Promoting Outward FDI key to Botswana’s growth

Foreign Direct Investment ( FDI) is seen as one way of creating jobs by the private sector. The Botswana Investment and Trade Centre ( BITC) seeks to attract Foreign Direct Investment ( FDI) into Botswana. However, it has had mixed success, partly as a result of the COVID- 19 pandemic. At one time, the country was considered to be a great destination for FDI – one of the least corrupt in Africa with zero tolerance for corruption; a nation where investors could safely invest their cash.

But not these days. According to the Institute for Management Development ( IMD) World Competitiveness Yearbook for 2021, Botswana ranked 61st out of 64 economies that were included in the report. This means that Botswana fares poorly compared to other nations in its competitiveness and hence other countries will have the edge in attracting investors to do business. The yearbook found that Botswana did not perform well in many areas: low levels of productivity and efficiency, poor management practices, negative attitudes and values, low worker motivation ( these problems have been discussed in previous articles).

Other challenges facing foreign investors include the low population density and a small and difficult to reach market. Also, there is a shortage of skilled labour. Botswana also needs to invest more in improving its infrastructure – roads, water, power, etc – which is so vital for fast economic growth and creating jobs. In rural areas, there is an insufficient supply of power since many places are still not connected to the national grid. However, government has recently announced that it will expand power generation capacity by setting up a number of solar plants across the country in the near future.

Water shortages are also commonplace, even in large villages such as Molepolole, Kanye, Moshupa… And even Gaborone, Botswana’s capital and leading commercial and manufacturing centre, has been plagued with serious water shortages in recent years and the drying up of the Gaborone Dam five years ago.

But despite these problems, compared to many other African countries, Botswana now has a fairly well developed infrastructure. The recent completion of the 100 kilometre long pipeline from the Masama wellfields to Mmamashia, and the launching of the Lobatse Water Supply Master Plan, will provide some 64 million litres per day and so will once and for all eliminate water deficits, not only in Gaborone, but also in Lobatse and the surrounding villages in south east Botswana – home to 740 000 people, almost one third of Botswana’s total population. In the long term, our water supply will be further supplemented by the NSC3 pipeline which will bring water from the Chobe/ Zambezi rivers to the thirsty southeast. H owever, compared with other countries in southern Africa, the cost of both water and power in Botswana are high and so can easily erode away profits; last year Botswana Power Corporation ( BPC) increased tariffs by a staggering 22 percent, well above the annual inflation rate. Perhaps government could subsidise the payment of these utilities for investors and also provide incentives such as tax relief; for example, by reducing rates of taxation and increasing tax thresholds ( raising the income level at which a person or company begins to pay tax), or exempting companies from paying corporation taxes.

Of much concern also to potential foreign investors is the fact that Botswana has been grey listed for money laundering. In 2018, the Financial Action Task Force ( FATF), the world’s leading antimoney laundering agency, placed Botswana on its grey list which includes countries whose laws and institutions are weak so making them vulnerable to illegal business practices such as money laundering, and the financing of terrorism and weapons of mass destruction. In particular, FATF cited deficiencies in the country’s money laundering structures.

Money laundering is simply the transfer of money knowing that this is derived from criminal activities such as extortion, drug trafficking, illegal gambling etc. And it may involve a number of complex financial transactions to camouflage, or hide, the illegal source of the cash. The listing increases the costs of local financial institutions doing business with international banks and other organisations and businesses due to the higher in- depth scrutiny and due diligence that will be applied to them. There are also delays in the transfer of funds to and from Botswana and foreign investors may feel that their funds are not safe should they start up businesses here. So, Botswana has lost foreign investors in the past since they have lost trust in our country to provide them with an environment that is conducive to doing business efficiently, profitably, and with confidence. H owever, FATF has now acknowledged that Botswana has made progress concerning this issue and the country will now exit FATF’s list of grey listed countries. In fact, at their recently held meeting in Paris, the FATF removed only two countries from its grey list. To exit the grey list, Botswana passed 25 pieces of legislation in 2018 and six more after that.

These included laws such as the Financial Intelligence Act, Trust Property Control Amendment Act and others. Botswana has also reported to the regional Eastern and Southern Africa Anti- Money Laundering Group every quarter for an analysis of its progress in addressing the deficiencies noted by FATF. Botswana’s removal from the dreaded grey list will restore foreign investor confidence and, hopefully, will soon lead to a flood of foreign investment into the country.

Many foreign investors also face challenges and delays in applying for visas and other documents and so take their business elsewhere.

To reduce such bottlenecks, a Board of Investment will soon be established. And recently, Minister Annah Mokgethi has confirmed that electronic visas ( e- visas) will soon be issued and these will be easier to apply for than conventional visas since they can be applied for online at anytime and from anywhere in the world. This means that customers will no longer need to visit the nearest embassy to get a sticker in their passports.

However, as with most African countries, the actual requirements needed for obtaining a passport may still be cumbersome – the need to obtain hotel reservations, a letter from a resident or citizen of Botswana…

Now that the African Continental Free Trade Area has become a reality, perhaps the time has come for African countries to reduce the need for visas for travel between member www. themidweeksun. co. bw states? B otswana also fares poorly with regard to ease of doing business – it comes up short in the length of time that is required to open a business here, not only for foreign investors, but also for local companies. Here the registration of foreign companies is cumbersome and investors may spend days going from one government office to another, filling in forms and doing all the paperwork needed; for example, in applying for licences, work and residence permits.

And some officers may insist on asking applicants to submit irrelevant documents! There is too much bureaucracy and red tape! Perhaps we could learn a lesson or two from the newly opened One Stop Border Post at Kazungula next to the Kazungula Bridge. Here time needed to go through border formalities has been drastically reduced.

Although a world- class infrastructure and reduced government bureaucracy are key for encouraging FDI, it may still not be enough! Executives in large foreign companies want to maintain their luxurious lifestyles when they come here. Hence, they will expect to see world class shopping malls, boutiques selling the latest designer suits, luxury resorts, and top- notch recreational facilities, including swimming pools and Dubai- style golf courses so essential for networking and making those all- important business deals!

We also need to promote Outward FDI by encouraging our state- owned enterprises, such as Botswana Telecommunications Corporation ( BTC), to do business in foreign markets.

Despite these challenges, each country in southern Africa, like Botswana, has unique dynamics for investing – in Botswana, tax breaks, no foreign exchange controls, political stability, peace, sound, prudent management of the economy, democracy... And some of the continent’s leading tourist attractions – unspoilt national parks with a wide variety of wild animals including Africa’s largest elephant herds, the Okavango Delta, the largest inland delta on the planet, the Makagadigadi Pans…

So, it may come as no surprise that First National Bank’s sister company, Rand Merchant Bank, has in its 2021 Africa Investment Attractiveness Report, placed Botswana at number five in its list of top destinations for investment in Africa. Only Egypt, Morocco, South Africa and Rwanda have performed better.

And that is thirteen places higher than in 2020! So, it’s up to Botswana to showcase what it has to offer foreign investors so that they set up shop here in large numbers and create those elusive jobs! And let’s hope that by participating in the Expo 2020 Dubai Botswana will at last attract much needed FDI!