EU Ambassador’s speech at the France Business Forum

I am grateful for this opportunity to make some remarks on this occasion of the Botswana-France Business Forum this year. France is one of the key member states of the European Union (EU) and one of the few EU countries with real business interest in Botswana and one of the three (soon two) EU member states with diplomatic presence in Botswana.

Mr. Alexander Baum, EU Ambassador to Botswana and SADC

As you are probably aware, the European Union has a keen interest in what is happening in Africa, which is our neighbouring continent. The relations with Africa have been brutally pushed into the public consciousness and political agendas in Europe more recently, driven among others by what became the “2015 migration crisis”, which ironically did not even originate from Africa in the first place. But given the demographic developments in Africa in comparison to Europe and the steadily growing numbers of arrivals, it has become clear to us that we cannot ignore our neighbours. Economic growth has also dropped on the continent to its lowest level in 20 years although performance is very uneven and better for those countries that are not so resource dependent. As Europe we have a vital interest in sustainable and equitable economic growth on this continent, in jobs being created, and to give the young population a perspective for the future. Development aid can’t really do this and hence we are shifting our focus on other instruments that are supportive of investments and private sector led growth.

The situation is somewhat peculiar here in Botswana. The country has reached already an impressive income level mainly thanks to the good governance of its natural resources and the consistent, sound macro-economic policies. Botswana does also not have a demographic problem per se, but it has a serious challenge with youth unemployment and the foundation for its economic success is not sustainable. Botswana has still a lot of the attributes of a developing country but in the meantime, aid levels have already dropped significantly.

This is to an extent understandable as the main problem is not really the scarcity of public resources. Botswana’s national budget is not small, but the use of funds is not efficient and the country does not get in return what it could afford. This is mainly an issue of policies; some would say one of capacity and this is true, but lack of capacity is by itself an issue of policy as the country was doing better in the past I tend to believe. Apart from more efficient public spending, Botswana mainly needs investments in productive sectors notably outside the mining sector. The trend has not been positive when you take out the investments in the mining sector and much more needs to be done.

The EU’s priorities for Africa as a whole are hence matching the priorities that Botswana has set for itself. The instruments that we have at our disposal could be a windfall profit for this country, which has contributed nothing Europe’s worries. Let me highlight two elements: As you are aware, we have signed the Economic Partnership Agreement with six SADC countries including Botswana last year in Kasane. This should provide us with a new platform for discussing our economic relations and the policies that have an impact on investments, production and trade. I say “it should”, because it is not happening – at least not yet. For now, the EPA is mainly an opportunity to be exploited – both at the level of policies as well as at company level. The principle under EPA is that Botswana has duty free – quota free access to the EU market.

Currently, Botswana exports essentially diamonds and beef plus some other mining products (copper, nickel). Those exports entered the EU market also previously duty free; hence the EPA has not changed anything other than making this access now a contractual obligation rather than a unilateral “favour” by the EU. What provides new opportunities are the generous ‘rules of origin’, which allow for export of goods that are ‘sufficiently worked or processed’ in Botswana or where advantage is taken of the possibility to ‘cumulate’. It is important that Botswana’s private sector and foreign investors study and understand the opportunities offered by the EPA RoO to assess opportunities for investments. The opportunities offered by the EPA are in fact not so much linked to the current exports but to new products for new markets. Beef can now be exported to the EU market quota free; this is new and important but even under the previous trade regime, Botswana never exhausted its quota and hence the quantitative restrictions were never really relevant. In other words, the country must look to the future with ambition and with an entrepreneurial spirit for new productive areas.

To give an example: the RoO allow manufacturers in Botswana to use materials from certain other countries, as if those materials were actually from Botswana. This possibility, known as cumulation, is not even restricted to materials that come from the other countries that are party to the agreement. Uniquely to EPAs, the rules of origin allow materials to be considered as originating even when they come from countries such as Zimbabwe or Kenya, even though those countries are not signatories of the SADC EPA. The cumulation possibilities even allow for companies in Botswana to consider processing carried out in other SADC EPA States as if it was done in Botswana. All these possibilities answer the perennial question of how a country with limited sourcing possibilities can compete in the global market. Even leaving aside the many and somewhat complicated provisions on cumulation, the rules of origin has also been simplified in other areas to further ease the difficulties in obtaining Botswana origin for products manufactured here. Let us take the example of textiles. Previously, a manufacturer would have to first make the fabric here in Botswana from imported yarn, and then produce garments, or let’s say “clothes with Botswana origin”. Under the new, EPA rules, it is possible to produce garments straight from imported fabric, and they will have Botswana origin.

The second element I like to highlight is that the EU is currently designing new instruments under the “External Investment Plan”in order to support private investments. The new External Fund for Sustainable Development aims at leveraging additional funding notably for private investments and includes a guarantee scheme. Increased funding for and access to TA aims at developing financially viable and mature projects. Policy support will be provided through the third pillar of the instrument box. The External Investment Plan is now in the final approval stages in the European Parliament and the operational details are being worked out for a start up in the coming months. Of course, at the same time we will continue providing complementary support under our regional and national cooperation programmes.
In sum, the equitable and sustained economic growth is our priority; we are offering new opportunities and we are offering new complementary support to investments and trade. However, whether the opportunities that we are trying to create will actually translate into real change in the figures will depend – in my humble view – also on whether we will manage to have a real policy dialogue with Botswana. So far, I don’t see as yet the interest, but I am optimistic that once European companies express interest in investing in Botswana that the government will also see the benefit of really working together to make it happen.