
 Fisheries and seafood processing;
 Transformation of the local raw materials (e.g. palm or peanut oil production,
wine-making, beverages production and brewery, distillery, traditional soaps
and other agro-industrial goods production);
 Transformation and processing of mineral resources, production of the basic
mineral and construction materials (salt, cement, bricks, granite, etc.);
 Industrial and traditional production of textiles and garments, leather and
leather goods;
 Industrial services, small-size metal processing, mechanic machinery, electric
and electronic equipment, small foundries and motors service centres;
 Forestry, wood production and industrial derivatives;
 Printing and communication services.
Content of the Programme

As its objective the Programme will have:
1. Immaterial investments activities
 direct assistance to “entrepreneurs” of the informal sector through tailored
training programmes and/or direct technical assistance;
 indirect assistance by creation of Specialized Micro Centres for Support
(joinery, oil production, canned foodstuffs, textile and garments, leather, etc.)
or the Growth Centres, business incubators, etc. where the trainers together
with the local experts (trained within the Programme) will provide sustainable
assistance.
2. Material investments activities

The financial allowance for equipment modernization could be either:
 individual, for small manufacturing and support equipment such as
woodworkers, furnaces, presses, packing and parcelling equipment,
dehydrators and pasteurizers, smokehouses, small tool-shops, etc.;
 or for a group of craftsmen (on multi-function platform) to provide them with
common equipment such as generators, cool-houses and storage rooms.

4.2.4 Examples of eligibility criteria applied in previous upgrading
programmes
This section gives examples of eligibility criteria to upgrading programmes previously

implemented in other African Countries.
Programme on EPA Support, Cameroon

 Be a private sector company of 2 years minimum in productive activity;
 Financial solvency;
 The company should not be a subsidiary of a multinational corporation;
 Operations in one of the identified priority sectors;
 Positive turnover of FCFA 200 millions-10 billion;
 Possess technical and organizational capacities to carry out upgrading
activities;
 Be able to provide certified financial statements;
 Voluntary participation in the programme;
 Commit to respect the key principles of upgrading programme.
UEMOA Regional Upgrading Programme

 Industrial companies established in UEMOA Member States and operating for
at least two years;
 High potential in productive performance and financial solvency;
 Strong commitments to modernize and innovate;
 Companies considered performing in sustainable manner even within
liberalized international trade environment.
National Upgrading Programme, Tunisia

 Industrial enterprises and service providers with strong growth potential;
 Companies operating for, at least, two years;
 Companies experiencing financial difficulties are not eligible.
National Upgrading Programme, Senegal:

 Voluntary participation;
 Be a private entity established under national legislation and financially
transparent;
 Be in operations for the last two years;
 Annual turnover below FCFA 15 billion;
 Be operational and solvent (neither under liquidation nor prosecution);
 Be able to mobilize internal or external funds to finance upgrading
programme;
 Do not belong to financial sector, trade and realty activities or other services;
 Be able to provide financial statements certified by external audit;
 Commit to respect the key principles of upgrading programme.

SECTION 5: FUNDING AND BUDGET OF THE PROGRAMME
5.1 Funding of the Programme
5.1.1 Upgrading activities
The Programme aims to upgrade a certain number of companies selected from priority
sectors, which have strong potential for the high value-added and large export and
employment opportunities. These criteria will be completed by information on
production of these companies sensitive to the progressive tariff elimination. Such
information will serve for assisting the companies to improve their productivity and
quality in order to withstand competition from imports.
The following services will be provided by the experts within the technical assistance
activities of this Programme:
 Conducting pre-diagnostics to assess eligibility of the company and to choose
between specific and global strategic diagnostics to be carried out at the
company;
 Global strategic diagnostics, which shall include the analysis of the different
upgrading options and formulation of the business plan resulting from the
strategic option selected and validated by the entrepreneur;
 Technical assistance and coaching specific to each company as a part of plan
for immaterial investments activities;
 Assistance during the procurement stage of material investments plan
(preparing invoices and specifications, choosing providers/subcontractors).
The range of services that compose immaterial investments plan is very broad (see
Annex V) and notably includes activities aimed at:
 Strengthening of management systems (management, production,
maintenance, marketing);
 Identifying the needs in management/administration software;
 Identifying the needs in human resources and training activities;
 Improving performance of the information and quality management systems;
 Ensuring availability of the relevant information in order to facilitate access
to international market;
 Assisting companies in implementation of ISO 9001 and ISO 22000
management systems, introduction of energy-saving systems, partnership
development, etc.;
 Assisting in elaboration of specifications and terms of references for the
activities delegated to third parties;
 Ensuring validation by the company’s top management of immaterial and
material investment plans prior to proceeding to the upgrading plan.

The material investments plan entails purchasing and installation of equipment that
will facilitate removing the bottle-necks and modernizing the technological processes
identified in the Business Plan.
The experience of industrial upgrading and modernization programmes implemented
in other countries (Tunisia, Senegal, Algeria) shows that “immaterial investments”
component represents 12-20% of the total costs of company’s upgrading. When the
company decides to opt for the specific upgrading plan, this share increases to 100%.
The process of company upgrading is, first of all, a qualitative development that aims
to enhance the competitiveness of companies through the totality of processes and
actions leading to improving the quality of goods, reducing the costs (of raw
materials, energy and labor), cutting down waste generation, improving productivity,
shortening the production cycles and organizing the maintenance and manufacturing
processes. As a result, and since these actions do not necessarily require increasing
installed capacities, UNIDO recommends an indicative system that favors immaterial
rather than material investments.
Thus, the direct aid or financial incentives, as well as technical assistance to be

provided by this Programme, promote immaterial investments activities. The
beneficiary companies should also benefit from the parallel investment promotion
programmes that are currently under implementation or in the pipe-line in each
participating country.
5.1.2 Funding of upgrading activities
The proposed financial incentives are intended to attract, stimulate and guide
companies wishing to participate in the Industrial Upgrading Programme. These
financial incentives slightly differ from one country to another. The table below
presents the allowance ratios applied in three different countries.
Table 14:
Financial Aid Ratios for Upgrading Activities
Tunisia Senegal* Algeria

Activities % aid/aid % aid/aid % aid/aid
ceiling ceiling ceiling
Immaterial investments:
- Financial aid for diagnostics leading to 70% 80% 80%
formulation of upgrading plan € 17 500 € 20 000 € 18 000
- Financial aid for other immaterial 70% 80%
70%
investments activities of upgrading plan € 41 000 No ceiling
Material investments:
- Financial aid for self-funded material 20% 20% 10%
actions No ceiling € 123 000 € 200 000
- Financial aid for externally funded 10% 30% 10%
material actions No ceiling € 123 000 € 200 000
Total Financial Aid No ceiling € 300 000 No ceiling

It is significant to note that these financial grants are assigned only after the execution
of all obligations contracted between the company and the Upgrading Office.
Nevertheless, in the case of Algeria, to encourage companies to make immaterial
investments, the cash advance of 30% of the financial aid was granted whereupon the
signature of the contract between the company and Upgrading Office.
The table below gives an overview of the average costs of the upgrading process.
Table 15:
Average costs of upgrading actions
Tunisia Algeria (2004) Senegal*

Amount Amount Amount
Activities % % %
(Euro) (Euro) (Euro)
Cost of immaterial investments
115 000 13% 232 000 14% 60,000 15%
activities
Cost of material investments
activities 765 000 87% 1 400 000 86% 240,000 85%
Total costs of upgrading actions

880 000 100% 1 632 000 100% 300,000 100%
Average amount of financial aid
127,000 14% 325,600 20% 123,000 16%
Number of companies
2 262 64
* The average cost of overall upgrading process per company admitted by authorities, AFD and
UNIDO is €400000. For UEMOA Programme, the accepted average upgrading cost is €400000. In
Egypt, the total amount of financial aid provided is €100000 per company.
5.1.3 Average budget of the immaterial investments activities
In order to estimate the cost of immaterial investments plan we assume there are two
groups of beneficiary enterprises employing (a) 10 to 19 and (b) 20 to 99 employees
according to the following table.
The standard indicative budget for Upgrading Programme will be spread out over the
period of 6 to 18 months for formulation of the Global Strategic Diagnostics and
industrial coaching of companies on implementing Upgrading Plans. This standard
budget presented below takes into account:
 Provision of the technical assistance of 45 and 150 man/day, respectively to
the two groups of companies, with an average of €350 per day for one
national/international expert. It must be noted that 45 m/d for the companies
group of less than 20 employees can include the training activity for the
team of trainers to diffuse the certain knowledge (food conservation, textile,
garment, etc.).
 Provision and implementation of immaterial investments activities by
national and international institutions and experts.

Table 16:
Estimation of man-days and costs related to immaterial investments activities
10-19 20-99
EMPLOYEES EMPLOYEES
Average Average
# man- # man-
Immaterial investments activities day
cost
day
cost
(Euro) (Euro)
1. Diagnostic study and formulation of upgrading plan 10 3 500 20 7 000

2. Coaching 5 1 750 10 3 500
3. Assistance in Marketing (market analysis, sales plan, training) 5 1 750 10 3 500
4. Conception and setting-up of the bookkeeping and the cost
price calculation systems 5 1 750 10 3 500
5. Industrial coaching on management of production process 10 3 500 10 3 500
6. Partnership 10 7 000
7. Establishment of traceability system 20 7 000
8. ISO 9001, ISO 22001 development (including certification
costs) 30 10 500
9. Conformity with HACCP (including certification costs) 10 3 500 30 10 500
10. Operational website 4 000 3 000
11. General and analytical accounting software 5 000 5 500
12. Sales management software 5 000 5 000
13. Inventory accounting software 5 000 5 000
14. Computer Aided Maintenance Management (CAMM) 8 000
Total 45 34 750 150 82 500
Costs covered by company:
20% 6 950 16 500
Costs covered by the Programme:
80% 27 800 66 000
Thus the average cost of the technical assistance under the immaterial investments
activities would be approximately €46.000.
Table 17:
Estimation of the average cost of immaterial investments activities
Average cost of
Immaterial Calculation of
Percentage of TA to be
investments the av.cost of
companies covered by
activities immaterial TA
Programme
(1) (2) (3)=(4)*80% (4)=(3)*(1)
10-20 employees 60% €34 750 €27 800 €16 680
21-100 employees 31% €82 500 €66 000 €20 460
100 employees and
more 9% €123 750 €99 000 €8 910
Total 100% €46 050

5.1.4 Budget for group actions
Some of immaterial investments activities necessary for upgrading plan are tailored
for the group of companies or entire industrial branches on the basis of following
estimations:
Average annual budget for development, management €70 000

and follow-up of export consortium of 10 companies
(case of Tunisia and Morocco)
Average budget for sectoral studies and strategic €50 000
positioning of priority and specific branches, products
and sectors (case of Tunisia and Morocco)
Budget for establishment of subcontracting exchanges €150 000
(3-year investments and operational costs)
5.1.5 Investment and operations budget estimates for Upgrading Offices:

Case of Senegal
Staff: 5 employees (director, 2 engineers, specialist on

communication and training, and 1 financial specialist),
1 administrative assistant, 2 drivers, 1 courier and 1
cleaning lady.
Annual operational €150 000
budget:
3-year budget of €65 000 (6 PC work-stations with inverters, printer,
investment: multi-media unit, communications facilities, office, 2
vehicles, air-conditioners…).
5.1.6 Proposed funding scheme
The diagnosis and action plans for both upgrading and modernization will be financed
at 80% of the total budget amount. The following table describes proposed funding
scheme:
Table 18:
Scheme of funding Programme activities
Restructuring Upgrading
Diagnostics 80% 80%

Investments
- immaterial 80% 80%
- material 20% 20%

5.2 Budget of Upgrading and Modernization Programme
Estimation of the budget will take into account the experience of UNIDO in
implementing similar programmes in other developing countries, in particular, in
Tunisia, Senegal and UEMOA region, as well as the results of country visits to SADC
Member States.
At present, it is very difficult to determine the exact number of companies to be

modernized, the scope of the technical support institutions to be established or
strengthened and the limits of budget to be assigned to the Programme. Therefore the
calculation of the budget will be based on the nature of expenditures, covering both
variable and fixed costs, and, as result, 3 budget scenarios will be proposed.
Based on UNIDO’s experience, absorption capacities in SADC countries, calendar of

liberalization, and demography and the size of beneficiary companies, the overall
budget of the Programme was split by respective phase as follows:
 20% for the Pilot Phase (overall and specific upgrading of the formal sector
companies);
 80% for the Roll-out Phase (overall and specific upgrading of the formal
sector companies).
Number of companies potentially benefiting from the Programme
The present Programme proposes three hypotheses (high, middle and low) which fix
corresponding numbers of beneficiary companies to be covered by the Programme.
The three respective budget scenarios have as an objective to target 12%-33% of
SMEs currently operating in the region.
The low, medium and high hypotheses were formulated with strong and equal
reference to the following factors:
1. Willingness and readiness to provide appropriate management and promotion
of the Programme;
2. Terms of eligibility to the Programme (possible verification of the
companies’ performance from financial results); and
3. Conditions of the companies' access to funding.
Intermediate evaluation of the above factors during the Pilot Phase will help improve
the overall orientation and efficiency of the Programme.
As “nothing is more successful than success”, experience of upgrading programmes in

Tunisia, Senegal and Algeria, showed that success of the first activities implemented
at beneficiary companies has been a determinant for the entire programme
performance ensuring the better participation of the private and public capital in
financing the programme activities.
Finally, assuming that the "low" hypothesis underestimates companies’ involvement,

the Programme will be always able to adjust the eligibility criteria to the new
conditions and available resources.

These hypotheses also assume involvement of all concerned actors. The rhythm of the
Programme’s start-up will largely depend on the national capacities to set up the
proper programme implementation mechanisms and the quality of activities ensuring
better cooperation and access to financing.
Thus, the three hypotheses set up the following number of beneficiary companies to
be addressed by the Programme:
“Low” hypothesis: 1425 formal sector companies
“Middle” hypothesis: 2130 formal sector companies
“High” hypothesis: 2850 formal sector companies.
The same hypotheses will be applied for the informal sector companies.
Based on the above, the beneficiary companies would be collated between the
different intervention plans along the following lines:
Table 19:
Distribution of companies/support centers according to nature of intervention
for 3 hypotheses
“Low” “Middle” “High”

hypothesis hypothesis hypothesis
Formal sector companies: 1425 2130 2850
- Restructuring 300 450 600
- Overall upgrading 555 840 1125
- Specific upgrading 570 840 1125
Informal sector companies

1425 2130 2850
Total for companies
2850 4260 5700
Technical support
30 30 30
institutions
5.3 Detailed description of the budget
Taking into account the above hypotheses, the proposed budget scenarios set out the
figures for the indicative budget by Programme component and the management,
coordination and follow-up costs.
The summaries of respective high, middle and low scenario budgets are reflected in
the following tables.

Table 20: Scenario 1 for the Indicative Budget Breakdown
PHASE 1: PHASE 2:
ESTIMATED COSTS TOTAL IN EURO
Fixed Variable Subtotal Fixed Variable Subtotal
Costs Costs Phase 1 Costs Costs Phase 1
5,050,000.00 20,687,500.00 25,737,500.00 700,000.00 73,000,000.00 73,700,000.00 99,437,500.00
SUBTOTAL COMPONENT I
5,525,000.00 10,650,000.00 16,175,000.00 5,275,000.00 11,550,000.00 16,825,000.00 33,000,000.00
SUBTOTAL COMPONENT II
COSTS OF MANAGEMENT, COORDINATION AND FOLLOW-UP OF THE PROGRAMME

Technical Unit for Coordination 2,000,000.00 0.00 2,000,000.00 1,000,000.00 0.00 1,000,000.00 3,000,000.00
Upgrading Office 0.00 2,250,000.00 2,250,000.00 0.00 2,250,000.00 2,250,000.00 4,500,000.00
Technical Expertise 700,000.00 0.00 700,000.00 400,000.00 0.00 400,000.00 1,100,000.00
Monitoring and Follow-up 500,000.00 0.00 500,000.00 500,000.00 0.00 500,000.00 1,000,000.00
3,200,000.00 2,250,000.00 5,450,000.00 1,900,000.00 2,250,000.00 4,150,000.00 9,600,000.00
GRAND TOTAL 13,775,000.00 33,587,500.00 47,362,500.00 7,875,000.00 86,800,000.00 94,675,000.00 142,037,500.00
Distribution of funds for enterprises (Component I) should be equal to all Member

States in accordance to SADC procedures. The details on the budget breakdowns are
provided in Annex IX.
5.4 Expected impact of the Programme

The Programme of Industrial Upgrading and Modernization is expected to have a
significant impact on industrial sector and overall economic performance of SADC
countries. More specifically, the Programme will contribute to the region’s
development by:
Strengthening the managerial capacities and marketing skills;
Improvement of productivity, reactivity and flexibility;
Mastering and cutting down the production costs;
Improving the quality and sanitary standards;
Recovery and re-launch of suspended productive activities;
Strengthening capacities of the informal sector companies with their
subsequent integration into the formal environment;
Building capacities of the technical support institutions, business advice and
consultancy centers;
Development of exports capacities and imports substitution;
Creating employment opportunities directly in industries and in agricultural
sector and services, indirectly;
Development and strengthening of the local expertise in order to extend its
services to other sectors not directly addressed by the Programme.
Moreover, establishment of the Upgrading Offices, Monitoring Framework insuring

management and follow-up of the Programme, and the Investment Platform will allow
the SADC Secretariat, as well as the Ministries in charge with industry and trade, to
refine their information systems and industrial strategies and policies.
Besides, the Programme is expected to contribute to improving the public-private

dialog resulting directly in enhanced promotion of investment, employment and
exports.
Finally, the involvement of the financial sector since the kick-off of the Programme,
together with mobilized expertise, business-plans designed according to the banks
requirements, and “lobbying” as the result of communication within the Programme, -
all these factors must materialize in increase of financial resources allotted by the
banking sector and diversification of the financial services pattern.
The examples of developing countries which have already implemented the upgrading
and modernization programmes (Tunisia, Senegal) allow the estimations of the
Programme’s potential impact to the Southern African economies. The expected
impact of the current Programme on the key economic indicators is as follows:
Industrial production
Resulting from the lack of dynamism in overall economic activities, the level of
production performance in SADC zone remains considerably low. The Upgrading and
Modernization Programme will have an immediate impact by increasing efficiency in
using available production capacities and resources. Growth of industrial production
and increase in turnover of the beneficiary companies by minimum 10-12% per year
seem quite probable (+18% per year in Tunisia).

Value added
Besides, an increase in production volume due to the growth of industrial production
and enhancement of manufacturing processes should result in the net gain in value-
added for beneficiary companies. Thus, the value-added of the beneficiary countries
is expected to increase by 12-15% per year during the first 6 years of the Programme
implementation.
Investments
The expected impact on the global investments flow to SADC economies is between
€300 and 600 million subject to selected hypothesis.
As mentioned, the Programme will affect according to the above hypotheses 2850,
4260 or 5700 companies operating in formal and informal sectors of the Southern
African region.
The technical assistance and grants for the direct material investments (necessary to
upgrade and modernize the companies of formal sector) are estimated on average
(between the costs of global and specific approaches) at €47 500 per enterprise. This
represents 80% of the immaterial investments costs.
Other assumptions to evaluate the Programme’s impact on the global investments

flow are as follows:
The companies to be involved into the overall Strategic Diagnostics with
material and immaterial investments represent 45% of all beneficiary
companies.
The companies to be involved into the restructuring activities with material
and immaterial investments represent 10% of all beneficiary companies.
For these companies, the global investments, including material investments,
would represent 4 times allotted grants.
The share of the companies expected to participate in the specific activities of
immaterial investments is 45%.
The number of informal sector companies participating in this Programme is
always equal to the one of formal beneficiary companies.
Employment
The flow of the new investments and increase in industrial production will consolidate
the existing employment (stabilization of the seasonal staff, switch to the permanent
employment, and increase in the placement rate) and also creation of the new places
directly in industries and in agricultural sector and services related to industry,
indirectly.
Referring to the average number of employees by the enterprise in SADC region, the
permanent staff in industrial sector is estimated to be of 50 persons. Having, thus as a
scope approximately 600 000-700 000 persons in the region to be affected by the
Programme, it is expected that the Programme will contribute to the annual increase
in employment at the beneficiary companies by 10%.

The rate of the placement of the young specialist may have the same annual trend of
10%.
Exports
The coordinated support activities provided to the technical centers, investment and
export promotion agencies and laboratories might assist in achieving the following
objectives:
Increase in the cash flows from exports operations (including intraregional
trade) of beneficiary countries by 10% per year.
10% of the companies not able to export before the Programme, should start to
commercialize abroad.
Expertise
The local and regional expertise capacities are expected to be reinforced forming the
core of 30 experts by country with the total of 400-450 experts for Southern Africa.
Professional education
A considerable improvement in capacities of professional education institutions and
training of 3000-4000 artisans, technicians and specialized workers are expected
throughout the region.

SECTION 6: MANAGEMENT AND COORDINATION OF THE PROGRAMME
The approach to be applied for Programme management and coordination should be

based on:
 the necessary complementarities of the regional and national management
mechanisms and structures;
 the Programme presentation to the development partners as complementary to
and coherent with the national programmes initiated and carried out in the
Member States taking into consideration the national specificities of each
country.
The institutional mechanisms will be established in a progressive way ensuring an

overall support from the national level to the regional extent. The institutional
mechanisms are composed by the steering structures described hereafter.
6.1 Regional level
6.1.1 The SADC Secretariat
This Programme on Upgrading and Modernization of Industries was initiated by

SADC Secretariat, which will act according to its regulations and those of its
authorized organs in all issues concerning the budget allocation as well as to other
legislative or conventional texts. They will be applied to make the necessary
arbitrations in using the public funds.
The financial resources brought by international development partners will contribute

to backing grants and technical assistance necessary for the upgrading industries and
technical support institutions.
The SADC Secretariat will define the conditions of retrocession for the funds
provided by development partners and will be responsible for:
 mobilization of financial resources;
 developing Programme funding policy at regional level;
 defining Programme implementation framework : strategic plan, general and
specific objectives, intervention framework, etc.;
 establishment of institutions in charge of Programme implementation at
regional level;
 maintaining relations with development partners.
The SADC Secretariat will also take charge of the following transverse activities:
 development of information systems;
 development of the consultants database;
 conducting sectoral and other related studies;
 development and management of follow-up and evaluation mechanisms;

 development of human resources (personnel of administrative bodies and
private companies, consultants, etc.);
 supporting development of the national capacities.
Diagram 4:
Programme implementation mechanism
SADC
EXECUTING ORGANIZATION
REGIONAL STEERING COMMITTEE
Management Contract
TECHNICAL UNIT FOR UPGRADING AND MODERNIZATION
Promotional, technical and financial support

Providing with and management of the
financial resources according to the contract
TECHNICAL ASSISTANCE
NATIONAL STEERING NATIONAL STEERING

.
COMMITTEE COMMITTEE
NATIONAL.OFFICES NATIONAL OFFICES

FOR UPGRADING AND FOR UPGRADING AND
MODERNIZATION MODERNIZATION
ENTERPRISES/CENTRES FOR ENTERPRISES/CENTRES FOR

TECHNICAL SUPPORT TECHNICAL SUPPORT
6.1.2 Regional Steering Committee
The Regional Steering Committee will be composed by representatives of SADC

Secretariat, Member States, national and regional banks and private-sector companies.
It will provide assistance to SADC Secretariat in overall coordination and

management of the Programme in defining financial strategy for the Programme,
carrying out fundraising activities and Programme implementation. The Committee
performs as a final decision-making institution/authority.
6.1.3 Technical Unit for Upgrading and Modernization
The Technical Unit will be responsible for Programme promotion and communication
and management at the national level. It will provide technical support to the national
steering committee for upgrading and modernization.

The Unit will seek an effective integration and harmonization of all available
technical and human resources (establishment of the regional database of service
providers by fields of intervention, etc.) and will carry out all other tasks assigned by
the Secretariat, the regional and national steering committees.
The Technical Unit for Upgrading and Modernization could be an autonomous

structure or attached to the Ministry of Industry.
6.1.4 Technical assistance
The role of the technical assistance would consist in providing institutional and
technical support to the Regional Steering Committee and the Technical Unit for
Upgrading and Modernization, in particular within the following stages:
 Programme identification and design of its structure;
 preparation of the terms of reference for financial and operational
management;
 capacity building activities for the main actors of the Programme;
 identification, recruitment and management of international and national
experts for implementation of Programme activities;
 management review of the experts’ activities.
6.2 National level
6.2.1 Member States
The Member States are expected to play a role similar to that of the SADC Secretariat
concerning the coordination, management and fund-raising activities. The political
goodwill and commitments of the Member States are expected to serve as a key tool
in mobilizing other potential actors. The Member States must ensure the transparency
and accomplishment of the Programme objectives at the national level.
6.2.2 National Steering Committees
Once the Regional Steering Committee makes a decision, the responsibility of its
local application is attributed to the National Steering Committees. The latter will be
in charge with Programme promotion activities and follow-up of its implementation at
the national level.
The National Steering Committees will serve as communication centers channeling

information necessary to identify appropriate policies (granting policies implemented
at the national level, census of the existing support institutions, consultants to be
included to the regional file, technical centers to be promoted, information providing
the choice of companies).
6.2.3 Offices for Upgrading and Modernization
Based on the experience in some developing countries as Senegal and Mali, and in
order to facilitate the mid-term sustainability, it is strongly recommended to provide
the Offices for Restructuring and Upgrading with administrative and financial
autonomy.

These offices are expected to intervene in the following activities during Phase 1 of
the Programme implementation:
 conducting promotional and communication activities at national level;
 identification of potential enterprises according to predefined criteria of
eligibility at the regional level;
 review of the diagnostic and Upgrading Programmes;
 ensure the follow-up of Upgrading Programme implementation;
 act as secretary for the National Steering Committee;
 assessment of the Programme’s impact on beneficiary companies.
During Phase 2 of the Programme implementation, the offices will continue to

perform as operational centers for management and coordination of implementation of
the National Programmes on Upgrading and Modernization. The personnel of the
Offices for Upgrading and Modernization should be highly qualified and possess a
significant experience in the industrial sector. It should be recruited on the
competitive basis.
Diagram 5 depicts the process of industrial upgrading and modernization.
Diagram 5:
Process of companies’ upgrading
FINANCIAL
ENTERPRISE
INSTITUTION
Technical Centers
Research Centers
Consultants
Appro va l
o f fina nc ia l
a nd a c tio n DOSSIER
pla ns with Dia g no stic s
+ Pla n o f
Up g ra d ing
OFFICE FOR
UPGRADING
Instruc tio n
Eva lua tio n o f
d o ssie r
Ag e nd a
Me e ting
Steering
Committee
Ap p ro va l o f a c tio ns
De c isio n o n g ra nt a llo tme nt
Fo llo w -up / Re le a se
De c isio n
De ve lo p me nt o f
o f Ste e ring
Up g ra d ing Pla n
Co mmitte e
Do ssie r no t a c c e p te d

6.3 Management, Monitoring and Evaluation of the Programme
6.3.1 Management of the Programme
At the regional level, the Programme will be implemented by the Technical Unit for
Upgrading and Modernization with its office at the SADC Secretariat or at another
place determined by the Secretariat. The Unit will be responsible for carrying out all
the activities of the Programme and therefore will possess all means necessary to
ensure dialogue with the national authorities and monitoring of activities being
implemented at the national level. These activities will be managed by the national
steering committees appointed on ad-hoc basis for this purpose and under the
supervision of the national ministries of industry. Technical assistance to Programme
implementation will be entrusted to an Executing Agency.
6.3.2 Monitoring and Evaluation
The Regional Steering Committee in collaboration with the Technical Unit for
Upgrading and Modernization will ensure the monitoring of Programme
implementation. They will meet at least twice a year and report on progress of the
Programme. The monitoring and evaluation will be carried out in accordance with
rules and practices utilized by UNIDO and donor institutions. The Programme’s
schedule includes external monitoring and evaluation missions, a review and
evaluation at the end of each phase of the Programme. UNIDO’s Evaluation Group,
together with appropriate services of SADC and donor organizations, will participate
in the annual reviews and evaluations at the end of each phase of the Programme12.
At the country level, the national steering committees will take charge of the
coordination and monitoring of the programme’s activities.
Representatives of donor organizations will be invited to attend the main monitoring

and evaluation missions related to the Programme implementation. The findings of
these missions will be communicated to the SADC Secretariat, UNIDO and donor
organizations.
The Regional Steering Committee will elaborate criteria to evaluate results and to
measure the progress in achieving the Programme’s objectives. These criteria may be
quantitative (evaluation of statistical data) and qualitative (appraisal and perception
resulting from a subjective analysis). The detailed criteria will be specified in
operational plans.
Evaluation missions should be scheduled and completed in a spirit of collaboration

between staff and representatives of all stakeholders and donors, keeping in mind the
commitment of the Parties to implement the current Programme in effective and
efficient manner. These missions should be scheduled in advance and all procedural
issues should be resolved jointly.
12 The final evaluation costs are covered by the indicative budget of the current Programme.

6.3.3 Reporting
According to the Financing Agreement between the UN and the European Union,
UNIDO will submit not later than two months after the start-up of the Programme a
draft annual work-plan for approval by the Programme implementation monitoring
committee. The first work-plan should incorporate the elements of the preliminary
operational work-plan, report on the on-going activities scheduled for the current year
and specify their implementation modalities. The annual operational plans will be
designed for the calendar year.
UNIDO will also prepare progress reports and two final reports at the end of each
phase. These reports will consist of a descriptive section and a financial section,
which will cover the entire Programme.
Each report should provide a complete picture of all aspects of Programme

implementation over the reporting period. The structure of these reports allows a
comparison between the objectives and the scheduled or already implemented
activities (including all expenditures carried by UNIDO), the anticipated results and
those obtained, as well as the budget of the Programme. The structure of each report
should correspond to the Programme’s detailed description and budget breakdown.
The descriptive section of the report will contain the following elements:
 Summary and context of the Programme;
 Activities carried out over the reporting period (directly related to the
Programme description and activities scheduled within it);
 Problems encountered and measures applied to overcome them;
 Adjustments made in the Programme implementation;
 Assessment of obtained results using the predetermined success indicators;
 Work-plan for the next period containing a definition of objectives and related
performance indicators. If the report is submitted after the end of the reporting
period, a new work-plan, albeit provisional, should always be prepared before
that date.
The overall operational plan includes a critical analysis of the Programme in all its
dimensions - in relation to the organizational evolution and missions of various
beneficiaries. This report offers the final organizational structure of the Programme in
all its aspects.
The final report will include the above elements (except final bullet) covering the
entire Programme implementation period, as well as information on the measures
carried out to ensure the visibility of financing by the donor organizations.
6.4 Assumptions and risks
The SADC RISDP has for an object launching the common free trade zone with all its
inherent components, as the total liberalization of the intra-regional trade,
development and implementation of the common macroeconomic and sectoral

policies, promotion of the investment-friendly business environment. The purpose of
the regional strategy is in line with the Millennium Development Goals, the objectives
of NEPAD and ACP/EU partnership agreements. The present Programme intervenes
in full coherence and synergy with all the above objectives and initiatives.
The success of the current Programme is largely dependent on:

 the political goodwill of the Member States and their commitment to finance
the Programme;
 moral and financial commitment of companies’ management to upgrade their
productive capacities and thereby to improve their competitiveness;
 commitments of donors to contribute to the Programme funding;
 commitments of the regional and local banking sector institutions to
contribute, in particular, to financing the material investments activities;
 commitment to improve business climate and infrastructures.
The major risks are:

 one or more countries do not succeed in contributing to establishment of the
operational national institutions for Programme implementation (Upgrading
Office, Subcontracting Exchange);
 failure of the financing mechanisms, in particular, for funding the material
investment activities, proposed by this Programme.
The above-listed are two important risks for accomplishment of the expected results
notably related to the implementation of material and immaterial investments
activities.
These assumptions and risks are unlikely due to the strong commitments and interest
shown by the SADC Secretariat, the ministries of industry and technical support
institutions of the Member States, companies and donors. Various actors of SADC
region have committed to contribute to the Programme success closely cooperating
with UNIDO.
6.5 Factors for success
The current Industrial Upgrading and Modernization Programme has been designed
considering the development priorities of the SADC regional grouping and its
Member States. In fact, this Programme applies the efficiency mechanisms to
rationalize activities and expenditures at the regional level, thus aiming at the
sustainability of Programme operations and support in their continuous
implementation provided by the SADC Secretariat and the SADC Member States.
In addition, the Programme will reinforce the local capacities to ensure sustainability
of programme activities. Financing mechanisms will also be introduced to improve
accessibility of funding for upgrading activities, and to encourage and motivate
enterprises and the private sector to participate in the Programme.


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DRAFT

Programme on Industrial Upgrading and

Project Title: Programme on Industrial Upgrading and

Beneficiaries: - Member States of the Southern African

Funding institution: International Cooperating Partners (ICPs)

SECTION 1: BACKGROUND AND SITUATION ANALYSIS........................................................................11

SECTION 2: CONTEXT AND JUSTIFICATION OF THE PROGRAMME....................................................47

SECTION 3: OBJECTIVES, COMPONENTS AND OUTPUTS OF THE PROGRAMME.............................61

SECTION 4: APPROACH AND CRITERIA OF ELIGIBILITY TO THE PROGRAMME................................67

Programme on Industrial Upgrading and Modernization in SADC Countries 5

SECTION 5: FUNDING AND BUDGET OF THE PROGRAMME.................................................................79

SECTION 6: MANAGEMENT AND COORDINATION OF THE PROGRAMME...........................................91

Annex I: Terms of Reference for the Programme Formulation

Programme on Industrial Upgrading and Modernization in SADC Countries 6

Programme on Industrial Upgrading and Modernization in SADC Countries 7

Programme on Industrial Upgrading and Modernization in SADC Countries 8

In the Southern African Development Community (SADC) region, the industrial

The objective of this programme is to contribute to the strengthening of industrial

The programme intervenes through the following two components:

Current Programme proposal covers:

Programme on Industrial Upgrading and Modernization in SADC Countries 9

Programme on Industrial Upgrading and Modernization in SADC Countries 10

1.1 African Context

38.9 39.4 1990

EU (25) As ia North America Middle Eas t Latin America CIS Africa

Source: WTO International Trade Statistics, 2006

Programme on Industrial Upgrading and Modernization in SADC Countries 11

Middle East, 1.9%

Source: WTO International Trade Statistics, 2006

The small and medium-sized enterprises, which predominate in African economies,

Programme on Industrial Upgrading and Modernization in SADC Countries 12

In response to these challenges and as a result of a series of sub-regional meetings

To assist the continent to take advantage of new opportunities offered by globalization

This Extraordinary Session brought together African Ministers of Industry, African

This Action Plan covers the following critical areas:

It also tackles a number of critical priorities at national, regional, continental, and

i. Policy on Product and export Diversification, Natural Resources Management

Programme on Industrial Upgrading and Modernization in SADC Countries 13

The Action Plan recognizes UNIDO’s specific technical know-how, thorough

The proposed Programme on Industrial Upgrading and Modernization in SADC

1.2 The SADC Context

1.2.1 Economic situation

The Southern African Development Community (SADC) is composed of fifteen

Programme on Industrial Upgrading and Modernization in SADC Countries 14

Programme on Industrial Upgrading and Modernization in SADC Countries 15

Domestic Saving (% of GDP)

Consumer Prices (Annual delta in %)

10 Real GDP Growth (%)

Real Per Capita GDP Growth (%)

Reserves (months of imports of

The improvement in economic performance is largely attributed to the stable and

Table 2: GDP Ranking of SADC Member States in 2006*

Programme on Industrial Upgrading and Modernization in SADC Countries 16

1.2.2 Foreign Trade

Programme on Industrial Upgrading and Modernization in SADC Countries 17

SADC Exports EU 31% USA 24% Other 45%

Source: Comext (2005), EU Declaration and IMF (2004).

Source: European Commission, 2005

Programme on Industrial Upgrading and Modernization in SADC Countries 18