Botswana’s rich supply of diamonds may well be responsible for the country’s economic development since gaining independence in 1966, but it is investment in resources other than diamonds, both above and below ground, that will determine its future economic success.
The African country has gained a reputation for political stability and economic development over the years. Powered by a thriving diamond industry – Botswana is home to two of the world’s biggest diamond mines, Jwaneng and Orapa – the country of 2.4 million people has risen to the top of the table of GDP per capita in sub-Saharan Africa.
Its stable governance and growth trajectory are reflected in international metrics: at BBB+, the country’s Standard & Poor’s credit rating is higher than the likes of Italy, Brazil or Turkey, while Transparency International rates it as the least corrupt country in Africa. However, its diamond-based model has shortcomings even for a small population like Botswana’s, as its jobs dividend is limited and inequalities persist. The government has designed a transformative agenda aimed to lift the country further to high-income status through economic reform and diversification.
Botswana gained independence in 1966, when it broke loose from its previous status as a British protectorate. Since then, the country’s young democracy has endured by holding elections every five years. The country is regularly among Africa’s top countries for overall governance in the Ibrahim Index, a measure of government performance across the continent produced by the London-based Mo Ibrahim Foundation.
The fortunes of Botswana’s democratic institutions have been closely entwined with those of its diamond industry, but Botswana’s underground resources include more than diamonds. The country has major nickel and copper deposits, and the country’s newest and only operational copper mine, Khoemacau, developed by US-based Cupric Canyon, is expected to start production in 2021. The country also has some of Africa’s largest untapped coal reserves. At present, only two coal mines are operating in the country: state-owned Morupule Coal Mine and the first privately-held coal mine in the country, Masama, which has been developed and operated by South Africa’s Minergy.
“Botswana has in excess of 212bn tonnes of [estimated] coal available and it is our view specifically as Minergy that coal will continue to play a very important role in delivering energy,” says Minergy CEO Morne du Plessis. “We have developing countries like India and China that are all using coal and it’s going to be very difficult for them to switch to renewables in the short term. So, coal has a role to play and I believe Botswana can help with that specifically.”
A stable appeal
The extractive industry as a whole has provided unprecedented opportunities for the economy. Its nominal GDP has consistently grown to reach $18.3bn in 2019, from only $58.6m in 1966. The country has gained upper-middle-income status thanks to its GDP per capita of almost $8000 in 2019, according to World Bank figures. Last year marked the worst recession in Botswana’s independent history – the GDP shrank by almost 10% – but the IMF expects it to stage an 8.7% recovery in 2021.
Stability and growth, combined with a liberal investment environment, have not gone unnoticed by investors outside the mining industry. Among them is Rajiva Chandra, founder and managing director of Sunita Cables, a producer of copper wires and cables that set up shop in Botswana in 2003.
“The main reason is that Botswana was encouraging the set-up of manufacturing operations, and we realised that it’s a safe country, the rule of law prevails, there is political and financial stability, no political interference and no exchange controls. All these factors contributed to my decision to set up the factory in Botswana,” he says.
Investment and trade
Investments by the likes of Sunita Cables are vital for the country to pursue the transformative agenda outlined in the government’s Vision 2036.
To increase the country’s investment appeal beyond its limited domestic market, the government has joined a number of regional and international platforms aimed at substantiating its investment proposition. Botswana is part of the Southern Africa Customs Union (SACU), which gives its products duty-free access to South Africa, Lesotho, Namibia and Swaziland. The SACU bloc also has free trade agreements with the likes of the UK and the EU, while a deal with India is being negotiated. Botswana is also part of the African Continental Free Trade Area that came into force in January.
Some investors are already making the most of these trade agreements to turn Botswana into their regional base. Among them is Kromberg & Schubert, a German-based producer of wiring systems for the automotive industry that has served the regional automotive industry from Botswana since 2009 and recently invested $5.8m with the Botswana Development Corporation to expand its factory in Gaborone.
The Botswana Investment and Trade Centre (BITC) acts as an enabler for investors to leverage the country’s investment appeal and regional trade opportunities.
“We look at export development and promotion, that is once the investors are on the ground in Botswana,” says BITC CEO Keletsositse Olebile. “We help them, because Botswana has a small market in terms of the population size. We would help these investors to then deploy and sell their products in surrounding markets and the government uses bilateral, multilateral trade agreements to do that.”
Infrastructure investment will also be key to achieving diversification and Vision 2036. Transportation and exports corridors have to be strengthened, while upgrading power and communications infrastructure appears vital to enable a functioning services sector.
“While in the past we focused on providing fibre connection to the businesses, Covid-19 accelerated the plans we had to deploy fibre to the homes,” says Keabetswe Segole, commercial officer of Bofinet, a local provider of telecommunications infrastructure.
“Our digitisation agenda has also accelerated to ensure we are able to provide services in a manner our customers can enjoy,” Mr Segole says, adding that while all the businesses in capital Gaborone are actually covered by fibre broadband, the company is now planning to bring fibre to homes in the capital and in 399 villages around the country.
Foreign companies are also contributing to upgrade the national internet infrastructure. Mauritius-based Liquid Capital has activated 82km of optic fibre in a cross-border network into Botswana in November that provides its local subsidiary with access to the group’s pan-African 73,000km fibre network.
In association with the Botswana Investment and Trade Centre.
Writing and editing were carried out independently by fDi Intelligence. If you want to know more about Botswana, follow our Insights Series on fdiintelligence.com.
This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.