The Customs Union Paradox: Botswana's Fiscal Dependence, Instrumental Regionalism, and the Limits of Integration under the AfCFTA
Farouk Pandor
Publication Note
This article is designed for publication on the Botswana Stock Exchange blog and for distribution via Facebook to investment, trade policy, and African development communities. It has been revised for immediate publication with the following enhancements:
Tightened theoretical framework for greater analytical clarity
Strengthened empirical grounding with additional contextual detail
Refined policy implications for investor and policymaker audiences
Improved readability while maintaining academic rigour
Updated references for currency and relevance
Abstract
Botswana presents a paradox in African regional integration. It is a founding member of the Southern African Customs Union (SACU)—the world's oldest surviving customs union—and an active participant in the Southern African Development Community (SADC), the Tripartite Free Trade Area (TFTA), and the African Continental Free Trade Area (AfCFTA). Yet this dense architecture of commitments coexists with unilateral trade restrictions that contravene Botswana's regional obligations, most notably the agricultural import bans imposed from 2018. This article argues that Botswana's trade policy is best understood not as a coherent integration strategy but as a fiscal survival strategy in which SACU revenue—contributing between 30 and 40 per cent of government income—and diamond export earnings shape policy in ways that privilege short-term revenue stability over long-term integration. Drawing on customs union theory, the political economy of African regionalism, and empirical evidence on Botswana's trade and fiscal position, the article demonstrates that Botswana's AfCFTA implementation strategy, while formally ambitious, is structurally constrained by the same dependencies that have historically diluted its regional commitments. It concludes that without fiscal diversification away from SACU transfers and diamonds, Botswana's participation in continental integration will remain shallow and instrumental, and the AfCFTA's promise of developmental regionalism will remain unrealised in one of its most creditworthy member states.
Keywords: Botswana, SACU, AfCFTA, regional trade agreements, trade policy compliance, revenue-sharing formula, economic diversification, instrumental regionalism
JEL Classification: F13, F15, F53, O55, Q33
1. Introduction
Botswana is routinely celebrated as one of Africa's economic success stories. From one of the poorest countries in the world at independence in 1966, it achieved average annual growth rates of approximately 9 per cent between 1966 and 1999, and around 5 per cent per annum between 2010 and 2020, driven overwhelmingly by diamond exports (World Bank 2024). It is an upper-middle-income country with a stable democracy, investment-grade credit ratings, and a reputation for prudent macroeconomic management. It is also, by the standards of Southern Africa, deeply embedded in multiple layers of regional trade governance: a founding member of SACU, a signatory to the SADC Protocol on Trade, a participant in the TFTA, a party to the EU–SADC Economic Partnership Agreement (EPA), and a signatory to the AfCFTA.
This dense architecture of commitments coexists, however, with a troubling pattern of non-compliance. Since 2018, Botswana has implemented bans and restrictions on the importation of certain merchandise from its regional trading partners—particularly vegetables and, subsequently, grain products—in contravention of the SADC Protocol on Trade and the SACU Agreement (Edward 2023; Africa-Press 2025). Although the vegetable ban was phased out in 2025, the episode exposed a structural tension at the heart of Botswana's regional policy: the country benefits enormously from SACU membership while simultaneously resisting the liberalisation that would deepen it. Botswana has also been criticised for pursuing bilateral trade deals that, while beneficial nationally, do not advance regional markets or support intra-African trade (IAI TV 2025).
This article argues that these apparent contradictions are not anomalies but the logical outcome of Botswana's structural position within SACU and its fiscal dependence on diamond revenues. The customs union's revenue-sharing formula, which historically favoured the smaller member states through the "enhancement factor" multiplier of 1.42, has made Botswana fiscally dependent on trade revenue that it does not control (Grynberg and Motswapong 2012). SACU transfers contribute 30–40 per cent of Botswana's annual government income, a share both indispensable to fiscal sustainability and vulnerable to external decisions about tariff structures (Tamasiga et al. 2025). This dependence creates a peculiar incentive structure: Botswana benefits enormously from SACU membership while resisting the liberalisation that would deepen it. The result is a pattern of instrumental regionalism in which Botswana participates in regional institutions to secure access to SACU revenue and to position itself as a gateway to Southern African markets, but resists the deeper integration that would require sacrificing policy autonomy and fiscal revenue.
The article makes three contributions. First, it provides the first systematic integration of Botswana's multiple trade commitments—SACU, SADC, EPA, TFTA, AfCFTA—into a single analytical framework. Second, it advances a fiscal-dependence explanation for Botswana's apparent non-compliance with regional trade obligations, arguing that the revenue-sharing formula creates incentives for instrumental rather than substantive engagement. Third, it draws implications for the AfCFTA, arguing that Botswana's experience illustrates the limits of integration strategies that do not address the fiscal foundations of member state trade policy.
The argument proceeds as follows. Section 2 develops the theoretical framework, drawing on customs union theory and the political economy of African regionalism. Section 3 examines Botswana's trade policy architecture and the compliance question. Section 4 analyses the fiscal foundations of instrumental regionalism, focusing on the SACU revenue-sharing formula and diamond dependence. Section 5 assesses the EU–SADC EPA and Botswana's sectoral interests, particularly beef. Section 6 evaluates Botswana's AfCFTA strategy and its structural constraints. Section 7 discusses the implications for African regionalism, and Section 8 concludes with policy recommendations.
2. Theoretical Framework: Customs Unions, Fiscal Dependence, and Instrumental Regionalism
2.1 Customs Union Theory and the Revenue Problem
The classical theory of customs unions, following Viner (1950), identifies two effects of preferential liberalisation: trade creation, which occurs when high-cost domestic production is replaced by lower-cost imports from a partner, and trade diversion, which occurs when low-cost imports from a non-partner are replaced by higher-cost imports from a partner. The welfare effects of a customs union depend on the balance between these two effects. A customs union is more likely to be welfare-enhancing when trade creation dominates trade diversion, when the common external tariff is low, and when the member states are "natural" trading partners with complementary production structures.
For developing countries, and particularly for small, landlocked states in Southern Africa, the revenue implications of customs unions are as important as the welfare implications. Customs unions pool tariff revenue and distribute it according to a negotiated formula. For member states with limited domestic tax capacity, customs revenue can constitute a significant share of government income. The design of the revenue-sharing formula therefore shapes the fiscal incentives of member states and, by extension, their trade policy preferences. This insight is central to understanding Botswana's behaviour within SACU and its approach to the AfCFTA.
The SACU revenue-sharing formula is distinctive in the degree to which it favours the smaller member states. The 1969 formula included an "enhancement factor" multiplier of 1.42 to compensate Botswana, Lesotho, and Swaziland (now Eswatini) for the price-raising effects of the common external tariff and for the lack of mechanisms to induce investment in the periphery (Grynberg and Motswapong 2012; Africa Portal 2023). The 2002 SACU Agreement maintained the asymmetry, and the recent renegotiation of the formula was even more favourable to the BLNS countries (de la Rocha 2003). The result is a fiscal architecture in which the smaller member states receive a disproportionate share of common revenue, creating strong incentives to preserve the customs union even as they resist the liberalisation that would deepen it.
2.2 The Political Economy of African Regionalism
The political economy literature on African regionalism provides essential context for understanding Botswana's behaviour. Söderbaum (2004) and Bach (2016) distinguish between formal regionalism—the treaties, protocols, and institutions that governments establish—and real or trans-state regionalism—the actual flows of goods, people, and capital across borders. The gap between the two is often wide in Africa, where formal integration commitments coexist with informal cross-border trade, weak implementation, and the persistence of national policy autonomy.
Gibb (2009) argues that African regionalism has been driven by a combination of developmental, security, and diplomatic motives, and that the resulting arrangements are often "regime-boosting" rather than genuinely integrative. Hartzenberg (2011) observes that African countries have accumulated multiple, overlapping memberships in regional economic communities, creating a "spaghetti bowl" of commitments that are often inconsistent and rarely enforced. Krapohl and Fink (2013) distinguish between different "paths" of regional integration, arguing that Southern Africa's path has been characterised by hegemonic leadership (South Africa), institutional weakness, and a persistent gap between formal commitments and actual outcomes.
This literature suggests that regional integration in Africa is often instrumental: governments participate in regional institutions to achieve objectives—access to markets, revenue, diplomatic prestige, or security—that are not necessarily reflected in the formal integration agenda. The concept of instrumental regionalism captures this dynamic. It is distinct from the "developmental regionalism" that the AfCFTA's architects envisage, in which integration is pursued as a deliberate strategy for structural transformation and industrial development. Instrumental regionalism is defensive, protective of sovereignty, and focused on short-term gains rather than long-term transformation.
2.3 The Fiscal Foundations of Trade Policy
The third element of the theoretical framework is the fiscal foundation of trade policy. In countries where customs revenue constitutes a significant share of government income, trade policy is not merely a matter of trade; it is a matter of fiscal sustainability. Governments are reluctant to liberalise tariffs if the revenue loss would be difficult to replace through other taxes. This is particularly true in countries with limited domestic tax capacity, large informal sectors, and high dependence on a narrow range of exports.
Botswana's fiscal dependence on SACU revenue is an extreme case of this general phenomenon. Unlike most developing countries, Botswana does not collect customs duties directly; it receives a share of the common revenue pool administered by SACU. This means that Botswana's fiscal position is determined not only by its own trade policy but by the trade policies of its SACU partners, particularly South Africa, which administers the common external tariff. Botswana's trade policy is therefore doubly constrained: it cannot use tariffs to protect domestic industries without SACU agreement, and it cannot easily replace lost customs revenue with domestic taxes. The result is a structural incentive to preserve the fiscal status quo and to resist liberalisation that would reduce the common revenue pool.
3. Botswana's Trade Policy Architecture and the Compliance Question
3.1 The Multiple Layers of Engagement
Botswana's regional trade commitments are exceptional in their density. The country is a member state of the SADC Protocol on Trade (2005), the SACU Agreement (2002), the SADC–EAC–COMESA Tripartite Free Trade Area, the SACUM–UK Economic Partnership Agreement (2019), the EU–SADC Economic Partnership Agreement (2016), the Botswana–Zimbabwe Trade Agreement, and the Botswana–Malawi Trade Agreement, and a signatory to the AfCFTA (Edward 2023). It is also a member of the SADC–EAC–COMESA Tripartite Free Trade Area, although as a member of SACU it faces particular constraints in implementing TFTA commitments (Anami 2025).
This architecture reflects Botswana's strategic position as a small, landlocked state that depends on access to regional markets but also benefits from the stability and predictability that regional agreements provide. Botswana's trade policy objectives, as articulated in the 2019 National Trade Policy, include diversification, export promotion, and integration into regional value chains (WTO 2019). The country's development plans—Vision 2036, the National Transformation Strategy, and NDP12—all identify regional integration as an instrument for achieving economic diversification (Business Weekly 2024). Botswana's AfCFTA National Implementation Strategy, developed in partnership with the United Nations Economic Commission for Africa (UNECA), seeks to "increase exports and enhance regional trade flows" while identifying SACU regional value chain sectors in agro-processing, clothing and textiles, pharmaceuticals and chemicals, automotive, green minerals, and mineral beneficiation (Daily News 2025).
3.2 The Compliance Deficit
Yet this formal architecture of commitment coexists with a significant compliance deficit. Edward (2023) provides the most systematic assessment to date of Botswana's compliance with its regional trade obligations. The study finds that "from the year 2018, Botswana has been implementing bans and restrictions on the importation of certain merchandise from its trading states" and that "the bans and restrictions that Botswana has implemented are in violation of the regional trade agreements that Botswana is a member state of" (Edward 2023, 34–37). The bans, which initially targeted vegetables and later extended to grain products, were justified on food security and import substitution grounds. Botswana's vegetable import ban, introduced in 2018, was only phased out in 2025, with the first phase beginning in February 2025 and the second phase scheduled for April 2025 (GreenAgri 2025).
The bans attracted criticism from Botswana's regional partners. The Western Cape MEC for Agriculture, Economic Development and Tourism welcomed the lifting of the vegetable ban as a step that would "encourage increased trade among Southern African Customs Union (SACU) members, who view the African Continental Free Trade Area (AfCFTA) as a critical tool for developing regional value chains and enhancing exports" (SA News 2025). The implication was clear: the ban had been an obstacle to regional integration. Critics have argued that Botswana's grain import bans, while pitched as food security measures, "risk higher prices, smuggling, and weakened regional trade" (Africa-Press 2025). The bans have also been described as "bad economics" incompatible with Botswana's stated commitment to regional integration (Tamasiga et al. 2025).
The compliance deficit is not merely a matter of specific policy measures. It reflects a deeper tension between Botswana's formal commitments to regional integration and its actual policy practice. Edward (2023) notes that the study assessed Botswana's compliance with regional trade agreements with specific reference to trade policy and found that Botswana has been "trading in good faith with its regional trading states" only up to a point, but that the bans and restrictions violate the country's obligations. The study concludes with recommendations for Botswana to comply with its regional trade agreements, implying that compliance is currently incomplete.
3.3 The SACU Constraint
Botswana's compliance deficit cannot be understood without reference to its position within SACU. As a customs union, SACU requires all member states to apply a common external tariff. This means that Botswana cannot unilaterally impose tariffs on imports from outside SACU without the agreement of its partners, and that any liberalisation of its external tariff must be coordinated with South Africa, Lesotho, Namibia, and Eswatini. The SACU Agreement constrains Botswana's ability to use trade policy as a diversification instrument. As Edward (2023) notes, "a further shortcoming in the legal structures that negatively impacts on the implementation of international agreements is the lack of the power to enforce it between countries" (World Bank 2003, cited in Edward 2023, 23). The SACU arrangement thus creates a paradox: Botswana benefits from the revenue that SACU generates, but is constrained in using trade policy to promote the diversification that would reduce its dependence on that revenue.
The constraint is particularly acute in the context of the AfCFTA. As a customs union, SACU has a common external tariff, which means that Botswana's trade with AfCFTA partner states outside SACU is governed by the SACU tariff schedule rather than by Botswana's own preferences (Tralac 2024). This limits Botswana's ability to use AfCFTA preferences strategically and means that its participation in the continental market is mediated through SACU. The TFTA experience is instructive: as of 2025, five COMESA member states had not fully joined the TFTA, and the agreement was yet to be fully implemented, with tariff liberalisation between SACU and the EAC pending (Anami 2025). Botswana, as a SACU member, is part of this institutional bottleneck.
4. The Fiscal Foundations of Instrumental Regionalism
4.1 The SACU Revenue-Sharing Formula
The SACU revenue-sharing formula is the single most important determinant of Botswana's fiscal position and, by extension, its trade policy. The formula, established in its current form in 1969 and revised in 2002, allocates customs, excise, and additional duties collected in the SACU common customs area to member states according to a negotiated formula. The 1969 formula included an "enhancement factor" multiplier of 1.42 to compensate the smaller members—Botswana, Lesotho, and Swaziland—for the price-raising effects of the common external tariff and for the lack of mechanisms to induce investment in the peripheral countries (Grynberg and Motswapong 2012; Africa Portal 2023).
The formula has been highly favourable to Botswana. Under the 1969 agreement, South Africa's share of the common revenue pool stood at about 20 per cent in 2001, compared with South Africa's 95 per cent share of SACU GDP (Africa Portal 2023). The 2002 revision maintained the asymmetry in favour of the smaller members, and the recent renegotiation of the SACU revenue-distribution formula was even more favourable to the BLNS countries (de la Rocha 2003). The revenues that Botswana receives from SACU are not merely a transfer; they are a structural feature of its fiscal system.
4.2 The Magnitude of Fiscal Dependence
The magnitude of Botswana's dependence on SACU revenue is striking. SACU revenue-sharing from the Common Revenue Pool—comprising customs duties, excise taxes, and development allocations—contributes 30–40 per cent of Botswana's annual government income (Tamasiga et al. 2025). Diamonds contribute approximately 80 per cent of the nation's export earnings and nearly one-third of fiscal revenues (Tamasiga et al. 2025). Together, SACU transfers and diamond revenues account for the overwhelming majority of Botswana's fiscal resources. The government's fiscal space is therefore doubly constrained: it depends on a commodity whose global market is volatile and declining, and on a customs union whose tariff structures are determined collectively and are subject to external pressure for liberalisation.
The diamond dependence is well documented. Botswana's diamond exports fluctuated from a maximum of US$7.3 billion in 2014 to a low of US$3.8 billion in 2020, and the global diamond market's decline continues to affect the country's financial stability (World Bank 2024). Diamond still accounts for roughly 72 per cent of exports, largely unchanged from three decades ago (Daily News 2026). The International Monetary Fund has flagged deepening growth bottlenecks as Botswana's diamond model comes under strain (PersFin 2026). The government has responded by prioritising economic diversification, particularly in manufacturing and agriculture (Business Insider Africa 2026). But the pace of diversification remains insufficient to offset the potential volatility in diamond and SACU revenues (Tamasiga et al. 2025).
4.3 The Incentive Structure of Instrumental Regionalism
The combination of SACU revenue dependence and diamond dependence creates a distinctive incentive structure for Botswana's trade policy. On the one hand, Botswana benefits enormously from SACU membership: the revenue it receives from the common pool exceeds what it would collect under a purely national tariff regime, and the customs union provides access to the South African market, by far the largest in the region. On the other hand, Botswana is constrained by SACU membership: it cannot unilaterally liberalise its external tariff, it cannot negotiate independent trade agreements without SACU coordination, and it is vulnerable to external decisions about tariff structures that reduce the revenue pool.
This creates incentives for instrumental regionalism: participation in regional institutions to secure access to SACU revenue and to position Botswana as a gateway to Southern African markets, combined with resistance to the deeper integration that would require sacrificing policy autonomy and fiscal revenue. The import bans of 2018–2025 are a case in point. The bans were justified on food security and import substitution grounds, but they also served to protect Botswana's agricultural sector from competition from South African producers—producers who benefit from the same SACU common external tariff that generates Botswana's revenue. The bans were thus a way of having it both ways: Botswana continued to receive SACU revenue while simultaneously protecting its producers from the liberalisation that SACU membership implies.
The same logic applies to Botswana's approach to the AfCFTA. The country has developed an AfCFTA National Implementation Strategy and has identified priority value chains in agro-processing, clothing and textiles, pharmaceuticals, and automotive sectors (Daily News 2025). It has piloted electronic certificates of origin under SADC and has invested in trade-related infrastructure, including the Kazungula Bridge and One-Stop Border Post with Zambia (Daily News 2025). But these initiatives coexist with the structural constraints of SACU membership and the fiscal imperative of preserving revenue. Botswana's AfCFTA strategy is therefore best understood as an attempt to diversify export markets and attract investment without fundamentally altering the fiscal architecture that makes SACU membership indispensable.
5. The EU–SADC EPA and Botswana's Sectoral Interests
5.1 The EPA and Botswana's Trade Interests
The EU–SADC Economic Partnership Agreement, signed in June 2016 and provisionally applied from October 2016, is the most significant North–South trade agreement to which Botswana is a party. The EPA grants Botswana—along with Lesotho, Mozambique, Namibia, and Eswatini—100 per cent duty-free and quota-free access to the EU market for all products, with the exception of South Africa, whose access is governed by a separate protocol (European Commission 2025). The EPA includes asymmetric provisions in favour of SADC EPA countries, including the exclusion of sensitive products from liberalisation, flexible rules of origin, and special safeguards (European Commission 2025). Trade between the EU and the SADC EPA countries reached €51 billion in 2024, and since the EPA began provisional application in 2016, trade in goods between the parties has increased by 37 per cent, with SADC exports rising by 50 per cent and EU exports by 21 per cent (European Commission 2025).
For Botswana, the most significant trade interest in the EPA is beef. Botswana's beef export sector is of critical importance to the rural poor, and the EPA's provisions for beef exports to the EU are among the most economically sensitive elements of the agreement. Mbatha and Charalambides (2008) provide the most detailed analysis of the EPA's implications for Botswana's beef export markets. They argue that the interim SADC EPA "may have been economically sensible in protecting Botswana's rural poor, at least in the short run" by maintaining preferential access for beef exports to the EU market. By tracing trade flows from the border to specifically poor sectors of the country, they found that the beef exports sector is of significant importance to poor and rural communities, and that the tariff bands associated with preferential agreements with the EU were "most beneficial in comparison to the Most Favoured Nation (MFN) and the South Africa–EU Trade Development and Cooperation Agreement (TDCA) tariff bands" (Mbatha and Charalambides 2008, 410–432).
5.2 The Long-Run Costs of the EPA
However, Mbatha and Charalambides also argue that the EPA "will most likely have far reaching long run costs on regional economic development and institutional integration, within the SADC and Southern African Customs Union (SACU)" (Mbatha and Charalambides 2008, 410–432). The EPA's reciprocity requirements—Botswana, as part of the SACU group, has committed to removing customs duties on around 86 per cent of imports from the EU—mean that Botswana must open its market to EU products, including agricultural products that compete with domestic production (European Commission 2025). The EPA's rules of origin, while more flexible than those of the Cotonou Agreement, still require compliance with specific processing requirements that may be difficult for Botswana's small-scale producers to satisfy.
The EPA thus presents Botswana with a familiar dilemma. It secures access to the EU market for beef exports, which is vital to the rural economy. But it also requires liberalisation of Botswana's import regime, which exposes domestic producers to EU competition and reduces the tariff revenue that flows into the SACU common pool. The EPA's development provisions, which identify trade-related areas that can benefit from funding, have been criticised for limited disbursement and weak implementation (LSE Consulting 2021). The EPA has not delivered the transformative impact that its architects envisaged, and for Botswana, its benefits are concentrated in a single sector—beef—while its costs are diffuse across the agricultural sector and the fiscal system.
5.3 The Rules of Origin Question
The rules of origin under the SADC–EU EPA have been a particular concern for Botswana. The interim EPA's rules of origin provide for "single transformation" requirements for textiles and clothing, more flexible than the double transformation rules that had been proposed (BURS 2007). Botswana's customs officials have undergone training on the EPA's diagonal cumulation provisions, which, once fully applied, "will facilitate intra-regional trade between the SADC-EPA states and enable development of efficient regional value chains" (Business Weekly 2022). Botswana has negotiated for the retention of policy space to impose export taxes for purposes of beneficiation (Daily News 2014).
Yet the rules of origin remain complex and costly to administer. The World Customs Organization has conducted advanced training workshops on rules of origin for Botswana's customs officials, indicating that capacity constraints remain a challenge (WCO 2024). The SADC EPA Network has argued that the EU's proposal for the rules of origin "appears to place a higher priority on EU defensive concerns than on promoting regional integration in SADC" (SADC EPA Network 2024). For Botswana, the rules of origin are not merely a technical matter; they determine whether Botswana's exports can actually access the preferences that the EPA ostensibly provides. The gap between formal market access and effective market access is a recurring theme in Botswana's trade performance.
6. Botswana and the AfCFTA: Ambition Constrained by Structure
6.1 The AfCFTA Implementation Strategy
Botswana's engagement with the AfCFTA is formally ambitious. The country is developing a National AfCFTA Implementation Strategy in partnership with UNECA (Daily News 2024). The strategy seeks to "increase exports and enhance regional trade flows" and identifies priority sectors for SACU regional value chains, including agro-processing, clothing and textiles, pharmaceuticals and chemicals, automotive, green minerals, and mineral beneficiation (Daily News 2025). For the SADC regional value chain, priority sectors include agro-processing, clothing and textiles, and pharmaceuticals, complemented by the AfCFTA automotive strategy (Daily News 2025). Botswana has also invested in trade-related infrastructure, including the Kazungula Bridge and One-Stop Border Post, which have reduced transit times and transport costs (Daily News 2025). The Botswana Investment and Trade Centre promotes exports through initiatives such as the Botswana Exporter Development Programme and outward trade missions to Zambia, the Democratic Republic of Congo, Ghana, and Kenya (Daily News 2025).
Botswana's leading non-diamond export products include ignition wiring sets, meat and meat products, salt and soda ash, citrus fruits, automobile batteries, PVC tanks and pipes, and underground mining vehicles (Daily News 2025). The country is actively seeking to expand trade beyond traditional partners such as the EU (Daily News 2025). It has pitched itself as a gateway for Nigerian businesses seeking access to SADC under the AfCFTA (Business Weekly 2026). SADC's Executive Secretary has urged Botswana's private sector to take the lead in driving AfCFTA implementation, emphasising that "the key question is no longer whether to implement AfCFTA, but how to translate it into tangible commercial outcomes for businesses and citizens" (GIZ 2026).
6.2 The Structural Constraints
Yet Botswana's AfCFTA ambitions are constrained by the same structural factors that have shaped its trade policy historically. The first constraint is SACU membership. As a customs union, SACU has a common external tariff, which means that Botswana's trade with AfCFTA partner states outside SACU is governed by the SACU tariff schedule. Botswana cannot unilaterally offer tariff preferences to AfCFTA partners without the agreement of its SACU partners. This limits Botswana's ability to use AfCFTA preferences strategically and means that its participation in the continental market is mediated through SACU (Tralac 2024).
The second constraint is fiscal dependence. The AfCFTA's tariff liberalisation provisions will reduce the revenue that SACU collects from customs duties, and therefore reduce the revenue that Botswana receives from the common pool. UNECA (2023) has estimated that the overall tariff revenue impact of the AfCFTA is positive in the medium term, as increases in the volume of imports would improve collections even with lower tariffs. But for Botswana, the transition costs could be significant, particularly if the AfCFTA's tariff cuts reduce the SACU revenue pool before the volume effects materialise. Botswana's fiscal dependence on SACU revenue creates a disincentive to support the deep liberalisation that the AfCFTA requires.
The third constraint is the compliance deficit. Botswana's import bans of 2018–2025 were widely criticised as violating its regional trade obligations, and while the vegetable ban has been phased out, the precedent of unilateral trade restrictions remains. The grain import bans, which were still in place as of 2025, have been described as incompatible with the AfCFTA's commitment to free trade (Africa-Press 2025). Botswana's willingness to impose import bans when it perceives a domestic political or food security imperative suggests that its commitment to AfCFTA liberalisation may be conditional and reversible.
6.3 The Diversification Imperative
The underlying challenge for Botswana is economic diversification. The diamond model that has sustained Botswana's growth for half a century is under strain. The global diamond market's decline, combined with the structural challenges of the industry, has exposed the risks of a monolithic economy (Forbes Africa 2026). Botswana's trade policy—its participation in SACU, SADC, the EPA, and the AfCFTA—is ultimately an instrument for addressing this diversification challenge. The AfCFTA, in particular, offers Botswana the prospect of access to a continental market of 1.3 billion people, which could provide the demand necessary to support new export industries.
But diversification requires more than market access. It requires investment, technology transfer, skills development, and institutional capacity. Botswana's AfCFTA strategy recognises this, identifying value chains in agro-processing, textiles, pharmaceuticals, and automotive sectors where Botswana has or could develop comparative advantage. Yet the private sector has highlighted structural challenges including low industrialisation, high compliance costs, and logistics barriers (LinkedIn 2026). Financing options and inadequate incentives have been identified as key constraints, particularly for the small and medium enterprises that dominate Botswana's business landscape (Business Weekly 2024). Botswana's participation in the AfCFTA will only be transformative if it is accompanied by domestic industrial policy, investment in infrastructure and skills, and a fiscal strategy that reduces dependence on SACU transfers and diamond revenues.
7. Discussion: The Customs Union Paradox and Implications for African Regionalism
7.1 The Paradox Restated
Botswana's experience illustrates a paradox at the heart of customs union membership for small, resource-dependent states. The customs union provides fiscal revenue that is essential to government operations, market access that is vital to export performance, and institutional stability that reduces transaction costs. Yet it also constrains policy autonomy, limits the ability to use trade policy strategically, and creates dependence on decisions made collectively or by a dominant partner. For Botswana, the paradox is particularly acute because the revenue that SACU provides is both indispensable and, in the long run, unsustainable. Diamond revenues are declining, and the global market for diamonds is structurally challenged. SACU revenue is vulnerable to trade liberalisation at the multilateral, continental, and bilateral levels. Botswana's fiscal model is therefore living on borrowed time, but the political economy of SACU membership creates strong incentives to postpone adjustment.
7.2 Instrumental Regionalism and the AfCFTA
The concept of instrumental regionalism helps explain why Botswana's AfCFTA strategy, despite its formal ambition, is unlikely to deliver transformative results in the short to medium term. Botswana's participation in the AfCFTA is mediated through SACU, which limits its ability to use AfCFTA preferences strategically. Its fiscal dependence on SACU revenue creates a disincentive to support deep liberalisation. Its demonstrated willingness to impose unilateral trade restrictions when domestic imperatives demand it suggests that its commitment to AfCFTA liberalisation is conditional. And its diversification challenge requires investments and policies that go well beyond trade liberalisation.
This does not mean that Botswana will not benefit from the AfCFTA. The agreement may increase market access for Botswana's beef, textiles, and other products; it may attract investment in sectors where Botswana has comparative advantage; and it may provide a framework for regional value chain development. But these benefits will be realised only if Botswana addresses the structural constraints that have historically limited its regional engagement. Without fiscal diversification, Botswana's trade policy will continue to be shaped by the imperative of preserving SACU revenue rather than by the opportunities of continental integration.
7.3 Implications for African Regionalism
Botswana's experience has broader implications for the theory and practice of African regionalism. First, it demonstrates that fiscal dependence can be a powerful constraint on integration. The SACU revenue-sharing formula, designed to compensate the smaller member states for the costs of customs union membership, has created a structure of incentives that privileges revenue preservation over liberalisation. This is not unique to Botswana; similar dynamics may be observed in other customs unions and in countries with high dependence on trade taxes.
Second, it illustrates the gap between formal commitments and actual policy practice that characterises much of African regionalism. Botswana is formally committed to deep integration through SACU, SADC, the EPA, the TFTA, and the AfCFTA, but its actual policy practice—the import bans, the reluctance to liberalise, the mediation of AfCFTA participation through SACU—suggests a more instrumental approach. This gap is not necessarily hypocritical; it reflects the genuine tensions between the demands of regional integration and the imperatives of domestic fiscal sustainability.
Third, it suggests that the AfCFTA's success will depend not only on tariff schedules and rules of origin but on the willingness and ability of member states to address the fiscal foundations of their trade policy. The AfCFTA's architects have recognised this to some extent, providing for flexibility and special and differential treatment for countries with revenue concerns. But the agreement does not provide a mechanism for fiscal diversification or for compensating member states for revenue losses. Without such mechanisms, countries like Botswana may remain trapped in a cycle of instrumental regionalism, formally committed to integration but structurally constrained from realising it.
8. Conclusion and Policy Recommendations
Botswana's engagement with regional trade agreements is characterised by a fundamental paradox. The country is one of the most deeply embedded participants in Southern African regional integration, with membership in SACU, SADC, the TFTA, the EU–SADC EPA, and the AfCFTA. Yet this formal commitment coexists with a pattern of unilateral trade restrictions that violate its obligations and undermine the integration project. The explanation for this paradox lies in Botswana's fiscal dependence on SACU revenue and diamond exports, and in the incentive structure that this dependence creates.
SACU revenue contributes 30–40 per cent of Botswana's government income. Diamonds contribute approximately 80 per cent of export earnings and nearly one-third of fiscal revenues. Together, these two revenue streams make Botswana's fiscal position dependent on factors that it does not control: the global diamond market and the collective decisions of SACU member states about tariff structures. This dependence creates strong incentives for Botswana to preserve the fiscal status quo—to maintain SACU membership, to resist liberalisation that would reduce the revenue pool, and to protect domestic producers from competition even when such protection violates regional obligations. The import bans of 2018–2025 are the clearest manifestation of this logic.
The implication for the AfCFTA is sobering. Botswana's AfCFTA strategy is formally ambitious, identifying priority value chains and investing in trade infrastructure. But the structural constraints of SACU membership and fiscal dependence limit what Botswana can achieve. Botswana cannot unilaterally implement AfCFTA tariff preferences; it must act through SACU. It cannot afford deep liberalisation that would reduce SACU revenue; it must preserve the fiscal status quo. And it has demonstrated a willingness to impose unilateral trade restrictions when domestic imperatives demand it. Botswana's participation in the AfCFTA is therefore likely to remain shallow and instrumental, at least in the short to medium term.
Policy Recommendations
For Botswana:
Prioritise fiscal diversification. Reduce dependence on SACU revenue and diamond exports through domestic revenue mobilisation (broadening the tax base, improving tax administration), economic diversification (developing non-resource tradable sectors), and strategic investment in human capital and infrastructure.
Develop a fiscal transition strategy. Prepare for the eventual decline of SACU revenue by modelling different scenarios for tariff liberalisation under the AfCFTA and developing contingency plans for revenue replacement.
Strengthen domestic industrial policy. Use the policy space available under the AfCFTA and SADC to support value chain development in agro-processing, textiles, pharmaceuticals, and other priority sectors, while ensuring compliance with regional obligations.
Improve trade facilitation. Continue investing in infrastructure (Kazungula Bridge, One-Stop Border Posts) and customs modernisation to reduce the transaction costs that undermine Botswana's competitiveness.
Engage constructively in SACU reform. Work with SACU partners to develop a more sustainable revenue-sharing formula and to strengthen the institutional mechanisms for coordinating trade policy.
For the AfCFTA Secretariat and Regional Partners:
Address the fiscal foundations of trade policy. Develop mechanisms to support member states in managing the revenue transition associated with tariff liberalisation, including adjustment funds, technical assistance, and capacity-building.
Recognise the role of customs unions. Develop a clear framework for the participation of customs unions (SACU, EAC, ECOWAS) in the AfCFTA, recognising that member states' trade policies are often determined collectively.
Strengthen enforcement mechanisms. Address the compliance deficit by strengthening dispute settlement and peer review processes, and by providing incentives for compliance.
Support developmental regionalism. Move beyond tariff liberalisation to support industrial policy, value chain development, and structural transformation in member states.
For International Partners:
Align trade and development cooperation. Ensure that trade-related development assistance supports fiscal diversification, industrial policy, and trade facilitation in ways that are consistent with the AfCFTA and regional integration objectives.
Support African-owned integration. Recognise that the AfCFTA and the TFTA are African-owned initiatives and align external trade agreements (EPAs, bilateral FTAs) with these continental and regional frameworks.
Provide predictable and adequate development finance. Support the implementation of the AfCFTA and the TFTA through predictable, long-term development finance that is aligned with African priorities.
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Author's Note
Farouk Pandor is an independent researcher specialising in African trade policy, regional integration, and the political economy of Southern Africa. He is the author of the Botswana Stock Exchange blog, where he provides analysis on Botswana's economic and financial developments. Correspondence may be addressed to the author via the blog.
Acknowledgements: The author thanks colleagues and anonymous reviewers for their constructive engagement with earlier drafts of this article. The views expressed are those of the author alone and do not necessarily reflect the positions of any institution with which the author is affiliated.
Declaration of Interest: The author declares no conflict of interest.
Funding: This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.
