RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/35
1 April 1998
(98-1294)
Trade Policy Review Body
TRADE POLICY REVIEW
BOTSWANA
Report by the Secretariat
This report, prepared for the first Trade Policy Review of Botswana, has been
drawn up for the WTO by the Botswana Institute for Development Policy
Analysis (BIDPA), Gaborone, Botswana in collaboration with the Overseas
Development Institute, London.  The WTO Secretariat takes full responsibility
for its contents.  The Secretariat has, as required by the Agreement establishing
the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement
Establishing the World Trade Organization), sought clarification from the
Government of Botswana on its trade policies and practices.
Document WT/TPR/G/35 contains the policy statement submitted by the
Government of Botswana.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on .Botswana WT/TPR/S/35
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
(1) Economic En vironmen t .................................................................................... ix
(2) Institutional Framework ................................................................................... ix
(3) Major Features of  Trade Policies ..................................................................... x
(i) Policy instruments and their ef fects .................................................... x
(ii) Sectoral polic y patterns ....................................................................... xi
(4) Trade policies and tr ading partners .................................................................. xii
I. THE ECONOMIC AND TR ADE ENVIR ONMENT .................................................. 1
(1) Major Features of the Botswana Economy ...................................................... 1(2) Economic Performance .................................................................................... 4
(3) Composition and Direction of Trade and Foreign Investment ......................... 11
(i) Trade in goods ..................................................................................... 12
(ii) Internal and external factors affecting interna tional tr ade ................... 14
(iii) Exchange ra te polic ies ......................................................................... 16
(iv) Foreign direct  investment .................................................................... 16
(4) Outlook ............................................................................................................. 18
II. TRADE AND INVESTME NT REGI MES ................................................................... 20
(1) Institutional Framework ................................................................................... 20
(2) Trade Policy Formulat ion and Implem entation ................................................ 20
(3) Trade Policy Objectives ................................................................................... 21(4) Trade and Investment Laws and Regulations ................................................... 22
(5) Trade Agreements and Regional Co-operation ................................................ 23
(i) The WTO Agreement .......................................................................... 23
(ii) The Southern African Customs Union (SACU) .................................. 24
(iii) The Southern African Development Community (SADC) ................. 27
(iv) SACU-SADC interaction .................................................................... 28(v) Botswana/Zimbabwe Trade Agreement .............................................. 29
(vi) The Lomé Convention ......................................................................... 30
(vii) Other trading arrangements a nd international agreements .................. 31WT/TPR/S/35 Trade Policies Review
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Page
III. TRADE POLICIES AND PRAC TICES BY ME ASURES .......................................... 32
(1) Overview .......................................................................................................... 32
(2) Measures Directly Affecting Imports ............................................................... 32
(i) Documentation and cu stoms clearance ............................................... 32
(ii) Tari ffs .................................................................................................. 33
(iii) Excise duties ........................................................................................ 37
(iv) Anti-dumping, countervailing and safeguard measures ...................... 37
(v) Import pe rmits ..................................................................................... 38
(3) Measures Directly Affecting Exports ............................................................... 40
(i) Registration an d documentation .......................................................... 40
(ii) Export co ntrols .................................................................................... 41
(iii) Export subsidies a nd tax concessions .................................................. 41
(iv) Preferential e xport markets ................................................................. 41
(v) Import pe rmits ..................................................................................... 42
(vi) Export credit  insurance ........................................................................ 42
(4) Measures Affecting Pr oduction and Trade ....................................................... 42
(i) Protection of intellectu al property rights ............................................. 42
(ii) State trading and public enterp rises ..................................................... 43
(iii) Competitio n policy .............................................................................. 44
(iv) Standards ............................................................................................. 44
(v) Price regulations  and controls ............................................................. 45
(vi) Reservati on policy ............................................................................... 45
(vii) Public pr ocurement .............................................................................. 46
(viii) Foreign invest ment incen tives ............................................................. 47
IV. TRADE POLICIES AND PR ACTICES BY SECTOR ................................................ 49
(1) Introduc tion ...................................................................................................... 49
(2) Agriculture, Fisheries and Food Processing ..................................................... 49
(i) Background ......................................................................................... 49
(ii) Agricultural policy obje ctives and in struments ................................... 50
(iii) Main features of the agricultural sector ............................................... 50
(iv) Policy by type  of product .................................................................... 51
(3) Minin g .............................................................................................................. 56
(i) Diamonds ............................................................................................. 58
(ii) Other mi nerals ..................................................................................... 59
(4) Manufacturing .................................................................................................. 60Botswana WT/TPR/S/35
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Page
(5) Services ............................................................................................................ 61
(i) Energy ................................................................................................. 61
(ii) Transport and communications ........................................................... 62
(iii) Telecomm unications ........................................................................... 62
(iv) Financial services ................................................................................ 63
(v) Tourism ............................................................................................... 65
REFERENC ES .................................................................................................................... ...... 67WT/TPR/S/35 Trade Policies Review
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CHARTS
Page
I. THE ECONOMIC AND TRADE ENVIRONMENT
I.1 GDP by economic activity, 1991 and 1996 .................................................................. 5
I.2 Real growth rates for total GDP and selected sectors, 1989/90-95/96 .......................... 5
I.3 Annual inflation rates in Botswa na and South Africa, 1990-96 .................................... 7
IV. TRADE POLICIES AND PRACTICES BY SECTOR
IV.1 Sorghum, production and planted area, 1979-93 .......................................................... 52
IV.2 Production of selected ag ricultural products, 1979-93 .................................................. 52
IV.3 Production of selected ag ricultural products, 1979-93 .................................................. 53
IV.4 Livestock popu lation, 1979-93 ...................................................................................... 55Botswana WT/TPR/S/35
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TABLES
Page
I. THE ECONOMIC AND TRADE ENVIRONMENT
I.1 Major features of the economy ...................................................................................... 2
I.2 Comparative economic and so cial indicators, 1993 ...................................................... 3
I.3 Annual growth rates by sector, 1991-1996 ................................................................... 6
I.4 Government financia l surplus,  1992-96 ........................................................................ 8
I.5 Central Government bu dget, selected  years .................................................................. 9
I.6 The shift to Bank of Bots wana Certificates (BOBCs) .................................................. 10
I.7 Slow-down in commercial bank lending, 1991-96 ....................................................... 10
I.8 Balance-of-payments  summary, 1991-96 ..................................................................... 12
I.9 Shares of export  products, 1980-96 .............................................................................. 12
I.10 Relative shares of import products, 1980-96 ................................................................ 13
I.11 Percentage share of expo rts by destination, 1980-1996 ................................................ 13
I.12 Percentage share of im ports by source, 1980-96 ........................................................... 14
I.13 Foreign investment by sector  and region of origin, 1992-93 ........................................ 18
II. TRADE AND INVESTMENT REGIMES
II.1 Status of Botswana's selected notification requirements to the WTO as at 6 January 1998 24
III. TRADE POLICIES AND PRACTICES BY MEASURES
III.1 Tariff escalation an d tariff ra nges, 1997 ....................................................................... 34
III.2 Anti-dumping duty actions , as at 31 December 1996 ................................................... 38
III.3 Products subject to a safeguard ac tion (import licence), 18 June 1996 ........................ 40
III.4 Importance of state-owned en terprises in Botswana, 1981-91 ...................................... 43
III.5 FAP financed projects by size, 1991-95 ........................................................................ 48
IV. TRADE POLICIES AND PRACTICES BY SECTOR
IV.1 BMC sales by product and market share, 1993 ............................................................. 56
IV.2 Royalty rates for va rious minera l type s ........................................................................ 58
IV.3 Minerals output and va lue of production, 1991-96 ....................................................... 60
IV.4 Manufacturing output, empl oyment and exports, 1986-95 ........................................... 61
IV.5 Botswana telecommunicat ion indicators, 1990-97 ....................................................... 63
IV.6 Hotel capaci ty, 1990-95 ................................................................................................ 65WT/TPR/S/35 Trade Policies Review
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APPENDIX TABLES
Page
I. THE ECONOMIC AND TRADE ENVIRONMENT
AI.1 Real gross domestic product by type of economic activity and share by
sector, 1985-96 ( 1985/86 prices) ................................................................................... 71
AI.2 Real GDP by expenditure, 1985-96 (1985/86 prices) ................................................... 72AI.3 Exports by principal commodities, 1980-96 ................................................................. 73
AI.4 Imports by principa l commodities, 1980-96 ................................................................. 74
AI.5 Destination of exports, 1980-96 .................................................................................... 75
AI.6 Source of im ports, 1980-96 ........................................................................................... 76
AI.7 Balance of payments, 1990-95 ...................................................................................... 77Botswana WT/TPR/S/35
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SUMMARY OBSERVATIONS
 (1) Economic Environment
1. Botswana's economic growth since
independence in 1966 has been impressive,
largely due to the performance of the mining
sector, dominated by diamonds.  Whereas at
independence, Botswana was one of theworld's poorest countries, in fiscal year
1995/96, the estimated GDP per capita was
around US$2,700, more than five times above
the average for sub-Saharan Africa.  Real
GDP increased  by 7% in 1995/96 and isprojected to continue growing strongly into
the next century.  Mining accounts for one
third of GDP, but only 3.5% of formal
employment;  the principal source of
employment in recent years has been thepublic sector, which accounts for some 37% of
formal sector employment.  Shortage of skilled
labour is a major constraint on thedevelopment of manufacturing industry.
2. With substantial export revenue from
diamonds, Botswana's  public finances and
balance of payments are strong.  Diamond-
sector income accounted for over 47% of
government revenue in 1995/96;  interest oninternational reserves, which stand at over 30
months' import equivalent, covers a further
25% of revenue;  customs and excise duties
now cover only some 15% of revenue,
compared to one third in 1980.  Botswana'sdependence on revenue arising from the
Southern African Customs Union (SACU) pool
is therefore relatively low.  The budget has
been in overall surplus for many years and
substantial balances have been built up on thegovernment account at the Bank of Botswana.
Excess liquidity in the economy stemming from
these and private sector financial surpluses
has been absorbed by the central bank.  The
current account of the balance of payments
has been in surplus every year since 1982.
3. Botswana is not a member of the
Common Monetary Area, which comprises the
other SACU member States.  Monetary policyis thus determined independently;  however,
the  Government generally seeks to hold
interest rates slightly below those in
South Africa.  The value of the Botswana pula
is determined in terms of a crawling peg
system, based on a basket of the South Africanrand and the SDR;  in practice, the real
exchange rate against the rand has remained
relatively stable.
4. The structure of Botswana's export
trade, dominated by diamonds, is also
reflected in the recorded direction of exports,
over 70% of which are to the United Kingdom
and Switzerland.  The UK is also the largestmarket for Botswana's beef exports, which
gain duty-free preferential access under Lomé
Convention quota to the EU;  subject to
frequent drought, Botswana has consistently
been unable to fulfil its EU quota for beef.The share of SACU has also risen in the past
few years, largely because of growing exports
of motor vehicles to South Africa.  On the
import side, South Africa is by far the largest
partner;  however, this includes imports fromother sources coming through South Africa to
land-locked Botswana.
(2) Institutional Framework
5. Botswana is a republic with a single-
chamber National Assembly;  executive power
is held by the President.  Criminal law is
largely based on English law while
commercial law is generally based on Roman-Dutch law.  The lead role for SACU affairs
lies with the Ministry of Finance and
Development Planning, while overall trade
policy is in the hands of the Ministry of
Commerce and Industry, with the Ministries ofAgriculture and of Mineral Resources directly
involved in policy concerning their specific
sectors.  International agreements and treaties
are ratified by the President's signature.
Botswana is a founding member of the WTO;its tariff schedule corresponds to that of
South Africa with a few exceptions, and it hasWT/TPR/S/35 Trade Policies Review
Page x
made commitments in business,
communication and tourist services under the
GATS.
6. The SACU agreement governs
Botswana's tariff policy, with common customs
and excise duties on goods imported from
third countries set (and largely collected) by
South Africa, duty-free circulation of goodswithin the customs union, and transit rights
across South African territory established
under the agreement.  Revenue from customs
and excise duties are distributed among SACU
members from a common pool, held by SouthAfrica, according to a formula which, in
practice, grants 17% of total revenue to each
of Botswana, Lesotho, Namibia and Swaziland
(BLNS), with South Africa as the residual
(32%).  The revenue-sharing formula, as wellas other aspects of the SACU agreement, are
currently under renegotiation;  Botswana
places emphasis on the democratization of the
structure of the agreement, technical revision
of the formula and a shortening of the time
lags in distribution of revenue, as well as the
creation of a dispute settlement mechanism.
7. Botswana is also a member of the
Southern African Development Community
(SADC), under which a timetable for creation
of a free-trade area with a dispute settlement
forum has been put in place, as part of a wider
initiative for free movement of goods, services,capital and labour, and political cooperation.
Botswana hosts the SADC Secretariat and has
responsibility within the region for the
coordination of agricultural research and
training.  Botswana also maintains a free-trade agreement with Zimbabwe.
8. The network of regional and
preferential trade agreements within thesouthern African area and between southern
Africa and Europe presents a number of
challenges to policy makers.  The future
structure of SACU itself has to be determined:
operational relations between SACU, as acustoms union, and SADC, as a potential free-
trade area of which SACU is part, must be
considered;  and the relations between BLNS,on the one hand, and South Africa, on the
other, with the EU in the post-Lomé period are
a third piece of the puzzle.  For Botswana,
post-Lomé links with the EU will be affected in
particular by conditions for trade in meat and
other agricultural products between the EU,
its free-trade partners and third countries.Other conditions such as differing rules of
origin among the agreements add further
complications.  Individually, the SADC and
SACU members will have little bargaining
power with the EU, and differences orincoherences among their own trade policy
stances will add to their weakness.  It
therefore seems crucial  for the SACU
members to determine coordinated action both
toward and with their SADC counterparts.
(3) Major Features of Trade Policies
(i) Policy instruments and their effects
9. Imports into Botswana from outside
SACU are subject to the common external
tariff;  the simple average level as of end-June 1997 was around 15.1 per cent, with
substantial dispersion.  Goods imported from
other SACU members are duty free.
Drawback of import duties is available for
inputs for use in production or assembly.
10. The structure of the common external
tariff, determined by South Africa, reflects the
latter's policy priorities and industrial
structure, and may not always correspond to
Botswana's needs;  the structure of the tariff
and the decision-making process applied by
South Africa is an issue in the"democratization" debate within the SACU
reform process. Botswana, like other BLNS
States, is also concerned with the frequent
changes in the SACU tariff.  Currently, some
44% of tariff lines are duty free on an MFNbasis;  non-ad valorem rates (specific, formula
or compound) apply to some 330 tariff lines,
or 4% of the total.  Botswana, like other BLNS
States, has the right to levy additional duties
on all imports to protect infant industries;while this right has been applied on twoBotswana WT/TPR/S/35
Page xi
occasions in the past, no such tariffs apply at
present.
11. The Tariff Rationalization Process
(TRP), being applied by SACU in parallel to
the Uruguay Round reductions, should
simplify the tariff structure by converting
formula and specific into ad valorem rates,aiming for a maximum level of 30% on final
goods;  however, the proposed structure
retains a differentiation between goods that
are manufactured or have a substitute in the
SACU area (for which escalation would bemore pronounced) and those that are not
(which would be duty-free or subject to low
rates).  Excise duties, which can be specific or
ad valorem, are also applied on a common
basis throughout the SACU area.  Some exciseduties on imported beverages are higher than
on similar local products.  Anti-dumping
duties and import controls for safeguard
purposes applied by South Africa are also
applicable, under the customs union, in theBLNS States, even if there is no local
production.
12. There are some minor differences
between Botswana's structure of tariff
bindings under the WTO Agreement and thoseof South Africa, including in relation to the
phase-in period where Botswana has
negotiated a ten-year phase-in ending in 2004
for its specific items.
13. Tariff evasion is seen as an increasing
problem by the Botswana authorities, such as
through misrepresentation of goods forcustoms purposes, diversion of goods imported
duty free for incorporation into exports into
the local market, or smuggling of electronic
goods, clothing, bedding and food.
14. Standards activities are gradually
being developed under the aegis of a
Standards Council;  until recently, no
domestic standards or procedures for
certification of goods were applied to imports
into Botswana.
15. As noted, the public sector is dominant
in the formal economy, having doubled its
share of GDP between 1981 and 1991.  Theeighth National Development Plan envisages a
study of possible privatizations.  Under the
Local Preference Scheme, established in 1997,
up to 30% of central government purchases
may be reserved for qualifying small- and
medium-scale firms.  Certain activities are
reserved for Botswana citizens, with a view tocreating new economic opportunities;  in
addition, certain categories of government
tenders are reserved for citizen contractors or
for joint ventures.
16. Incentives for investment in Botswana
are mainly provided through the Financial
Assistance Policy (FAP), in force since 1982,
which provides time-limited grants to new
enterprises.  Generally, the aim is to
encourage the employment and training ofunskilled labour and to promote self-
sustaining, viable enterprises with positive
socio-economic returns to Botswana.  The
FAP works in conjunction with other
diversification and reservation policies,including the Local Procurement Scheme.
17. Draft legislation is before Parliament
to update Botswana's intellectual property
laws covering patents, trade marks, designs
and utility certificates, which are based onearlier legislation, including UK laws;  a
proposed new Copyright Act should bring
present legislation, recognized as inadequate,
into line with the TRIPS Agreement.
(ii) Sectoral policy patterns
18. Botswana's agricultural policy
objectives include food security,diversification, increased productivity and
employment, and conservation of land
resources.  The sector comprises commercial
and traditional farming, with heavy
concentration in the commercial sector onbeef cattle raising. Food crop production
covers less than one third of consumption,
even in drought-free years; sorghum is the
staple crop, grown both by smallholders and
by commercial farms; cereal imports aremainly from South Africa.  Prices for export
crops are set at export parity and for import-
competing crops at import parity levels; there
are now no trading monopolies in the crop
sector. Although, under SACU, Botswana mayWT/TPR/S/35 Trade Policies Review
Page xii
ban imports from other members of
"controlled" agricultural products when local
production is sufficient for local needs, in
practice this provision has never been used.
19. In recent years, the cattle population
has declined due to contagious disease.
Botswana has rarely been able to fulfil itsexport quota to the EU under the Lomé Beef
Convention, under which access at 10% of the
specific element of the relevant EU tariff is
obtained.   The parastatal Botswana Beef
Commission is the sole slaughterer authorizedto export to the EU.
20. Private investment in the mining
sector is actively encouraged, with "ordinary"
mining leases granted for  maximum of two
periods of 25 years;  however, the Governmentmay hold up to 20% equity in mineral
development projects.  There are no controls
on exports, imports, or prices for minerals.
Diamond mining is carried out by a joint-
venture company comprising the Governmentand De Beers (Debswana);  marketing is
handled by the Central Selling Organization
(CSO).  Diamond cutting and polishing are
developing, providing prospects for
employment and value added.  Other mainminerals exploited in  Botswana include
copper-nickel matte (exported for refining to
Norway and Zimbabwe), coal (so far, only for
local consumption), soda ash, gold and semi-
precious stones.
21. Manufacturing activity has expanded
strongly, principally in the textiles andmotor vehicle assembly sectors; however, the
manufacturing base also includes chemicals
plastics, paper, metals and electrical
products. The New Industrial Policy focuses
on the development of mineral processing,vehicle-related manufacturing including
accessories, parts and ancillary equipmentsuch as tyres, batteries and leather seats,
while light manufacturing potential exists in
leather goods, jewellery, computer assembly
and household equipment.
22. In the services sector,
telecommunications has grown rapidly;  while
basic telecommunications remain subject to astate monopoly, the mobile sector has been
opened to limited competition on the basis of
two country-wide licences competing with the
Botswana Telecommunications Corporation.
Banking services are open to new competition,with prudential requirements applied under
the Banking Act, 1995;  by contrast, insurance
business is restricted to resident registered
companies and the market is relatively
underdeveloped;  the Government intends toreview this policy.  Tourism is a potential
major source of foreign exchange and
contributes some 3% to GDP;  emphasis is
placed on higher-income tourism and
ecologically sustainable development.
(4) Trade policies and trading partners
23. Botswana's strong economy and
export structure, as well as its independent
currency, make it the least dependent of the
BLNS countries on revenue from the SACUagreement.  Development of new transport
routes via Namibia should encourage
diversification of trade.  Botswana therefore
has an active interest not only in reform of the
internal structure of SACU, but also in the
establishment of a tariff which reduces the
current anti-export bias and encouragesopening to the broader Southern African
region and to the world.  Liberalization of
business services, including
telecommunications, finance, insurance and
transport, will assist further in developingBotswana's considerable trading potential.