Botswana is open to foreign investment and trade, and there are a variety of opportunities for export-focused investment, supported by low tax rates, political stability and an educated workforce.
Botswana has one of the best macroeconomic environments in the world, and its many favourable international ratings reflect ongoing confidence in the economy. The investment climate is stable and secure, and there are a variety of favourable trade agreements that enable the country to compensate for its small domestic market and to diversify its export markets.
The country’s good fundamentals notwithstanding, Covid-19 has caused a dramatic decline in global foreign direct investment (FDI), which in 2020 fell below US $1 trillion for the first time since 2005. Global FDI is forecast to decline further in 2021 before increasing in 2022. Areas which are particularly affected by this decline include Real Capital Expenditure, Greenfield Investment and Expansions. Attracting higher levels of investment into Botswana is thus a current priority.
The country remains a top investment destination in Africa, despite the economic risks associated with the Covid-19 pandemic. This is according to a Risk-Reward Index report prepared by Control Risks and NKC African Economics, a majority-owned subsidiary of Oxford Economics, comparing the political and macroeconomic conditions of 30 African countries.
In the 2020 report, Botswana ranks in fourth spot after Senegal, Zambia and Egypt. This comes after researchers noted that just five countries were capable of engaging in stimulus spending on a meaningful scale; namely, Botswana, Egypt, Mauritius, Morocco and South Africa. Furthermore, Botswana’s central bank announced in April 2020 that the prudential capital adequacy ratio (CAR) for commercial banks was being reduced from 15 percent to 12.5 percent, thus enabling them to satisfy capital requirements and address liquidity challenges as they continue to support economic activity.
The pursuit of export-led growth is another key objective, in line with Botswana’s Vision 2036 and central to National Development Plan 11 (NDP 11). While economic growth was historically based on diamond exports, their contribution has been declining, in relative terms, over the past two decades, and in 2018 were equivalent to 24 percent of the Gross Domestic Product (GDP), compared with more than 50 percent in the mid-1980s and 40 percent of GDP in the early 2000s.
As such, to ensure sustained growth, stability and employment creation, it has been necessary to diversify exports and promote the growth of non-diamond goods and services.
In 2019, Botswana launched a five-year National Export Strategy targeted at dynamic and sustainable economic growth. The strategy, running from 2019 to 2024, is expected to increase the country’s exports, diversify its products, and create at least 3 000 new jobs, fast-tracking achievement of the UN Sustainable Development Goals (SDGs).
While export revenue dropped in 2020 following a steep decline in global and regional economic activity in response to Covid-19 containment measures that significantly affected trade in goods and services, Botswana remains resolute in pursuing the policy priority of export-led growth. In support of this objective, Government has made key commitments for both international and domestic firms, including improving the issuance of work permits for investors and skilled employees, in order to reflect business needs and provide firms with the certainty required to support investment, production and trade. The issuance of visas for short-term visitors will also be improved through the implementation of the online visa system (e-Visas) that is currently under development.
INVESTMENT CLIMATE
Botswana is known for its good macroeconomic environment which, along with strong political, administrative and financial management accountability mechanisms, has made it one of the best investment destinations in Africa. Good governance, peace and stability are highlighted attributes, and Botswana was placed fifth overall in the 2019 Ibrahim Index of African Governance, and third in the category of ‘Safety & Rule of Law’. At the same time, the 2020 Global Peace Index (GPI) ranks it second in Africa and 33rd out of 163 countries across the globe. Moreover, corruption levels are the lowest on the continent, according to Transparency International’s 2020 Index, which ranks Botswana 35th out of 180 countries world-wide.
As one of the most successful economies in Africa, Botswana has for many years achieved favourable ratings on the World Economic Forum’s Global Competitiveness Index, and is currently ranked fourth in Sub-Saharan Africa, after Mauritius, South Africa and the Seychelles, as well as being rated the best performing country in the world in respect of its macroeconomic stability, financial system credit gap, labour tax rate and low risk for terrorism. Furthermore, the Heritage Foundation’s 2020 Index of Economic Freedom ranks Botswana’s economy the 40th freest in the world and third in Sub-Saharan Africa.
The top personal income tax rate is 25 percent, and the top corporate tax rate is 22 percent. Other taxes include property, inheritance and value-added taxes. Special incentives and lower tax rates are offered to companies operating in approved sectors, such as manufacturing and agribusiness, and in specific locations where Special Economic Zones are being developed. Botswana also has a growing network of Double Taxation Avoidance Agreements (DTAAs).
The financial sector is relatively well developed, with an independent central bank and little government intervention. Reform of non-bank financial institutions has continued, notably through the establishment of a single financial regulatory authority.
The independent judiciary provides strong protection of property rights and the legal system is sufficient to enforce secure commercial dealings. There is no limit on the repatriation of investment returns such as profits and dividends, debt service, capital gains, returns on intellectual property, royalties, franchise fees and service fees.
In 2020, international credit ratings agencies Moody’s Investors Service and S & P Global once more awarded Botswana the top credit rating in Africa.
Botswana’s workforce is well educated; 90 percent are literate and most workers speak English. Labour relations are good, and the country’s employment regulations are fairly flexible, with the non-salary cost of hiring a worker quite low.
The Botswana One-Stop Service Centre (BOSSC) expedites the issuance of permits as well as providing information timeously to potential investors. Furthermore, the Minister has the power to grant permanent residence status to investors who will add value to the economy, even before they have reached the minimum of five years of residence normally required to qualify.
EXPORT & INVESTMENT SUPPORT
Botswana promotes investment in the economy through a variety of avenues. Missions are undertaken to ensure the country’s visibility and position it as an investment destination of choice, while goodwill is being built in the global village through Brand Botswana initiatives, including investment booths and the marketing of local arts and culture, cuisine, dance and song.
The Botswana Investment & Trade Centre (BITC) is an integrated investment and trade promotion authority,
reporting to the Ministry of Investment, Trade and Industry with an encompassing mandate of investment promotion and attraction as well as export promotion and development. The BITC has experienced a steady rise in requests for its facilitation services over the years, and has also helped local companies to penetrate markets in Zambia, Zimbabwe, Angola, DRC, Malawi, Mozambique, South Africa, Namibia, Tanzania, USA, Mauritius, Senegal, Hong Kong, the UK, Norway and the European Union (EU).
Launched in October 2017, the Botswana One Stop Service Centre (BOSSC) is an investment facilitation centre within BITC which houses relevant government agencies as a single cohesive structure that provides prompt, efficient and transparent services to investors. BOSSC has made available shortened and simplified administrative procedures and guidelines for issuance of business approvals, permits and licences, thereby removing bottlenecks faced by investors in establishing and running businesses in Botswana.
During 2019/20, BITC attained a performance score of 88.1 percent against an excellence performance target of 80 percent. Furthermore, the centre managed to internally generate revenue of over P31 million over this period against P24 million in 2018/2019.
BITC continues to implement a robust export promotion programme in line with the new National Export Strategy (NES). Exporting companies which benefited from BITC services realised P2.783 billion worth of export earnings between April 2019 and June 2020. Over the same period, BITC realised cumulative FDI inflows amounting to P3.079 billion against a target of P2.450 billion. Furthermore, the Centre’s investment promotion drive resulted in the creation of 4 382 jobs. The Services sector was the highest performer, followed by Manufacturing, Agriculture and the Agro-Processing sectors.
BITC projects currently in the pipeline are predominantly in the agricultural sector, but also include those in energy, tourism and business process outsourcing.
In October 2020, the BITC, in collaboration with the United Nations Development Programme (UNDP) launched the revised Botswana Exporter Development Programme (BEDP), which is designed to boost Botswana’s exports in an ever-changing and increasingly competitive global environment. Part of the NES and an essential element in Botswana’s strategic economic framework, the programme assists existing and potential businesses to ensure their products meet the standards required by markets.
INVESTMENT OPPORTUNITIES
Investment opportunities are to be found in export – oriented manufacturing and services. Over the last decade, investment promotion efforts have concentrated on resource-based industries, such as leather, beef and glass, which add value to locally available raw materials. Other areas of focus include: cargo, freight and logistics; automotive and components; financial services; ICT; health care and education.
Botswana’s new five-year National Export Strategy (2019- 2024) targets seven priority sectors for investment:
• Leather and leather products
• Garments and textiles
• Arts and crafts
• Jewellery and semi-precious stones
• Meat and meat products
• Light manufacturing
• Indigenous products.
A key part of the strategy concerns building e-commerce and the digital economy, which will be a driver of economic growth as online platforms cut the costs of trade while opening new markets. Government has made progress in improving the country’s ICT infrastructure and there are several online platforms already operational in the country.
Special economic zones and cluster development
The Special Economic Zones Authority (SEZA) Botswana was established through the Special Economic Zones Act of 2015 to establish, develop and manage Special Economic Zones (SEZs) in Botswana. These zones will provide attractive incentives, which include: 5 percent corporate tax for the first ten years and 10 percent thereafter; fast- tracked land allocation; long-term renewable land leases; zero-rated VAT on raw materials for manufacturing for export; duty-free imports of specialist plant and machinery for manufacturing purposes; waiver on transfer duty on land and property; property tax exemption for five years; no exchange controls; full repatriation of profits and capital.
To date, eight SEZs have been identified. These include:
• The area around Sir Seretse Khama International Airport (SSKIA) – mixed-use economic zone that
will focus on aerospace and aviation; cargo, freight & logistics; agro-processing; pharmaceutical & medical devices; engineering and electronic equipment; and diamond beneficiation
• Gaborone Fairgrounds – international finance and technology hub
• Selebi-Phikwe – mixed-use zone for metal beneficiation, agro-processing, garments & textiles, pharmaceuticals
& medical devices
• Francistown – mixed-use zone, focusing on mineral beneficiation; cargo, freight & logistics; aerospace and aviation
• Palapye – coal beneficiation, oil & gas, and renewable energy
• Tuli Block – horticultural development, including water management solutions
• Pandamatenga – cereals, agribusiness and water management solutions
• Lobatse – beef and leather production
As at November 2020, SEZA had 15 potential investors, with an estimated investment value exceeding P10 billion. The first company was licensed in June 2020 and will begin to operate as a brownfield investment company from SSKIA, with the intention of expanding its operations in Botswana. Three others are at licensing stage.
The detailed design and land servicing of SSKIA Special Economic Zone Phase 1, which measures approximately
one hundred hectares, is underway and expected to be completed in May 2021. Further, the design and construction of 12 steel grain silos with an overall storage capacity of 60 000 metric tonnes is taking place at the Pandamatenga Special Economic Zone and will be completed by August 2021.
The Selebi-Phikwe Economic Diversification Unit (SPEDU) has been instrumental in the creation of jobs in the Selebi-Phikwe region since the closure of the town’s nickel mines. Implementation of the SPEDU Revitalisation Programme continues, with incentives for this region including a 5 percent corporate tax rate for the first five years and 10 percent thereafter for businesses setting up in the sectors of tourism, agriculture and manufacturing.
The construction of the SPEDU Industrial and Urban Agriculture Land Servicing project began in August 2020 and it is expected to be finished by June 2023. Once complete, the project should create some 3 500 jobs with an investment value of P1.2 billion.
TRADE AGREEMENTS
Botswana is a member of the Southern African Customs Union (SACU) and its products enjoy duty-free access to a market of more than 62 million consumers with a combined GDP of US $307 billion. The revenue realised from external trade is coordinated through a joint revenue pool and distributed proportionately to SACU member states, based on an established revenue sharing formula. Countries in the common customs area are able to negotiate new Free Trade Area (FTA) agreements with third parties as a bloc.
SACU members are party to the SADC Protocol on Trade signed in 1996, and enjoy a Free Trade Agreement (FTA) with the European Free Trade Association (EFTA) states, made up of Switzerland, Norway, Iceland and Liechtenstein. In addition, there is a Preferential Trade Agreement (PTA) with the Common Market of the Southern Cone (MERCOSUR), comprising Argentina, Brazil, Uruguay and Paraguay (some 385 million consumers). A Trade, Investment and Development Cooperative Agreement (TIDCA) was signed in 2008 with the USA.
Botswana is also a member of the Southern African Development Community (SADC), a grouping of 15 countries with a combined population of some 330 million and a cumulative GDP of US $573.597 billion. Intra- SADC trade is governed by the SADC Protocol on Trade, while extra-regional trade is aligned with both the World Trade Organisation (WTO) negotiated tariff liberalisation process as well as bilateral and/or inter-regional trade arrangements.
Together with the rest of SACU and Mozambique, Botswana has negotiated an Economic Partnership Agreement (EPA) with the United Kingdom – the UK-SACUM EPA. This Agreement was necessitated by the exit of the UK from the EU, which means that the UK can no longer be a party to the SADC-EU EPA. This is vital in view of the importance of the UK market for Botswana’s goods and services, and that it has hitherto been the point of entry for Botswana’s goods into the EU. The UK-SACUM EPA
as well as the EU-SADC EPA have been completed, with implementation due to begin in the 2021/22 financial year.
The EU-SADC EPA guarantees access to the EU market without any duties or quotas, and gives asymmetric access to partners in the SADC EPA region, who are able to shield sensitive products from full liberalisation and deploy safeguards when imports are growing too quickly. Other members of the SADC EPA group comprise Lesotho, Mozambique, Namibia, South Africa and Eswatini.
Botswana ratified the Tripartite Free Trade Area (TFTA) Agreement on 30 January 2020, securing a duty-free market for a variety of her products, including breeding animals, beef, salt, vaccines for livestock, plastic pipes and tubes, pharmaceutical and copper products, semen and embryos. The private sector will, therefore, have access to new and dynamic markets for exports and new sources of inputs for domestic production processes, thereby enhancing intra- regional trade. The TFTA comprises 27 countries from three regional economic communities; namely, the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and SADC, with a combined population of nearly 600 million people.
The African Continental Free Trade Agreement (AfCFTA) flows from the TFTA, the African Union’s Vision 2063, as well as the Boosting IntraAfrica Trade (BIAT) Initiative, facilitating the movement of goods and services across the continent and opening up markets with a potential value exceeding US $3.4 trillion in trade. Botswana signed the agreement on 10 February 2019, but is yet to ratify it. AfCFTA entered into force on 30 May 2019 for the 24 countries that had ratified the agreement.
Successful implementation of the AfCFTA will require Member States to eliminate both tariffs and non-tariff barriers, and generally make it easier to do business and invest across borders.
Following the postponement of the start of trade under the AfCFTA from 1 July 2020 to 1 January 2021 due to the Covid-19 pandemic, Botswana has begun preparations for its participation, in accordance with the agreed timelines. Together with the other 55 member states of the African Union, Botswana is working towards completing the evaluation of Tariff Liberalisation, Rules of Origin and Services. Once Botswana has ratified the agreement, its goods and services will enjoy market access to a larger African market of 1.2 billion people.
Botswana is also eligible for trade benefits under the African Growth and Opportunity Act (AGOA), which provides eligible African countries with duty and quota- free access to the US market. The AGOA Extension and Enhancement Act of 2015 extends the favourable terms enjoyed under this Act until 2025.
To date, four local companies are exporting natural products following attainment of Fair Trade Certification. National capacity audits on jewellery and semi-processed stones have been completed. The newly established Leather Entrepreneur Associations has developed a roadmap for capacity building and accessing the US market.
