The debate over the ambitious project of regional economic integration proposed by the Southern African Development Community (SADC) has narrowed to a question of the region?s readiness.
Government?s economic advisor, Nicolas Czypionka, has likened the whole project to a ?joke?. This week, the head of the European Union (EU) delegation in Botswana, Ambassador Paul Malin, joined the fray, questioning the readiness of the region to the project and the direction it is taking.
?Right now, there is no clear idea of how integration is going to be carried about,? he said during the briefing of the Union?s 50th anniversary celebrations. He pointed out that there are a lot of benefits to be ripped out of the project but also warned regional leaders to be wary of the fact that such gains could not be attained overnight.
?One lesson of 50 years that we have learned is that things cannot happen overnight, and that is why even today we hold treaties every two years. There are a lot of benefits to be enjoyed but it is a slow process. You have to take it step by step,? he said, casting doubts over next year?s deadline of opening the boarders to free trade zone.
In general, he differed with protectionists over free trade, saying Botswana stands to benefit a lot by exposing itself to over a 200 million customer base as opposed to adopting a closed economy. As the situation stands, Malin said traders on either side of the borders are losing out a lot of business due to the border barriers.
?Every time I am by the border, I see a long queue of trucks waiting to be cleared by the customs authority and long hours of business are lost in those long queues,? he said. Malin is worried that the good infrastructure that the region has is not put to good use by pulling the regional resources together. He agrees that at micro level, there would be loses resulting from integration but the focal point should be the bigger picture.
?In opening up, there would be some loses due to increased competition from other regional competitors and that is good because it would increase productivity and efficiency,? he explained.
Notwithstanding the benefits, he cautioned against rushed decisions. The contentious issues that need a lot of probing are in areas of tax harmonization.
?Single currency has to be the last thing, it is a long way out,? he noted.
On tax harmonization, he said regional member states still have to address the issue of overlapping regional integration initiatives.
?Countries still have to decide who they want to deal with because they can?t be members to different customs,? he explained.
Different SADC member states are currently involved in a web of regional and bilateral trade arrangements. They are at least members of four regional preferential trading arrangements such as Southern African Customs Union (SACU), the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Indian Ocean Commission (IOC).The regional block has on cards a plan of a unified customs union by 2010 and a free trade area by next year.
Recently, there has been strong disapproval to tax harmonization from some quarters within the country. The issue is seen as giving away the country?s competitive advantage. Botswana is so far the tax friendly country within the region, with low Value Added Tax, company tax and some array of tax benefits for companies that enlist in the International Financial Services Centre (IFSC) board.
The tax rate of an IFSC company, which is granted a tax certificate, is set at 15 percent and the rate is guaranteed as a maximum rate up to 31 December 2020. A lower rate is, however, not precluded.
A tax rate of 15 percent also puts an IFSC company on the same basis as a manufacturing company, which government taxes at 15 percent. The low tax rate has been one of the pillars of strength against South Africa?s strength of higher economies of scale. However, Finance Minister of South Africa, Trevor Manuel, went a step forward during his budget presentation this week to slash personal income tax. Botswana?s personal tax rates are also different from those of South Africa, ranging from five percent to a threshold of 25 percent while, in South Africa, the range is from 18 percent up to 40 percent. On the goods and services side, South Africa charges VAT at the rate of 14 percent while Botswana?s rate is 10 percent ? so far the lowest in the region.