Integration and Policy Constraints
to Industry and Trade in Botswana,
Lesotho and Swaziland

BethuelSetm

Abstract
The Southern African  Customs Union  (SACU)  is comprised of Botswana,
Lesotho, SwazBand (BUS) and Sooth Africa and until 1975 when Botswana
wrthrew to establish her own central bank, all the four countries were mem-
bers of the Rand Monetary Area (RMA). In this paper we review the perfor-
mance of the BLS countries under both institutional arrangements focusing
on industry and trade.

The  SACU  and  RMA  are  characterised by restraints and controls that
have  a  negative  impact  on  the  growth  and  development  of  the  smaller
partners. While we recognise the effect of polarisation due to market forces,
we point out that polarisation b  a result of institutional restraints and con-
trols which enable South Africa to take advantage of the gams of economic
co-operation in all aspects of economic activity particularly consumption ac-
tivities, capital, supply of raw materials and labour resources.

Introduction
The countries of Botswana, Lesotho, Swaziland (BLS) and South Africa are
members of  the Southern African Customs Union (SACU)  and until 1975
when  Botswana  withdrew  to  establish  her  own  central  bank,  all  the  four

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102BETHUELSETAr

countries were  also members  of  the  Rand  Monetary  Area  (RMA). In  this
paper  we  review  the  performance  of  the  BUS  country's  economies  under
both institutional arrangements focusing on industry and trade.

We  argue  that  unlike conventional views concerning  advantages  inherent
in such arrangements, SACU and RMA are characterised by constraints and
controls that  have a negative impact  on the growth and  development  of  the
smaller partners. While we recognise the effect  of polarisation due to market
forces, we argue that, polarisation is a result of restraints and controls intro-
duced by South Africa  to take advantage of the gains of economic co-opera-
tion. Our analysis views polarisation in the context of institutional approach.
In this analysis emerges the strategy of South Africa to protect its industry
in  all  aspects  of  economic  activity  including  consumer,  capital,  input  in-
dustries and  labour resources to the  disadvantage  of her  partners. The  im-
plementation  of this strategy requires  that  competition  from  the  region  be
controlled through existing institutional arrangements.

The South African Customs Union (SACU)
The  Southern  African  Customs  Union  was  established  in  1910  between
Soutir Africa,  Botswana, Swaziland  and  Lesotho. The  incorporation  of  the
BLS countries  in this arrangement  was rationalised  on  administrative  con-
venience. It was supposed to make it possible for these countries to generate
revenue  of  their  own  to pay for  their  administration  on  the basis  of  trade
flows  to  these  countries. Consequently,  the  economic impact  this  arrange-
ments would have on the BLS was not taken into consideration.

The objectives,  principles and  provisions of  the Agreement  as  revised  in

1969 are as follows:

(a)  A common customs tariff based on that of South Africa  for all goods

entering the customs area;

(b)  Free movement of goods between member countries within the area;
(c)  Only  in  special  cases  are  the  BLS  countries  allowed  to  impose  a
protective tariff  on imported goods from  member countries with the
purpose of protecting their own infant  industries. Such protection is
subject  to approval by the  Customs  Union Commission  and  can be
for only 8 years and not longer.

(d)  Freedom of transport and transit through the area.
(e)  A  Common  Revenue  Pool  administered  by  South  Africa.  AH
revenues, excise taxes and sales taxes are collected into the pool and
eventually  divided  among  member  countries  on  the  basis  of  an
agreed upon formula.

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS  103

Market Size and Industrial Performance
The  BLS  countries  cannot  support  large  scale  industries  requiring
economies  of  scale  to be  profitable.  The smaUness of their markets deter-
mine to a great extent their industrial sturcture, competition in manufactur-
ing  and  policies.  As  a  result,  import-substitution  and  export  oriented
strategies have been selected carefully with market constraints.

On the basis of gross domestic product per capita, Swaziland is the largest
market. The low per capita GDP for Lesotho is compounded by the fact that
not only does she have a higher population but she also has the lowest GDP.
When we compare Botswana and Swaziland we find that GDP per capita for
the latter is higher than that of the former despite her higher overall GDP.
This difference is accounted for by the higher population of Botswana com-
pared to that of Swaziland as indicated in Table 1.

Unequal Partners and the Polarisation Effect
The polarisation of growth hi SACU is partly explained by Myrdal's theory
of the backwash effects.1 According to Myrdal's theory regional inequalities
at the  national  and  international level  come  about  as a result  of  the  free
market  system. The backwash  effects  are the adverse  effects  of  economic
development On a given locality and the spread effects are the expansionary
momentum of development on the regions. Regional inequalities are caused
by strong backwash effects over spread effects.

The Myrdal's theory explains well the regional inequalities that exist within
SACU. Polarisation has occurred over the years to the extent that backwash
effects far outweigh spread effects for the BLS countries. What is  different
however is that polarisation is not the result of the free market as Myrdal's
theory  assumes  but  it  is  a  result  of  various  restrictions  imposed  by  the
SACU articles of Agreement on the BLS countries. It is these restrictions or
institutional constraints that are central to our analysts.

Polarisation within the SACU Agreement affects particularly sectors with
industrial potential, trade flows and resource allocation on the basis of the
revenue formula. Under Article (6) a member of SACU cannot set up an in-
dustry if such an industry already exists in one of the member countries. The
agreement  specifies  that  "As  a  result  of  unforeseen  developments,  if  a
product is being introduced into a territory of one of the member countries
from another, 'hi such increased quantities and under such conditioas as to
cause or to threaten serious injury' to producers or manufacturers of like or
directly competitive products', then such a member "shaB" have the right to
require consultation to find a mutually acceptable solution as soon as pos-

IMBEIHUELSETAI

abb".2  South Africa has actively taken advantage <rf this clause by complain-
ing repeatedly to other members about possible injury to their industries by
developments in other countries. In some cases industries  have  had to  be
abandoned as a result of restrictions based on these articles. The advantage
South Africa has is that its industry dates earlier compared to  that  of her
partners.

The Revenue Formula and Polarisation
The revenue sharing formula is central to the polarisation effect  because it
affects the allocation of resources. This formula is provided for in Article 13
of the SACU Agreement For each country, the revenue shares are based on
the indirect  taxes that  include  customs, excise taxes, sales and  surcharges
based  on trade volumes of  member  countries.  The formula  is  described
below:

M -  (A  +  B +  C)/(D  +  E  +  F  +  G) * H •  1.42
where
M  «  amount of revenue that will accrue to a given BLS country for the
finadalyear.
A  «  CTF value of duty paid on imports to the BLS countries.
B  — Value  of  excisable  and  safes duty goods  produced  and  consumed
within the BLS countries.
C  -  Excise and sates duties paid on goods referred  to in B  during the
year.
D  •* OF value of merchandise imports into SACU area.
E  — Customs and sates duties paid in D.
F  »  The vahie of exdsabte and sales duty produced and consumed in the
SACU area.
H  «  The common Revenue Pool of customs, excise and sates duties col-
lected during the given year. (H  -  E  +  G)
Mote; B and F exclude any export of domestically produced excisable aad
sales duty goods which actually benefit from export drawbacks.

The  L42 or 42% compensates for the price  raising  effect  of  the  South
Africa's import control; tariff protection to industry; polarisation effect  on
industry and development and loss of fiscal discretion. All these factors are
both quantifiable and non-quantifiable. Fiscal discretion and polarisation ef-
fects  are  qualitative  and  the  price  raising  effects  of  import  control  and
protective tariffs can be measured.

Proceeds from the customs union are a major source of revenue for the

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS 

105

BLS  governments.  However,  revenue  shares  of  BLS  have  been  declining
over the past several years. Specifically the ratio3  of collected sales and cus-
toms duties to total revenues per BLS country has been declining over the
years. It has been argued that this decline is due to double counting resulting
from duplications built into the revenue formula.

Double counting occurs because some of the dutiable goods imported into
SACU  are processed  further  as inputs  for  the manufacture  of  other final
goods. If such input goods are duty free or fully rebatable they are included
in D  and F as dutiable goods. But they are also included in E  as duty free
goods since they are rebatable and are therefore ignored in H. The overall
effect is that M is reduced hence the share accuring to any BLS country.

In other  situations,  for  example,  items  may be  recorded  twice. First,  as
government excise duties  (G), and as safes duty (F). It has been  suggested
that these discrepancies can be overcome by applying excise duly (G) only to
goods produced in SACU and not safes tax (F).

The  other controversial  point  is that  the Agreement  is not  clear  on  the
treatment of re-exports. Imports that are subject to re-export by way of fur-
ther manufactured processing are subject to duty as well as the importation
of military equipment.

Equally undesirable is the fact goods sent for repairs are treated as duti-
able upon re-entry into the SACU region or a specific BLS country.  This re-
quirement is equivalent to importing a new product into the region and has
the effect of reducing M.

Under SACU, the BLS does not qualify for duty free import of inputs into
industry. For the BLS countries, duty is defined  in Article 4(4)  to  include
only imports  intended  for  disaster  relief,  those  under  technical  assistance
agreements as well as those tied to international obligations

The revenue  accruals to  BLS are further reduced .because the duty free
goods  are  excluded  from  (A)  in  the  revenue  formula.  But  for  the  RSA,
similar imports are included in (D) but excluded from (H), thus having an
overall effect of reducing (M).

Rebates on duties are granted on a discriminatory basis in favour of South
Africa. Under the Agreement, The BLS quality for rebates, but these are al-
lowed for a limited number of industries and for a short period compared to
similar  industries  in  South  Africa.  For  example, when  Lesotho wanted  to
start a TV assembly plant, it was granted a rebate for six months after which
she would have to pay 100% duty on imported inputs. 

'

The rationale for  treating rebates in  this manner, is to encourage  South
African industries producing import competing products. BLS is required to
buy  their  input  requirements  from  RSA  industries  further  increasing  the
costs  of  the  former  because  alternative  sources would be  cheaper.  South
Africa  retains the  monopoly  to  import additional  inputs only if there is  a

106  BETHUEL SBTAI

shortage  of  supply relative  to  demand  in  the  region.  This  arrangement  is
clearly for the industrialisation of South Africa. The BLS is at a disadvantage
because RSA prices are higher than alternative import prices.

Where it is unable to impose tariffs on imports as a result of international
agreements, South Africa offers protection to affected industries on the basis
of market protection. The high tariffs and subsequent generous rebates for
which only South African registered companies qualify, (as per article 4(4))
is offered  as an incentive because  of the price raisingt  effects  of  the  tariff
which might disadvantage home industries.

The import control system is intended to encourage  domestic content in
the manufacture  of South African  domestic goods as well as to protect in-
dustries requiring economies of scale. The protective effect has increased ef-
fective rates of protection  over nominal rates and as a result, while  South
African industries enjoy market protection at home, SACU exports are not
doing as well becuase  export prices are high than those  of  competitors  in
foreign  markets.  The  overall  effect  is  the  poor  export  performance  of
agricultural goods for the BLS.

The revenue sharing formula has an adverse impact on resource allocation
as a result of the manner in which it is applied. In addition to the above, it
should be noted that prices of some goods included in the formula have been
marked up or increased as a deliberate policy by South Africa to  subsidise
some  of  her specific  industries.  For  example,  the  price  of  petroleum  has
been marked up to subsidise the SASOL project which is a scheme to extract
petroleum from coaL Included in the petroleum price is the road tax and the
third party or accident insurance.

Industrial Performance in the BLS Countries
One of the objectives of the BLS countries is to achieve growth with equity
through  the  export  pormotion  and  import  substitution  strategies.  Both
strategies are perceived to be complementary contrary to common views that
they may be competitive. This has been demonstrated elsewhere.5

The BLS countries have not benefited from this relationship between ex-
ports and imports because of polarisation effects  cited above. As  a result,
they  are  having  to  concentrate  on  the  production  and  export  of  semi-
processed goods for which there is no internal demand. Botswana  exports
meat and diamonds in semi-processed  form, Lesotho, wool  and mohair in
the raw and Swaziland pulp semi-processed. In some ways, they are enclaves
fitting  the "veat for surplus'modek.6

The import-substitution performance of the BLS countries was measured

and is reported in Tables 3,4 and 5~7

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS 

107

All the three economies experienced negative import substitution over the
period  1970\71  to  1980\82. The Chenery  measure  portrays a much worse
picture compared with the Desai measure. Import substitution has remained
negative  under  both  measures  with  the  exception  that  the  Desai  measure
paints an optimistic picture compared to the Chenery measure which does
not.

Import substitution has remained negative for the economies of the three
countries  and  slight  improvements  have  been  indicated  in  the  food  and
beverage sector and to an extent in the metal industry. The ranking reverses
depending on the particular measure being used. The Desai measure ranks
the metal industry highest while the Chenery measure ranks it last. Ranking
is in a descending order suggesting that import substitution becomes worse
overtime.

The  descending  order  in  the  ranking  is  not  surprising.  In  his  study  on
India, Desai observed  a similar pattern  Desai concluded that none of the
two measures is superior to the other. Consequently, he suggests that both
should be used and cautious interpretation should be made about the rank-
ing.

Many factors  operate  to  constrain import substitution in these  countries
but clearly, institutional  constraints within SACU  take  a great  share. The
role of these constraints has been to exarcebate the impact of the backwash
effects by reducing the benefits of spread effects.

Export Performance
An analysis of factors  operating on exports reveals interesting results 9  as
reported in Tables 7,8 and 9.

Columns  (1)  and  (4)  show  actual  exports  for  the  periods  1970\73  and
1980\82.  In  column  (3)  export  value  for  1980\82  are  given  interms  of
1970\73  prices.  Column  (2)  gives  a  projection  of  exports  from  the  base
period of  1970\73 based on the assumption that the country maintained its
share of major exports in the world market Column (8) gives a total change
in exports. The  total  change  is  in turn broken  down into "market  effect",
column  (5);  "competitive  effect",  column  (6);  "price  effect",  column  (7).
In other words, the "market effect" reflects  the growth of world markets in
the given commodity, "competitive effect", the change in market shares and
"price effect" changes in export prices.

Between 1973\76  and 1980\83, the share of major exports for Botswana
relative  to  total  exports  remained  steadily  at 92%. However,  for  Lesotho
there was a decline  of the  major exports relative to the total from 86% to
70% over the period. Swaziland on the other hand improved this proportion

IOBBETHUEL&BTAI

from 67% to 70%. The exports for Botswana were concentrated in meat and
meat products and diamonds, for Lesotho in food and live animals and crude
materials, and for Swaziland, sugar and woodpulp. Most encouraging for all
these countries is the fact that there was an improvement  in the  export of
minor commodities.

It is important to note that this method concentrates on demand factors in
the export market. It treats supply factors as the residual. According to this
methodology exports are influenced by trends in world demand. Thus some
will tend to do well because they are in hing demand internationally. Accord-
ingly, some exports for the BLS have done well internationally due to these
effects.  Exports  of  meat  and  minerals  have  done  particualrly  well  in  this
category.

The price effect  is influenced by direction of trade so that some  exports
might do well in some markets and badly in others. The performance of the
BLS is positive in terms of market direction but clearly less so in terms of
market effect

The competitive effect measures all the composite factors which influence
the performance  of exports in a given market. These factors include com-
modity composition of import demand in the export markets. Such factors
include the level and distribution of real income, tastes, technology, commer-
cial policy and the competitiveness of import competing industries in a given
market.

The direction of trade statistics indicates what BLS exports are to sophisti-
cated markets. Because they enter these markets semi-processed, and under
special agreements, they remain uncompetitive. Most of these exports would
compete favourably in the domestic markets particularly in SACU. Table 10
on the direction of trade is typical of the BLS economies. In 1984 of the total
imports into Botswana,  the  proportion  of  imports from  South  Africa  was
78% while that of her exports was 76% to the EEC. Her exports to South
Africa was9 of her total exports.

Supply factors affect competitiveness and to the extent that the BLS have
developed  neither  the  the  domestic  market  nor  the  SACU  market  in
manufactured  goods,  it  makes  it  difficult  for  them  to  compete  in  distant
markets. Tables 6, 7 and 8 indicate that according to world trends  the ex-
ports  of  the  BLS  should  have  been  much  higher.  Column  2  shows  the
hypothetical  valuek  which  are  much  higher  than  the  actual  values.  The
results  in  these  tables  are  indicative  because  accurate  and  disaggregated
date was not  available. The volume  of exports will be  affected  by the  dif-
ferent rates of increase in productivity and levels of prices in a  given BLS
economy. The development of new products for exports and their quality af-
fects competitiveness. Improvement in the efficiency  of marketing and im-
proved terms of Financing for export promotion, and the ability to fill out ex-

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS 

109

port orders promptly and the .overall environment and the willingness to ex-
port. The inability to compete stands out as the major reason for poor export
performance of these countries subject to re-exports.

Migrant Labour Remmitances
The  migrant  labour  system  is  not  covered  by  the  SACU  Agreement,
however, it is not in conflict  with it. Table  11 shows the relative sources of
labour recruits.  Lesotho  and  Mozambique  provided  the  highest  means  of
recruits  for  the  period  1975  to  1985.  According  to  the  relative  standard
deviation, recruitment is more persistent from the BLS countries. This sug-
gests that South Africa  prefers  to recruit  from  the BLS over the  non-BLS
countries,  a fact  that  would  encourage  external  policies  to maintain  these
areas as traditional labour sources.

Of the BLS countries, Lesotho  is the most dependent  on migrant labour
and she  derives  revenue  from  its  membership  to  SACU.  The  revenue  so
derived plays an important role in the economy. First, it plays a crucial role
in paying for the recurrent costs of government. Secondly, it has an influence
on the allocation of resources by providing subsidy funds for various produc-
tive activities especially in  the agricultural  sector. Thirdly, it influences  the
pattern of trade and hence the import structure of the economy by catering
to the consumption needs of the migrants and their families.

The  relationship  between  migrant's  remittances  and  the  government
budget is simple to deduce. The money that the migrants send homcprovides
revenue  for  the  government  by  providng  revenue  in  the  form  of  customs
levies as well as sales taxes. These two items rank first and second as major
providers of  government.  Consequently  a  sudden  repartriatkn  of  migrant
workers would result in the immediate  collapse of  revenue sources for the
government.

Income taxes would also dry up as they are paid from recurrent govern-
ment expenditures which are as we have just indicated, are tied to migrant
remittances. The ratio of deferred pay to GDP and that of deferred pay as a
proportion of imports are given in Tables 8 and 9.

The Relationship  Between Gross Domestic Product  and Remittances: If
these  workers  were  employed  in  Lesotho,  the  remittances  would  be
generated  at  home  and  would  be  reflected  by  ahigncr  gross  domestic
product  value.  It  should  be  noted  that  the  remittances  are  60%  of  the
migrant's earnings. The other 40% is paid out to them directly in the mines^t
finds its way to Lesotho outside official channels.

UOBBTHUELSETAI

The Rand Monetary Area (RMA)
Lesotho,  Swaziland  and  South  Africa  are  the  remaining  members  of  the
Rand  Monetary Area.  Botswana withdrew from the  Agreement  after  she
complained about her inability to meet her objectives under the Agreement.
Like South Africa, the BLS have the objective of maintaining their balance
of  payments in  cquilibrum  while  at  the  same  time maintainin  a  desirable
trade-off between employment and inflation.

As hi SACU, the RMA is dominated by South Africa. The currency of the
area is the South African Rand and member countries peg their currencies
against  the  Rand  on  a  one  to  one  basis.  This  arrangement  has  had  its
advnatages  and disadvantages.  But  the withdrawal  of  Botswana  from  the
agreement clearly indicates that the disadvantages exceed the advantages.

The benefits of membership in this arrangement is that the LS do not need
reserves to maintain their balance of payments because  of pooled  reserves
kept at union level. Secondly, the rand and the loti circulate and
freely in the LS and as a result,  foreign  exchange is not  needed  for intra-
RMA trade. For example, k was not until the promulgation of the Financial
Institutions Act 1975, that Botswana was required to maintain capital reser-
ves,  comply with  liquidity requirements,  primary  reserves  and  capital  re-
quirements.

The  obvious disadvantage  is  at the policy  leveL Lesotho  and  Swaziland
argue that they have not had a fair share in the management of monetary and
exchange rate policy. Fxrimngc rate policy is not determined  at  the union
leveL South Africa  normally  takes  unilateral  action  on  such  matters  and
member countries have little say. Consequently, they are unable to influence
their balance of payments through expenditure switching policies.

The monetary policies of the LS are equally ineffective due to lack of bar-
minisatkm po&cies. Policies  to  control  money  supply  through  reserve re-
quhements do not have the desired effect because the South African Rand is
legal tender in the RMA while LS currencies are not They are legal tender
only in the issueing country. The result is that South Africa is able to control
money supply defined within the RMA area while LS is not in a position to
do so. South Africa is able to use its monetary policy to control employment,
and inflation imports these factors without any control over them.

The overall impact of  this arrangement  is  to  reverse gains normally as-
sumed  in  datsical  integration  models.  As  a  result  of  this  arrangement,
manufacturing  output  and  capital  markets  have  been  in  favour  of  South
Africa.

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS 

i ll

The Financial Rand
The Rand is a dual exchange currency in that as a commercial Rand, it ex-
changes at commercial  rates and as a Finacial Rand it exchanges at a dis-
count of up to 40%. The Finacial Rand is a securities Rand becuase it is ap-
plicable only to investment  in securities. Purchasers of the Financial Rand
are expected  to  buy into existing companies only and not in direct  invest-
ments. Most  of  the trading  favours  industries  posted  at the Johannesburg
Stock Market even though some trading is allowed through official channels.
The LS countries  qualify for the Rand Monetary facility, albeit recently,
subject to the approval of the South African Central Bank on a case by case
basis. The disadvantage that the LS experience outside the probable delays
in filing applications is that investment in the LS is in direct investments and
invariably  in  small  enterprises  with  uncertain  returns. This  compares  un-
favourably with South Africa which has  a relatively weU developed capital
market. The impact of the dual currency on the BLS is to further polarise in-
vestment resources in favour of South Africa by attracting investment to that
country.

It should be pointed out that the objective of the finacial rand is to keep in-
vestments that are already in South Africa within the country and to attract
new investments. The manner in which this mechanism works is that inves-
tors who intend to divest must dispose of their assets at an officially deter-
mined discount rate. This rate ranges between 30 to 40%. The investors that
qualify  to  purchase  the  divested  stocks  must  be  from  outside  the  Rand
Monetary  Area.  Thus  trading  in  the  finacial  rand  is  only  between  non-
RMNA residents. New investors denter the market by purchasing divested
stocks at the going discount rate or by buying shares in a newly formed com-
pany. Since the finacial rand is similar to an exchange of assets, the costs of
the transaction are borne by investors who entered before the finacial rand
was introduced.

The  exports  of  the BLS  are  also at  a competitive  disadvantage  because
they are pYiced at a relatively higher commercial rand compared to a lower
finacial rand.  On  the  other  hand,  the  BLS  cannot  attract  large  scale  in-
dustries because of market constraints already eked.

Exchange Rate and Subsidies
The greatest appeal about managing ones own currency is that the country is
in a position to devalue or revalue its currency as k deems necessary. The
underlying advantages of the ability to manipulate ones own currency in this
manner is that the depredation has the advantage of affecting the structure

112BETHUELSETAI

of  the  economy by influencing  the  allocation  of  the  resources  and  also  of
reducing aggregate demand.

Botswana opted out of the RMA to enable her to control exchange policy.
Lesotho and Swaziland  (LS) remain as members of the RMA  and they do
not have influence over their exchange rate policies.

In an attempt to maintain a flexible  price policy and* to provide  for sub-
sidies especially for domestic agricultural production the LS countries have
had to be innovetive. Lesotho has introduced cost-plus pricing strategy. The
cost-plus price is determined at the beginning of the year before harvest time
and it remains fixed until the following season. It is calculated by first estab-
lishing total cost per hectare which includes all production activities such as
labour and raw materials. The cost is divided by estimnated yeild per hectare
to arrive at the cost per bag. A  percentage margin is added to arrive at the
profit per farmer.

The weakness of this pricing strategy is that  it does not discriminate  be-
tween the quality of output. Thus, maize and wheat are not graded because
they  are  sold  in  quantities  of  bags. Farmers,  whether  they be  traditional,
semi-traditional  or  modern,  receive  the  same  price  for  their  produce  ir-
respective of quality. This pricing strategy clearly subsidieses the traditional
farmer but evidence indicates that this type of farmer has not responded by
producing a surplus for the market. Among the modern farmers, it is those
who are able to produce at low cost that are in a position to benefit form this
type of pricing structure.

Since cost-price strategy is a proxy for lack of exchange rate option and it
is fixed for the entire season compared to some of flexible exchange rates, it
is not unusual for Lesotho producers to .run into difficulty  against competi-
tion with South African counter parts. When prices have been fixed higher in
lesotho  compared  to  South  Africa  consumers  prefer  the  South  African
market over the  local  one  and  exporters  are  unable to  export.  The  latter
cany surpluses which act a s a disincentive for increased production during
the  coming  season.  Since  Lesotho  is  a consistent  high  cost  producer  this
pricing system acts as a disincentive rather than a subsidy to the producers.
It is responsible for depressing commercial production.

It is interesting to note that cost plus pricing technique has an adverse  ef-
fect on the cropping patterns in that it reverses comparative advantage. This
happens because of  the impact  of  the mark-up technique  on the  different
producers. When the market for a given product is good, producers shift to
the production of that good irrespective of the suitability of their land for the
production of that good. The farmer is persuaded by the fact that if he is able
to keep his costs low, he will be able to profit as a result of the institutionally
fixed margin. Most farmers however end up lossing because  of  the wrong
price fore-casts and resultant low prices in South Africa which cause trade

INTEGRATION  & POLICY  CONSTRAINTS TO  INDUSTRY & TRADE IN  BLS  113

flows  to  favour  South  Africa.  It  has  been  suggested  that  Lesotho  should
resort to parity pricing as an alternative to cost-plus pricing technique. Parity
pricing  could  be  based  on  market  prices  of  major  wholesalers  in  South
Africa  compared  to cost-plus which is based on farm gate prices in Lesotho
and  to  it  could  be  added  the  transportation  costs  to  Lesotho.  Since  these
goods  would  be  emanating  from  Lesotho,  the  imputed  transportation  ele-
ment would be regarded  as the subsidy element to the producers. This pric-
ing strategy would make it uneconomical for consumers in Lesotho to buy in
South  Africa  because  they would  have  to  pay  transportation  costs  and  the
base  price  would  be  the  same  as  in  Lesotho.  On  the  other  hand,  this
starategy would  act  as a disincentive  for  exportersbecause  their  transporta-
tion costs would not be subsidiesed. They would find it advantageous to sell
in the domestic market and therefore  having the effect  of redeucing adverse
effect on the current account.

It  is  instructive  to  compare  the  two  pricing  strategies  with  that  of
Botswana. Botswana basis her prices on the landed cost of imports in Soputh
Africa.  As  in  Lesotho,  the  prices  are  fixed  [rior  to  planting  time.  Since
Botswana  uses  a  different  currency  from  that  of  South  Africa,  prices  may
change  as  a  aresult  of  changes  in  the  relative  exchange  rates  of  the  two
countries. A  depreciation  of the Pula against the Rand  increases the  prices
of Botswana imports. This pushes the price of imports above the guartanteed
price and the farmers  gain. If the Pula appreciates relative to the Rand, the
new price will be lower than the guaranteed price and producers will receive
transfer payments from government as subsidy.

The  exchange  rate  is  clearly  being  used  to  subsidise  farmers  by  either
depreciating the Pula against the Rand  or paying out  to farmers  in  transfer
payments  in  the  event  of  the  appreciation  of  the  Pula.  Since  Botswana
Marketing Board  has a statutory monopoly in the grain market, it is impos-
sible for  consumers to enter  the speculative market between  Botswana  and
South  Africa.  The  pricing  system  is  Botswana  is  maintained  through  a
Stabilisation Fund provided by government.

Since its inception, Botswana has had problems maintaining her exchange
rate  at  parity  with that  of  South Africa,  her  major  trading partner  for  im-
ports. This has  further  been  complicated  by the  exchange  rate of  the  Pula
with  the  curencies  of  her  major  export  partners  in  Europe.  Consequently,
she has had fluctuations in her foreign exchange rate.

Part of the reason the Pula stays relatively revalued is that its value is dis-
torted  by the  high  export  of  diamonds  and  meat.  This  clearly  distorts  the
Pula  relative  to  other  export  sectors  of  the economy which would  have  to
devalue at devalued Pula rates. Consequently, industrial potential is affected
by the revalued  Pula relative to the Rand. The high relative exchange  rates
favour  the  imports  of  manufactured  industrial  goods  against  which  local

114  BETHUEL  SETAI

producers cannot  compete. Most  enterpreneurs  have found  it profitable  to
import finished consumer goods than to produce them.

Another  dilemma  is that  since the  country depends  on imports,  devalua-
tion  is  not  a  prudent  policy because  a  devalued  currency  will increase  the
price  of  imports.  Given  the  further  constraints  of  SACU,  especially  the
revenue  sharing formula,  Botswana  would  be  unable  to. reduce  the  cost  of
input through rebates.

It is not evident whether the Stabilisation Fund has been able to absorb the
shocks in the Pula exchange rates but it is necessary that the exchange policy
be reformed  to enable it to stimulate industrialisation and to increase the ab-
sorptive  capacity  of  the  sector.  Table  1 shows  that  Botswana's  imports  of
manufactured goods is higher than that of the other BLS countries. This sug-
gests  that  despite  the  overall  constraints  of  the  SACU  environment  as  al-
ready stated, Botswana has a market  for  manufactured  goods and  that  she
could stimulate her manufacturing  industry through a strategy of  promoting
small to middle size industries.

It is demonstrated elsewhere that pricing policies in Botswna favour  cattle

farming over crop farming.10

Three pricing strategies which  are  cost-plus pricing used  in Lesotho  and
Botswana  system practised  in Botswana. Parity  pricing has been  suggested
for Lesotho. The three systems have a subsidy element. In the cost-plus pric-
ing strategy, the subsidy is in the form of a margin of 20% determined by the
government. In parity pricing the subsidy is the form of imputed  transporta-
tion  costs  if  commodities  originating  in  the  country  had  been  sourced  in
major  commodity  markets  in  South  Africa,  in  Botswana,  the  subsidy  is
worked on the basis of exchange rate fluctuation  around a guaranteed  price
determined by the government. The subsidy is paid in the event of the Pula
appreciating over the Rand. In terms of the budget, the Botswana system is
expensive especially during the  times when the Pula has appreciated  at  the
same time it has the same impact on resource allocation as the cost plus pric-
ing because  it maintains  a  fixed  price  despite  the  flunctuations  in  the  ex-
change rate.

The BLS are resorting to these strategies in an attempt to work out  means
that would give them independence from South Africa. But it is clear that if
they go it alone such as is the case with cost plus pricing strategy, misalloca-
tion of resources results and domestic producers lose their markets to Sooth
Africa. On the other hand, when guaranteed  prices are  used  such as is the
practice in Botswana, the strategy is too expensive because it requires high
subsidies to maintain fixed prices which will continue to maintain the market
for domestic producers. Parity pricing is the most efficient  of these strategies
but that would also have to use South Africa  as the point of reference. The
BLS  are  clearly  in  a  dilemma  in  that  first,  monetary  intergration  has  not

INTEGRATION & POLICY  CONSTRAINTS TO INDUSTRY & TRADE IN BLS 

115

worked because of institutional constraints emanating from unilateral policy
actions by South Africa, and secondly, by their reluctance to introduce con-
trols which would further be difficult to implement because of their member-
ship to the South African Customs Union. (SACU).

Investment Incentives
Lack of a uniform investment code is another factor that acts as an obstacle
to  economic  development  of  the  BLS  within  SACU  area.  While  member
countries are free to introduce whatever incentive and subsidies they deem
appropriate, these cannot compete with those offered by South Africa.  The
fact is made worse by lack of harminisation of factors such as taxation import
controls, indirect taxes, road tariffs.

The competition between  the RSA  and BLS for  small investors is keen.
The BLS economies do not offer conditions different from similar regions in
South  Africa.  They  are  vulnerable  to  South  Africa's  decentralisation
strategies of locating industries on their borders in competition with similar
industries that would opt to locate inside their borders.

In response to the constraints relating to investment stimulation within the
SACU and RMA arraangements, the BLS has promulgated the industrial in-
centive  Acts  in  an  attempt  to  attract  foreign  investments. The  investment
laws typically allow for investment allowances and tax holiday. The competi-
tion for investors is rigorous since prospective investors have to choose be-
tween South Africa and the BLS. South Africa offers higher incentives to the
Bantustans  on  the  basis  of  political  decisions  rather  than  economic  con-
sideration.

The effectiveness  of these laws is in question for different reasons.  First,
the question of identifying industries that would locate in the BLS as a result
to tax incentives and those that would do so irrespective of such incentives is
subject to speculation. Emperical studies to investigate these issues have not
been carried out. In Lesotho some industrialists have claimed that they were
attracted to  the  country by incentives.  But there  is  no way of  determining
whether they would have come if incentives were not available.12

Among the BLS countries, Lesotho was the first to introduce tax holidays.
Botswana and Swaziland operated on the basis of investment allowances  of
tax allowances. The latter countries were unable to attract investors as most
prospective  ones preferred  tax holidays. Consequently, both countries have
recently introduced tax holidays, Botswana having the most attractive of the
three countries. But the incentives provided by the three countries still  fall
far short of those provided by South Africa.13

The enterprises that are attracted to the BLS are mobile in nature and they

116BEniUELSETAI

are  always  moving  around  seeking  to  locate  in  areas  promising  higher
returns. The nature of the laws make it easy to have limited  commitment  to
the BLS countries. Because of their  temporary nature,  their  high  turn  over
with short pay back periods, their selectivity, and the fact that they are a sub-
sidy to the  firm  and  not  to investment,  their value is in  question.  Botswana
adopted  the  tax holiday  strategy  its  opportunity  cost  was  zero  and  that  it
would only stand to gain by doing so. But evidence is Lesotho indicates that
where  tax  holidays  and  investment  incentives  are  made  available  and  are
mutually exclusive, new enterpreneurs opt for tax holidays and old ones ap-
peal  for  the  same  priviledges.  The  result  is  that  as  the  distortions  in  the
economy occur investors shift  from  investments with long gestation  periods
to  the  ones with  short  pay  back  periods.  Long-term  opportunity  costs  in-
crease as the economy shifts from  long-term  to short-term  hig turn over in-
vestments. This point is elaborated upon below.

The investment  laws offer  different  advantages to different  investors. In-
vestors who opt for tax holidays, do so because they are interested in making
high profits in a short time. Tax holidays are preferred  when profits  are high
and capital  can be paid  for within a short time. Under  tax holidays, the  en-
visaged investment is done only once. On the contrary, under  investment  al-
lowance, investment is planned for  a long period and profits are expected in
the distant  future.  Investors opting for  this alternative,  usually spread  their
investment  over  several  periods  expecting  to  get  their  returns  after  a
specified  period. Under  tax holidays, the government  concentrates  on  new
and  usually expatriate  firms. In  this regard  it  is a selective technique.  It is,
however,  neutral  between  capital  intensive  and  labour  intensive  types  of
business.

Investment  allowance makes no  distinction  between  new and  extablished
firms  and  allows for  several investments  into the  future.  It  has general  ap-
plicability. !t, however, has a bias  toward  capital intensive techniques while
tax holidays are suitable for labour surplus economies.

All  these  elements  have  been  experienced  within  the  BLS  economies.
Complaints that investors tend to invest  in capital with a short  life  span  are
common. Short life span  of capital  is a mere symptom  of the  effect  of sub-
sidies which tend to shorten the life of capital. The tendency of subsidies to
attract capital with a short life span has been demonstrated in the theoretical
and  empirical  studies  of  D.W. Jorgenson  and  others.14  This  tendency  has
been observed in many other parts of the developing world.

The level of investment is affected  indirectly by the fact  the the BLS have
equity investment in the industries that locate in them and management con-
tracts are usually awarded to the foreign concerns. That is, investment in the
BLS is characterised  by joint ventures. So that  despite the fact  that  the  na-
tional development corporation monitors the operations of these enterprises,

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS  117

such monitoring is often confined to financial evaluation. Other aspects sur-
rounding the approval of the contract, such as utilisation and development of
local resources are hardly considered and where they are found to have been
neglected, cannot be enforced  due to local resources are hardly considered
and where they are found to have been neglected, cannot be enforced due to
lack of monitoring systems.

Prospects for the Future
The depreciation of the rand can be expected to increase the debt servicing
burden of the LS countries. The impact of the depreciated Rand on the ex-
ports of the LS may not be as significant since these countries' exports are in
raw materials and are thus relatively inelastic.

In this paper we have examined the economic status of the BLS within the
institutional constraints of SACU and the RMA. Our analysis has revealed
that Agreements embodied in these institutions have had a greater impact on
economic polarisation compared to what would be the case if development
was autonomous on the basis of market forces.

The BLS economies have not benefited  from advantages of economic in-
tegration. Instead, this has predisposed them to further  exploitation as sup-
pliers of raw materials and a captive market. This complex relationship has
made it difficult  for the to mount a constructive economic response to  the
constraints, however, passive. Having lost the ability to influence tariff arran-
gements and to compete in the capital markets, the BLS has resorted to sub-
sidising investment through tax holidays and investment allowances. This ap-
proach has had the effect  of creating an additional burden since BLS has to
compete against RAS investemnt packages.

In the incentive packages, the BLS has offered  the only concrete response
to the SACU constraints. But this strategy is similar to that offered by South
Africa. Specifically  the BLS consider themselves to be in competition  first
among themselves and secondly with South Africa's Bantustans. The incen-
tives offered  to the Bantustans are very costly as they are politically deter-
mined. The BLS risk increasing their budgetary incentives to the extent of
providing subsidies whose  grant  element  is equivalent  to  the  purchase  of
machinery for the investors.

A further leakage may occur through this incentive package. For example,
it is possible that an owner of several firms qualifying  under tax holiday in-
centives and tax allowances might show profits under the former and losses
under the latter so as to maximise his profit gains.

The BLS desire for an independent monetary sytem is to have the ability to
control inflation and to influence output and employment, have a stable ex-

118BBTHUELSETAI

change rate  and  a  strong balance  of payments  position. While  the  Central
Bank has performed  satisfactorily  in most apects of its activities, her  pricing
policies have not been as satisfactory. This is due to the fact  that  Borswana
imports inflation  through her total import bill of 70% from  South Africa.  To
combat  inflation  she  has  had  to  rely  on  manipulating  the  Pula\Rand  ex-
change rate. These  moves  have proven  expensive  on  the  budget.  Revalua-
tions of the Pula has had the effect  of increasing imports resulting in a nega-
tive impact on import competing industries.

Subsidies have had to be increased during periods of devaluation. Because
of  her  high  imports  from  South  Africa,  when' she  revalues  to  combat  im-
ported  inflation,  imports  increase  thus increasing  competition  with  import
competing industries. On the other hand, when she devalues imported  infla-
tion increases. In terms of her agricultural policies, revaluation calls for sub-
sidies to the agricultural sector.

Lesotho and Botswna have been  affected  by the  persistent  decline  of  the
Rand. The  Rand  has  experienced  secular  decline  since  1981. In  1981, it
depreciated by 11%, 1983 by 12%, in 1984 by 38%. The Rand  is currently at
$0.45 compared to &13416 in 1980.

Due to the high protective structure of South Africa,  and subsidies, defla-
tion  of  the  Rand  did  not  have  an  immediate  adverse  affect  don  the  price
index as indicated  in Table  12. According to  this data  the  price index has
moved up only steadily while the cost of foreign exchange increased  rapidly.
The limited impact of the devalueing Rand on inflation is cushioned by sub-
sidies and administered prices. South Africa has otherwise build-in  inflation-
ary  mechanism  caused  by  an  inflexible  social  system  with  lobsided  wage
structure which is not  necessarily correlated  with productivity:  oligopolistic
economic structure with limited markets to enable it to achieve economies of
scale; and persistent economic fluctuations tied to fluctuations in the price of
gold.

The desire of South Africa  to support these economic imbalances and  the
fear of economic sanctions will strengthen her resolve to maintain the BLS as
her economic domain. It  is not  likely that  she will encourage companies  to
locate in the BLS except in those cases where such moves are consistent with
her economic interests.

Footnotes:

1.  Myrdll'l  Tkfrg  •/  tkt  Btekwttk  MfftCtl.  Krnnnmir Tktnrv  »nd  IJn

3.  UIBMV Kmnur,  Tkt  S»*ik A frit**  OuHtmt  UnUm mni  tkt  Inimttritl  Ptptrtt
Uw*  •/  BtUvuu,  Lttttk*  and  SmtmUni. HC  —  Vtnkg  Ckunte.  D-6M0
WtUhrim.  J u u iy  IMS  «sd  Anbtanc*  ud  iserativM  to  industry  \m Lawtfco

IfJTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS  119

f  Cnitoms  Lawi.  M I N IK  Dapartmaat  of  Coatonu  and Exeiw.  Fint  Bditkm.

1978  pp.10.

8.  M\(A  +  B  +  C)  =  1.42\[(D  +  B  +  F  +  G)
4.  Dr.  Huara  KUUyalU,  £*•*»•«  Maria*  Fmrmwl •/  <*#  Stmth  Afritm*  Outtimt

Unit*.  M...FH?  MtnUtwr «f F t . . . . ..  AagWrt,  1960.  p.10.

5.  Mitra,  P JC.  Impart  nkHUiUU*  nU  •*»•*  •r*m*fM»  a*  a  M MM  «/ 

imintHriatif-

* 

BU  T Hl 

t r T 1 t| 

«.  H.  Mynt,  Tht  'CUuieat  Thenp'  •/  Iuttrn»ti0**l  Trmd* mmd On  UndtrintUp*4

T

I

Angnit\N<xv«mbw, 1974.

g \ m w, 
' 

il 

/ 

t

94  pp^

Ofntrin,  Th« Bennnmlr  Jniirnmi.  J«B«,196«.  pp£17-337.

7.  For  procadun*  M* Jagdfeh  N.  Bhafwat!  aad  Padraa  D m i,

Or—
j,

for 

Economic  CoopantioB  «ad  D*v*lopis«at.  1970.  pp.637. 
•/  Ind—trial Gvwlk,  t " * ^"  t / ^ m lf  B«U»,  S*pt«mb«r,  1980.

• 
R 3.  Patttm 
pp.634-654.  V.  Swhunai,  Tht  M»**ffi»rimt  Stttt 
Indtpt*-
i**tt:  An  AualtHfl  Prtfih,  i>  Tin.  LmKlfn  ^f^^mv;  PmMwM  mj  Pm«p«ftj.
IatwMtioul  D«vtlopm«»t  R«Marck  Oaatn.  IDRC  -  MR106*.  May  19M, pp  J«4.
Dwai,  P., 
(Udiaa
BcoMmic  JoaraaL  Octobw\I>«c«iibtr,  1989.  pp.lSS-30S.)  L«wk,  8JL  aad  SaBgo
P.  Grnrf*  an**  5trM<«fai  C«a*f*  «»  PaUfteB'h  Umumfttmnng  Indttritt, 
1$S4~
1$*4  T1  P 1t 

(7r««a  aai  Stnutnr*l  Chmtf 

/M(MI»  Jfm^Mfortitf. 

•/  XrattM  Kw< 

8b 

Dl 

t» 

p 

4 

Sri 
,  pfc 
•}  Impnt  S*tH*%ti*t

196*.
9

t.  Padma,  DMai,  ililcnMltM  iltutwm 

EafiCO. VoLSl  No^. Nonmlxr,  1969. pp^l2-S34.

».  TU  procadar* wa  aar« foUowad it  tk«  OH adopUd  by  B«Ja  B i l i m,
,

p 

u  n l> 
u  n«v»lnp>»f  r^y-trf^,  BaKtanon:  Jokaa  Bopkias  Pnat.  1971

BKta 

r rf 

B ki

t 

f  P w ii 

TytsyMki,  H.  ITcrM  Trmdt n  U»n%f*tt%Tt4  OtmmtHHn  JtM-J05§,  U*
t 

g !^  VoUOX  Stpt.1951  aad  Stem,  BJ*.  g«~Jff»  T MA  —d
Itly  N«w  York: FMdarick  A.  Praagcr,  1967  pp.  33-42  aad
ttutntif,  A»

10. W.  Maaraya  and  M. Kibuki,  Smektntt  Matt P»tUi  mtU Atntnltwl 

growth  in  It

181-63.

y 
Jk 

ltri  Ht 

T 

i  at  th«  Wnrt«>ior»  tot 
Haran:  DacMnbtr  8tk  to  12tk, 1986. pp.42.

i  g 

, 

1 M

11.  Daa  Uascr,  Tk*  Bc**»miet  •/  Tn  Imetntiwi  tt  B*c—r*t*  l*wt»im€ut «t  Ltti

DmUfti  C»%*trU*.  Jnniii»l  <rf D«v«lppmiit  RriM.n«iL-«  4,1977.  pp.119-14*.

13.  RJ4.  Kirk,  Mirtry  m  £*«•!»».  Cntral  Baak  of  Laaotko  QmarUrWy  lUvkw.

I 

pp
l

VofaoaaS, No.l. Marck, 1984

IS. Saa  Jack  Tkompaon,  A  C*m**nH— Stndg  •/  Itutntitt  Offttti  U  Farmfa
JTam/adartiif  hwntwumt  i*  L—tkt  ni  N—rif  Otmmtritt. Maatnu  Laaotko  Na-
tioaal  D*v«iopm«nt  Corporatios.  Fabnary, 1982.

14.  Jorgnuoa,  D.W.  Tax  Pttitt 

ana*  /nntaMil  ««JU«»nr,  (Anwricaa  ECOWMBIC

Raviaw,  N«w York,  JUM  1967, pp.391-414).

120BBTHUELSBTAI

Market Size and Trade Shares of Manufacturing

TABLE1

1972-82 Averages
All Values in SDR

(Millions) 

(Millions) 

Local Currency per SDR
Population ('000)
Gross Domestic Product ('000)
515
Per Capita G.DJ\ 
Manufacturing Output1 
A
B
Export of Manufacturers  A
B
Imports of Manufacturers2  A
B
Domestic Consumption of  A
B

Manufactured Goods 
(Millions)

(Millions) 

Exports as a Proportion of  A
B

Manufactured Goods 
(Percent)

Imports as a Proportion of  A
B

the Consumption of 
Manufactured Goods (Percent)

Botswana
1.0613
845
435

34

52.12
10.08
263.02
203.72
244.81
227.56

144.79
2732

10123
84.45

Lesotho 
1.0848
1300
19234
151
8.67

Swaziland
1.0848
581
319
695
115

8.20
636
181.84
130.16
18232
132.47

8728
6733

9L93
9038

108.79
65.66
177.12
15127
183.44
200.61

46.86

96.48
82.41

A includes food processing, beverages and tobacco. B excludes them. Both A and B exclude

unwrought metals.

2  The consumption of manufactured goods is derived by adding imports to and deducting ex-
ports from the value of

Lesotho:  Annual Statistical Bulletins 1972-82

Census of Industrial Production 1972-82
Central Bank of Swaziland 1972-82
Swaziland:  Annual Statistical Bullet* 1972-82
Central Bank of Swarilaad 1972-82
National Accounts, 1972-82

Botswana:  External Trade Statistics

Statistical BaBethi 1972-84
Nations* Account of Botswana 1972-82

INTEGRATION & POLICY  CONSTRAINTS TO  INDUSTRY  & T R A DE  IN BLS  121

TABLE2

Industrial Origin of GDP 1973 and 1981

Sector

1.  Agriculture,fishing

and forestry

2. Mining
3. Manufacturing
4. Construction
5.  Electricity.Gas

Water

fY»mmoditv Production

Botswana
1.0613
1881

1973

PERCENTAGES
Lesotho
1.00848
1981

1222

33.75
8.65
5.46
10.87

10,00
18.32
9.36
2.87

1.78
60-51

6.26
4&81

32.66
0 31
4 35
4.04

0.62
41.98

19.25
4.69
5.14
9.12

0.49
38.52

6.  Transport,storage

and communication

4.06

251

2 33

132

Swaziland
1.0848
1281

1973

18.67
2 32
1537
1.73

0.75
32M

20.11
2.73
16.08
0.61

1.29
40.82

235

3S7
1.85
2J2

1.27

1031
134
12.92

7. Public administra-

tion

8. Private services
Services

9. Gross Domestic

Product

Share of  Manufacturing

in Commodity
Production

Share of Agriculture

in Commodity
Production

9.84
3.68
17.58

16.73
4 31
23^51

7.78
0.93
11.04

13.92
1.00
16.24

100.00

100.00

100.00

100.00

100.00

100.00

9.03

19.95

1037

1336

39.07

3939

55.76

21.41

11.90

49.89

47.89

49.26

soirecR-
Botswana:  National Accounts of Botswana 1973/74
Lesotho:  Annual Statistical Bulletin of Lesotho 1977 aa
Swaziland;  Aaaual SUtistical Bulletio of Swaziland 19751

11982
id 1982

122  BETHUEL SETAI

TABLE3

Import Substitution in Botswana

1974/75 to 1982/83

S 

II  All  AQ  AIM AIlsSZAQ

Ecood 
1974/75 
1975/76 
1976/77 
1977/78 
1978/79 
1979/80 
1980/81 
1981/82 
1982/83 

Q. 

M 
0.00 
20850  147.60 
4.25 
273.90  18750 
9.73 
315.10  209.00 
-3.41 
360.30  259.20 
516.10  355.90 
733 
708.40  446.20  1,154.60  0.61  0.03  499.90  37.87 
78430  565.70  1350.00  058  0.00  575.80 
-6.49 
789.00  638.40  1,427.40  055  -0.03  58050  -58.03 

356.10  0.59  0.00 
0.00 
461.40  059  0.01  65.40 
524.10  0.60  0.02  106.60 
619.50  0.58  0.00  151.80 
872.00  059  0.01  307.60 

l#21.7O  749.80  1,77150  058  -0.01  813.20

0.00
0.07
0.09
-0.02
0.02
0.08
-0.01
-0.10

Q  »  Domestic Production
M -  Imports
R  «  Intermediate Demand
D  «  Final Domestic
E  -  Exports

S  -  Q  +  M-TotalSupply

1. A S - AR  + AD  +AE  =  Change in total supply
2.  U i« Qi / Si  -  Ratio of domestic production to total supply in the base

year

3.  U2-Q2/S2  -  Ratio in the next period
4. AQ - Ui  (AR  +  AD)  +  Ui (AE)  +  (U2 - Ui) x S2 where

Ui (AR  + AD)  =» change in domestic output of intermediate goods and
final domestic demand on the assumption of a constant Ui.
U I ( A B)  »  change in domestic output for exports on the assumption of a
constant Ui.

5.  (U2-Ui)xS2  »  change in domestic supply output as a proportion of

total supply to
6.  (U2-Ui)xS2

Expression (5) is the Chenery measure of import-substitution while ex-
pression (6) is that of Desai.

INTEGRATION & POUCY CONSTRAINTS TO INDUSTRY & TRADE IN BLS  123

Import Substitution in Lesotho Economy

TABLE4

1974/75 to 1980/83
s194.10
25030
33430
414.80
515.90
605.60
70830
85730

u0 30
0.44
0.43
0.45
0.48
0.44
0.45
0.41

All
0.00
-0.06
-0.08
-0.06
-0.02
-0.06
-0.05
4K10

AQ
0.00
13.00
4530
88.40
151.80
169.10
223.70
25030

AUaSA

,UxS/AO

-20.65
-31.62
-28.64
-1233
-45.22
-43.48
0.00

-139
-0.70
-032
-0.08
-0.27
-0.19

Period
1974/75
1975/76
1976/77
1977/78
1978/79
1979/80
1980/81
1981/82

Q
98.00
111.00
14330
186.40
249.80
267.10
321.70
34830

M
96.10
139.50
191.00
228.40
266.10
33830
386.60
509.00

snimrp-  Annual Statistical Bulletin, 1961/82/83

Import Substitution in the Swaziland Economy

TABLE5

1974/75 to 1982/83

Period
1974/74
1975/76
1976/77
1977/78
1978/79
1979/80
1980/81
1981/82
1982/83

Q

19330
213.40
23530
26330
32330
372.90
464.60
572.00
692.10

M
93.40
131.60
174.10
15830
270.80
365.70
46830
519.70
562.80

286.70
345.00
409.40
421.80
594.10
738.60
933.10
1,091.70
1,254.90

II
0.67
0.62
037
0.62
034
030
030
032
035

AH
ox»-0.06
-0.10
-0.05
-0.13
-0.17
-0.18
-0.15
-0.12

AQ
0.00
20.10
42.00
70.20
130.00
179.60
27130
378.70
498.80

sntittr-F.-  National Accounts of Swaziland 1974-1963

AUxS
0.00
-22.79
-41.96
•29.42
-96.05
-158.02
-192.48
-18837
-

AUxS/AO

0.00
-1.13
-1.00
-0.42
-0.74
-0.88
-0.71
-030
0.00

Botswana Export Performance: 1973/76 and 198Q/83

TABLE 6

m1>

Actual
1973-76
in
1973-76
Prices

(1)

35,531
129
1,961
29,948
27341
2,943
97,853
8,833
106,686

Hypoth-
etical
1980-83

Actual
1980-83
in
1973-76
Prices

(2)

10,616,663
38^45
585,947
8,948,462
800,445
879368
29,238,476
2,639300
3,187,778

(3)

586
2
48
2^31
685
217
4,068
370
4,438

Actual
1980-83
in
1980/83
Prices

(4)

63,959
181
5,262
276,737
74,851
23,718
444,708
40,495
485,203

"Market
Effect"

Competitive
Effect

Trice
Effect"

Together

(2)-(l)

(5)

10,581,131
38,416
583,985
8,918^14
7,978,104
876,425
29,140,623
2,630,467
3,081,092

(3H2)

(4)-(3)

(4)-(l)

(6)

(7)

(8)

-10,616,078
38^45
-585,899
-8,945,931
-8,945,931
-879,151
-29,234,408
-26,389,300
-3,183,339

63374
179
5,214
274,206
74,166
23,501
440,640
40,125
480,765

28,428
52
3301
246,789
47,510
20,775
346,855
31,662
378,517

Major Exports:
Meat  and Meat  Products
Animals
Hides and Skins
Diamonds
Copper, Nickel Matte
Textiles
Together
All Other Exports
Total Exports

SOI JRCRS: 

mber 1984: Vol 9 No. 3 page 27 Column 1
Statistical Rultetin. Rntswsna  Central Statistical Office,  Srptft
Statistical Bulletin, Botswana, Botswana Central Statistical Office, September 1985: Vol. 10 No. 3 page7

NOTES:
1. All values are in thousands of Pula.
2. The index for deflating current values was calculated from data appearing in The South African Statistics 1976.Pretoria Department of Statistics, p.ll.
Since data by commodity was scanty, we calculated  the average price index for the year 1970/73 in the following major markets: Australia, Belgium,
Canada, Germany, Ireland, Italy, Japan, New Zealand, South Africa, United Kingdom, United States of America, Sweden, Netherlands.
3. The growth rates for exports for each countiy were derived by averaging major exports for each country for the end years and applying the following
formula: Growth Rate  »  (SQ(Xn/Xi) -1) • 100

Lesotho Export Performance: 1970/73 and 1980/82

TABLE7

Actual
1970/73

Hypoth-
etical
1980/82

Actual 
1970/73 

Actual 
1980/82 

"MarkefCompetitive
Effect"
Effect" 

Trice
Effect"  Together

Exports by Major Categories
Food and live Animals 
Crude Materials 
Diamonds 
Together 
Other Exports 
Total Exports 

(1) 

1,706 
2,721 
336 
4,763 
749 
5,512 

(2) 

(3) 

(4)

12,419.00 
19,808.90 
2,446X6 
34,674.64 
5,452.72 
40,127.00 

30.45 
61.% 
17730 
269.70 
11Z95 
38165 

3329
6.773
19382
29,484
12348
41,832

(5)

10,713 
17.088 
2,110 
29,912 
5,704 
34,615 

(6)

(7)

(8)

-12388.6
-19,746,9
-Z268.8
-34,404.9
-5339.8
-39,744.4

3,298.6 
6,711,0 
19,204.7 
29,2143 
12,235.1 
41,449.4 

1,623
4,052
19,046
24,721
11,599
36320

Lesotho National Accountt 1967/68 to 1979/80; Maseru; World Bank and UNDP Team, June 1981, page 56, for column (1)
Annual Statistical Bulletins, 1981/83 for column (4)

AH values are in thousands

SwazBaad Export PtrfbnuuKe: 1974/73 aad 15W83

TABLE 8

Actual
1970/73
in
1970/73
Price;

(1)

15367
11380
5,595
3,840
1,662
2376
40,220
19,785
60.0T5

Hypoth-
etical
1980/83

(2)

1,213.993
899,020
442,005
303360
131,298
187,704
3,177380
1,563,015
4,740395

Actual
1980/83
in
1970/73
Prices

Actual
1980/83
in
1980/83
Prices

"Market "Competitive
Effect'
Effect'

"Price
Effect'

Together

(2)-(l)

(3M2)

(4)-(3)

(4)-(l)

(3)

1,134
4,454
159
103
1^38
56
2,035
869
2,903

(4)

(5)

(6)

(6)

(8)

124,033
49,644
17386
11,207
14,050
6,114
222,424
94,951
317375

1,198,626
887,640
436,410
299,520
129,636
185328
3,137,160
1,543,230
4,680390

-1^12^58
-894,566
-441^46
-303,257
-131,169
-187,648
-3,175345
-1,562,146
-4,737,492

122^98
45,190
17^27
11,104
13,921
6,058
220,389
94,082
314,472

108,666
38^64
11,791
7367
12388
3,738
182,204
75,166
257370

Sugar
Woodpulp
Asbestos
Citrus Fruit
Canned Fruit
Meat and Meat products
Together
Other Exports
Total Exports

SOI IRrF5fc  The Mmetaiy Authority nf SmriUnd Ouarterlv Review. June 197R, pare 36 for  fl)

Centnl Bank of Swaziland: Quarterly Review, December 1985 page 34

INTEGRATION & POLICY CONSTRAINTS TO INDUSTRY & TRADE IN BLS  127

Import Substitution in BLS Countries: 1977/78 to 1982/83

TABLE9

1977/78 to 1982/83

Botswana

Lesotho

Chenery
Measure

Desai
Measure

Chenery
Measure

Desai
Measure

1. Chemical Industry
2. Food, Beverages and Tobacco 
3. Wood and Paper Industry
4. Metal Industry
5. Textiles, Tanning and
Leather Products
6. Printing and Publishing
7. Furniture Industry

-0.09
4.21
-1.70
-6.20

-0.10
-
-

0.82
-0.03
-3.07
6.87

-0.01
-
-

-0.08
4.90
-
0.13

1.10
-0.74

0.26
032
-
0.70

-
0.01
-0.84

TABLE 10

Botswana: Direction of Trade 1981

(All Values in OOO'sUA)

-1984

p

1981 

1982

1983

1984

Imports

Exports

Imports

Exports

Imports

Exports

Imports

Exports

608^94
44,018
7^67
11,933
14,565
8,082

57,649
36,683
23,185
144,741
84,247
132

643,603
47,306
16,914
12,974
12^09
11,036

55,975
65,217
56,968
153339
58,960
3,785

680,125
60,212
10,284
42,681
8,678
16,295

58^86
59^06
30,995
494,272
52,666
11,667

793357
89,156
31,656
67,468
19,159
15,616

85^77
37,913
20,033
734384
79,061
12,459

695,059

347,837

744,042

494,243

818^75

707392"

1,016,412

969,127

SA.C.U.
Other Africa
U.K.
E.E.C.
UJSJL.
Rest of World

TOTAL

SAGU: 
E E C: 

Soutbem African Customs Union
European Economic Community

Rrtenul Trade StatktiM lORVM; Onhnmnf  fVntr.1 Sutiriirt OfR«.  p ->A

INTEGRATION & POUCY  CONSTRAINTS TO  INDUSTRY  & T R A DE IN BLS 

129

The Mean, Standard Deviation and Relative Standard Deviation of Labour

Supply by Sending Country: 1975 To 1985

TABLE 11

Country

Lesotho
Malawi
Botswana
Swaziland
Mocambique

Mean

119,918
16,965
20,897
14,112
54,587

Standard
Deviation

5,059
1,920
2,650
3,289
13,026

Relative
Standard
Deviation

4.00
11.00
13.00
23.00
24.00

Sf>IIRr-R-  Computed from Official Sources in Botswana, Lesotho and Swaziland, 1975-1965

TABLE 12

Ratio of Deferred Pay to GDP by Country

COUNTRY

Year

1975
1976
1977
1978
1979
1980
1981
1982
1963
1984
1985

Botswana

Lesotho

Swaziland

Malawi

Deferred

Deferred  Deferred Pay  Deferred Pay

3.64
339
2.70
1.72
2.04
1.72
1.87
158

-

13.1
16.1
11.6
10.1
9.1
92.
11.1
22.1
-
-
-

1.4
1.8
2.0
1.5
1.4
1.4
1.4
-
-
-
-

-
-
-

-
-
13
9A
US
0.92
137

Computed from Official Sources, 1975-85

130  BETHUEL SETAJ

TABLE 13

Deferred Pay as a Proportion of Imports

(1975 to 1985 in Current Prices)

Year

1975
1976
1977
1978
1979
1980
1981
1982
1983
1984

COUNTRY

Botswana

Lesotho

Swaziland

Malawi

4.4
5.5
4.5
32
2.1
2.7
2.1
1.9
20
1.7

11.0
10.0
83
8.6
75
6J8
8.1
15.8
19.1
19.8

1.7
1.4
13
IS

_
-

52
6.0
7.1

Cbmpfled from Official Sources, 1975-85

INTEGRATION & POLICY  CONSTRAINTS TO  INDUSTRY & TRADE IN BLS  131

Comparison of Cost of Foreign Exchange and

TABLE 14

Consumer Price Index

Average Increase
in the Cost of
Foreign Exchange

Average Annual Increase
in South African Prices

Consumer  Prices of Home &
Import Goods

Prices

_
32
7.6
11.9
243
2.8
293
39.0

10.2
13.1
13.8
15.2
14.7
123
11.7
16.4*

10.0
15.1
163
13.5
13.9
105
8.4
-

Year

1978
1979-
1980-
1981
1982
1983
1984
1985 (Jan-June)

* 12-monthly increase as of July 1985

SOtmrK-  Official  Documents, 1986, Maseru, Lesotho