Botswana2005 INVESTMENT CLIMATE STATEMENT -- BOTSWANA
Openness to Foreign Investment
The Government of Botswana is committed to creating an
attractive climate for foreign investment. Credit
ratings received from Moody's and Standard's & Poor's
for Botswana were the highest given to an African
country, ranking it with the oil and gas economies of
the Gulf, the State of Kuwait, the Kingdom of Bahrain,
as well as successfully developing economies like the
Republic of Chile. Botswana has a strong and well-
managed minerals economy, coupled with a long record of
political and macroeconomic stability. Over the past
30 years, Botswana's annual rate of economic growth
averaged about 9 percent, with per capita income rising
to roughly USD 4,000. This makes Botswana a middle-
income developing country.
The Government and the private sector in Botswana
increasingly acknowledge the need for significant
foreign investment, which will require a strategy for
the privatization of state-owned enterprises. The
Government is committed to maintaining Botswana's
position as one of the developing world's most
competitive economies and to attracting serious foreign
investors to enhance efficiencies, productivity and
secure transfers of skills and technology. Efforts are
now focusing on developing the country's service sector
through the International Financial Service Center
(IFSC) and Botswana's unique tourism potential.
Botswana continues to develop a regulatory framework
favorable to investors. The Government, the second in
southern Africa to do so, abolished all foreign
exchange controls in February 1999. It has undertaken
largely successful efforts to combat crime, including
corruption, and to improve the delivery of the judicial
system. The Government has instituted low corporate
tax rates, the increasingly speedy processing of
applications for business ventures, a stable
macroeconomic environment, and a commitment to
transparency. The Ministry of Trade and Industry
recently announced that it has taken measures to
simplify and expedite the issuance of work and
residence licenses. The Registrar of Companies has
progressed in implementing its commitment to reduce the
turnaround time to register a company from twelve weeks
to ten working days. In addition, the Government has
attempted to provide assistance to investors through
investment incentive schemes, including grants and tax
relief.
A growing recognition of the importance of private
investment, particularly foreign direct investment, in
the creation of sustainable employment, economic
diversification and poverty reduction led to the
formation of the botswana export development and
investment authority (Bedia) in 1998. Bedia is an
autonomous organization established to promote
investment in botswana with a special emphasis on
export-oriented manufacturing industries. The
authority is designed to serve as the primary
government contact point for both domestic and foreign
investors. Since its inception, Bedia has assisted
fourteen companies which are now operational. The total
level of investment from these companies is estimated
at usd 12 million, which according to Bedia has led to
the creation of 3,600 new jobs. Through its one stop
service center, Bedia provides services for investor
needs and aftercare to both new and existing foreign
and citizen-owned enterprises since 2001. The center
focuses on enabling investors in both the manufacturing
and service sectors to secure all clearances and
approvals as quickly as possible under one roof. Bedia
pomotes the sectors through incoming and outgoing
Trade missions as well as through direct mailing
Campaigns in the targeted markets, including south
Africa, italy, the united kingdom, Belgium, India and
Mauritius. These efforts market Botswana as a viable
Investment location. Under new leadership as of May
2002, Bedia is increasingly reaching out towards the
United states as a source for foreign investment and is
Eager to work with established businesses seeking to
Expand their operations into Botswana.
Foreign investors located in Botswana will benefit from
the country's political stability and good governance,
access to regional and international markets,
Government commitment to promote economic growth
through private sector development, and lack of
restrictions on foreign exchange. The foreign
investment climate in Botswana calls for foreign
investors to be law-abiding, identify with Botswana's
national principles and objectives, assist in the
diversification of the economy, and share Botswana's
commitment to maintenance of a democratic, open and non-
racial society. Botswana has zero tolerance for
corruption. A Foreign Direct Investment Strategy is
scheduled to be completed by the Government in early
2005, which will outline these ideals and express the
commitment of the Government to attracting investors.
All foreign investors wishing to invest in Botswana are
required to register a company in Botswana in
accordance with the Companies Act and comply with other
applicable legislation, transfer of technology to
Botswana, transfer skills to Botswana by promoting
their involvement and participation in positions of
supervisory, middle and senior management levels in the
company in an effort to localize the companies within
an agreed period. There are no ownership transference
requirements. These initiatives are aimed at securing
citizen involvement in the development of Botswana's
private sector.
The Government of Botswana is aware that for Botswana
to be competitive in both the regional and global
markets, there is need to continue to create a
conducive environment for private sector investment and
growth, by both domestic businesses and foreign direct
investors. The Government is in the process of
developing a Competition Policy, as well as building
capacity for the negotiation of bilateral investment
and trade treaties. These initiatives are intended to
develop national business capacity and enhance
Botswana's attractiveness as a foreign direct
investment destination. In addition, the new Companies
Act will create an updated, simplified and clarified
framework for incorporating companies.
While generally open to foreign participation in its
economy, Botswana does reserve some sectors solely for
citizen participation, and has a number of citizen-
empowerment programs that are closed to foreign
investors. Most were imposed by Parliament out of a
fear that other non-citizen African and South Asian
residents were opening businesses in areas
traditionally controlled by Batswana. The restrictions
are not retroactive, and businesses in existence prior
to the law's passage remain in the hands of their non-
citizen owners. In addition, many foreign investors
have continued to invest in certain areas, such as gas
stations, through franchising to Botswana citizens.
The Ministry of Trade and Industry, which has
responsibility for licensing businesses, issues
licenses to foreigners to operate businesses related to
these areas whenever there has been any ambiguity as to
whether the licensing prohibition applied. At present,
the law prohibits foreign participation in school
furniture manufacturing, and the welding and
bricklaying trades. The law limits the following
trades or businesses to those ventures wholly
controlled by Batswana:
A) hawkers and vendors
B) butchery and fresh produce
C) general trading
D) petrol filling station
E) bottle stores (liquor stores)
F) bars other than those related to hotel
establishments
G) chibuku (traditional beer) bar
H) village type restaurant take-away including
restaurant liquor license
I) supermarkets, but excluding chain stores and
franchise operations,
J) simple specialty operations such as clothing
boutique, footwear, etc.
K) Government building projects
- registration as building contractor
- building projects up to P 150 000 (USD 30 000 )
- maintenance and minor building works of government
properties
L) Road contracts and railway maintenance
- fencing, reserve and draining, culvert construction,
transport and plant hire, clearing and scrubbing bush,
road marking, carting gravel, bridge painting, stock
piling of material
M) Industrial activities
- school furniture, uniforms, ordinary cement and baked
bricks, ordinary bread baking, sorghum milling, burglar
bars
N) Others
- transportation of mail, purchase furniture by local
authorities and government, procurement of uniforms,
overalls and dust coats by government, local
authorities and parastatals.
The Ministry of Trade and Industry has taken an
expansive interpretation of "chain stores" to mean any
store with more than one outlet and has allowed the
exemption to apply not only to supermarkets, but also
to simple specialty operations and general trading
stores. Hence, large general merchandise markets,
restaurants and the dominant grocery network, all owned
by foreigners, operate without restriction. Foreign
investors are allowed to participate in all other
sectors. Business licenses are issued following a
routine review of proposed commercial activities, which
is carried out in a transparent and non-discriminatory
manner.
Foreign investors are given equal access to general
investment incentive schemes for medium and large
projects in most economic sectors. Foreign investors
do not, however, have access to Botswana Government
assistance loans and grants designed for citizen-owned
contracting firms or for small enterprises, defined as
those involving investments of less than Pula 75,000
(USD 15,000). Investment of foreign capital in job-
creating industrial projects, particularly those that
have an import substitution component or have export
potential, is strongly encouraged.
The Government is continuing to reorganize and
restructure some Ministries and Departments, with the
aim of improving efficiency and effectiveness of
service delivery, and is moving towards privatizing a
number of parastatal businesses. Part of the reform
development has required the Government to establish
autonomous authorities or boards, working largely on
commercial principles. One of these is the Public
Enterprise Evaluation and Privatization Agency (PEEPA).
In 2000, PEEPA was established to oversee the
implementation of the Privatization Policy. PEEPA will
ultimately decide the extent of foreign participation
in the privatization process and determine the
mechanics that will be used to promote citizen
participation. The Government intends to use
privatization as a tool to increase foreign direct and
portfolio investment in the country, while on the other
hand addressing the concerns that privatization will
cost jobs and only reward wealthy foreign interests.
The Ministry of Finance, to which PEEPA reports,
welcomes foreign participation in privatized companies.
Indeed, the Botswana Government is attempting to walk a
narrow tightrope on the issue. It desires, on the one
hand, to use privatization as a tool to increase
foreign direct and portfolio investment in the country,
while on the other addressing concerns that
privatization will cost jobs and only reward wealthy
foreign interests. The Ministry of Finance and
Development Planning promised that foreign
participation in privatized companies will be welcomed
as, in addition to capital, foreign investors will
bring with them advanced technology, managerial
expertise and useful market connections. The Ministry
has also stated that local investors may be given
preference in some instances; "restrictions may need to
be imposed on foreign participation in certain
companies for strategic or other reason that will be
considered on a case-by-case basis."
With the release of the Privatization Master Plan,
privatization of public enterprises is expected to
accelerate, especially since most of the public
enterprises were profitable in 2002/2003. The
Privatization Master Plan, whose approval is expected
early in 2005, will provide a concrete basis for
implementation of different privatization-related
activities in a systematic manner. As part of the
preparations for implementation of the Privatization
Master Plan, PEEPA will carry out extensive diagnostic
reviews covering the performance of public enterprises.
The Agency has issued a request for proposals to
conduct a feasibility study for the merger and
privatization of the National Development Bank and the
Botswana Savings Bank. The privatization of Air
Botswana, the national airline, which was Botswana's
first test, is still not completed. The Government is
exploring options following the withdrawal of the two
strategic partners who had earlier shown interest in
the airline's privatization.
Conversion and Transfer Policies
Botswana was the second country in the Southern African
Development Community (SADC) to abolish exchange
controls. The complete elimination of controls on
current and capital accounts enhances Botswana's
competitive position as a regional investment
destination. In addition, the abolition of exchange
controls has allowed the further development of
Botswana's financial markets through the creation of
new portfolio investment options. This new change in
policy has necessitated the development of government
capacity to monitor data on capital flows so as to
provide early warning signals of potentially
destabilizing activity. Commercial banks are required
to have investors complete basic forms indicating name,
address, identity, purpose and details of the
beneficiary prior to processing investors' transfer
requests or loan applications. The Ministry of Finance
monitors data collected on the forms for statistical
information on capital flows, but the form does not
require Botswana Government approval prior to the
processing of a transaction and does not in any way
delay capital transfers. Other government agencies
also monitor large international capital inflows so
that appropriate policies can be implemented to reduce
any destabilizing effects on the economy.
There are no restrictions on converting or transferring
funds associated with an investment into a freely
convertible currency and at a legal clearing rate.
Investors are allowed to remit funds through a legal
parallel market. Non-residents can trade in and issue
Botswana Pula-denominated bonds with maturity periods
of over one year, provided such instruments are listed
on the Botswana Stock Exchange. This is a move to
encourage portfolio investments, the development of
domestic capital markets, and the diversification of
investment instruments. Foreigners can hold shares in
Botswana companies. Residents are permitted to invest
overseas and borrow offshore. Travelers are not
restricted as to the amount of currency they may carry
on their person or in their baggage, but they are
required to declare to customs at the port of departure
any cash amount in excess of Pula 10,000 (USD 2,100).
All quantitative limits on foreign currency access for
current account transactions have been removed. Dual
listings are permitted on the Botswana Stock Exchange.
Botswana's new "Letlole Saving Certificate" (the
equivalent of a U.S. Treasury bond) can be purchased
only by Botswana citizens.
The government permits the establishment of foreign
currency-denominated accounts in Botswana. At present,
commercial banks offer accounts denominated in U.S.
Dollars, British Pounds, Euros and South African Rands.
Businesses and other bodies incorporated or registered
under the laws of Botswana may open such accounts
without prior approval from the Bank of Botswana. The
government also permits the issuance of foreign
currency denominated loans.
Upon disinvestment by a non-resident, the person is
allowed immediate repatriation of all proceeds.
Investment returns such as profits and dividends, debt
service, capital gains, returns on intellectual
property, royalties, franchise fees and service fees
can all be repatriated without limits. There is no
difficulty in obtaining foreign exchange. Shortages of
foreign exchange that would lead banks to block
transactions is highly unlikely. With international
reserves of approximately USD 5.7 billion, Botswana
will not experience foreign exchange difficulties in
the foreseeable future, covering roughly 2 years of
import liabilities. The Botswana Pula is, for all
intents and purposes, freely convertible.
Expropriation and Compensation
The Constitution of Botswana prohibits the
nationalization of private property. The Government of
Botswana has never pursued a policy of forced
nationalization, and there is no reason to believe that
it would consider expropriatory action.
Dispute Settlement
The Botswana constitution provides for a judiciary,
which is independent of both the executive and
legislative authorities. Civil law is based on Roman-
Dutch law while criminal law is built on familiar
tenets of the English legal system. The legal system
is sufficient to conduct secure commercial dealings.
Foreign and domestic parties have equal access to and
standing under the judicial system. Botswana courts
will, in general, accept and enforce decisions of a
foreign court found to have jurisdiction in a given
case. However, due to a caseload backlog, some U.S.
companies facing legal challenges have expressed
impatience with the resolution of disputes.
Botswana has written and consistently applied
commercial and bankruptcy laws. Secured and unsecured
creditors enjoy the same rights under bankruptcy
proceedings as they would in the United States.
Botswana is a member of the International Center for
the Settlement of Investment Disputes (ICSID) and the
Multilateral Investment Guarantee Agency (MIGA), and as
such accepts binding international arbitration of
investment disputes.
Performance Requirements/Incentives
Performance requirements are not imposed as a condition
for establishing, maintaining or expanding an
investment in Botswana, or for access to tax and
investment incentives. A unique incentive corporate tax
at only 15 percent for manufacturing enterprises is
also available. Foreign investors are encouraged but
not compelled to establish joint ventures with citizens
or citizen-owned companies. The choice of citizens or
citizen-owned companies is at the absolute discretion
of the foreign investor.
Foreign investors wishing to invest in Botswana are
required to register the company in accordance with the
Companies Act and comply with other applicable
legislation. Investors are encouraged, but not
required, to purchase from local sources. Foreign
exchange is available to all investors, domestic or
foreign, regardless of export volumes. The Government
does not require investors to locate in specific
geographical areas, use a specific percentage of local
content, to include local equity in projects,
manufacture substitutes for imports, meet export
requirements or targets, or use local sources of
financing.
It is the official policy of the Government to
encourage foreign firms to hire qualified Botswana
nationals rather than expatriates, and the granting of
work permits to expatriates can in some instances be
made contingent upon establishment of demonstrable
"localization" efforts. The Government has in the past
recognized that the shortage of technical and
managerial job skills among the general population
necessitates the import of expatriate labor and
generally grants work permits for positions which
cannot be filled by an appropriately trained Botswana
citizen or for which the company requires job-specific
training. After the start-up period, however, the
Government typically requires evidence that a citizen
is being trained to assume some of the expatriate
positions, particularly at the middle-management level,
on a permanent basis.
The process of reviewing the Industrial Development Act
has started. The review is intended to provide for a
decentralized and simplified industrial licensing
system that will speed up the issuance of licenses, as
well as bring services closer to the public. It is
also intended to align the Industrial Development Act
with the Trade Act of 2003 and provide consistency in
the issuance of business licenses. Efforts are
continuing to deal with the long-standing backlog of
residence permit applications for investors. The use of
a single application for both work and residence
permits, which was started in April 2002, should
further reduce processing time of applications for both
resident and work permits. But training for
immigration officials has been slow.
The government of Botswana offers foreign investors
equal access to incentives designed to promote export-
oriented industries. Current incentives include:
- A duty drawback facility when purchasing raw
materials to be used for the production of merchandise
destined for export.
- Exemption from sales tax when importing machinery
and equipment required in the production of export
merchandise.
In addition, the government-owned Botswana Export
Credit Insurance and Guarantee Ltd. (BECI), allows
investors to purchase coverage against the insolvency
and inability of buyers to pay for purchases and
political risks, such as losses caused by import
restrictions, war, and, more commonly, the prevention
of foreign exchange transfer for payment by the buyer's
country.
In the past, local and foreign investors were eligible
for incentives under the outlived Financial Assistance
Policy (FAP). The Government has recently pioneered a
number of initiatives to take over the FAP, as part of
the continued effort towards citizen economic
empowerment. One such scheme is the Citizen
Entrepreneurial Development Agency (CEDA), which was
established in response to concerns about the adequacy
and effectiveness of the FAP.
CEDA offers funding for capital expenditure, stock or
working capital in new and existing business ventures.
It also offers training and mentoring for new and
seasoned entrepreneurs. CEDA's loans are provided at
subsidized rates for citizen-owned companies, and will
lend from P 500 to P 150,000 at 5 percent interest per
annum payable over a period of 5 years. CEDA will also
lend from between P 150,001 and P 2,000,000 at 7.5
percent per annum payable over a period of 7 years.
Unlike its predecessors, CEDA does not provide grants.
However, in addition to its subsidized loan programs,
it operates a Venture Capital Fund to provide equity
capital to citizens as well as joint ventures between
citizens and foreign investors. So far an estimated
total value of P 115 million (USD 23 million) has been
committed. The plan is to invest the full obligated
capital of P 200 million (USD 40 million) over a five-
year period.
From its inception in August 2001 until end of December
2003, CEDA received a total of 5,293 applications and
approved 1,053 projects. The total value of approved
applications was P 592 million (USD 118 million). The
sectoral allocation of the funded projects were: 23
percent retailing, 13 percent manufacturing, 15 percent
agriculture, 44 percent commerce and 5 percent property
development.
An electronic information system was one of the
improvement initiatives for CEDA in 2003, intended to
provide organization-wide access to information,
elimination of duplicated data, reduced applications
processing time and enhanced monitoring capabilities.
Technical assistance is done in the form of training
and mentoring to develop entrepreneurship among
citizens. CEDA's rejection rate remains very high. The
main reasons for the rejection include the lack of a
sufficient market to render a proposed project viable,
and inappropriate requests to refinance existing loans
from other financiers for businesses in over-traded
markets.
The Government's local procurement policy (LPP) sets
aside a portion of Government supplies procurement
needs to be filled by manufacturing firms based in
Botswana. The LPP is an incentive offered by Government
of Botswana for the promotion of the manufacturing and
service sectors, administered by the Industrial Support
Services Division. The LPP seeks to develop and
stimulate local entrepreneurship capacity and
international competitiveness where 30 percent of
Central Government purchases are reserved exclusively
for local manufacturing companies. To qualify for the
program, manufacturing companies must achieve a minimum
Local Content of 25 percent and meet any two of the
following conditions:
- Employ between 10 and 200 people
- Have an annual turnover ranging between P 200,000
(USD 40,000) and P 500,000 (USD 100,000)
Local firms can still tender for the remaining 70
percent with international companies.
Applications to register a firm for LPP must include a
certified copy of the company's previous fiscal year's
financial statement, certificate of Incorporation and
Industrial license and should be filed with the
Department of Industrial Affairs. Both foreign and
domestic owned firms operating in Botswana are equally
eligible.
The Minister of Finance and Development Planning has
the authority to issue Development Approval Orders for
specific projects, providing tax relief and/or
education and training grants of different types and
rates. The Minister must be satisfied that the
proposed project will be beneficial to the Botswana
economy and/or contribute to the economic advancement
of Botswana citizens. Any firm may apply for a
Development Approval Order to the Permanent Secretary
for Finance and Development Planning. Applications
will be evaluated against the following criteria:
a) Job creation for Botswana citizens;
b) The company's training plans for Botswana citizens;
c) The company's plans to localize non-citizen
positions;
d) Botswana citizen participation in company
management;
e) Amount of equity held by Botswana citizens in the
company;
f) The location of the proposed investment;
g) The project's effect on stimulation other economic
activities; and
h) The project's effect on reducing local consumer
prices.
Domestic and foreign-owned firms may both apply for
Development Approval Orders, and to date, in practice,
the degree of citizen ownership has not been a
significant factor in their approval.
Right to Private Ownership and Establishment
Botswana has no restrictions on investment ownership,
the sources of financing for investments, the marketing
of products, the sources of technology used by
companies, or the methods of training used by
companies. Foreign and domestic private entities may
freely establish, acquire, and dispose of interests in
business enterprises. As previously discussed, there
is a brief list of enterprises reserved for ownership
by citizens and a minimum value for foreign investment
in a number of industries, but these restrictions are
not a meaningful impediment to serious foreign
investment. Competitive equality is the standard
applied to private enterprises in competition with
public enterprises with respect to access to markets,
credit, and other business operations. Indeed all
remaining parastatals have been commercialized, meaning
they are expected to operate as commercial entities
receiving no government subsidies or special treatment,
with the exception of certain public utility
corporations which still enjoy legally protected
monopoly status. Most of these parastatals, even those
without legally protected monopoly status, are de facto
monopolies.
Protection of Property Rights
Chapter 33 of the Deeds Registry Act regulates and
protects the recording of secured interests in
property. The Attorney General's Chambers is
responsible for administering the registration of
mortgage bonds and deeds of transfer for the
acquisition and disposition of property respectively.
The legal system in place is non-discriminatory and
applies equally to both domestic and foreign investors.
Botswana has made significant improvements in the last
few years in its protection of intellectual property
rights. Its legislation is now largely in accordance
with the Agreement on the Trade Related Aspects of
Intellectual Property Rights (TRIPS), except for
geographic indications and integrated circuits (Chapter
III(4)(v)). Capacity building is mainly needed for
enforcement of intellectual property rights. In 1998,
Botswana became a member of both the Bern and Paris
Conventions, the international baseline intellectual
property rights agreements. The long- awaited Botswana
Copyright Law was passed by Parliament in March 2000,
replacing a 1965 law that was woefully inadequate. The
law offers internationally-accepted standards of
protection for the rights of creators of literary,
artistic, dramatic, cinematographic works; computer
programs; broadcasting organizations; and sound
recordings. In addition, the legislation gives the
Government additional tools to use in its ongoing fight
against piracy, including stiffer penalties.
Botswana's patent and trademark legislation was updated
in 1998 and 2000. The Industrial Property Act was
enacted in 1997 and its implementing legislation
occurred in late 1998. Under it, Botswana provides
internationally recognized standards of protection for
both foreign and domestic holders of patents,
industrial designs, and trademarks, and fully complies
with the TRIPS Agreement. Parliament also passed a new
TRIPS-compliant Copyright Act in 2000, and requested
the support of the World Intellectual Property
Organization in drafting the implementing regulations.
This act provides for enforcement of copyright. The
Government of Botswana believes that once implemented,
the mechanisms put in place will provide sufficient
remedies to deter future infringement. The Registrar
of Company is in the process of reviewing the Act to
provide for compliance with obligations under the TRIPS
Agreement, the Patent Cooperation Treaty, the Madrid
Treaty and the Madrid Protocol on International
Registration of Marks.
Transparency of the Regulatory System
The Botswana government adheres to transparent policies
and maintains effective laws to foster competition and
establishes clear rules of the game. Bureaucratic
procedures are streamlined and open, although somewhat
slow, and not excessively overbearing compared to other
African countries.
To comply with the Public Procurement and Asset
Disposal Act of 2002, the Public Procurement and Asset
Disposal Board (PPADB) was created in 2003 as an
independent parastatal to take over the functions of
its predecessor organization, the Central Tender Board.
The PPADB is responsible for the award of all
government tenders. The tender process is open, and
lobbying of the PPADB or its members is strictly
prohibited. One of the key policy objectives of the
Public Procurement and Asset Disposal Board (PPADB),
since its inception, has been the enhancement of
operational efficiency in the public procurement
system. PPADB has established the Advisory Committee,
Independent Complaints Review Committee and the
Ministerial and District Tender Committees in
accordance with its Act. The Advisory Committee
advises the Ministry of Finance and Development
Planning on any weaknesses in the operations of the
board. The Independent Complaints Review Committee,
established in November 2004, reviews the Board's
decisions subject to challenge by stakeholders (e.g.
contractors and procuring entities) whilst the
Ministerial and District Tender Committees ensure that
speedy decisions are made. In effect since December
2003, PPADB has started publishing its decisions
concerning awarded tenders, prequalification lists and
newly registered contractors, a measure which should go
a long way towards enhancing public confidence in the
operations of the board.
Government procurement practices do, however, involve
some preference schemes and reserves certain tenders
for 100 percent citizen-owned companies. There is an
ongoing public debate about government procurement
practices, which many view as a give-away to foreign
companies. The PPADB is explicitly charged with
promoting citizen empowerment through the proactive
implementation of reservation and preference schemes
designed and introduced by the Government of Botswana
from time to time to enhance citizen participation in
economic activities resulting in increased employment
and capacity building. However, the Board states that
it considers these schemes within the context of its
obligations under international trade treaties such as
the World Trade Organization (WTO), and regional
agreements under the Southern African Development
Community (SADC) and the Southern African Customs Union
(SACU).
The Government updated its labor legislation to comply
with ILO standards in 2004. Implementation is expected
in the course of 2005. The existence of an industrial
court further enhances and strengthens impartiality in
labor disputes. The Employment Act of 1992 provides
basic guidelines for employment in Botswana. This
labor legislation controls minimum wages, length of the
workweek, annual and maternity leave, hiring and
termination.
The Regulation of Minimum Wages Order sets minimum wage
rates. Work permits regulate the employment of non-
citizens in Botswana. Non-resident consultant and
supervising engineers or directors of companies
registered in Botswana, however, are exempt from
obtaining work permits. Every private company is
required to have at least one director resident in the
country. Health and safety laws, embodied in the
Factories Act of 1973, are designed to provide basic
protection for workers from unsafe working conditions.
Minimum working conditions required on work premises
include cleanliness of the premises, adequate
ventilation and sanitation, sufficient lighting and the
provision of safety precautions. Health inspectors and
the Botswana Bureau of Standards carry out periodic
checks at both new and operating factories.
Botswana tax policies and laws are favorable. Botswana
is one of the lowest tax jurisdictions in southern
Africa. Corporate tax rates are set at a maximum total
of 25 percent. Registered manufacturing enterprises as
defined by the Manufacturing Development Approval Order
of 1996 now amended to include milling and bricklaying,
and registered companies engaged in international
financial services pay a concessionary tax of 15
percent.
Efficient Capital Markets and Portfolio Investment
The liberalization of the Botswana economy created the
necessary environment for growth in the financial
sector. The country continues to maintain sound and
coordinated fiscal and monetary policies, which are
reflected, in the careful control that has been
exercised over credit expansion, the Pula exchange
rate, interest rates and foreign and domestic
borrowing. The financial system and banking industry
have undergone major changes in recent years. A
revised Banking Act has given banks more flexibility in
conducting their operations and brought banking
legislation in line with changes in the global
industry's norms for regulation, supervision and
payments. The Botswana Government is encouraging the
establishment of new and diverse financial institutions
to support increased foreign and domestic investment
and to fill the existing gaps where finance is not
currently commercially available.
Botswana launched its International Financial Services
Center (IFSC) in 1999. The Botswana IFSC's initiative
is to develop a recognized financial services regional
hub in an effort to diversify the economy and to manage
the country's real comparative advantages. Since its
inception, seven companies had applied for and been
issued with either banking licenses or exemption
certificates as at December 2003. In addition, over
twenty companies have been approved under IFSC,
including banking operations, fund administrators and
group treasury structures. Botswana has an attractive
tax incentives package to encourage financial service
providers to use the IFSC as a base for managing
regional initiatives. Under the Income Tax Amendment
Act 1999, Botswana IFSC special tax regime cover,
guaranteed maximum tax rate of 15 percent until 2020,
exemption from withholding tax in Botswana, access to
Botswana's double taxation treaty network, and no
capital gains tax. Botswana IFSC plans to play an
important role in regional expansion initiatives by
providing a platform to facilitate cross-border
financial services in an appropriate and conducive
manner. For example, the Botswana Government is
currently deliberating on re-insurance legislation that
would permit international insurance companies to widen
the scope of their operations within the IFSC to cover
regional as well as domestic businesses.
The country's policies facilitate the free flow of
financial resources. Credit is available on market
terms, and foreign investors have access to credit on
the local market, although the high prime rate of 14.25
percent as of December 2004 is considered prohibitive
to debt finance. Botswana banks may lend to non-
resident controlled companies and other non-resident
owned business entities in Botswana without specific
approval from the Bank of Botswana. In fact, foreign
investors generally enjoy much better access to credit
than local firms due to the often limited capital base
of the local entrepreneur, conservative lending
policies by commercial banks, and the variety of
strengths (personnel, technological, and logistical)
that the bigger foreign investors possess. Commercial
lenders generally apply a debt to equity ratio of 4:1.
Authorized dealers and credit institutions licensed by
the Bank of Botswana are allowed to make foreign
currency-denominated loans, financial leases and other
forms of financial support to their customers in
Botswana whether or not they have onshore accounts.
The central bank - the Bank of Botswana - has an
impressive track record for managing both the
commercial banking sector and the country's monetary
policies. The number of commercial banks increased to
five following the founding of Bank of Baroda Botswana
Limited in March 2001 -- the other four banks are:
Barclays Bank of Botswana Ltd., First National Bank of
Botswana Ltd., Standard Chartered Bank of Botswana Ltd,
and Stanbic Bank Botswana Ltd. All have correspondent
relationships with U.S. banks. In addition, the
African Banking Corporation operates a financial
services institution, specializing in structured trade
finance, treasury operations and investment banking.
In 2003, the total assets of commercial banks grew year-
on-year by 15.9 percent, to P12.96 million. This is
compared to a much lower growth rate of 1.7 percent in
2002. An increase in the total assets was due to the
9.5 percent expansion of outstanding loans and advances
and a 14.3 percent rise in balances due from foreign
banks.
The Government created two financial parastatals to
complement domestic banks in terms of the commercial
and long-term lending. The first of these is the
Botswana Development Corporation, "The Service-Plus
Investment Corporation for Botswana." To date, the
BDC's reforms have been largely successful. BDC is now
actively seeking to develop quality investment
proposals rather than waiting for project submissions.
In the past, BDC provided loans and equity capital to
almost any project defined as "development" component.
This resulted in huge monetary losses, which the
Government had to cover. Now the organization's
emphasis is on developing commercially viable
investment and lending portfolios. BDC continues to
identify manufacturing projects, monitors and
supervises the Corporation's portfolio of companies
engaged in a wide variety of manufacturing activities.
In 2003, this portfolio comprised of 20 companies,
which had created 3,506 direct jobs for the citizens.
The corporation's loans to these companies stood at P
127.37 million (USD 25.48 million). BDC is focusing on
niche industries that have potential to contribute to
the economy of Botswana. Competition for foreign
direct investment is high, and the greatest challenge
is to attract quality investors.
The National Development Bank (NDB), the second
parastatal, offers competitive long-term loans and
equity capital to finance commercial business
development. As a Development Financial Institution,
NDB is viable and self-sufficient. The bank continues
to contribute very significantly to the growth of the
local economy. NDB's business is directed solely
towards the business community in whatever capacity be
they small, medium or large-scale enterprises and/ or
projects. In 1998, NDB was the first bank in Africa to
be certified under the ISO 9001 International
standards. The Bank continued to sustain its
profitability during the 2003/04 financial year, but
its profits dropped nearly 20 percent against its
2002/03 performance. NDB achieved a net profit of P41
million (USD 8.8 million) for the year ending March
2004. The net loan book of the Bank grew by only 5
percent in 2004, as compared to the 23 percent growth
experienced in 2003. Both foreign and domestic
investors are equally eligible for NDB loans and equity
participation in investments. Screening mechanisms
have not discriminated against foreign-owned firms,
with 28 percent of the Bank's total loan value owned by
non-citizens.
The Botswana Stock Exchange (BSE) has been one of the
best performing stock markets in the world over the
past decade, and 2004 proved to be another solid year
for the Exchange. The domestic company index grew
strongly during the first two quarters of the year and
then leveled off in the third and the fourth quarters,
showing total capital growth for the year at 15.6
percent and 27 percent factoring in dividend returns.
The foreign companies index rose by 11.9 percent in
2004. As a demonstration of the Exchange's growth, the
total number of companies listed on the exchange has
increased from only 5 at its inception in 1989 to 44 as
of 2004. In June 2004, seven medium and long term
Quasi-government bonds valued at P1 billion were listed
on the Exchange, increasing the total value in the
Botswana bond market four-fold to P1.8 billion. In
addition, there are now 18 corporate bonds listed on
the Exchange, 16 of which were listed in 2004.
With the elimination of exchange controls, foreign
investors may now participate in this bond market. The
hope is to use its development to attract portfolio
investment.
There are no known practices by private firms to
restrict foreign investment participation or control in
domestic enterprises. There are no known laws or
regulations specifically authorizing private firms to
adopt articles of incorporation or association, which
limit or prohibit foreign investment, participation or
control.
Political Violence
There is no political violence in Botswana.
Corruption
Over the years the Government of Botswana has become
seriously concerned about the increasingly detrimental
effects of the growing crime rates which were seen to
be limiting the country's development and affecting its
social structures, depriving it of considerable revenue
and damaging the country's reputation. Legislation to
combat corruption and economic crime was put in place,
and the Directorate on Corruption and Economic Crime
(DCEC) was established in 1994. Passage of the
Proceeds of Serious Crime Act in 2000 expanded the
DCEC's mandate include money laundering. Since its
inception, DCEC has earned itself respect locally and
among those engaged in anti-corruption work elsewhere
in the world. In 2004, Transparency International
ranked Botswana as the least corrupt country in Africa.
During 2004, reports to DCEC increased significantly:
almost 2,000 as compared to 1,700 the year before, an
increase of about 18 percent. DCEC's investigation load
includes fraud, complaints of tender irregularities,
false claims by public officers and alleged bribe
payments to obtain driving licenses. The Directorate
has embarked on an education campaign to raise public
awareness about the cost of corruption and is also
working with Government departments to reform their
accountability procedures.
A few cases of substantial misappropriation of money
and land have been exposed in recent years by the
press. Bribery is strictly illegal in Botswana. The
government bureaucracy is paid on time and is provided
a living wage. Investors with experience in other
developing nations describe the lack of obstruction or
interference by government as among the country's most
important assets. While there remains a high tolerance
for conflict of interest in government/private sector
interaction, foreign investor complaints generally
focus on the reputed inefficiency and/or
unresponsiveness of mid- to low-level bureaucrats in
government. Because of the high tolerance in
government for conflicts of interest, nepotism concerns
are largely overlooked given the small size of the
population and the chronic shortage of skilled labor in
various sectors. The Government introduced the
Performance Management System (PMS) in 2004 in an
effort to improve service and accountability.
Bilateral Investment Agreements
Botswana and the United States entered into an
investment guarantee treaty soon after the country's
independence. Botswana has bilateral trade agreements
governing the duty-free entry of goods with Malawi and
Zimbabwe in southern Africa, in addition to membership,
along with South Africa, Namibia, Swaziland and
Lesotho, in the Southern African Customs Union (SACU).
Botswana is a member of the Southern African
Development Community (SADC). Botswana has announced it
is planning to pursue free trade negotiations with
China and India in 2005, in addition to its ongoing FTA
negotiations with the U.S. as part of SACU. Botswana
ratified the Cotonou Agreement in March 2002 and played
host to the ACP convention in 2004. It is currently
negotiating an Economic Partnership Agreement (EPA)
with the EU as part of SADC. In addition, Botswana
participates in the Generalized System of Preferences,
and is an AGOA beneficiary country. None of these
agreements are specifically "investment" agreements.
OPIC and other Investment Insurance Programs
OPIC insurance is available to U.S. investors in
Botswana. In July 2004, OPIC signed a USD 8.5 million
investment guarantee with the Kalahari Gas Corporation,
owned in part by Covalent Energy Corporation of
Arlington, VA, to finance equipment purchases and the
drilling of coal bed methane (CBM) wells located
approximately 500 meters underground in eastern
Botswana. Botswana is a member of the Multilateral
Investment Guarantee Agency (MIGA). MIGA offers
investors protection against inconvertibility or
transfer of currency, expropriation, breach of contract
and war and civil disturbance.
Labor
With high levels of unemployment (estimated at 23.8
percent in 2004) and underemployment, Botswana suffers
no shortage of potential workers. The skills base is
still limited, however, and employers may have to
engage in significant training efforts depending on the
industry. Retention of workers and absenteeism can
pose problems and is likely to grow as HIV/AIDS begins
to affect the workforce on a broader basis. In
addition, managers often cite productivity of the
workforce as a point of frustration. The lack of
trained local citizen professionals is generally
resolved by the use of expatriates, although government
officials maintain that local equivalent labor is
available.
Organized labor represents only a small portion of the
formal sector workforce in Botswana of 288,000 workers,
concentrated in the mining, and, to a lesser extent,
banking sectors. Botswana law provides for the right
of association, but most foreign investors will not
encounter a unionized workforce in the near term. Only
on very rare occasions have the established unions
resorted to work stoppages.
Botswana law protects worker rights in a number of
commonly defined areas, and, in the formal employment
sector, standards for length of workweek (48 hour
maximum), minimum wage, and prohibition of child labor
are almost universally upheld. Government continues to
build capacity and ensure implementation of fair
practices, and good human and industrial relations. To
achieve this, there will be a review of the Regulations
for Industrial Class Employees and the Public Service
Regulations to align them with new Employment Act,
Trade Disputes Act, Trade Union and Employers
Organization Act, and International Labor Organizations
Conventions of which Botswana is a signatory.
Free Trade Zones/Free Ports
Botswana currently has no domestic free trade zones or
free ports.
Free Trade Areas
Recognizing the problems that its small domestic market
ultimately poses for investors, Botswana is actively
pursuing free trade agreements with its neighbors.
Botswana is a member of the Southern African Customs
Union, (SACU). SACU is one of the oldest regional
integration groupings in the world, dating as far back
as 1910. The member states are Botswana, South Africa,
Lesotho, Namibia, and Swaziland. SACU comprises a
duty free trading area with a common external tariff.
With the exception of certain foodstuffs, import
permits are not required for goods entering Botswana
from other SACU members. Botswana's membership in
SACU allows investors to take advantage of selling duty
free in the far larger South African market. As a
result of the signing of the new SACU Agreement in
October 2002, the new SACU Secretariat, based in
Namibia, initiated its operations in mid-2004. The
establishment of the Secretariat will play a crucial
role in implementing the new SACU Agreement as well as
improving economic performance of the union's member
states. The U.S.-SACU Free Trade Area negotiations,
which were launched in June 2003, are still under way,
with the aim of concluding the talks over the next few
years. The U.S.-SACU FTA will offer increased markets
for exports from the SACU countries, and in so doing
enhance growth and employment opportunities.
Botswana is a member of the Southern African
Development Community (SADC), which launched its Free
Trade Area in September 2000. Once fully implemented
in 2008, the free trade area will include 200 million
people stretching from the Democratic Republic of Congo
to South Africa. At present, the 13 participating
states, including Botswana, have begun phasing-in an
eight-year program for the elimination of tariffs on
all categories of goods originating in their
territories. The member states have also pledged to
eliminate, during the implementation, all existing non-
tariff barriers to trade which exist in the region. As
the SADC free trade area comes in to being, it will
greatly assist Botswana's investment climate by
offering foreign and domestic investors access to a far
larger single market.
HIV/AIDS
HIV/AIDS is the most important challenge Botswana faces
today. About one in three pregnant women aged 15-49 is
living with HIV, and almost half of all persons 25-29
are infected. This indicates that HIV is the single
greatest threat to economic development in Botswana.
In addition, HIV/AIDS is expected to exacerbate
Botswana's poverty problem with the number of Botswana
households living in poverty growing from 8 to 10
percent. Of special concern to investors is the
Standard and Poor's report's forecast that, HIV/AIDS
cases will increase sharply over the next five years,
negatively affecting GDP growth, domestic savings, and
public finances. A report by UNAIDS states that by
2015, the economy of Botswana would grow by 2.5
percentage points less than it would have in the
absence of the epidemic, consequently increasing the
risk profile for investment into the country.
Businesses are contending with HIV/AIDS as it results
in the loss of managerial and skilled staff, lower
productivity, and higher rates of absenteeism. In
1999/2000, Botswana's diamond mining company, Debswana,
carried out an institutional audit to gain a more
detailed picture of the epidemic's impact on the
company and its operations. It discovered that
retirements due to ill health and AIDS-related deaths
had risen noticeably. In 1996, 40 percent of
retirements and 37.5 percent of deaths among workers
were due HIV/AIDS. By 1999, the proportion had risen
to 75 percent and 59 percent respectively. Many
businesses have already developed HIV/AIDS education
and support programs to help educate employees about
the disease and to provide support as they cope with
crisis. Potential investors will have to factor these
issues into their export and investment plans.
It is important to point out that the Government of
Botswana, in partnership with donor agencies, has taken
a leading role in countering the pandemic, through
advocating behavior change and other strategies. In
2002, the government began to provide anti-retroviral
medication (ARV) to HIV-positive citizens free of
charge. At present, some estimated 40,000 persons are
on this medication, and the government is still in
process of rolling out this therapy to district clinic.
Foreign Direct Investment Statistics
Foreign direct investment statistics trends show that
FDI forms a major portion of capital flows into
Botswana followed by portfolio investments, which have
shown a considerable increase since the establishment
of the Botswana Stock Exchange in the 1990's.
The following tables show the Levels of Foreign
Investment in Botswana by Industry and Country as of 31
December 2002.
LEVEL OF FOREIGN INVESTMENT IN BOTSWANA BY INDUSTRY
(Equity/Non-equity - P million as of 31 December 2002)
Industry Foreign Direct Investment Other Investment
-------- ------------------------- ----------------
Mining 5,615 1,777
Manufacturing 280 ----
Finance 803 199
Retail & Wholesale 756 101
Water and Energy 19 225
Business Services 105 78
Transport & Communication 155 51
Construction 13 4
Hospitality 129 ----
Public Administration --- 2,443
Other 1 1
Total 7,876 4,880
LEVEL OF FOREIGN INVESTMENT IN BOTSWANA BY COUNTRY
(Equity/Non-equity - P million as of 31 December 2002)
Source Foreign Direct Investment Other Investment
------ ------------------------- ----------------
North America & Central 40 ----
U.S.A. 32 ----
Europe 4,051 424
United Kingdom 613 60
Netherlands 21 ---
Germany --- 181
Luxembourg 3,313 43
Other Europe 95 57
Asia Pacific 107 744
Africa 3,588 2,043
South Africa 3,460 1,963
Middle East 22 57
Other 68 1,611
Total 7,876 7,183
Exchange Rate USD/Pula 1:5
Source: Bank of Botswana 2003 Annual Report
Since 2001, the largest part of foreign direct
investment has been focused in the mining industry,
representing 71 percent of total FDI in 2002. The
financial sector is the second largest recipient of
FDI. Towards the end of 2002, the bulk of FDI was from
Europe, overtaking South Africa as the major source in
2001. Though it is still large, South Africa's share of
total FDI fell to 43.9 percent from 60.1 percent the
previous year.
Major U.S./Foreign Investors
AON Botswana is 95 percent U.S. owned by the AON
Corporation, which has its headquarters in Chicago, and
it is 5 percent owned by AON Botswana staff. AON has
annual revenues of over USD 7 million and its primary
clients are the Government of Botswana and Debswana
(Government-De Beers joint venture).
Phillip Morris owns a percentage of SAB Miller Co.,
which owns 40 percent of Kgalagadi Breweries (PTY) LTD.
In 2004, South African Breweries (SAB) bought out the
Miller Brewing Company, which owned the percentage of
Kgalagadi. Annual revenue for Kgalagadi Breweries was
roughly USD 170 million in 2003.
Marsh Insurance is 95 percent owned by Marsh New York
of the Marsh and McLennan Companies and is 5 percent
locally owned. Marsh has 27 employees and annual
revenues were roughly USD 1 million last year.
H.J. Heinz, Inc. owns 80 percent of Kgalagadi Soap
Industries, representing assets of well over USD 5
million.
Covalent Energy of Virginia owns 25 percent of the
Kalahari Gas Corporation, which received OPIC funding
for a natural gas drilling project in mid-2004.
Harness Manufacturing Botswana (HMB) has a special
contractual agreement with the U.S. owned Delphi
Corporation as an integrated supplier for Delphi. HMB
produces only Delphi products and operates under the
technical management of Delphi Europe. Annual revenues
for HMB in 2003 were roughly USD 24 million.
Additional U.S. Distributors/Agents/Franchises
operating in Botswana include: Kentucky Fried Chicken,
ReMax Realtors, Colgate Palmolive, Grant Thorton
Acumen, Deloitte and Touche, Pricewaterhouse Coopers,
KPMG, Ernst & Young, DHL, Federal Express, Avis, 3M,
Barloworld, and Canon. The auditing firms (e.g.
Pricewaterhouse Coopers, etc) are wholly owned by the
local partners and receive management control and
guidance from the U.S.
Among non-U.S. investors, by far the largest is the
Anglo-American Corporation (De Beers), which has a 50
percent stake, along with the Government of Botswana,
in the country's diamond mining company Debswana.
However, the Government sold half of its 14 percent
share in the Anglo-American Corporation in early 2004
in order to generate revenue for its 2003/2004 fiscal
deficit.
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