Covering an area the size of Texas or France, and located in a central position in southern Africa, Botswana offers stability, a good reputation for corporate governance and a credit rating that places it alongside many developed countries. Its economy has a proven track record and, with foreign exchange controls abolished, its investment environment is strong. Consequently, the country is proving an interesting proposition to foreign investors in tourism, finance, information communications technology (ICT), manufacturing and mining.
Botswana benefits from both political and economic stability, which have helped to fuel its growth. Its image as a multi-party democracy, with free and fair elections conducted every five years, dates back to independence in 1966. According to Transparency International, an international non-governmental organisation devoted to combating corruption, Botswana is the least corrupt country in Africa and ranks in the top 30 of the least corrupt countries in the world.
Figures from the Central Statistics Office and Stanbic Bank indicate that inflation stands at about 7.5%. The World Economic Forum rates Botswana as one of the two most economically competitive nations in Africa. In 2004, the country was given A-grade credit ratings by Moody’s Investors Service and Standard & Poor’s, making it the best credit risk in Africa and equal to many countries in central Europe, east Asia and Latin America.
Tools of trade
Innovations in telecoms and the proliferation of cellular technology have led to an increase in commercial and trading opportunities throughout the country. The telecoms infrastructure features a healthy level of competition and comprises one fixed and two mobile operators. In 2003, Botswana recorded about 300,000 subscribers, far exceeding expectations. Today, this figure has grown to roughly 500,000.
“Most villages have access to optical fibre-based communications,” says Dr Phil Bacon, owner of Oxford-based Pula, a Fairtrade crafts business that imports goods from Botswana into the UK. “Today, communications have improved to such an extent that we can have e-mail and internet transactions with even the most remote parts of the country.”
Botswana also has a low tax regime. “For example, manufacturing and ICT/finance are taxed at 15%, while all other businesses are taxed at 25%,” says Mmasekgoa Masire-Mwamba, CEO of the Botswana Export Development and Investment Authority (BEDIA).
With the highest per capita spending on education in Africa, Botswana offers education free to university level and has an adult literacy rate of 79.8%, according to the CIA World Factbook 2003. The country’s second university, which will focus on science and technology, has been commissioned and is set to receive its first intake of students in 2006.
Like many parts of southern Africa, Botswana is fighting an Aids epidemic – one third of the adult population is estimated to be living with HIV or Aids. The government is facing up to the economic challenges created by the disease. It has increased education expenditure to ensure ongoing skills development and is developing an enabling environment for investment as well as improving productivity levels.
Botswana is gifted with many areas of natural beauty, making it an increasingly popular destination for tourists. From the Okavango Delta, which is the largest inland river delta in the world, to the wilderness of the Kalahari Desert, from the Makgadikgadi Saltpans to game viewing in Chobe, and from Tuli block to the capital city of Gaborone and the frontier town of Maun, Botswana plays host to more than a million tourists each year, contributing an estimated P1.8bn ($356m) in 2003.
“A broad portfolio of opportunities for investment exists in this sector,” says Mrs Masire-Mwamba. “There’s demand for more hotels and leisure facilities, and this requirement goes across the board from luxury to mid-range facilities for both wilderness and safari holidays…This is the right time for businesses looking to invest in the tourism sector, especially as a new tourism board has just been established.”
Sustainable tourism is a concern to many investors and travellers in the global travel industry. However, this is being addressed. “Our approach is to adopt a relatively high value, low volume strategy. This works and ensures environmental impact is kept to a minimum,” says Mrs Masire-Mwamba.
Transport links play a crucial role in supplying all business and supporting tourism. The biggest challenge that many businesses face is Botswana’s landlocked location, which can make transport costs high. However, the country is well positioned in relation to South Africa, Zambia, Zimbabwe and Namibia. The Trans-Kalahari road, which was opened in 1998, links the capitals of Botswana and Namibia and serves as a strategic link in the Maputo-Walvis Bay Economic Corridor. And the governments of Botswana and Zambia are committed to building a bridge across the Chobe River between the two countries.
Ready for action
Botswana has positioned itself as a regional hub in the financial sector. The government has actively promoted the sector with tax incentives, such as exemptions for collective investment undertakings, access to double taxation treaties and a corporate tax rate of 15% until 2020. It has also addressed the potential skills shortage through work and residence permit exemptions for non-citizens.
The range of financial services available includes banking, fund management, administration, broking and securities trading, corporate headquarters and treasury operations, financial intermediaries, management and custodial functions for insurance schemes, and exploitation of intellectual property.
The financial services sector is growing fairly rapidly. “This is encouraging. Businesses range from insurance companies to banks and securities, and include organisations such as Barclays plc and AON Risk Management,” says Mrs Masire-Mwamba.
Botswana’s growing IT industry features companies that offer database, software and website development, training, networking and call centres. Offshore services opportunities are being explored for both the financial and IT sectors, says Mrs Masire-Mwamba. “We have conducted a study on this business and find the results encouraging. There is a strong potential for call centres, but we also see applications covering back office services providing possible opportunities.”
The mineral industry, particularly the diamond sector, has been a vehicle for economic growth in Botswana since independence. The government’s approach to the sector is to maximise the economic benefits while enabling private investors to earn competitive returns. The Mines and Minerals Act, which became effective at the end of 1999, included:
- the abolition of the government’s right to 15% free equity participation in all new mining projects;
- the reduction of royalty rates payable on the production/export value of all minerals to 3% (with the exception of precious stones and precious metals);
- the introduction of new variable rate income tax;
- provision for 100% capital expenditure write-off in the year an investment is made;
- the simplification of mineral licence processes;
- the liberalisation of the restriction on mineral transfer concessions;
- and the introduction of retention licences, allowing investors to retain rights over a mineral deposit for renewable periods.
Botswana’s current strategy is to diversify its economy away from the mineral sector – diamonds contribute an estimated one third of the country’s gross domestic product (GDP). Consequently, it has a policy focused on export-oriented manufacturing. Investors in this sector originate from South Africa, Portugal, Taiwan, Belgium, China, India, the UK, Sweden and Mauritius.
Truck assembly, textile manufacture, motor vehicle springs, milling, food processing, electrical cables, packaging material, software development, diamonds and semi-precious stones polishing, engineering products, leather goods and canned beef products all feature in the country’s manufacturing output.
“Textiles and diamonds have done particularly well in this sector,” reports Mrs Masire-Mwamba. “The textiles industry has grown because it is easy to get a business in this sector up and running.”
The textile business in the Southern African Customs Union (SACU) area, of which Botswana is a part, is supported by duty credit certificates (DCCs). These require participants to show export growth and to comply with the export requirements. The objective of DCCs is to influence and encourage textile and clothing manufacturers to compete internationally, independent of government subsidies.
With a small domestic economy, it could be difficult to achieve economies of scale in the manufacturing sector. However, as Mrs Masire-Mwamba points out: “Market access programmes, such as the African Growth and Opportunity Act (AGOA) and the EU’s Cotonou Agreement, have enabled businesses with an export focus to be successfully established.”
Tally Tshekiso, director of Caratex, a producer of knit-to-shape jerseys and sweaters primarily for the US market, agrees, saying: “The AGOA trade regime has helped a lot in terms of improving the quality of products, providing an opportunity to compete in a world market and substituting aid for trade. Since Caratex has been supplying through the AGOA regime, we have been expanding on a yearly basis. In 1998, we began operations with one company and 1000 workers in Gaborone. This has increased five-fold, and today we have five companies in the city with 5000 workers.”
In 2004, AGOA was extended via the AGOA Acceleration Act. “This is good for potential investors who are nervous about investing in Botswana,” says Mrs Masire-Mwamba. “We still enjoy third-party fabric status, so can import fabrics for our textile industry.”
The government’s efforts to diversify the economy are reaping benefits. These, combined with the country’s favourable economic climate, are encouraging more companies to invest in Botswana.
“The country has a base of educated people who are happy to be there,” says Dr Bacon. “This says a lot for its stability. From my perspective of importing from Botswana, the stable, reliable currency, lack of corruption and generally unbureaucratic approach to business make investment favourable.”
BOTSWANA'S TRADE AGREEMENTS
Botswana has signed up to regional and global trade agreements, putting it in a strong position for export-focused business:
- The African Growth and Opportunity Act provides duty-free and quota-free access to the US market.
- The Cotonou Agreement offers duty-free and quota-free access to the EU.
- The Southern African Customs Union permits duty-free access of goods and services to South Africa, Namibia, Lesotho and Swaziland.
- The Southern African Development Community Trade Protocol allows preferential access to 14 southern African countries.
GROWTH AND OPPORTUNITY
The African Growth and Opportunity Act gives duty-free and quota-free treatment to almost all products exported by beneficiary sub-Saharan countries to the US until September 30, 2015.
In 2004, the AGOA Acceleration Act (AGOA III) made additional provisions, which include:
- extending the overall programme from 2008 to 2015;
- extending the third-country fabric provision for three years;
- expanding eligibility to include non-AGOA produced collars, cuffs, padding etc for all import categories;
- increasing the De Minimis Rule from 7% to 10% (this means that apparel products assembled in sub-Saharan Africa can be eligible for AGOA as long as the total weight of fibres and yarns originating from sources other than the US or the sub-Saharan beneficiary country do not exceed 10% of the total weight of the article);
- expanding AGOA coverage to include certain machine-made, ethnic, printed fabric manufactured in sub-Saharan Africa or the US;
- encouraging bilateral investment agreements;
- promoting investment in infrastructure projects.
A Botswana Investment Forum will be held at Marlborough House, London, on June 14-15, 2005. Organised with the support and partnership of the Botswana High Commission and BEDIA, the forum will demonstrate the investment opportunities fostered by the country’s government. The programme will present a mixture of formal and informal sessions, and there will be an opportunity to arrange one-to-one meetings between delegates, speakers and government representatives.
For details on the Botswana Investment Forum, please contact
Kristien van der Spoel at firstname.lastname@example.org