Kamil Kolacek

July 12, 2003

Silicon Valley

Center for International

Trade Development

Botswana’s Shine

Contemporary Botswana is a country wrapped in duality. In many ways it has changed little in the thousands of years since the first hunter-gatherer Basarwa Bushmen migrated to the area during the Middle Stone Ages.

On the other hand, after post-colonial British independence in 1966, Botswana has embarked on a rapid and steady pace towards modernity and integration into the global marketplace. This change has brought both opportunities and challenges to the small landlocked sub-Saharan country.

One of its shinning achievements, Botswana experienced the world’s best annual GDP growth rate at an impressive 9.1% average for the period 1966 to 1999. Yet, at the same time it holds the dubious distinction of having the highest HIV/AIDS infection numbers on earth, with an estimated 38.8% of the sexually active adult population carrying the deadly virus. GDP per Capita has steadily risen over the years, yet life expectancy has declined. The past decades increase in average wealth has been tempered by intensified inequality. The government is dedicated to ‘economic diversification,’ yet the country is still dependent on mining for 80% of its export revenue.

The dualities indeed pervade. But despite the challenges the country faces with poverty, HIV/AIDS, and adapting to a modern, globalized world; Botswana still remains one of Africa’s brightest and best prospects for foreign investment and growth.

Unlike many of its African counterparts, Botswana has managed to shrewdly take advantage of its vast mineral wealth and transform itself from one of the world’s poorest nations to a middle-income economic success story in less than 3 decades ( 2001 per capita GDP of $7,800). With a prudent, astute government and savvy central bank, Botswana has excelled on a successful path that has been paved by a number of solid foundations. The groundwork consists of a political system that is plural, open, and free. Botswana boasts a constitutional democracy, a strong judiciary system, and a good Human Rights Record. In fiscal matters, the government is conservative and perceptive. The state has a proven track record of stable economic governance and has maintained a budget surplus for 12 of the last 13 years. Botswana has no domestic debt and little foreign debt. As a result, both Moody’s and S&P, the two most prominent international debt ratings agencies have awarded the country with Africa’s best credit rating topping those of Greece, Taiwan, or South Korea. Transparency International ranked Botswana Africa’s least corrupt country in 1999/2000 and the World Economic Forum listed it as the continents 3^rd most economically competitive nation.

All these honors are a testament to Botswana’s commitment to promote free enterprise, free markets, and minimal state interference in business. The country is dedicated to a policy of economic growth through endorsing entrepreneurship, investment and free trade. Botswana has become an increasingly attractive investment for both direct projects and portfolio flows for several reasons. Foreign firms doing business in Botswana are not discriminated against, repatriations of profits/capital is simple and unhindered, corporate taxes are relatively low (25% regular, 15% for certain manufacturers; foreign included), as is inflation (6.1% 2001), the banking system is stable and friendly to foreign firms (conservative central bank, 5 large commercial banks), company formation is simple, basic transportation and communications infrastructure is good, intellectual property rights are protected and upheld, and the commercial legal system is described as efficient and fair.

Opportunities for substantial investments in Botswana include; mining equipment, hospital/medical supplies, pharmaceuticals, water and sanitation equipment, telecommunications, solar energy and consulting services. Botswana is a member of the Southern Africa Development Community (SADC) of which 11 members (Botswana included) signed a Trade Protocol in 2000 that aims to eventually eliminate tariff and non-tariff barriers to trade over a ten-year period. If successful, this will offer US exporters and investors easier access to a market of some 200 million people. Even in the much smaller Southern African Customs Union (SACU), which includes Botswana, Lesotho, Swaziland, South Africa, and Namibia; US exports are already 50% more than all of the former Soviet countries combined, including Russia. Botswana is also a member of the US African Growth and Opportunity Act (AGOA) which extends till 2008 and grants duty and quota free access on over 6500 categories of goods to the US market. Under AGOA, the United States imported $9 billion of duty-free merchandise in 2002, a 10% increase from 2001.

Sub-Saharan Africa in general presents a major opportunity for future US business, as the region currently accounts for less than 1% of US merchandise exports, and less than 2% of US merchandise imports; yet the continent as a whole is home to over 13% of the worlds population. There is substantial room for increased US investment in these economies where the US in 2001 accounted for only 7.9% of the areas market share, while the EU held a 36.5% stake. The main factors for EU dominance in the region have been Africa’s historical colonial ties to Europe and the increased transportation costs from distant US shores. Yet many Africans have a very favorable view of the quality of American products, and thus goods from the US often enjoy an ‘excellence premium’ amongst local and foreign rivals that takes some pressure off the challenge of competitive pricing.

Botswana, aptly centrally located in sub-Saharan Africa, should also be one of the nations centrally positioned in the minds of US exporters contemplating business in Africa. While its sub-Saharan neighbors grew 2.9% in economic terms in 2001, Botswana continued to shine with 9.1% growth rate. Most nations in the region struggle with massive foreign debt, Botswana has virtually none. Illiteracy and lack of basic education plagues developing African countries, yet a majority of Botswana’s citizens are highly literate and access to primary education is almost universal. War, civil strife and ethnic conflict continually ravage’ troubled sub-Saharan countries, but Botswana has managed to be an island of peace and stability for over 3 decades in the heart of a region known for turmoil.

Its accomplishments are indeed something Botswana can be supremely proud of. In a country known for its diamond business, its stability and economic growth in the last 30 plus years has sparkled almost as magnificently as one of its gorgeous rare gemstones. Although it would be naïve to overlook the ugly ‘blemishes’ such as poverty, unemployment and HIV/AIDS infections rates that tarnish the ‘jewel’ that is the current Botswana investment climate; with the help of foreign investment and cooperation, Botswana’s has the opportunity to fight its challenges…grow…prosper…and, of course…continue to shine.