Engaging Asia and the Middle East: South Africa's Strategic Approach

1. Branch Asia and Middle East Parliamentary Committee on International Relations and Cooperation BRANCH:ASIA AND MIDDLE EAST 30 July 2014 Introductory Presentation to Deputy Ministers June 2014 Ambassador Anil Sooklal DDG: Asia and Middle East

2. Presentation Outline • Organisational Structure • Maps • Central and East Asia • South Asia and South East Asia • Oceania • Middle East • South Africa in Asia and the Middle East – A Twenty Year Overview • Selected Trade Figures • Strategy for Engagement • The Region we Operate In • Rising Asia: Opportunities for South Africa and Africa • BRICS • IORA • Risks and Challenges • Proposed Way Forward • Structured Bilateral Mechanisms at Deputy Minister Level – 2014 to 2015

3. ORGANISATIONAL STRUCTURE ASIA AND MIDDLE EAST Office of the DDG BRICS DECENTRALISED: CORPORATE SERVICES MANAGEMENT CD SOUTH ASIA, SOUTH EAST ASIA AUSTRALASIA & OCEANIA CD MIDDLE EAST CD CENTRAL AND EAST ASIA AND ECONOMIC AFFAIRS & REGIONAL ORGANISATIONS DIR: LEVANT DIR:JAPAN, KOREAS & CENTRAL ASIA DIR: SOUTH EAST ASIA DIR: CHINA & MONGOLIA DIR: GULF STATES DIR: SOUTH ASIA DIR: ECON AFFAIRS & REG. ORGANISATIONS DIR: OCEANIA

4. CHIEF DIRECTORATE: CENTRAL AND EAST ASIA MAP OF REGION OF RESPONSIBILITY Index

5. Hanoi Bangkok Manila Kuala Lumpur Singapore Jakarta

6. Oceania Suva Canberra Wellington

8. South Africa in Asia and the Middle EastA Twenty Year Overview 1994 – 2014A Good Story

9. South Africa in Asia and the Middle EastA Twenty Year Overview 1994 – 2014A Good Story

10. The region we operate inSelected Trade Figures 2013(SARS)

11. Strategy for Engagement • Deepen contacts and engagement with the leadership of Asia and the Middle East at all levels and walks of life • Develop a more assertive economic strategy towards the region based on South Africa’s national priorities • Intensify the promotion of the Brand and Image of SA • Promote and project South Africa’s “soft power” diplomacy • Adopt the “whole-of-government-and-state” approach in engaging the region at all levels and in all sectors • Expand development cooperation with specific emphasis on education and skills acquisition • Increase South Africa’s diplomatic representation/presence in the region

12. The region we operate in • South Africa maintains strong political relationship with the countries of Asia and the Middle East, however, we need to scale up high-level interaction to further solidify relations and leverage economic, trade, investment and tourism opportunities. • 2014 may see the re-integration of Iran into the global community with the subsequent replacement of Saudi Arabia as the dominant regional power. • South Africa-Asia Middle East bilateral relations are built on the long-standing relationships and solidarity that South Africa had developed with the countries and peoples of the region during the pre-1994 period.

13. Rising Asia: Opportunities for South Africa and Africa • The region constitutes one of the leading dynamic economic growth points in the global economy. • Despite 2008 financial crisis, many countries still enjoy relatively high levels of growth. China is projected to overtake the USA as the largest economy in 2017 in PPP terms and by 2027 in market exchange rate terms; India is projected to become the 3rd largest economy by 2050 (With reference to BRICS, Brazil is projected to be the 4thlargest economy (ahead of Japan) by 2027, Russia as 6th and SA as 23rd(PWC, 2013).BRICS expected to account by 2020 for 50% of global GDP growth) • China and India will become the world’s dominant suppliers of manufactured goods and services. (In BRICS context, Brazil, Russia and South Africa will become dominant suppliers of raw materials (BRICS hold 10% of world oil reserves; 25% of gas reserves and 40% of coal reserves) • The World Bank predicts that the USD will lose its global dominance by 2025 as RMB and Euro become co-equals with USD in a multi-currency monetary system • Massive growth in disposable income leading to an exponential growth in travel from the region. • Increased development and technical cooperation, including skills development

14. Rising Asia: Opportunities for South Africa and Africa • According to the Asian Development Bank (Asia 2050 – Realizing the Asia Century), Asia’s rapid growth implies that by 2050 it could converge with average global living standards. • Asia’s march to prosperity will be led by seven economies, two of them already developed and five fast growing middle income converging economies: PRC, India, Indonesia, Japan, Republic of Korea, Thailand and Malaysia (Vietnam and Philippines also important). • In 2010 these seven economies had a combined population of 3.1 billion (78%) and GDP of US$ 14.2 trillion (87%) . By 2050 their share in population will fall to 73% and their share of GDP will rise to 90% of Asia. These seven economies will account for 45% of global GDP.

15. BRICS • The context and rational for South Africa’s BRICS membership resorts in a Local (leveraging domestic economic priorities), Regional (promoting objectives of the African agenda) as well as on a Global level (restructuring of the global political, economic and financial architecture) • Minister MaiteNkoana-Mashabane received a telephone call on 23 December 2010 from the former Chinese Minister of Foreign Affairs of the People’s Republic of China, Mr Yang Jiechi informing her that China, in its capacity as the rotating Chairperson of the grouping, based on agreement reached between the Member States, invites South Africa to join as a full member. • Cabinet approved a BRICS Strategy in September 2012. This document is classified, however, various stakeholders were consulted in drafting it and all key approaches were outlined in policy addresses that focused on BRICS and its first review will be conducted as from August 2014 • The main BRICS activities take place on various levels, inter alia, i) The BRICS Leaders meet at the BRICS Summits on an annual basis as well as on the margins of the G20 Summits, ii) The Ministers of Foreign Affairs/International Relations meet annually on the margins of the United General Assembly Sessions (UNGA) and as required, as well as the other ministerial tracks as outlined in the Summit Action Plans (supported by preparatory Senior Officials’ meetings), iii) other BRICS structures among members of civil society collaborate as outlined in the Summit Action Plans, e.g. BRICS Business Council, BRICS Think Tanks Council, etc. • New areas proposed for cooperation in BRICS is usually initiated with a Senior Officials Meeting, who prepare documentation, Concept Documents and Terms of Reference, for Ministerial consideration.

16. BRICS (Cont) Fifth BRICS Summit • President JG Zuma hosted the Fifth BRICS Summit from 26-27 March 2013 in Durban, eThekwini, KwaZulu-Natal under the theme: “BRICS and Africa: Partnership for Development, Integration and Industrialisation” • The key outcomes that South Africa projected for the Summit were successfully achieved, i.e. the launch of the New Development Bank and Contingent Reserve Arrangement; the first BRICS dialogue with another region, i.e. the BRICS Leaders-Africa Dialogue Forum; the launch of the BRICS Business Council and the launch of the BRICS Think Tanks Council. • South Africa achieved 100% implementation of the meetings listed in the eThekwini Action Plan

17. BRICS Sixth BRICS Summit • The keyoutcomes of the VI BRICS Summit pertain to strengthening intra-BRICS economic and financial cooperation as was manifested in the first formal BRICS inter-governmental agreements that were concluded (and signed by Minister Nene), namely i) Agreement on the New Development Bank (NDB) ii) Treaty for the Establishment of a BRICS Contingent Reserve Arrangement (CRA) • The negotiations to establish these new BRICS institutions were facilitated during South Africa’s tenure as BRICS Chairperson • Other agreements concluded that will strengthen economic cooperation include: iii) Memorandum of Understanding on Cooperation among BRICS ExportCredit Insurance Agencies (signed by Mr Kutoane Kutoane, Chief Executive Officer of the Export Credit Corporation SOC Ltd) iv) Cooperation Agreement on Innovation under auspices of the BRICS Inter- bank Cooperation Mechanism (signed by Mr J Moleketi, DBSA)

18. BRICS (Cont) Agreement on the New Development Bank (NDB): • The Leaders endorsed the following decisions in respect of the future functioning of the Bank: i) The headquarters of the Bank will be located in Shanghai, China; ii) The establishment of the NDB Africa Regional Centre in Johannesburg will be launched concurrently with the headquarters; iii) The order of rotation of Presidents of the Bank will be India as the first President to be followed by Brazil, Russia, South Africa and China; iv) A Special Fund will be created within the Bank, with the participation of all founding members, for the purpose of helping project preparation and implementation (China will be the largest contributor); v) The first chair of the Board of Governors shall be from Russia; and vi) The first chair of the Board of Directors shall be from Brazil • The NDB agreement must now be ratified by each country’s legislature • A proposed interim board will take forward the setting up of the Bank

19. BRICS (Cont) What does it mean for South Africa and Africa? “Cooperation amongst BRICS countries is anchored in its institutions, so the New Development Bank is an important step forward” President D Rousseff • The Bank shall have an initial authorized capital of US$ 100 billion and the initial subscribed capital shall be of US$ 50 billion, equally shared among founding members- SA has to contribute USD 2 bn within a 7 year period • Africa will receive the first infrastructure project, i.e. the Regional Centre of the NDB for Africa will be established in SA concurrently with the NDB HQ in Shanghai • The aim is to strengthen cooperation among emerging economies and developing countries by jointly pooling BRICS savings (notably foreign reserves estimated around USD 4 trillion as well as other private financing within the jurisdiction of BRICS countries) to meet the development needs of countries with whom we share common objectives • Important regional leverage for SA: President Zuma has successfully represented the mandate received from the African leadership in respect of the importance of the Bank for the continent’s own developmental aspirations

20. BRICS (Cont) What does it mean for South Africa and Africa? • The aggregate price tag of the PIDA projects: USD 360-billion over the next 30 years, with at least USD 68-billion required by 2020 (51 regional projects and programmes – and over 400 subprojects ) • The achievement of South Africa’s infrastructure development ambitions will depend on finding the so-called “sweet spot” of mutual interest between government, players in the private construction and engineering sectors and financiers- Moe Shaik, Group Executive Manager for Int Finance, DBSA • Infrastructure and sustainable development projects will be the core focus of funding • An important additional gain is that the regional office will pay particular attention to project preparation and implementation • South Africa we also have our own Infrastructure Plan which requires funding beyond the means of our own fiscus and this Bank will certainly bring complementary funding to facilitate the implementation of such projects, in line with our National Development Plan • It could be explained that the Bank’s leverage to achieve impact will be multiplied by the direct Rand, Real, Rouble, Rupee and Renminbi investments made by the members

21. BRICS (Cont) What does it mean for South Africa and Africa? • Our contributions to the bank are in fact investments and not mere expenditure and it is expected that the Bank will function according to sound commercial terms, also with a view to obtain desired credit ratings, and its assets will definitely grow and multiply over time as is the case with other similar Multilateral Development Banks- South African is also party to various other such financial initiatives, whether it be the World Bank or African Development Bank and where we also participate in calls for capital

22. BRICS (Cont) Treaty for the Establishment of a BRICS Contingent Reserve Arrangement (CRA): • The CRA Treaty must now be ratified by each country’s legislature • Central Banks must conclude an inter-central bank agreement (ICBA) which will operationalize the CRA • The ICBA is expected to be completed within the next 12-18 months; in addition, procedural guidelines for the operation of the CRA must be approved What does it mean for South Africa? • Virtual foreign exchange reserves pool modelled along the lines of the Chiang Mai initiative Multilateralisation Agreement • $100 billion reserve • The CRA will forestall short-term balance of payments pressures, provide mutual support and also provide additional and supplementary support and insurance for global financial stability • The Parties shall be able to access resources subject to maximum access limits equal to a multiple of each Party’s individual commitment (China 0,5; Brazil, Russia and India 1 and South Africa 2)

23. BRICS (Cont) Treaty for the Establishment of a BRICS Contingent Reserve Arrangement (cont.): • It bears no immediate or direct financial implication and will only be activated once a member makes a call for capital and according to the agreed share, but with the important condition of repayment (countries invest their reserves in various global financial instruments of this nature) • Assist the IMF to ease global economic system, by working concurrently with it • SA will contribute USD 5bn – held in reserve • Will stabilise rand should future currency fluctuations occur

24. R 400 000 000 000 R 350 000 000 000 R 300 000 000 000 R 250 000 000 000 R 200 000 000 000 TOTAL TRADE R 150 000 000 000 TRADE BALANCE R 100 000 000 000 R 50 000 000 000 R 0 2009 2010 2011 2012 2013 - R 50 000 000 000 - R 100 000 000 000 YEAR TOTAL TRADE TRADE BALANCE 2009 R 169 653 645 799 - R 30 964 539 751 2010 R 194 842 159 418 - R 17 019 483 973 2011 R 269 016 452 887 - R 22 353 705 913 2012 R 298 291 730 743 - R 47 687 647 047 2013 R 380 412 613 738 - R 70 642 491 502 Trade with BRICS 2009 to 2013(Source:SARS and thedti)

25. IBSA • Following its 10 year anniversary in 2013, going forward, IBSA will focus on its niche and identified areas of comparative advantage, i.e. global governance reform and the IBSA Fund for Poverty Alleviation. • Area of Strategic Focus: • UN Security Council Reform • Continued IBSA co-operation in various global governance platforms such as ECOSOC and the Human Rights Council • Deepening and widening the reach of the IBSA Fund for Poverty Alleviation

26. Indian Ocean Rim Association (IORA) IORA • Renewed strategic interest in the Indian Ocean Rim • SA  to preside over Vice Chair (2015-2017) and Chair (2017-2019) following leadership by three G20 members of the Rim: (India, Australia and Indonesia) • Area of Strategic Focus: • Ocean Economy (“Blue Economy”) as the next frontier of global economy growth • Maritime Security and Transport

27. Risks and Challenges • Increasing tension between rising regional powers and traditional global powers. • Shifting of alliances due to rising economic and military power of China, Japan, India • US strategic interests • Territorial disputes due to energy and natural resources • Contested trade routes • The pursuit of our domestic priorities in the Middle East will continue to face challenges in the light of: • Political tension and sectarian violence; • The continuing civil strife and humanitarian crises and its impact on the region • Israeli occupation of Palestine and lack of progress in the MEPP • Vested interests of major powers

28. Risks and Challenges • Trade Deficits • SA still experiences challenges with market access for products and services of exports interest to South Africa with several countries of the region (Trade Protectionism) • To contain the growing deficit with our major trading partners of the region. • Mercantilist approach to South Africa and Africa • Other Risks • Trans-Pacific Partnership: A most significant geo-strategic trade negotiation led by the USA, promising major economic benefits to its 12 member countries and clearly excludes China (i.e. United States, Australia, Brunei Darussalam, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). Its market size is approx. 793 million consumers and it had a combined GDP of U$28.1 trillion in 2012, which is 39.0% of World GDP. • Regional Comprehensive Economic Partnership (RCEP): A Free Trade Agreement (FTA) scheme of the 10 ASEAN Member States and its FTA Partners (Australia, China, India, Japan, Korea and New Zealand) to be concluded by the end of 2015, taking over movements and efforts in the East Asia Free Trade Agreement (EAFTA). RCEP will include more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade. • Establishment of ASEAN Common Market in 2015

29. Proposed Way Forward • In order to take advantage of the enormous opportunities in Asia and the Middle East (be it trade, tourism, defence spending, FDI, development cooperation, technology transfer, etc.), a comprehensive Asia strategy, following the “whole of government” approach, should be developed, taking into account our domestic priorities, the National Development Plan and advancing the African Agenda. This should form the basis for a proposed roadmap on how to effectively engage the “first” and “second” tier countries in the region. – Convene an Asia Heads of Mission Conference in 2014 to review relations and develop a long-term strategy for Asia. 2. Strengthening South Africa’s representation in the region, • strategic placement of appropriately trained diplomats (trade and economic diplomacy, language skills, etc). • Capacity at Head Office and Missions; • Further expand presence in the region • Re-orientation of Missions APP with major focus on Economic Diplomacy

30. Proposed Way Forward • Diversify the trade basket, focusing on value addition; • Market Analysis and Intelligence • Utilisingthe strength of our diplomatic relations to address the growing trade deficit; • Closer cooperation between government and the private sector in the promotion of trade, including enabling the Minister of International Relations and Cooperation to assemble private sector delegation to accompany the Principal on high-level visits and the establishment of a follow–up mechanism; • Closer cooperation between DIRCO and DTI, e g DIRCO access to DTI database, etc.

31. Proposed Way Forward 7. South Africa should actively pursue opportunities in the field of energy in the Middle East and central Asia. 8. Expand development cooperation with specific emphasis on education and skills acquisition; • Intensify the promotion of Brand SA • To continue to advance South Africa’s soft power diplomacy, especially our good story experience (already shared with Palestine, Israel, Iraq, Sri Lanka, Nepal, Afghanistan, Syria, Iran) • Revisit the BRICS Strategy to focus more specifically on South Africa’s priorities.

32. Proposed Way Forward 12. In IBSA, continue to build on the six identified priority areas (Agriculture, Science and Technology, Environment, Trade and Investment, Health and Transport and Infrastructure), and expand activities of the IBSA Trust Fund; 13. To develop an Indian Ocean Rim Association (IORA) strategy in preparation for our chairship and to work in closer partnership with Indonesia.

33. Structured Bilateral Mechanisms Meetings 2014/15

34. Structured Bilateral Mechanisms Meetings 2014/15

35. Structured Bilateral Mechanisms Meetings 2014/15