On Thursday evening President Jacob Zuma, in his State of the Nation address, outlined an ambitious program of support for a whole host of sectors to attract industry to locate in South Africa and thereby attack that nation’s stubbornly high 25% rate of unemployment. For all those who know and care about South Africa they can only wish Mr Zuma well in his efforts to end the blight of unemployment which, at an estimated 17.5%, is also very much a problem on this side of Limpopo and Notwane Rivers. What President Zuma outlined however is a massive subsidy to industry in South Africa and abroad to expand and locate in that country. He provided for tax breaks that would total up to rand 20 billion. For a project to qualify, the minimum investment must be R200-million for a new project and R20-million for expansion and upgrades. The programme outlined by the South African president would provide an allowance of up to R900-million in tax deductible allowances for new investors and R550-million for upgrades and expansions. President Zuma went on to unveil a R9-billion jobs fund over the next three years and said that the South African Industrial Development Corporation (IDC) had set aside R10-billion over the next five years for investment in economic activities with a high jobs potential. The New Growth Path document prepared by the South African government has outlined six key areas for job creation, including infrastructure, agriculture, mining and beneficiation, manufacturing, the green economy and tourism.
At least two of these should be of direct concern to those setting industrial policy in Botswana. The first area is manufacturing because Botswana and South Africa are part of the SACU customs union and hence the subsidies provided for firms to locate in South Africa or expand there are all the more reason for them not to locate in Botswana.
What Mr Zuma appears to forget in his States of the nation Address is that he is not alone in the neighborhood and that all the subsidies he is providing to firms means less firms locating in Botswana and other SACU countries. There are already very few exporting manufacturers in the country because we are a landlocked country and what South Africa is proposing will only make matters much worse. Botswana has numerous advantages as a country ÔÇô it has a generous taxation system for manufacturers which offers company taxes much lower than that of our neighbors. We have a stable government and only mild crime and security issues compared to our neighbors. Moreover, we have wage levels for unskilled workers that are roughly a quarter of that of South Africa and yet we have almost no export-oriented manufacturing industry located here.
While the landlocked problem is part of the explanation, another is that like its predecessors, the ANC government in South Africa is more than willing to provide massive subsidies to industry which the other smaller and much poorer members of SACU cannot possibly afford to match. Countries like Lesotho and Swaziland have low wages like Botswana and yet almost no industry seeking to supply the SACU market locates in any of these countries ÔÇô everything is made in ‘Gauteng Province’. There is a second area of Mr Zuma’s speech that should also be of concern to Botswana policy makers and that is the drive to beneficiation in South Africa. In his speech Mr Zuma said “One of government’s priorities this year is also to finalize and adopt the beneficiation strategy as the official policy of government, so that we can start reaping the full benefits of our commodities.” Until recently Botswana also had a beneficiation policy for our minerals, which while nominally still existing in policy documents only really holds in the diamond sector. If Mr Zuma is going to also provide help i.e. subsidies to his industry to beneficiate basic minerals in that country then what will stop them from bringing in ever more of our raw commodities from Botswana to process and thereby making our own attempts at beneficiation quite futile.
The prospects of Botswana beneficiating any of its massive deposits of copper and silver that exist in the North and West of the country are greatly diminished if our neighbors pursue a policy of subsidization of processing facilities and we do not. But what Mr Zuma outlined in terms of support to industry to produce and locate there is only the tip of the iceberg of a structure of subsidies and support programs draining South Africa’s neighbours of any reasonable hope of industrial development.
Last October Mr Zuma’s trade minister, Mr Rob Davies outlined another program of industrial subsidies worth Rand 13 billion and there are many more such government support programs, some of which will entice our remaining producers to locate to the other side of the Notwane. There is no sane and sensible person in Botswana who would wish our neighbors in South Africa anything other than peace and prosperity for that is profoundly in Botswana’s interests. But if Mr Zuma wants to achieve this prosperity by providing billions of rands of subsidies to industry to locate there he must realize that his country is part of a customs union i.e. a community of nations and that his policies should not be undertaken at Botswana and other SACU country’s expense. Moreover, at this moment SACU consultants, no doubt with the support for South African treasury officials are telling Botswana officials that SACU is unfair to them and that they desperately need 8 billion rand from our share of SACU customs and excise receipts, presumably so they can pay for the subsidies to their industry. In light of Mr Zuma’s speech and the billions he intends to lavish on subsidies to industry at his neighbors expense his treasury officials’ pleas of poverty and the need for resources for ‘health and education’ sound a tad empty. This matter of massive subsidies provided by South Africa has to be raised at the highest level at the up-coming SACU summit so as to make sure that the SACU customs union arrangement deepens and that our neighbors realize that the old days of SACU being a ‘winner-take-all’ game where the only winner in terms of production was South Africa must finally come to an end.
*Professor Grynberg is Senior Research Fellow at the Botswana Institute for Development Policy Analysis (BIDPA). The views expressed are his own and not necessarily of BIDPA or any other institution
