Botswana has continued to wobble in attracting Foreign Direct Investment (FDI) despite its international good ratings and favourable foreign exchange control, taxation and competition policies.
Compared to countries such as Rwanda and Mauritius Botswana`s investment climate has not been doing well especially investments towards infrastructure development and capital investments, Moatlhodi Sebabole, an economist with First National Bank Botswana highlighted.
Sebabole revealed to BusinessPost that Botswana has regressed in comparison to peers like Seychelles Rwanda and Mauritius. Indicating that despite good macros, the doing business in Botswana environment remains relatively tighter on aspects of registration; work permits; access to utilities; tax submissions, among others. He elucidated that this has proven to be a deterrent for some prospective investments.
“The level of innovation and business refinement in Botswana is still stunted and thus hampering competitiveness,” said Sebabole adding that the business operational environment also underperforms on key business indicators which limit extent to which the country attracts new business ventures. Sebabole said that general investment measures and policies in Botswana mainly foreign exchange control, taxation and competition policies have not been used more as leverage to attract investments because the operational environment for doing business in Botswana is tighter and that hampers some FDI prospects.
He explained that lack of implementation of business-friendly policies has acted as a deterrent to leveraging off the positives which include: favorable tax environment; lack of exchange controls and lack of limitations of repatriation of profits and/ dividends. He however said that as a means of attracting foreign direct investment and innovation, he recommends technological revolution. He emphasizes the need for full implementation of the e-governance strategy as an enabler for technological innovation and advancement.
“This calls for Policy adjustment which accommodates an era of leveraging on technological developments for industrialisation across sectors including agriculture and manufacturing.“ he said. However when revealing her roadmap two weeks ago , The Minister of Investment, Trade and Industry Bogolo Kenewendo said her ministry had devised an action plan to actively fight deterrents in trade and barriers to ease doing business.
The action plan by the ministry of trade and investment aims at promoting industrialization from both domestic and foreign investment. The essence is outlined as rendition of the much needed fiscal diversity. Kenewendo further said her ministry aim at easing the burden of doing Business in Botswana. “Concerted efforts continue to be directed towards speeding up of implementation of the ongoing reforms to better the country`s ranking and attract Foreign Direct Investment into the country,” she said.
It is through the Doing Business Reforms Initiative that legal statues have been passed to promote the use of electronic service platforms. She believes, implementation of these legal statues will cut down bureaucracy and ensure efficiency and effectiveness of some government processes thereby creating conducive investment climate for both domestic and foreign investment.
The special economic zones and co-operative transformation have not been left behind by the Ministry of investment as they remain a priority in citizen economic empowerment.Kwenewendo said, co-operatives continue to develop and implement initiatives geared towards co-operative growth, capacity building, diversification and sustainability.
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”