Why is the Bank of Botswana crucial for the implementation of trade facilitation reforms and how does it contribute to those?

Oct 11 / Author name
INTRODUCTION

Over the past years, international trade has largely grown in volume and significance across all countries (World Trade Organization, 2013). However, as trade continues to rise in volume and significance, more trade related challenges and complications also began to rise (UNCTAD, 2015). Some of the prominent trade barriers included technical challenges that emerge at border posts due to bureaucratic procedures and a lack of harmonization on the classification of commodities which all cause delays in clearing goods at border posts. As an attempt to minimize these trade barriers and maximize trade benefits, several international organizations were established such as the World Trade Organization, as well as regional trade blocs such as the Southern African Development Community  (Mooketsi & Mogotsi, 2019). A key example of such efforts to reduce trade barriers was the adoption of the Trade Facilitation Agreement (TFA) by member states of the World Trade Organization (WTO). After two-thirds of the WTO members formally accepted this agreement, the TFA entered into force on 22 February 2017 with a view of enhancing trade facilitation and expediting the movement, release, and clearance of goods (World Trade Organization, 2021). Each member of WTO, upon ratification of the agreement, has to ensure the provisions of the agreement are applied and put to practice. Botswana, being a member of the WTO, was the eighth member to ratify the WTO TFA on 18 June 2015 (World Trade Organization, 2018). Having ratified the WTO TFA, this paper outlines how Bank of Botswana (the Bank) as a key institution in Botswana, is crucial for the implementation of trade facilitation reforms and how the Bank contributes to trade facilitation reforms in helping Botswana adopt and implement the provisions of the WTO TFA.   Overview of sections To help understand how Bank of Botswana is crucial for the implementation of trade facilitation reforms and how it contributes to these, Section 2 below shall firstly give a general overview of the functions of the Bank of Botswana, then break these down to reveal how they relate to trade facilitation. Upon this overview, Section 3 shall be split into two parts, by first specifically outlining why the institution is crucial for the implementation of trade facilitation reforms, then secondly outline how Bank of Botswana contributes to trade facilitation reforms.   


SPECIFIC FUNCTIONS OF THE BANK OF BOTSWANA IN RELATION TO TRADE FACILITATION 
 

Bank of Botswana (the Bank), which is the central bank of the Republic of Botswana, was established in 1975 and has a regulatory role over the financial system of the country. It is further responsible for the implementation of monetary policy and exchange rate policy. Its primary objective is to promote and maintain monetary stability, an efficient payments mechanism, and the liquidity, solvency, and proper functioning of a soundly based monetary, credit and financial system (Bank of Botswana, 2019). In a nutshell, the Bank endeavours to foster monetary, credit, and financial conditions that are conducive for the sustainable economic development of the country (Bank of Botswana, 2019). Over and above ensuring a stable and sound payments system, it is worth noting that the Bank has another key role of issuing bank notes and coins (currency), which ensures economic units and international traders have the means to carry out and settle economic transactions, which contributes to ensuring the country can participate in international trade.   


WHY IS BANK OF BOTSWANA CRUCIAL FOR THE IMPLEMENTATION OF TRADE FACILITATION REFORMS?

In this section, two main reasons are identified as to why Bank of Botswana is crucial for the implementation of trade facilitation reforms: the implementation of the exchange rate policy; and the regulatory role.   1.      Implementing the monetary and exchange rate policy Bank of Botswana directly implements the monetary and exchange rate policy. The exchange rate policy is of particular importance in trade related matters as trade usually involves the payment of goods in foreign currencies. As such, by implementing the exchange rate policy, the Bank is crucial in trade facilitation as it ensures the exchange of foreign currency between trading partners is always reliable. It is further worth noting that if there are any trade facilitation reforms that need to be implemented and involve the exchange rate structure, Bank of Botswana would be the gateway to implementing these as it is mandated to implement the exchange rate policy. This is therefore one way in which Bank of Botswana is crucial for the implementation of trade facilitation reforms. 2.      Acting as a regulatory body over commercial bank Within the Buy-Ship-Pay reference model developed by the United Nations Centre for Trade Facilitation and Electronic Payments (UN / CEFACT), commercial banks are identified as one of the key intermediaries within the trade cycle. Their key role is to help traders pay suppliers for goods and services rendered, as well as to pay customs bodies for tariffs and other related payments. Without these banks as intermediaries, the settlement process between traders and other involved parties would collapse and potentially hinder trade. Therefore, to ensure there is a stable and reliable intermediation of banks, Bank of Botswana has the responsibility of licensing, supervising, and regulating commercial banks. This ensures they operate within the stipulated rules and regulations that protect them from end consumers from exploitation, and help prevent the commercial banks from collapsing, through for example, setting reserve ratio requirements. All in all, such regulations aim to ensure commercial banks operate effectively which ensures a stable intermediation of banks within the Buy-Ship-Pay model. Furthermore, as commercial banks develop new payments and settlement processes and products thanks to Fintech advancements, the Bank is mandated to oversee that these are safe, efficient, and reliable before they are implemented, which ensures end-users such as traders are not exploited but rather are able to complete secure payment transactions through such means.   


HOW DOES BANK OF BOTSWANA CONTRIBUTE TO TRADE FACILITATION REFORMS?

Next, this section discusses how Bank of Botswana contributes to trade facilitation reforms, of which three main aspects are identified. These are the collection and publication of macroeconomic and trade related statistics; serving as an economic and financial advisor to the government; as well as maintaining an efficient and reliable payments system.   1.      Collection and publication of key macroeconomic and trade related statistics Bank of Botswana collects some key macroeconomic and trade related statistics, such as Botswana’s gross domestic product (GDP) and balance of payments statistics (e.g., total value of exports and imports, currency flows, etc.) which help reveal and understand Botswana’s trade and economic patterns. These statistics are then analysed and published for public consumption, through means such as the monthly Botswana Financial Statistics, and are stored in a national database for future reference. The collection, analysis and publication of these statistics can help in trade facilitation reforms through the creation of a baseline, which would give a general overview on the stance of the country before the reforms and implemented, as well as how certain economic indicators change overtime upon the implementation of the reforms. This plays a vital role in monitoring and evaluating trade facilitation reforms and can help reveal how the reforms have affected trade patterns over time. Furthermore, the bank also publishes daily foreign exchange rates through its website. The publication of such information is in line with Article 1 of the WTO TFA on publication and availability of trade related information. This information on exchange rates is particularly important because international trade most often involves the settlement of transactions in foreign currencies for the purchase of goods and services. Therefore, by publishing these rates, traders would be informed well on time of the prevailing rates, enhancing trade facilitation.   2.      Serving as an economic and financial advisor to the government.   The Bank’s Research Department collects data and undertakes research on economic developments and trends to help inform discussions and develop new economic policies (Bank of Botswana, 2007).      The Bank then disseminates its research findings through publications such as the Research Bulletin and the Bank of Botswana Annual report for public consumption, and directly submits its policy recommendations to the government. Through this, the Bank can therefore conduct research on trade related matters and provide key insights on for example, trade barriers that may exist between major trading partners, and help develop new trade facilitation reforms that are tailor made for the country’s economy. Therefore, the Bank can contribute to trade facilitation reforms through its continuous research efforts and policy recommendations on trade related matters.   3.      Maintaining an efficient and reliable payments system   As a central bank, Bank of Botswana acts like a payment clearing house for all payments conducted through various channels within the economy. The Bank has a legislative oversight of the National Payments System (NPS) of the country and aims to ensure an efficient and reliable payments system at both the domestic and international level (Bank of Botswana, 2021). This is particularly an important function in relation to Article 7 of the WTO TFA on electronic payments. By maintaining an efficient and reliable payments system, the Bank ensures that all trade related payments are conducted swiftly and securely, allowing traders to pay tariffs and suppliers on time, which contributes to reducing the clearance time of goods. Furthermore, the Bank actively ensures the continuous development of initiatives that support and promote financial technology driven payments operations within the NPS, allowing for simplification and modernization of payment methods. For example, online electronic payments have been adopted over the years, which has helped traders carry out fast and secure online payments, which has reduced payment ques at border posts. Consequently, this quickens the clearance of goods and is a form of trade facilitation. Lastly, secure electronic payments can be implemented within online Single Window platforms and forms also forms an integral part of e-commerce, breaking some of the trade barriers that might occur due to the need of physical payments. Without a secure and efficient payments system, these would be difficult to attain. Therefore, through its function of ensuring a safe, sound, and reliable payments system, Bank of Botswana contributes to trade facilitation reforms as it ensures the simplification and modernization of payments processes for traders.

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