Business in Botswana

Aired June 2004

Known as ‘The Jewel of Africa’, Botswana has also been hailed internationally as ‘Africa’s success story’. Located in the heart of Southern Africa, Botswana is a country the size of France with a population of just over 1.6 million. It achieved independence peacefully in 1966 and has enjoyed a stable democracy ever since.

The government has maintained a stable macro-economic environment conducive to sustainable growth, and more recently to diversifying the economy. At the time of independence, which fortunately coincided with the discovery of diamonds, Botswana was one of the world’s ten poorest countries.

Thanks mostly to export earnings from the mineral sector, Botswana became the world’s fastest-growing economy every year between 1970 and 1990. Its average annual growth rate was a staggering 13%. Today, Botswana’s per capita gross domestic product is one of the highest in Africa. Botswana offers unrivalled business and investment opportunities, anchored by a stable democratic tradition.

The Botswana Democratic Party continues to command a substantial majority in parliament and follow pro-Western and liberal policies. In 1998, President Festus Mogae replaced Sir Ketumile Masire, who took voluntary retirement. Once again this reinforced the view that Botswana is Africa’s most peaceful democracy, with best-practice governance and high respect for the rule of law.

The Botswana government has always espoused politically and ideologically enlightened non-racial policies. The country’s citizens, known as Batswana, enjoy levels of health care and education unequalled anywhere in sub-Saharan Africa.

Botswana’s strong democratic roots have allowed the government to implement coherent and long-term policies for the country’s economic development. Over several decades, Botswana has adopted firm and predictable fiscal and monetary policies. It has eliminated restrictions on foreign exchange transactions, and constantly ensured the protection of the right to private ownership.

The cautious management of its financial resources has allowed the development of a good road, rail, air and telecommunications system. Botswana has also gained free access to the markets of member countries of the Southern African Development Community (SADC) and of the Southern African Customs Union (SACU). As a result Botswana is becoming a regional gateway to serve neighbouring markets. Additionally, Botswana enjoys duty free access to the European Union and significantly, to American markets under the African Growth and Opportunity Act (AGOA).

Botswana’s government has introduced a long-term development strategy called ‘Vision 2016: Prosperity for all’, underpinned by a wide range of policies and programs. Dedicated to achieving Vision 2016 through diversification of the economy away from the minerals sector, Botswana offers tremendous opportunities for investors. These exist in both the industrial and commercial sectors, and include manufacturing, tourism, and services such as international financial services.

Message from the U.S. Ambassador

Greetings from Botswana, the Jewel of Southern Africa. As the U.S. Ambassador to this beautiful country, I have focused primarily on promoting trade and investment opportunities for American businesses, as well as promoting increased two-way trade between our two nations. There are many good reasons why American businesses should take a look at Botswana and I strongly encourage the private sector to do just that.

Since gaining independence in 1966, Botswana has been a model of democratic governance; it has low levels of corruption, and has general respect for human rights.
At independence, Botswana was one of the poorest countries in the world, with an annual per capita income of less than $100, less than 8,000 meters of paved roads, and less than 25 university graduates. Today, thanks to diamonds, discovered the year after independence and exploited by 1971, Botswana is a middle-income developing country with a per capita GNP of $3,500, a well-developed road system, and a well-educated population (the literacy rate is 80 percent). From 1967 to 1997, Botswana led the world in economic growth, averaging around 12percent per year. Botswana has the highest per capita foreign exchange reserves in the world, and has a solid investment-grade sovereign credit ratings from both Moody's and Standard and Poor's rating service.

Botswana is an economic success story, and a country looking ahead at the challenges of globalization and diversification. Currently, diamonds account for 70-80 percent of all export earnings, one half of government revenues and one-third of Botswana's gross domestic product. The government encourages private sector development through an attractive taxation regime, the elimination of foreign exchange controls and support for foreign direct investment in manufacturing, tourism and financial services.

Last June, President Festus Mogae led a dynamic delegation of public and private sector officials to the Corporate Council on Africa's 2003 U.S. – Africa Business Summit in Washington. The delegation focused largely on Botswana's financial services and export capability. It won wide praise for showcasing the strong potential for significant return on investment in Botswana. Delegates also met with the Export-Import Bank, the Overseas Private Investment Corporation, members of Congress and businesspeople. At the Summit, President Mogae witnessed the signing of the Trade Development Agency’s (TDA) memorandum of agreement to do a feasibility study on a coal bed methane project in Botswana. The potential success of this project could lead to many downstream investment opportunities for American firms. The financial services sector component of this mission also met in New York with interested companies.

President Bush's July, 2003 visit to Botswana highlighted the country’s potential as a regional hub for Southern African markets. Botswana has positioned itself to take further advantage of the African Growth and Opportunity Act (AGOA), which allows it to export over 6,000 items duty-free to the United States. Botswana is also one of five members of the Southern African Customs Union currently negotiating a free trade agreement with the United States. Potential areas for foreign direct investment (FDI) in Botswana include upgrading the country’s telecommunication system and the related information communication technology sector (ICT). U.S. investment firms should also position themselves to take advantage of Botswana’s decision to issue international treasury bonds later this year. Preliminary estimates are that the country will issue $250 million in international bonds. It should be noted that the government was oversubscribed when it issued $500 million in domestic bonds last year.

Botswana's unparalleled abundance of wildlife and unique ecosystems make its world-renowned for tourism. I encourage each of you to visit Botswana and experience the Land of the Kalahari for yourself. Come for the beauty of an unspoiled country and stay for the business opportunities that are unmatched anywhere in Africa. Welcome to Botswana.

BUSINESS AND LEISURE

In tourism terms, Botswana has a reputation as Africa’s best-kept secret. For the traveller who wants to explore virtually undiscovered Africa, everything can be found in Botswana.

Botswana boasts the largest percentage of land given over to wildlife in the world, at 17%. The country’s natural beauty is found in its wilderness, wildlife and cultural diversity. The major tourist attractions include the Okavango Delta, said to be the largest inland Delta in the world. Chobe National Park is home to the largest elephant population in the world. The sands of the Kalahari Desert and rugged terrain and abundant wildlife in the Moremi Game Reserve have earned international acclaim as stunning, safe and secure for international travellers.

Botswana’s artistic culture has also flourished. The Kalahari is rich in archaeological remains of tools, artefacts, and ancient paintings made thousands of years ago. The artistic tradition lives on in basketwork, pottery, weaving, architecture and art that flourishes today throughout the country.

The tourism industry is one of the government’s priorities. It is set to play a key role in Botswana’s economic development and diversification, earning foreign currency, generating employment and raising revenues in rural areas in order to reduce urban drift. Africa’s best-kept secret offers tremendous business and investment opportunities in an untapped industry, especially in eco-tourism.

The major challenges for Botswana in wildlife and tourism include the need to ensure that the sector’s growth does not destroy the country’s natural, cultural and social landscape. The National Eco-Tourism Strategy encourages community-based tourism initiatives. As a result citizens are increasingly active in providing accommodation facilities, mobile safaris, and traditional cuisine and entertainment which represent Botswana’s culture.

The information and content in this program clearly illustrates that those who now discover Africa’s best-kept secret will have a competitive advantage over those who wait for change in the global economy and the African continent. The time is now to get involved in Botswana and be a part of the movement that will ensure these changes.

TRADE AND INDUSTRY

Manufacturing for export occupies a central place in Botswana’s strategy for development. It is regarded as one of the principal sectors, along with financial services and tourism. Recognising competitive pressures in global markets, the Botswana government’s National Development Plan Nine focuses on encouraging higher levels of productivity through the employment of highly skilled workers and technology.

In 1966, Botswana’s manufacturing output was almost wholly meat and meat products. By 1994, this contribution had fallen to 15% as the manufacture of beverages, textiles, and agricultural and metal products rose. Exports of manufactured goods have increased robustly since the second half of the 1990s.

Botswana’s industrial strategy focuses on export-oriented manufacture and on diversifying the industrial base of the economy away from the mineral sector. The corporate tax rate is 15%, one of the lowest in the region. It makes no distinction between production for the local market and for export.

Great opportunities now exist in Botswana’s industrial sector. The textile industry is expected to benefit strongly from the AGOA agreement, which provides duty- and quota-free entry of garments produced in Botswana to the United States. Other sectors offer equally attractive investment or joint venture opportunities. These include automotive assembly, printing and publishing, pharmaceuticals, electrical products, and the cutting and polishing of precious stones and jewellery.

In 1997, the government created the Botswana Export Development and Investment Authority (BEDIA). Its role is to attract foreign investment, to develop the local establishment of export-oriented industries and to promote Botswana’s products and services in foreign markets.
Botswana is a landlocked and small market in terms of population. However, its real advantages in terms of international trade lie in its strategic location, strong commercial ties with neighbouring countries, and membership of SACU and SADC. The successful positioning of Botswana as a gateway to more populous regional markets will also depend partly of the development of the country’s transportation infrastructure.

EDUCATION

Central to increasing the competitiveness of the country's economy, the government continues to place great emphasis on the development of human resources, the goal being to prepare Botswana for the transition from a traditional agro-based economy to the industrial economy to which the country aspires. As a means of achieving this, it aims at raising productivity through education and training, and through acquiring entrepreneurial, managerial and technological capabilities.

The overall objectives of national education include the following :

• To raise educational standards at all levels.
• To emphasise science and technology in the education system
• To make further education and training more relevant and available to larger numbers of people
• To improve the partnership between schools and communities in the development of education
• To provide lifelong education to all sections of the population
• To assume more effective control of the examination mechanism in order to ensure that the broad objectives of the curriculum are realised
• To achieve efficiency in educational development

TRANSPORTATION

The Botswana government’s strategy in terms of transportation has long focused on enhancing communication links between the capital Gaborone, and the country’s remote villages and tourist destinations mainly located in the north. With over 20,000 kilometres of roads and tracks, and with the Trans-Kalahari highway completed in 1998, Botswana enjoys a fairly integrated and comprehensive road network to service national and regional markets.

More recently, the US government has been very active in promoting the Southern Africa Global Competitiveness Hub, which aims to enhance the logistics and customs services offered by importers and exporters in the Southern Africa region. The Hub has also managed to harmonize customs procedures and increase the use of modern technology to expedite trans-border movements. The development of the Trans-Kalahari Corridor, which now connects Botswana to the Atlantic Ocean, is a key asset positioning the country as the gateway to service the South African region.

If trade volumes were to increase sharply, the transportation sector would still need further development. Botswana has a limited market for rail-borne traffic, although with a growing manufacturing sector, this means of transportation is expected to grow too. In terms of air transportation, the international airport in Gaborone and other major national airports are contemplating expansion plans to increase connectivity and access to regional and international markets.

MINING, ENERGY AND WATER RESOURCES

Since diamond mining began in 1971, Botswana has enjoyed uninterrupted growth. The diamond industry transformed Botswana from an agricultural-based economy to one in which diamonds account for more than 80% of exports and 50% of government revenues. Botswana now produces one-third of the world’s gem diamonds. The government has capitalised on a mutually beneficial long-term relationship with De Beers, a company which controls two-thirds of the world market.
Nevertheless, that leaves Botswana heavily dependent on the performance of the global diamond market. Furthermore, diamond production is expected to reach a plateau and the sector itself needs diversification. Botswana also produces copper-nickel, soda ash, salt and gold for export. In 1999, the government introduced a more investor-friendly mining code to encourage exploration, and has increased its geological data collection. Large coal-methadone reserves were uncovered, and Botswana aims at developing more coal power plants in order to become a net exporter of energy.

BANKING & FINANCE

Botswana is an open and competitive environment for financial services, and a platform to penetrate regional and international markets. The banking and finance sector has enjoyed steady growth in recent years, and is one of the keys to the successful diversification of the economy. Botswana’s central bank has successfully maintained monetary stability. As a result the country has been awarded foreign and local currency ratings of ‘A/A-1’ and ‘A+/A-1’ respectively in 2001.

Botswana’s banking sector is robust and growing steadily. There are now five commercial banks licensed to operate in Botswana carrying out regular retail and commercial banking activities. On the domestic front, this is complemented by the government’s commitment to implementing empowerment programs that provide capital to viable foreign and citizen-based initiatives.

The financial and capital markets have also been growing fairly steadily. An informal stock market was established in 1989 and formalized six years later under the Botswana Stock Exchange Act. In addition to those activities, three stockbrokers and a number of fund and unit trust managers have also set up their offices in Gaborone.

As banking and financial services continue to grow, the sector looks to attract more international financial institutions to invest in the region’s most stable and promising market.