‘Trading’ requires something to trade
Investment, Trade and Industry minister Peggy Serame believes Botswana owes no apology for building its manufacturing sector by protecting certain products such as bottled water and baked goods from cheaper imports. By month-end, school uniforms will be a
The African Continental Free Trade Area (AfCFTA) is scheduled to kick off on January 1, 2021 with trade between countries that have agreed on tariffs. AfCFTA will potentially be the biggest common market in the world, with 1.27 billion consumers, and an aggregated gross domestic product of up to $ 3.4 trillion.
For Botswana’s aspirations of an export- led economy, AfCFTA is a dream come true. On the ground, however, is the recurring nightmare of AfCFTA leading to a swamping of the local market by cheap imports, drowning out the little manufacturing capacity available. Voices in certain circles fear that AfCFTA could be a ‘mega- South Africa’, which for decades has overshadowed the local productive sector empowered by the provisions of the SACU agreement.
Like SACU, AfCFTA has industrial and infrastructure development provisions, but under SACU, even with those facilities, Botswana is importing up to P50 billion in non- diamond commodities each year, with about P8 billion of this being food and beverages mainly from South Africa.
Investment, Trade and Industry minister Peggy Serame is spearheading renewed efforts around local industrial development, particularly as the coronavirus (COVID- 19) is exposing the country’s over- reliance on imports, not for the first time.
“It’s important to note that when there are challenges like with COVID- 19, each country looks at its own first,” she says.
“They are not bad people. It’s what happens and that’s what happened.
“We reached a level where even with South Africa, we were talking and they were saying ‘the little that we have, how can we share?’
“It’s a reality that we must plan to live with.”
The minister is holding fort at her CBD headquarters, a wide ranging interview covering a handful of the many mandates her ministry covers. The interview comes in a week in which South Africa’s Department of Trade, Industry and Competition revealed that firms in that country exported hand sanitiser worth R705 million into Botswana between June and November 2020. That figure, the number of jobs and opportunities associated with it, was jarring for Batswana who at best were limited to repackaging and distributing locally.
Botswana is presently finalising its tariff lines under AfCFTA, but with the revised Industrial Development Policy due to be unveiled, it is clear where the balance is being struck.
Even as the country welcomes the improved access to the larger continental market, Serame says focus is on supporting the local manufacturing sector to ensure it actually has something in hand to trade with.
“We must have something that’s our own and have our own manufacturing that is thriving,” she says.
“We cannot do everything, yes, but we must have a few subsectors or product lines that we can produce. Produce for your domestic market and then for export.”
Serame explains further: “We want to be an export- led economy under the Fourth Industrial Revolution and for you to export, you must first produce something.
“So we go to the question of how to support these industries to be able to stand on their own. “You must be mindful of the fact that every country supports their own.”
The ministry generally uses levies, reservation policies and incentives to support local industry and consequently job creation and poverty reduction. One manifestation of this is the ‘ringfencing’ or protection of certain products from cheaper and more aggressive imports.
The August 2018 banning of bottled water imports was one such ringfencing, as was the August 2020 restriction on imports of baked goods.
Other products are being looked at including school uniforms where an instrument is due by the end of the month, Serame says.
The measures are not new. Previously, under the Infant Industry Protection policy, government ringfenced UHT milk products and wheat millers. Each time, the process involves engaging external partners such as SACU, SADC and the World Trade Organisation ( WTO), as well as local industry.
“This thing of opening up everything is a theory,” Serame explains.
“On the ground, countries look at their own. One of the issues that frequently comes up at the WTO is countries subsidising their own. It’s a worldwide thing and we are not bad people.
“We have been engaging with industry, manufacturers, assessing the industry, their capacity, the demand, where they source their raw materials from and others.”
She continues: “One example is the textile sector where we had a meeting with them last month and said ‘ why are you buying these uniforms from outside, when we can be making these locally?’
“I asked them if they are prepared and what the sources of their raw materials are and whether they can guarantee that the supply will come through.
“We are looking at school uniforms, which is a sector reserved for Batswana and we are also looking at cement.
“These have been difficult because of the raw material, in that we have to satisfy ourselves that there will not be an issue with supply or raw materials.”
Certain types of furniture, pipes and the toilet paper family of products are also being assessed. Serame says issuing the instrument is not the final step in assisting local industry.
“You have to support these companies to grow and be competitive.
“We look at whether we have standards for the product and if not, then we introduce that standard.
“Other companies need to be taken by the hand and work with CEDA, BOBS, LEA and others.”
But where is the balance struck between negotiating under AfCFTA, which will of necessity require opening up to imports, and protecting one’s own small industry? How does Botswana prevent AfCFTA from becoming a ‘South Africa’ riding on Botswana’s strong purchasing power to drown out local manufacturing with cheaper, more competitive products?
How does Botswana open up and close out at the same time?
“For you to trade with the rest of Africa, you must also have something to trade with,” Serame stresses.
“For you to have that something, you have to find a way to develop local capacity.
“When we exchange tariff lines with other countries, we look at our sensitive products.
“We are allowed in our negotiations to say ‘ I have certain sensitive products that I’m ringfencing’.
“You can say if you bring your cars, we will reduce the tariff from 100% to 50% and make that reduction over 10 years.
“You can agree on what the sensitive products are and how the tariffs will be adjusted over time.
“As much as we say we are opening up, everyone looks at their own. There must be a commercial element; can our beef access their market when they also have beef? What about pipes, textiles, automotive parts and others?”
From the Financial Assistance Policy of 1982, to the second Industrial Development Policy of 1998, the country has made efforts to boost local industry over the decades, with limited success. The latest efforts are supported by a bedrock of institutions, a willing private sector, the upcoming citizen empowerment law and the opportunities offered by digitisation. In addition, COVID- 19 has provided the impetus.
Success will lie in the implementation, Serame says.