Donald MacKay
Why are Botswana and Namibia banning South African citrus and vegetables and why is South Africa upset by their behaviour? Answering these two questions gets us closer to understanding why protectionist policies create net economic harms, even when they appear benign.
Agricultural economists Thabile Nkunjana and Sifiso Ntombela explain, [t]hese bans [of citrus and vegetables in Botswana] go against the principles of a customs union and affect the regional value chain, in which farmers and agribusinesses in South Africa have invested heavily to ensure there is sufficient supply of food in the Sacu (Southern African Customs Union) market.
“Restricting trade could erode competitiveness and result in consumers in these Sacu countries paying much higher for [produce]. All Sacu countries must ensure they retain open trade practices, and the current bans instituted by Botswana and Namibia must be lifted to promote intra-African trade.”
I agree with everything these researchers state, yet when we increase our own duties or create obstacles to trade from the other Sacu states, the same concern for our own consumers is not raised. When we raise duties, and consequently prices we call it localisation and explain how this 'saves jobs' and 'industrialises South Africa' (despite there being no evidence in the data of the jobs being created). When it is done to us it's protectionism.
To be clear, what Botswana and Namibia is doing is a lose-lose strategy economically, but a strong win politically, just as our own protectionist policies create more harm than good, but generate large amounts of political capital.
There is no question that Botswana has a raft of economic challenges, not least being their almost complete dependence on diamonds. It is essential that they diversify their economy, but this is really difficult to do, for the same reason that Saudi Arabia struggles to wean itself off of its dependence on oil. When you have minerals, its like having money in the ground and very few things will compare to the value you can add economically by simply digging them up.
When, like Botswana, your dependence is on one mineral, every shift in the price of that mineral has outsized implications for your economy. The price rises and cash floods in, driving down your exchange rate. Imports are now cheaper than making things locally so you logically import. When the price drops those same minerals, which cost the same to mine, bring in a fraction of the money and your exchange rate weakens. Inflation rises and you have no local industry to supply you.
Economic variety, just like different shares in your portfolio, reduces your risk. Without this your economy is vulnerable to the vagaries of a global market completely outside of your control. The other Sacu states are completely dependent on South Africa for the industrial policy of the customs union they belong to, but there is no indication that they are meaningfully involved in formulating and implementing this policy.
Worse yet, South Africa has been actively targeting their economies by way of some of the master plans created over the past five years. This is a boat which can't be rocked, because they are also mainlining the revenue they are allocated under the Sacu revenue sharing formula.
Just like South Africa and half the world, their answer has been to start closing their borders. This is no small matter to any of the Sacu states not called South Africa, because their slice of the Sacu customs revenue rises as they import more from South Africa. Botswana earns 30% of its total revenue from these Sacu receipts and Namibia 32%. Eswatini at 47% dare not utter a peep.
For Botswana's strategy to work, they would need to produce vegetables and citrus more competitively than South Africa, and do that without the benefit of import duties, which South Africa enjoys against the rest of the world. Batswana farmers have been investing in citrus and many of those trees are starting to literally bear fruit.
From what I can tell most of the citrus is destined to the US, EU and Asia with what's left over going to Sadc. With a population of only 2.5 million people, there is no significant domestic market, making the rest of Sacu really important, yet Botswana's decision has been to close off their very small market, risking access to the much bigger market in the rest of Sacu, particularly South Africa.
This is bad economics, which does not improve because the story being told by the politician sounds good. Botswana, just like South Africa, needs to focus on growing exports and improving competitiveness. The local market will then take care of itself.
Donald MacKay is founder and chief executive of XA Global Trade Advisors. MacKay has been advising local and foreign companies on global trade issues for more than two decades. X handle: XA_advisors; email: donald@ xagta.com; website: xagta.com. The views in this column are independent of Business Report and Independent Media.
BUSINESS REPORT