APPENDIX: Measures Comprising the Cross Border Initiative
Estimates for 1992 indicate a per capita income of US$2,778 a year in Botswana, compared with US$2,951 in South Africa.
By weight, about 55 percent of Botswana’s diamond output consists of gem and semi-gem quality stones. In value terms, however, gems and semi-gems account for about 98 percent of production.
The marketing of Botswana’s non-industrial diamonds is handled through the Central Selling Organization (CS0), an international cartel controlled by De Beers that handles more than 75 percent of the world’s annual production of rough gem diamonds.
Until recently, the major shareholders of BRST were the Anglo-American Corporation of South Africa and Amax-Nickel of the United States. In 1993, however, Amax sold its 29.8 percent equity share to the Botswana Government.
Botswana has about 10,000 square kilometers of soda ash deposits at Sua Pan, running about 90 meters deep. Soda ash is used in the production of glass, steel, and paper.
The membership of SACU comprises South África, combined with Botswana, Lesotho, Namibia, and Swaziland (the BLNS countries). The arrangement grants South Africa the right to determine the external tariffs applied by all members of the customs union, and provides for a revenue-sharing arrangement among the partner countries.
The policy of food security requires that the economy be structured in such a way as to best guarantee access to adequate food supplies under all conditions. This resulted in a more market-oriented approach to price determination in the agricultural sector, and a shift in focus away from investments in the agricultural sector that were unlikely to be cost effective.
This reduction reflects, in part, decreased activity associated with the development of the diamond mines.
The ALSP involved measures aimed at accelerating the supply of land plots equipped with basic services in urban areas, largely for residential construction, owing to the extreme housing shortage.
The FAP is discussed in Section 3c. In general, the program, established in 1982, provides a series of subsidies based on the amount of labor employed, assistance for initial capital investment, and skills training.
The Southern African Development Community (SADC) comprises Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe. In 1994, South Africa joined the community.
The plan called for the completion of several large infrastructure projects, including the soda ash plant, and the initiation of a smaller number of new projects than had been proposed under previous plans, including: the recrush plant at the Jwaneng mine; the development of the fourth stream at Jwaneng; the construction of the North/South pipeline to increase water supplies to southeastern Botswana; and the construction of the Trans-Kalahari road linking Namibia and Botswana.
Prior to the revision, the application for a commercial license was gazetted, a process that permitted existing firms to object to the establishment of new firms that were deemed injurious to their competitive position. Under the revised Industrial Development Act, this policy is no longer pursued, and gazetting has been eliminated.
The increase in costs attributable to the lack of scale economies is difficult to determine, owing in part to the Government’s policy of setting tariffs at rates consistent with full cost recovery. As a result, differentials with other countries in the region must be separated into those components attributable to the realization of economies of scale, and those attributable to a policy of subsidization, which may vary in the future.
Given the limited availability of data, a number of countries were excluded from Tables 3 and 4. The data remain tentative, where available, particularly because the more recent data for value added in the manufacturing sector have been estimated, owing to the absence of official statistics. In addition, employment data for many of these countries are based on a relatively small sample. As a result, these results should only be taken as indicative.
The comparison with South Africa is thus a bilateral effective real exchange rate. The index was then recomputed, with South Africa removed from the partner country weights, to obtain a measure of real exchange rate movements relative to the other partner countries included in the index.
While extremely profitable, the diamond sector is capital-intensive, and has generally offered limited employment opportunities, accounting for only 3.5 percent of formal employment. The problem is exacerbated by the limited opportunities available in either the commercial or subsistence agricultural sector, and the rapid growth of Botswana’s population.
Owing to the lack of data, it is not possible to provide statistics concerning the actual employment gains at small-scale enterprises that were granted FAP assistance.
Evaluation of the Financial Assistance Policy: FAP and its Role in Botswana’s Business Development. Ministry of Finance and Development Planning, 1988. This study relied on a survey of both FAP- and non-FAP-assisted enterprises.
Opportunities for Industrial Development in Botswana: An Economy in Transition: IBRD. 1993.
The impact of the tariff reduction on the other members of SACU, including South Africa, potentially provides an opportunity for those industries in Botswana that can compete in South African markets, and a possible reduction in unemployment pressures.
The 17 percent minimum compensation rate on dutiable imports and excisable production reflects the imposition of a stabilization factor around a projected average revenue rate, inclusive of a compensatory component, of about 20 percent. The compensatory component allows for a 42 percent markup on the average revenue rate, to compensate the BLNS countries for the loss of fiscal discretion, higher import costs, and any polarization effects with regard to the location of industries. Should the average revenue rate, inclusive of the compensatory component, fall below 17 percent, total compensation would be increased to meet the minimum. At present, most countries are compensated at the minimum rate.
Any of the partner countries may withdraw from the arrangement, subject to a one-year notification period.
Botswana continues to avail itself of the transitional arrangements under Article XIV. All remaining restrictions on current account transactions were eliminated as of December 1993. Botswana has a multiple currency practice arising from the exchange rate guarantee scheme provided to the public enterprises prior to 1990. Sub-Saharan African countries that have accepted the obligations of Article VIII, Sections 2, 3, and 4 comprise Djibouti (September 19, 1980); The Gambia (January 21, 1993); Ghana (February 21, 1994); Kenya (June 30, 1994); Mauritius (September 29, 1993); Seychelles (January 3, 1978); South Africa (September 15, 1973); Swaziland (December 11, 1989); and Uganda (April 5, 1994).
With regard to trade, the CBI calls for a number of measures, including the elimination of tariffs on imports of goods and services among participating members by 1996 and a shift toward a common external tariff (Appendix). In the area of payments and exchange systems, the CBI calls for the liberalization of cross-border activities of financial institutions, and an end to restrictions on current account transactions, and on those capital transactions important for investment flows, and the establishment of unified interbank spot exchange markets by 1996. With regard to investment, the CBI calls for the creation of a single short, transparent document containing all investment codes and regulatory requirements; the de facto approval of all investment applications within 45 days of the completion of the application process; and the cross listing of assets on regional stock markets.
In December 1993, Botswana increased the remittable allowances applying to both citizen and noncitizen companies, as well as those determining permissible external payments for foreign travel, education, medical treatment, and sundry payments. Bona fide requests for amounts in excess of these allowances are granted.
This is far more restrictive than the 15 percent domestic asset requirement newly imposed on pension funds in Swaziland.