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Presentation. July 16, 2011. Market Conditions and the Regulatory Environment of services sectors in SADC By Noel Watson. Members of SADC. Structure. General Overview Market conditions Restrictions, regulations, impediment Sector overview Structure of sectors
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Presentation July 16, 2011 Market Conditions and the Regulatory Environment of services sectors in SADC By Noel Watson
Structure • General Overview • Market conditions • Restrictions, regulations, impediment • Sector overview • Structure of sectors • Some regulatory issues • Some questions • Offensive and defensive negotiating strategies
Overview SADC • Services sector is very important in the economies of many SADC countries • –Rapid growth : up to 5% pa • –Contributes • Above 40% of GDP in most SADC countries (still growing) • Employment • Exports
SADC: Population Estimates for 2011 in Millions Total 280 International Monetary Fund, World Economic Outlook Database, April 2012
SADC: Gross domestic product per capita, current prices International Monetary Fund, World Economic Outlook Database, April 2012
SADC GDP Growth Rates 2007-2011 Source: World Bank
SADC Exchange Rates Against US$ Exchange rates relatively stable except for Angola, DRC, Madagascar, Seychelles, Zimbabwe
Inflation Rates in 2011 Source: CIA World Fact Book
Challenges of the SADC • Regional consensus in decision making • Transport Infrastructure • Language differences • Cultural divergences
Services Sector in SADC Economies (% of GDP, 2007) Source: WDI, World Bank; Eurostat
SADC Services Trade by Member State (2006) • Net Exporters of Services • Mauritius • Tanzania • Botswana • Namibia
Challenges in Services Trade Liberalization • Regional services trade liberalization will be more complicated than liberalization of goods • Supply of services requires movement of either service producers or service consumers, or movement of capital to invest in service activities • Further, barriers to services trade are mostly embedded in national laws and regulations • Liberalizing regulations is a more challenging task than simply reducing tariffs. It requires careful design of an appropriate way, timing and forum in which to carry out the liberalization. • Successful liberalization will require introducing competition and effective regulation to correct market failure • Appropriately designed domestic regulations can help reform at the national level and provide meaningful market access at both regional and international levels.
GATS Commitments: Market Access • Article XVI:2 of GATS lists six categories of restrictions which may not be adopted or maintained. • However, a country is allowed to maintain any of these limitations provided it outlines these limitation in its schedule of commitments. • The six prohibited limitations are: • limitations on the number of suppliers • limitations on the total value of service transactions or assets • limitations on the number of service operations or on the total quantity of service output • limitations on the total number of natural persons that may be employed • measures which restrict or require specific types of legal entity or joint venture • limitations on the participation of foreign capital. • Market access limitations in schedules therefore fall into one of these categories.
Overview of Restrictions in Six Sectors • Most countries have put no significant restrictions in the financial services sector. • The main restrictions which exist relate to Mode 4, where they are unbound and apply horizontally • This includes the fact that for non-residents to work in another member country, they require the necessary visas and there are limitations as to how much money can be carried. • In the tourism sector, some countries have opened completely. • Zambia and Zimbabwe have opened • Tanzania has not opened • Telecommunications is also an area where the majority of countries have not made any restrictions except for fixed line services. • The energy sector is also unbound and hence restrictions to market access as well as national treatment apply
Horizontal Measures • Some horizontal measures which apply in all of the countries are with regard to Mode 4 • This area requires that employees of foreign entities should have work and residency permits in order to supply certain services. • Furthermore, where a supplier of a service belongs to a professional body, proof of membership in such professional body has to be shown. • Mutual Recognition Agreements
Horizontal Measures Work Permit • Are work permits required? • Are they easy to get? • What is the process? • Can foreigners obtain them on the same terms? • Discriminatory against any particular member state • Transparent • Efficient
Horizontal MeasuresCompany Registration • Do companies need to register to operate locally? • Is the company registration process simple? • How long does it take? • Is it harder for foreigners? • Can foreigners obtain them on the same terms? • Discriminatory • Transparent • Efficient
Horizontal MeasuresExchange Restrictions • Are their any restrictions on obtaining foreign exchange? • In Mauritius? • In other SADC member states? • Can foreign exchange be easily obtained? • Can business people repatriate funds easily? • Can foreigners obtain funds on the same terms? • Discriminatory • Transparent • Efficient
Horizontal MeasuresProfessional Licenses • Are there any professional licensing requirements that all persons doing business have to acquire? • In Mauritius? • In other SADC member states? • Can foreigners obtain them on the same terms? • Discriminatory • Transparent • Efficient
Horizontal MeasuresLandholding or shareholding restrictions • Can services providers from other SADC member states obtain land or shares in companies on the same terms as locals? • Can Mauritian services providers obtain land or shares in companies in other SADC countries on same terms as their nationals? • Discriminatory • Transparent • Inefficient
Example of how SADC countries might examine Horizontal Measures Final Report
INCREASING TEMPORARY MOVEMENT OF NATURAL PERSONS IN THE SADC REGION: WHAT SHOULD BE DONE? STUDYBY MAKOCHEKANWA ALBERT AND MARINGWA JAMES (2009) • The study investigates the extent to which the current regional member countries’ laws and regulations, measures and practices encourage or inhibit free movement of citizens across their respective territories. • The research found out that, national laws, regulations and practices inhibit free movement of regional citizens across member states. • Some of the regulations, laws and practices which inhibit free movement of people include : • stringent visa requirements, • different requirements for registration of foreign business • non recognition of relevant educational qualifications obtained in other member states • strict entry requirements in certain sectors such as medical and legal fields • application bureaucracies the cost of applying for permits.
Overall Rank 23 out of 183 Mauritius Ranking in World BankEase of Doing Business Survey
Ease of Doing Business and Starting Business Amongst African Countries
Background on Financial Services Financial services are divided into • Banking and other financial services (e.g. financial leasing, guarantees and commitments), and • Insurance and insurance-related services (e.g. broking and agency services • South Africa is by far the major player in the region, and has a significant outward investment in financial services in other SADC countries. • Other SADC countries are mainly importers of financial services, from South Africa and elsewhere. • Most SADC countries are not in a position to engage in international export of financial services. • However, financial services are crucial inputs into many economic activities; therefore, importing them should be regarded as enabling economic development. Is the signing of SADC Finance and Investment Protocol by (most) countries a reflection of the importance of Financial Services in SADC?
SADC: Contribution of financial services to GDP (2006) Note: Figures for Mozambique, Swaziland and Zambia are for 2005. Data for Angola and the Democratic Republic of the Congo are not available
What are the implications of South African Dominance of SADC Financial Services? • Does it restrict competition in other member countries? • Does it result in higher lending rates and higher spreads? • Does it lead to a dependence on South African Executive and Managerial staff? • What are implications for • Mauritius developing as a global financial centre? • Botswana developing as a regional financial centre? • Can lessons be learned from South Africa that can be used by Mauritius? • How can the SADC services negotiations be best used to Mauritius’s advantage?
Regulations in the Banking Industry in SADC • Licenses are required to establish banks in all SADC countries • To be discussed in sectoral meetings • Equity requirements • In most countries foreigners can have 100% equity – increases competition • Capital requirements • Cross border trade • Legal structure • Board composition • Botswana, Namibia and the United Republic of Tanzania, there are no limits as to how many foreigners can sit on the board of directors • Zambia, only 25 per cent of the members of the Board of Directors can be foreign citizens, while a bank cannot employ more than five expatriates.
Regulators of non-banking financial services • Not always the same as regulators of banking services • Mauritius - Financial Services Commission regulates all non-banking • Botswana -Ministry of Finance and Development Planning (MFDP) serves as regulator of the insurance companies and pension funds • Zambia - Registrar of Pensions and Insurance regulates the pensions and insurance subsectors • Namibia - non-banking institutions, including the insurance and securities sectors, are regulated by the Namibian Financial Institutions Supervisory Authority
Regulations in the non-banking financial services differ • Within the insurance industry, all countries require that insurance service providers have the requisite qualifications as well as licences • In Botswana, insurance agents should possess professional qualifications and all insurers and brokers should renew their licences annually. Also, the same person is not allowed to manag e more than one insurance company • In some countries, domestic residents and firms can purchase cross-border insurance. However, the types that can be purchased are limited. • In Namibia, residents cannot purchase life insurance, medical insurance, or brokering cross-border from a foreign insurance company • In Mauritius, residents cannot purchase motor insurance across borders
GATS Commitments • Financial sector is quite open within the SADC region • Angola, Lesotho, Malawi, Mauritius, Mozambique, South Africa and Zimbabwe have made GATS commitments in financial services • Most countries have made commitments in the banking sector, but only three – Lesotho, Mauritius and South Africa – have made commitments in insurance as well • Most countries applied their horizontal GATS commitments to Mode 4 (movement of natural persons). Access is limited to skilled labour linked to commercial presence • The market access restrictions are mainly on commercial presence and cross-border supply • Exchange controls are a common reason for limiting cross-border supply • Restrictions on commercial presence revolve mostly around complying with domestic regulations and being incorporated locally. • Is there evidence that SADC countries have liberalised more than reflected in their GATS commitments? • Botswana abolished all forms of exchange control but made no commitment in GATS • Are there any such cases in Mauritius?
Is the Sector ready for greater liberalisation? • Are regulatory requirements in place and sufficiently robust? • Is there compliance with Basel II? • Is macroeconomic environment sufficiently stable? • Is there sufficient harmonization of • licensing standards? • supervision of information and communication technology (ICT) systems? • accounting and auditing standards? • How will harmonisation be impacted by the fact that some SADC members are members of COMESA - are SADC and COMESA harmonised? • What will be the benefits and costs? • Are some sub-sectors more ready than others? • Has the necessary SWOT analyses being carried out • Regional level • Local level If SWOT and cost-benefit analyses are positive – why wait?
SWOT Analysis Helpful To achieving the Objective Harmful To achieving the Objective Strengths Strong regulator Weaknesses Do we have enough skilled persons Internal Attributes of the country Opportunities Global Financial Centre Threats Lack of Regional harmonisation External Attributes of the Environment
Importance of Communications and Its Development in SADC • Like financial services the communications sector is critical to all other sectors of the economy and to the lives of people of all ages, nationalities, gender, etc. • In terms of the number of mobile phones per 100 people, Botswana, Mauritius, Namibia and South Africa are ahead of the other SADC countries. These countries also have higher incomes per capita than the region as a whole • The variability in this sector across SADC was a driving force behind the launching of SADC Regional Information Infrastructure (SRII) project several years ago as part of efforts to develop this sector at the regional level • The objective was to provide the necessary telecommunications infrastructure connectivity within the region and bridge the digital divide. How successful has this been?
Communication Network in SADC (2008 Sources: CIA World FactBook and The International Telecommunication Union
To what extent have SADC Members liberalised their fixed line infrastructure? • Fixed-line infrastructure often provides the underlying backbone for nearly every other telecom service • e.g. leased line, international gateway services and including mobile services • Lack of competition is likely to result in artificially high prices in several areas of the sector
Regulators in SADC • In all of the countries, the communications sector is regulated by statutory bodies • In some countries, there is one regulatory body which regulates both the telecommunications subsector and the postal/couriers • Tanzania and Zimbabwe • Mauritius the two subsectors are regulated by two different regulators • Some of these regulatory entities are independent from Government • Mauritius the regulator reports to the National Assembly rather than a particular ministry or the executive • Namibia - regulator is not independent as it reports to the Minister of Information and Broadcasting, and 80 per cent of its funding comes from the national budget. • Tanzania - regulator is also independent from the minister responsible for postal/couriers is funded100 per cent from licences and other fees.
To what extent is private and foreign ownership restricted in SADC countries? • Private ownership is restricted in some countries • Limits sector growth because it requires huge capital investment which can only be provided by large, generally foreign-owned companies • Limitations on foreign equity held by foreign shareholders reduces the likelihood FDI into the sector if they cannot exercise effective control over their investments • To what extent are regulators independent of Government and can take action when rates/tariffs are high given that the Government may have controlling interests
Audio Visual Services • Are radio and television services still mainly State-owned in SADC countries? • The South African Broadcasting Corporation (SABC) is the largest radio and television transmission company in the region, comprising close to 20 radio stations targeting a combined audience of over 20 million • South Africa has also by far the largest television audience in SADC, comprising over 4 million licensed television households. • South Africa’s M-Net, a privately-owned subscription television, has over 1.2 million subscribers in 49 countries across Africa, including SADC. • Is piracy of music and videos still a real problem? • Is this due to non-existence or lack of enforcement of regulatory measures and or laws in the industry?
Regulatory Issues in the Communications Sector in SADC • What is the typical industry structure in SADC? • Oligopoly or monopoly • Certainly not perfect competition!!! • What has come of the SADC Protocol on Transport, Communications and Meteorology of 1998? • Provides the legal and broad policy framework for cooperation, and defines the strategic goals for the transport, communications and meteorology sectors • In 1998, the Southern Africa Transport and Communications Commission’s (SATCC’s) Committee of Ministers approved • Telecommunication Policy Document as a common policy guideline for adoption and implementation at the national level, and • The Model Telecommunication Bill as a guideline for national legislation for implementing the agreed telecommunications policies. To what extent have these been implemented? Issues addressed included: Design of policies, establishment of regulatory authorities, licensing of telecommunication services and duties of public telecommunication service providers.
