Renewable Energy Information Network of Namibia (REINNAM)

Renewable Energy Information Network of Namibia (REINNAM)

+264-61-2072088

• 
  World bank: Chunlin Zhang (Lead private sector development specialist)
  

M 0027 71 852 4499

• 
  African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
  

T 0027 790198513

e.ruganzu@afdb.org

www.afdb.org

• 
  Ger Kegge (Hon. Consul)
  

T 00264 61 223733

• 
  Namibia Chamber of Commerce and Industry (NCCI)
  

2 Jenner Street

c/o Simpson & Jenner Streets

Windhoek-West

Windhoek Namibia

Tel: +264-61 228809

• 
  Ministry of Trade and Industry
  

Brendan Simbwaye Building

B Block, Goethe Street

Private Bag 13340, Windhoek

Tel 283 7111, Fax 22 0148 (Minister)/ 220227 (PS)

• 
  Department of Trade and Commerce
  

Tel 00264061028307332

Fax 002640610220227

kamboua@mti.gov.na

• 
  Directorate of International Trade
  

Tel 00264061028307331

Fax 00264612503865

mwayangapo@mti.gov.na

• 
  Namibian Competition Commission
  

PO Box 2104

Windhoek

Tel 002640610224622

Fax 0026461401900

• 
  SACU
  

Tel 00264 612958000

execsec@sacu.int

www.sacu.int

• 
  SADC- PF
  

00264612870000

info@sadcpf.org

• 
  Agricultural Bank of Namibia
  

Mr. Regan Mwazi

Tel 002642074111

info@agribank.com.na

1. 
   General economic environment
   

Since over 50 per cent of government expenditures used to be financed with Southern African Customs Union (SACU) receipts and SACU revenues have declined, the country faces a significant budget deficit. The dependence syndrome of the country on SACU receipts is a major concern and needs government’s action to counter the consequences of the declining SACU revenue. With the prevailing situation, Governments’ deficit will escalate to unsustainable levels which in turn will compromise Government savings. It is with this state of the fiscus that government is intensifying her efforts to enhance tax collection to diversify her revenue through the establishment of a Revenue Authority.²⁷

Meanwhile, gross investment has remained relatively low in recent years. Total investment stood at 13.6 per cent of GDP in 2009; though it is expected to improve slightly, it is expected to remain low in line with slower growth in FDI inflows exacerbated by the stiff competition in the region, where potential investors continue to prefer other countries in the region other than Swaziland as their ideal investment location. The repatriation of 30 per cent of the assets of insurance and retirement funds held abroad was meant to boost domestic savings and hence investment in the country. However, the positive effects of this measure are yet to be seen.

With a limited domestic market, Swaziland relies heavily on export-based agricultural commodities and industries. South Africa is the main trading partner. In this small economy, subsistence agriculture, fisheries and farming occupies about 70 per cent of the general populace. The industrial manufacturing sector has diversified since the mid-1980s and mining has declined in importance in recent years. Sugar and wood pulp remain important foreign currency exchange earners. It is however not clear whether the sugar industry will remain vital, since sugar prices in the EU have declined in 2007.

Global economic conditions in general continued on a downward trend and according to the latest IMF report, output decreased from 3.4 per cent to 0.5 per cent. Other macroeconomic indicators confirm the not so impressive performance of the domestic economy. Swaziland has maintained relatively low savings and investment rates. The inflation rate in Swaziland has been high, and was particularly high in 2008, being 12.6 per cent. It has declined the last couple of years to an estimated 5 per cent in 2010. The debt stock to GDP ratio fell as well to 14.2 per cent from 17.9 per cent recorded in the previous financial year.²⁸ As already mentioned, export-oriented industries drive the economy and provide 80 per cent of GDP. Real GDP growth has been low and is estimated 2 per cent in 2010, after 1.2 per cent growth in 2009.²⁹ This was partly due to the downturn of South Africa’s economy, which traditionally takes up about 60 per cent of Swaziland’s export commodities and about 80 per cent of imports originate there. Swaziland has always maintained strong economic and trading links with South Africa. Since Swaziland has a limited domestic market, its growth and development are highly influenced by climatic conditions, global trends and commodity prices, as well as capital and aid flows.
Swaziland is a member of the Southern African Customs Union (SACU), comprised of Botswana, Lesotho, Namibia, Swaziland and South Africa. SACU currently represents the largest market for Swaziland’s export products. Besides SACU, the country is also member of the Southern African Development Community (SADC) as well as of the Common Market for Eastern & Southern Africa (COMESA). COMESA is currently working towards the establishment of a Customs Union, which will allow for the free movement of goods and services between member states.

Furthermore, Swaziland is a beneficiary to the GSP scheme (Generalised System of Preference), which provides for goods that originate from developing countries to be imported into industrialised countries at reduced customs levies.

1. 
   Infrastructure
   

Although a significant part of the country has remained rural, the telecommunication system in the cities is generally well organised.

Swaziland's major source of commercial energy in the form of electricity, petroleum products and coal, are imported from South Africa. Het land is echter een producent van hoogwaardige antraciet kolen verkregen uit Maloma kolenmijn en geëxporteerd naar markten in Zuid-Afrika.

Most of the country's electricity needs (70%) are met from the South African Electricity Company (ESKOM). De elektriciteitsvoorziening is onstabiel, omdat het net is relatief zwak en actief zijn in meer dan de nominale capaciteit Frequente onderbrekingen en spanningsschommelingen zijn daarom gemeenschappelijke kenmerken. The electricity supply is unstable because the grid is relatively weak and operating in excess of its rated capacity. Frequent interruptions and voltage fluctuations are therefore common features. Inspanningen om deze problemen op te lossen en verbetering van de betrouwbaarheid van de levering hebben geleid tot de huidige installatie van een 400 KV lijn tussen de drie landen: Swaziland, Zuid-Afrika en Mozambique. Efforts to resolve these problems and improve the reliability of the supply have culminated in the current installation of a 400 KV line linking the three countries: Swaziland, South Africa and Mozambique.

Aangezien de vraag naar elektriciteit is waarschijnlijk toenemen ten opzichte van de vraag van de overgrote meerderheid van de huishoudens die momenteel niet zijn aangesloten op het nationale elektriciteitsnet, zullen meer inspanningen nodig zijn voor de bevordering en ontwikkeling van alternatieve duurzame energiebronnen.Since the demand for electricity supply is likely to increase with respect to demand of the vast majority of households which are currently not connected to the national grid, more efforts will be required for the promotion and development of alternative renewable energy resources.

Het grootste deel van de elektriciteitsbehoefte van het land nodig heeft (70%) worden betaald uit de Zuid-Afrikaanse elektriciteitsbedrijf (Eskom).

2. 
   Labour
   

2. 
   Political context
   

Some believe Swaziland is on the cusp of upheaval at the moment, after a 60% fall in Southern African Customs Union receipts last year, coupled with an International Monetary Fund-led structural adjustment programme. Thousands of public servants have recently protested against the country’s economic downturn, complaining of unpaid salaries and job cuts. In response, King Mswati III- bearing in mind that his salary had increased by 23 % - called for Swazis to ‘work harder and sacrifice more, instead of protesting against the country’s economic downturn’. The demonstrators were supported by the Congress of South African Trade Unions (COSATU), which is trying to bring democracy to Swaziland. Although protests and demonstrations tend not to last long in Swaziland, the government has agreed to organise a workshop hosted by the International Labour Organisation (ILO) to train the police in how to deal with labour protests.³¹

The government however does recognise that boosting and sustaining economic growth requires a strong private sector. Private sector development is thus an integral part of the government’s economic growth agenda, which thus recognises the need to continue its efforts at fiscal policy and structural reforms; securing greater market access in regional and multilateral trade programs, improving labour productivity by focusing on skills development and curbing the spread of HIV/AIDS; and enhancing the regulatory framework. However, the result and effectiveness of these policies have not been evaluated yet.

3. 
   Business climate
   

Swaziland is ranked 118 out of 183 economies in the Doing Business Survey 2011. The country does not get good credits in particular for the ease of starting a business, registering property and enforcing contracts. Although trading across borders has improved due to reforms, Swaziland still ranks only 147, since import and export of goods remain very time consuming and expensive.

Companies in Swaziland are likely to report that competition from the informal sector, crime, theft and disorder as well as access to finance are serious problems; more than any other area of the investment climate. The average cost of theft and security per worker however is lower than in other countries in SACU, though it is higher than in most of the non-SACU comparator countries. The drive to curb and control corruption and dishonesty is causing enormous delays and frustrations for normal business along the way. Some even so big, that it becomes doubtful whether the measures as a whole, are bringing net benefit to the country.

Expropriation and nationalisation are prohibited. The land tenure system in Swaziland is confusing for investors, as much of the land is held by the monarchy in trust of the people of Swaziland. Land leases are unclear and uncertainty exists as to the details of land ownership rights.

Furthermore, companies might find the legal system confusing at times, since Swaziland has a dual legal system comprised of Roman-Dutch law and customary law.
Labour and employment are other major issues which frustrate business. As already mentioned, the unemployment figures are not reliable at all; unofficial rates are estimated around 40 per cent, but are said to could be even higher. Beside the high HIV/AIDS prevalence a shortage of trained workers in specialized fields exists and has resulted in a heavy reliance on expatriate technicians, accountants and engineers. There are government departments set up to control the issuing of work permits for outside persons. Those work permits, which last for only 2 years, are very carefully monitored and it is very difficult to get experienced people from outside Swaziland to work here unless they have qualifications and experience that make them rare. The government policy requires hiring qualified Swazi workers when possible, which is understandable. However the system is not being applied consistently. This is a rather negative factor for new businesses establishing themselves in Swaziland, as a new investor will inevitably rather bring in staff that he can trust to make his investment work, rather than use people he/she is not comfortable with, at least not initially.

Another performance requirement affects only exporters who wish to label their product as made in Swaziland; local export authorities require that the local content of such exports be at least 25 per cent. As well as some limitations on free movement of goods/services, since border posts have become more difficult.

Nevertheless, Swaziland is home to more than fifty companies from the USA, the UK, Japan, the Republic of China, Germany and South Africa. Such international companies, all with stellar reputations and highly socially-responsible company policies see the country as very hospitable to investors. It is said to have good infrastructure; good access to the ports of Richards Bay, Durban and Maputo, a generally supportive operating environment; and most importantly, good access to regional and international markets. Swaziland is small. There is one community, the same tribe, so culturally it tends to be easier to deal with. Furthermore, the country does not have the racial history of antagonism (that SA does), which could make things easier for companies.

The country also provides incentives for qualifying investors, particularly those in export-driven manufacturing, which include a 10 per cent corporate tax rate, as opposed to the standard 30 per cent; no withholding tax on declared dividends; factory shells rented at cost; and a 150 per cent training allowance.

4. 
   Possible opportunities
   

Although privatisation is high on the government’s official agenda, progress in a given sector can be very slow. Nevertheless, franchising opportunities, such as restaurants and retail shops, are plentiful in Swaziland and have been successful in the past. Because of the climate, the soils and the water, Swaziland forms a good country for agriculture. Some irrigated land, currently planted with sugar cane, will likely switch to new crops due to a decline in the EU price for Swazi sugar. The change in production will demand new capital investment and a shift in farm inputs, which could form a potential sector to invest in. It is advisable to visit Swaziland prior to establishing a business. Some foreign businesses partner with Tibiyio Taka Ngwana (a Royal family owned company), Swaziland Industrial Development Company (SIDC) and/or SWAKI (Swaziland Kirsh Industries).

5. 
   Conclusion
   

The country has the highest rate of HIV/AIDS in the world. It also has a complex land tenure system, since the land is owned by the King. Furthermore Swaziland is still ranked very badly for the ease of starting a business, registering property and especially enforcing contracts. Procedures are costly and very time consuming.

• 
  World bank: Chunlin Zhang (Lead private sector development specialist)
  

M 0027 71 852 4499

• 
  African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
  

T 0027 790198513

e.ruganzu@afdb.org

www.afdb.org

• 
  Per Noddeboe (Hon. Consul)
  

• 
  The federation of Swaziland Employers and Chamber of commerce
  

Zodwa F. Mabuza, CEO; BA MSc Econs

Emafini Business Centre

Malagwane Hill

PO Box 72

Mbabane H100, Swaziland

Phone: 002684040768/4408

Mobile 0026876026083

zodwa@business-swaziland.com

www.business-swaziland.com

• 
  Swaziland Investment Promotions Authority (SIPA)
  

• 
  Bongiknkosi Thwala - Swazibank (bongorie@gmail.com)
  

• 
  Mduduzi Gamedze - AgroMet (gamedze@gmail.com)
  

• 
  Lonkhululeko Sibandze - Chief Economist (lonkyps@yahoo.com)
  

• 
  Komati basin water authority
  

Phone:+268 437 1463/4

Fax:(268) 437-1460

Email:maguga.office@kobwa.co.za

• 
  Menzi Dube - Ministry of Agriculture (menzi_dube@yahoo.co.uk)
  

• 
  Emmanuel Ndlangamandla
  

Coordinating Assembly of NGOs (CANGO)

Tel: (+268) 404 6586 direct line

(+268) 404 9283

Fax: (+268) 404 5532

Mobile: (+268) 602 4743

Email: director@cango.org.sz

Website : www.cango.org.sz

• 
  The Central bank of Swaziland
  

• 
  NERCHA; National Emergency Response Council on HIV and AIDS
  

Lesotho is an extremely mountainous developing nation completely surrounded by the country of South Africa, with over 2 million inhabitants. A significant amount of the population is from Chinese origin.

Lesotho’s economy is based on water and electricity sold to South Africa, manufacturing, earnings from SACU, agriculture, livestock, and to some extent earning of labourers employed in South Africa. The country also exports diamonds, wool, and mohair. Being a developing nation, Lesotho is very reliant on donors.

Lesotho is a member of many regional economic organizations including the Southern African Development Community (SADC) and the Southern African Customs Union (SACU). However, Lesotho is considerably poorer that the other countries in the SACU and also compared to other countries in the region.

In SACU tariffs have been eliminated on the trade of goods with other member countries, which include Botswana, Namibia, South Africa, and Swaziland. With the exception of Botswana, these countries also form a common currency and exchange control area known as the Common Monetary Area (CMA).

For years, Lesotho has depended on receipts from SACU for up to 60 per cent of its budget. The global economic crisis saw Lesotho's share of SACU revenue decline by about 50 per cent in the 2010-11 financial year and while those revenues are expected to recover somewhat this financial year, the amount entering the national reserves will continue to decrease as the government repays a deficit owed to the Union. This is expected to lead to sharply wider fiscal and external imbalances.

Inflation in Lesotho has been high, averaging 8.5 per cent between 2007 and 2009. In addition, real GDP growth has been low; 4.5 per cent in 2008 and only 0.9 per cent in 2009 due to the global economic crisis. Lesotho is highly dependent on South Africa’s economy. Economic activity has slowed down due to a significant reduction in the major exports and reduced workers’ remittances from South Africa.

The GDP composition by sector is roughly as follows: agriculture 7.1 per cent, industry 34.7% and services 58.1 per cent. The unemployment rate is significant as well as the public debt. The latter is estimated around 55% per cent of GDP in 2010 and even 65.7 per cent in 2011.

Infrastructure in Lesotho is relatively undeveloped with poor coverage and low-quality services. The Government of Lesotho (GOL) recognizes the need to expand coverage, improve quality, and ensure efficient delivery of infrastructure services and has embarked on a series of reforms in the telecommunications, power, water and transportation sectors.

Although the number of paved roads is gradually increasing, the majority of Lesotho’s 6,000 kilometres of roads are unpaved. There is a short rail line (freight) linking the capital city of Maseru with Bloemfontein in South Africa that is owned and operated by South Africa.

Lesotho is almost completely self-sufficient in the production of electricity due to the completion of the first phase of the Lesotho Highlands Water Project (LHWP) and generated approximately $24 million annually from the sale of electricity and water to South Africa. The revenue is however mismanaged. Significant parts of Lesotho still have no access to electricity, they are still dependent on borehole water.

Although, the ‘Renewable Energy-based Rural Electrification in Lesotho’-project³³ aims at reducing Lesotho’s energy-related CO2 emissions by introducing renewable energy technologies as a substitute for fossil fuel (paraffin and diesel) in rural areas and improving peoples’ livelihoods by improving their access to and affordability of modern energy services. The project will aim to remove barriers to the wide-scale utilisation of renewable energy technologies and to meet the basic electricity needs of households, small businesses and of community users like health clinics and schools.
Telecom

Technological change, the introduction of competition in cellular telephony and the privatization of the fixed-line operator have resulted in a sharp increase in tele-density and a diversification of services to the end users. Although the telecommunications coverage has expanded rapidly in recent years, coverage remains very low.

Internet coverage and access to bandwidth remains low as well as the quality of the internet service. Moreover, the quality of fixed line service remains poor as well Aside from the relatively lower quality of service ad lack of access to telecommunications technology, the high cost of services to consumers also hinders the expansion. Increasing competition in this segment of the market could contribute to lower prices and higher quality services, as at the moment the main players are Telcom, Vodacom and Econet.
1.2 Labour

The labour market is characterized by low demand in relation to supply. Lesotho has labour laws, however violation of these laws occurs regularly. Union organisation is permitted.

A significant amount of the Lesotho labour force is absorbed by South Africa. Because hardly any jobs are being created in Lesotho, and the labour force continues to increase, which has resulted in an ever rising unemployment rate. This problem is compounded by a number of factors, the most prominent being diminishing employment prospects in the agricultural and government sectors, a small industrial base, and the retrenchments of South African mining industries. Furthermore, a growing class of Chinese entrepreneurs is running small businesses in Lesotho. The Chinese seem to take over the business climate, as the locals find it hard to compete with these Chinese retailers. Moreover, they enter into agreements with Lesotho to assure their presence in the country.³⁴

On top of all of this, Lesotho is among the countries with the highest HIV/AIDS prevalence in the world, with about 35% of the population being HIV positive. The AIDS epidemic in Lesotho has had a devastating impact on the country. Crippling poverty combined with AIDS has caused average life expectancy to drop to 51 years.³⁵ The impact on individuals, families and the whole nation is being felt as adults become too sick to work, and children orphaned by AIDS are left to run households.

Over the past years, there have been substantial improvements to workplace conditions in Lesotho. Government attention to labour conditions has increased, as has the attention of international buyers to social compliance in the country. Key buyers have clearly communicated their codes of conduct to suppliers in Lesotho; monitoring of conditions at supplier facilities is more frequent and intensive; and in some instances buyers have worked with suppliers through training and capacity building programs.

There is general agreement that the most severe workplace violations no longer are prevalent in the segments of the industry that supply to major international buyers. However, still to be addressed are minor health and safety violations, concern over labour relations and cultural and communication challenges. While the Lesotho labour code is strong, there is a general understanding that enforcement could be improved.

Furthermore, an extremely high HIV/AIDS infection rate among garment workers has led to conflicts over benefits such as sick and funeral leave. It is clear that any CSR initiative in Lesotho should include a HIV/AIDS component.³⁶

The state is heavily involved in most economic activity, fuelling high levels of government spending and preventing the emergence of entrepreneurial vitality. Although many prices are freely determined in the market, the government influences prices through state-owned enterprises and utilities, especially in agriculture.

Significant barriers to trade constrain poverty-alleviating growth. Lesotho’s burdensome regulatory environment increases the cost of foreign and domestic investment, constraining the development of a vibrant private sector. Although, bureaucratic procedures in Lesotho are relatively cheap and simple, the problem however is about delivery, which is half-hearted and slow. Additionally, significant corruption and high tax rates raise the cost of economic activity in Lesotho.

A major challenge is the lack of planning framework that provides the business sector and other development partners with a sense of direction in terms of development priorities and focus.

Although government’s commitment to delivering a policy and regulatory environment that promotes entrepreneurship, savings, investment and broad-based wealth creation is clearly articulated in all of its key policy and strategy documents, Lesotho’s performance in providing such an environment is falling behind its competitors.³⁷
3. Business climate

Lesotho is ranked 138 out of 183 economies in the Doing Business survey 2011. The business environment is not conducive to systematic growth of local businesses.

Lesotho’s laws and regulations make it time consuming and expensive for businesses to comply. There are a lot of cumbersome procedures coupled with unnecessary bottlenecks which make it comparably difficult for investors to do business in Lesotho. Despite several reforms underway, the country is slipping in regional and international rankings because other countries reform faster.

Lesotho has an underdeveloped financial system, lacking dynamic competition. It has been closely tied to South Africa through the Common Monetary Area. The high cost of credit hinders entrepreneurial activity and the development of a vibrant private sector. Reflecting the lack of efficiency and depth in the financial sector, capital markets remain rudimentary. Some of the very glaring deficiencies of the Lesotho economy are the lack of facilities such as a stock exchange and functional merchant banks. In addition, the lack of country-resident pension funds or medical aid funds means lack access to significant resources for development and social investment.

Ranking way above 100 in the Doing Business survey 2011 and maintaining a declining trend mean that Lesotho is losing the competitiveness and as a result maybe forfeiting potential investment opportunities which are required for sustainable economic growth and employment which are key in poverty alleviation.

The lack of investment opportunities in Lesotho also means that most of the money made in the country gets repatriated out of the country.

In essence the local business operates in an environment that has the following constraints and challenges that restrict economic growth and development in Lesotho and therefore impact negatively on citizens and business:

• 
  Poor service delivery by the public and private sector
  
• 
  Lack of capital to finance projects, infrastructure and business growth.
  
• 
  Poor management of resources (especially human and IT infrastructure)
  
• 
  High capital outflow to RSA – Lesotho capital creates jobs for South Africans.
  
• 
  Not enough capital invested in Lesotho by Basotho
  
• 
  No clearly defined strategies on economic growth and development to match or keep up with the SACU neighbours and the world at large.
  
• 
  Poor implementation of strategies that focus on employment opportunities, creation of wealth and sustainable economic growth
  
• 
  Weak fragmented business sector.
  

Lesotho has to offer cheap labour and ample bare land, which would make it suitable for production plants across sectors as an alternative to South Africa, e.g. textile firms.

In order to get an attractive business climate, the infrastructure of the country needs a significant amount of improvement. Therefore, this could be an interesting field to invest in; e.g. building and town planning. Another field worth investing in is education. Skill development and education institutions are needed for the country to develop. Offering expertise to the country could in that regard be very beneficial.

The financial sector as well as the health sector requires expansion and development. More banks are needed, as well as experts in the field who can assist government and district governments as well as companies.

Since water is Lesotho’s main natural resource and given the fact that water is relatively rare in Africa, this resource should be explored further by possible investors.

Tourism could be another potential area, since Lesotho has magnificent landscapes and has the ingredients to become a lucrative ski resort in the winter. Nevertheless, investment in these areas with potential will only have a possibility to succeed when infrastructure improves.

All in all, the country’s economy has declined over the years. This shows the inability of the country to improve the economic environment which is necessary to gain considerable growth.

Lesotho’s economy is currently facing acute fiscal and external position imbalances. This is mainly due to declining SACU transfers as a result of the global financial crisis. This implies that Lesotho’s international creditworthiness is likely to be severely affected making the country a high sovereign risk economy. This is detrimental to investment and hence economic growth.

In addition, South Africa is considering reforming the SACU revenue tariffs, which could have an even more devastating effect for the economy of Lesotho.

Despite the commitment of the government of Lesotho to reform, the country is falling behind its competitors in terms of the pace of reform. International and regional competitors are reforming faster, with the result that Lesotho is losing trade, investment and job opportunities to competitor countries. Moreover, as reform to the business environment is being delivered predominantly through donor programmes- the implication is that these donor funds are not being utilised to the maximum benefit for Lesotho.

Contact details Lesotho

• 
  World bank: Chunlin Zhang (Lead private sector development specialist)
  

M 0027 71 852 4499

• 
  African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
  

T 0027 790198513

e.ruganzu@afdb.org

www.afdb.org

• 
  HC MASERU, LESOTHO
  

Adres: Lancers Inn, Private Bag A216, Maseru

Tel. No: (0026622) 312114

Fax No: (0026622) 325961 / 310223

Consul thuis: (0026622) 333810 Cellphone Consul: 082 334 4606

E-mail: lancersinn@leo.co.ls

Assistant: Johnny van Mastrigt

Adres: PO Box 698, Ladybrand 9745

Tel. No: 00266 58039300

E-mail: johnny@lancersinn.co.ls of dutchconsul@lancersinn.co.ls

1. 
   General economic environment
   

The economy is built on the diamond mining industry, and this sector still dominates. As of the last quarter of 2010, mining contributed to 50 per cent of overall GDP growth and it supplies about a third of the government’s total revenue. It however only accounts for about 5 per cent of employment. Botswana enjoyed the highest GDP growth rate in the world from 1970 to 1999 (8.3 per cent) and is expected to grow by 6.3 per cent in 2011. With the non-mineral GDP growth rate estimated to reach 4.8 per cent in 2011. Other sectors only account for a very small percentage of GDP. The manufacturing sector accounts for about 4 per cent, the agriculture sector accounts for only 2 per cent of GDP and the service sector represents about 10 per cent of GDP. Furthermore, Botswana has no public debt.

The Bank of Botswana’s target inflation rate is 3-6 per cent, although it has rarely been within the target since the Pula devaluation in May 2005. Inflation maintained a downward trend during most of 2009, due to the global economic crisis, but is expected to fall in the target again in 2011.

Botswana is a member of the Southern Africa Customs Union (SACU), comprised of Botswana, Namibia, Lesotho, Swaziland, and South Africa. Under this arrangement, South Africa has collected levies from customs, sales, and excise duties for all five members, sharing out proceeds based on each country's portion of imports. Botswana also signed an Economic Partnership Agreement with the European Union in December 2007, and, as a member of SACU, it signed a preferential trade agreement in 2004 with Mercosur.

In addition, Botswana is a member of the 15-nation Southern African Development Community (SADC), and Gaborone hosts the SADC Secretariat's headquarters. SADC has a broad mandate to encourage growth, development, and economic integration in Southern Africa. SADC's Trade Protocol, calls for the elimination of all tariff and non-tariff barriers to trade among the 12 signatory countries. However, implementation of the protocol has been slow and is not yet complete.
1.1 Infrastructure

In general, the country’s transport and telecommunications infrastructure is good, though internet access is still relatively expensive and slow.

An "inner circle" highway connecting all major towns and district capitals is completely paved, and the Trans-Kalahari Highway connects the country (and, through it, South Africa's commercially dominant Gauteng Province) to Walvis Bay in Namibia. The Civil Aviation Authority of Botswana (CAAB) has been established as a regulator of the air transport services to further enhance the transport system.

Botswana imports 80 per cent of its energy and is sensitive to rate hikes by neighbouring power suppliers, therefore the cost of energy is high. However, a new coal power plant in Botswana is on its way.

Botswana has a high unemployment rate (estimated at 26.2 per cent in 2008) and a severely narrow worker skills base. Retention of workers and absenteeism can pose problems, and the high rate of HIV/AIDS affects the workforce on a broader basis. In addition, managers often cite productivity of the workforce as the main point of frustration. Productivity is incredibly low amongst workers, whereas salaries are relatively high, especially compared to Asian countries.

The lack of trained local citizen professionals is generally resolved by the use of expatriates. The process of getting a working permit for an expatriate can however be very burdensome, since the country tries to stimulate the employment of residents.

Although Botswana citizens are permitted to participate in trade unions, trade unions are not active and only represent a minority of workers.

Corporate Social Responsibility is highly recognized and embraced by government, foreign and local firms, and customers. Increasingly, business, NGO’s and the Government are pulling together to promote business, social and environmental progress.

2. 
   Political context
   

The Government of Botswana seeks to diversify the economy away from diamonds into goods such as pharmaceuticals, textiles, clothing, and leather products, as well as services such a tourism, financial products, business process outsourcing and research. Domestic firms are heavily dependent upon the government for many services. The government plays an important role in allocating credit and also counts for a significant amount of domestic sales, especially for domestic firms. Which makes that Botswana firms are not highly competitive. In order to solve this, Botswana has developed anti-trust legislation and policies to ensure appropriate competition in the business environment, which is expected to begin operation in 2011.

Botswana also reserves some business sectors solely for citizen participation.³⁹

Notable to mention is that the government is said to be moving towards privatizing a number of state-owned businesses. The government would like to use privatization to increase foreign direct investment in the country, though there are significant concerns in government circles that the political costs of privatization are high, e.g., extensive job losses. This accounts for the controversy and delay surrounding the privatization effort.

Foreign investors’ complaints generally focus on the inefficiency and/or unresponsiveness of mid-level and low-level bureaucrats in government. The Government has introduced a Performance Management system to improve the service and accountability of government employees, but its effectiveness has not yet been evaluated.

3. 
   Business climate
   

Although the investment climate is mostly favourable, there remain some obstacles. According to a research among firm managers in 2007, the following obstacles were perceived as serious obstacles to firm’s operations; cost of crime, access to finance, access to land and worker skills.

Botswana is relatively unfavourable with respect to the cost of crime. The median firm reports that the combined cost of crime and security is about $112 per worker per year or 0.6 per cent of sales, which is lower than Namibia and South Africa, but remains higher compared to other countries.

Limited access to finance is another obstacle. Although financial markets appear relatively developed, and access to finance in Botswana is similar to access in other SACU countries, access in the SACU economies in general and in Botswana in particular is worse than in most of the other middle-income comparator countries.

Notably to say is that foreign investors usually enjoy better access to credit than local firms due to the limited capital base of the local entrepreneur and conservative lending policies by commercial banks.

In a recent report the access to land was noted as one of the largest regulatory concerns in Botswana. The report noted that difficulties in land administration and problems associated with land allocation in the major urban areas make land a serious concern. Firms are less likely to own their own land and are more likely to have attempts at land purchases fail than in most of the comparator countries.⁴⁰

In addition, worker skills are marked as a considerable market challenge, partly due to the country’s small population, and partly due to lack of opportunities for workers to gain experience and training. Botswana offers too few experienced managers and specialists. Furthermore, the productivity amongst workers tends to be very low. However, investors who would like to retain expatriates to fill these roles will face the problem that work and resident permits for expatriate employees are subject to increasing bureaucratic delays and hurdles.

The problem of skill shortage does not appear to be entirely due to a shortage of educated workers. The average worker in Botswana is as well, or better educated, than workers in most of the middle-income comparator countries. This suggests that the problem might be with either the quality of education or the curriculum. Firms can deal with this, to provide firm-based training. This however hasn’t turned out to be a very favourable option amongst firms up to now.

The Botswana government has made good efforts to attract foreign investors. The Botswana Export Development and Investment Authority (BEDIA) serves as the main point of contact for foreign investors. Investor friendly policies include the absence of exchange control regulations. Profits and direct investment can be repatriated without restriction from Botswana.

4. 
   Sectors with potential/opportunities
   

Furthermore, energy remains an important sector to invest in, since Botswana aims to reducing its dependence on South African power and becoming a net exporter of electricity. The renewable energy sub-sector is also poised for growth, especially solar-energy. However, the pace of this growth will depend on government policy decisions such as whether to allow feed-in tariffs and the further development of appropriate standards.

In addition, the tourist sector continues to grow, which provides significant employment opportunities. There also is a steady demand for health services and medical/surgical equipment in Botswana.

Outsourcing could be another opportunity. Botswana has potential to become a center for business process outsourcing, financial services including banking and insurance, call centres and research. However, high internet costs and a poor IT skills base have prevented these areas from strong growth. Thus, if internet costs would drop, Botswana could be increasingly attractive for such businesses, since it has good telecommunications and road infrastructure, a well-developed banking sector, and well educated English speakers.

Although Botswana has relatively good infrastructure, this field could still be an opportunity to invest in, as well as the field of education. Especially since the Government is aiming to diversify the economy from the mining industry.
When one decides to go and invest in Botswana, one should establish a relationship with a local firm. Investors increase their chances of successfully navigating the bureaucracy to start their project by partnering with a local firm. In order to gain access to government loans and grants, having a local partner is even mandatory.⁴¹

5. 
   Conclusion
   

This suggests that other factors are probably also playing a role. One such factor is likely to be the small size (in terms of population) and remoteness of the economy. Another factor is the effect that is the macroeconomic effects of the large mining economy has on the competitiveness of the rest of the economy.

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 sometimes burdensome bureaucratic processes, Botswana remains one of the best investment opportunities in the developing world.

Contact details Botswana

• 
  World bank: Chunlin Zhang (Lead private sector development specialist)
  

M 0027 71 852 4499

• 
  African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
  

T 0027 790198513

e.ruganzu@afdb.org

www.afdb.org

• 
  Jan Pit (Hon. Consul)
  

nederland@info.bw