1. Deepening
Integration in SADC:
Macroeconomic
Convergence Issues
for Botswana
July 2006
Keith Jefferis
Structure of Presentation
Botswana Convergence Results in
Regional Context
Botswana Recommendations
Impact of Regional Integration on
Botswana
SADC Macro Convergence Programme
Issues
1

2. Baseline Study for SADC
Macroeconomic
Convergence Programme
Under FIP:
Overview of Preliminary
Results
Primary Macroeconomic
Convergence Indicators
Year 2008 2012 2018
Inflation <9.5% <5% <3%
Deficit/GDP >5% >3% >1%
Debt/GDP <60% <60% <60%
Current <9% <9% <3%
Ac/GDP
2

3. Secondary Macroeconomic
Convergence Indicators
Year 2008 2012 2018
Econ growth 7% 7% 7%
FX res (imp. 3 6 6
cover, m)
CB cred to 10% 5% 5%
gov (% rev)
Dom. S (% 25% 30% 35%
GDP)
Dom. I (% 30% 30% 30%
GDP)
Inflation
20%
18%
SADC target
16%
14%
12%
10%
8%
6%
4%
2%
0%
Les Les Zam Zam Moz Moz Bots Bots Mal Mal Nam Nam
04 07 04 07 04 07 04 07 04 07 04 07
3

4. % of GDP % of GDP
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
-25%
-20%
-15%
-10%
-5%
0%
5%
Le Le
s s
04 04
Le Le
s s
07 07
grants)
grants)
Za Za
m m
0 0
Za 4 Za 4
m m
07 07
M M
oz oz
04 04
M M
oz oz
07 07
Bo Bo
ts ts
0 0
Bo 4 Bo 4
ts ts
07 07
SADC target
SADC target
Budget balance (incl.
M M
Budget balance (excl.
al al
04 04
M M
al al
07 07
N N
am am
04 04
N N
am am
07 07
4

5. % GDP % of GDP
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Le
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
s
Le
s 200%
04 04
Le Le
s s
07 07
Za Za
m m
0 0
Za 4 Za 4
m m
07 07
Public Debt
M M
oz oz
04 04
M M
oz oz
07 07
Bo Bo
ts ts
0 0
Bo 4 Bo 4
ts ts
07 07
SADC target
SADC target
M M
al al
04 04
M M
al
Current Account of BoP
al
07 07
N N
am am
04 04
N N
am am
07 07
5

6. GDP growth
8%
7%
6%
5%
% of GDP
SADC target
4%
3%
2%
1%
0%
04
07
04
07
04
07
Za 4
07
Bo 4
07
04
07
0
0
al
al
am
am
oz
oz
m
m
ts
ts
s
s
Le
Le
M
M
Za
Bo
M
M
N
N
Country Responses
Considerable variation:
– Degree of integration of SADC convergence
programme into policy framework
– Degree of attention devoted to convergence
issues
– Openness to discussion of difficult / critical
issues
– Willingness to question aspects of SADC
convergence programme
6

7. Country Responses
Considerable variation:
– Availability of macroeconomic data,
especially for official forecasts
– Availability of independent reports /
commentary / analysis
– Capacity to continue convergence
monitoring
Botswana Findings
Botswana’s convergence performance
good, due to long-term economic
record
No major macroeconomic imbalances
Will meet primary convergence targets
BUT - concerns about long-term
growth prospects
Several worrying findings
7

8. Botswana weaknesses
Poor quality of macro data in some
areas
Lack of updated, publicly available
macro forecasts/projections
Sensitivity to (constructive) critical
comment – major contrast with IMF
programme countries
Botswana
Recommendations
8

9. Key Economic Challenges
Boosting investment and long-term
economic growth
Reducing poverty & unemployment
Managing impact of HIV/AIDS
Ensuring fiscal sustainability
Promoting economic diversification
Facilitating new sources of exports
Key Constraints
Real exchange rate - overvalued
Inflation & interest rates – too high
Impact of HIV/AIDS – growth, fiscal
Productivity – too low
High costs of doing business
– Unavoidable (location, water)
– Manageable (bureaucracy)
Complacency/slow policy implementation
9

10. Policy Recommendations
All govt. policies to focus more on efficiency,
productivity and competitiveness
Improve economic flexibility and adaptability
Inflation a key problem – linked to
productivity
Resolve exchange rate and monetary policy
conflicts (active MP and pegged XR)
Strengthen trade policy formulation
Policy Recommendations
Resolve FIAS, WBDB issues
– Business licensing, Land
– Skills & Recruitment, Work permits
Speed up deregulation and privatisation
Improve trade policy coherence
– Trade facilitation
– Liberalisation vs. protectionism
– Use SACU to promote interests
10

11. Impact of Regional
Integration
Impact & Relevance of
Regional Integration
Trade growth important for Botswana
But smaller SACU members will not be main
beneficiaries of SADC trade integration
Botswana’s main gains from:
– Liberalisation of trade in services (non-SACU)
(non-
– Trade facilitation, NTBs, administrative barriers
NTBs,
– Reduction of SACU tariffs vs. region and RoW
11

12. Implications of Long-term
Regional Integration Plans
SADC Customs Union
– Revenue distribution, compensation
– Expand SACU?
SADC Common Market
– Labour mobility?
SADC Monetary Union
– too big and dissimilar?
– XR and monetary policy implications
– expand CMA?
Outstanding Issues –
SADC Macro Convergence
Programme
12

13. Questions and Problems
Purpose of convergence programme /
indicators?
– SADC FIP, but beyond that?
– monetary union requires convergence, but not
general regional economic integration;
– can provide useful regional peer review
mechanism (alt to IMF/WB), but what sanction?
– indicators seen as “imported” (Maastricht), need
imported”
further thought and refinement
Questions and Problems
General regional economic integration
requires macroeconomic stability:
– supports higher growth
– reduces regional risk and uncertainty, boosts
investment flows
– will lead to passive convergence
– but other constraints to intra-regional trade
intra-
(NTBs, slow liberalisation) more of a problem
NTBs,
Slow progress on FTA undermines credibility
of broader integration, along with
overlapping RIAs
13

14. Questions and Problems
Strict, active convergence not needed for general
economic (trade etc.) integration
Only needed for monetary union, but this is far
distant;
Both timetable and MU process lack credibility; not
on policy radar screen
Monetary union needs further analysis on
desirability, feasibility and timetable
If pursued, needs policy convergence (exchange
rate & monetary policy) as well as indicator
convergence
Thank You
14