Economy of Botswana - Private Sector Development and Foreign Investment

Private Sector Development and Foreign Investment

Botswana seeks to diversify its economy away from minerals, the earnings from which have levelled off. In 1998-99, non-mineral sectors of the economy grew at 8.9%, partially offsetting a slight 4.4% decline in the minerals sector. Foreign investment and management have been welcomed in Botswana.

External investment in Botswana has grown fitfully. In the early 1990s, two American companies, Owens Corning and H.J. Heinz, made major investments in production facilities in Botswana. In 1997, the St. Paul Group purchased Botswana Insurance, one of the country's leading short-term insurance providers. An American Business Council (ABC), with over 30 member companies, was inaugurated in 1995.

Hyundai operated a car assembly plant in Botswana from 1994 to 2000.

Botswana seeks to further diversify its economy away from minerals, which account for a quarter of GDP, down from nearly half of GDP in the early 1990s. Foreign investment and management are welcomed in Botswana, and as a result, financial and services sectors have increased at an exponential rate in the 2000s to replace mining as the leading industry. Botswana abolished foreign exchange controls in 1999, has a low corporate tax rate (15%), no prohibitions on foreign ownership of companies, and a moderate inflation rate (7.6% November 2004). The Government of Botswana is currently considering additional policies to enhance competitiveness, including a new Foreign Direct Investment Strategy, Competition Policy, Privatisation Master Plan, and National Export Development Strategy.

Botswana is known to have vast coal deposits making it possibly one of the most coal-rich countries in the world. Large coal mines, massive coal-fired power plants, as well as a coals to liquid plant (through the Fischer-Tropsch process) to produce synthetic automotive fuel have been planned.

With its proven record of good economic governance, Botswana was ranked as Africa's least corrupt country by Transparency International in 2004, ahead of many European and Asian countries. The World Economic Forum rates Botswana as one of the two most economically competitive nations in Africa. In 2004 Botswana was once again assigned "A" grade credit ratings by Moody's and Standard & Poor's. This ranks Botswana as by far the best credit risk in Africa and puts it on par with or above many countries in central Europe, East Asia, and Latin America.

U.S. investment in Botswana remains at relatively low levels, but continues to grow. Major U.S. corporations, such as H.J. Heinz and AON Corporation, are present through direct investments, while others, such as Kentucky Fried Chicken and Remax, are present via franchise. The sovereign credit ratings by Moody's and Standard & Poor's clearly indicate that, despite continued challenges such as small market size, landlocked location, and cumbersome bureaucratic processes, Botswana remains one of the best investment opportunities in the developing world. Botswana has a 90-member American Business Council that accepts membership from American-affiliated companies.

Due to its history and geography, Botswana has long had deep ties to the economy of South Africa. The Southern Africa Customs Union (SACU), comprising Botswana, Lesotho, Swaziland, and South Africa, dates from 1910, and is the world’s oldest customs union. Namibia joined in 1990. Under this arrangement, South Africa has collected levies from customs, sales, and excise duties for all five members, sharing out proceeds based on each countries portion of imports. The exact formula for sharing revenues and the decision-making authority over duties—held exclusively by the Government of South Africa—became increasingly controversial, and the members renegotiated the arrangement in 2001. The new structure has now been formally ratified and a SACU Secretariat has been established in Windhoek, Namibia. Following South Africa's accession to the World Trade Organization (WTO), Botswana also joined; many of the SACU duties are thus declining, making products from outside the area more competitive in Botswana. Currently the SACU countries and the U.S. are negotiating a free trade agreement. Botswana is currently also negotiating a free trade agreement with Mercosur and an Economic Partnership Agreement with the European Union as part of SADC.

Gaborone is host to the headquarters of the fourteen-nation Southern African Development Community (SADC), a successor to the Southern African Development Coordination Conference (SADCC, established in 1980), which focused its efforts on freeing regional economic development from dependence on apartheid South Africa. SADC embraced the newly democratic South Africa as a member in 1994 and has a broad mandate to encourage growth, development, and economic integration in Southern Africa. SADC's Trade Protocol, which was launched on 1 September 2000, calls for the elimination of all tariff and non-tariff barriers to trade by 2008 among the 11 signatory countries. If successful, it will give Botswana companies free access to the far larger regional market. SADC's failure to distance itself from the Mugabe government in Zimbabwe has diminished the number of opportunities for cooperation between the U.S. and SADC.

Botswana has successfully carried an Action Programme on the Elimination of Child Labour, which was adopted in the period 2006-2007. Free the Children delisted Botswana as a nation harbouring child-labour facilities in 2008.