Bridging the divide

A stable economy, low levels of corruption, favourable tax rates and a rapidly modernising capital city make this African nation an increasingly attractive proposition for investors worldwide

FOR A long period Botswana boasted the world's fastest growth rate, having transformed itself since independence in 1966. Thanks to the timely discovery of diamonds in 1967, it now nestles comfortably among the ranks of middle-income countries - the only one in Africa, along with Mauritius, with a per capital income of $5,900 (€4,044)

Democratic governance, political and macroeconomic stability and very little corruption, have ensured it avoided the paradoxical trap that plagues other poor African countries that discover large natural resources, leaving them worse off then before.

Botswana's diamond wealth - it's the world's biggest producer - has been spent wisely, with checks and balances in place such as all public investment projects having to meet a minimum rate of return.

Dirk Reinermann, World Bank operations officer for Botswana, says the country has enjoyed good governance and a remarkably stable political scene since independence.

"The foundations for good governance date back to pre-colonial institutions and traditions which promoted accountability and were fairly inclusive," he says.

"These structures survived the colonial period and influenced the governance practices of today. Botswana is a mature democracy with strong institutions and a history of enlightened and meritocratic leadership that has developed the country."

Though it has troubled Zimbabwe on its border, Botswana remains a sea of calm, lead by the Botswana Democratic Party - which is in place since independence - and its president Ian Khama, son of the country's first president, Seretse Khama.

Although only a few months into his post, Khama, a modern Oxford educated politician, has already shown determination in bringing about improvements in the public sector. He is committed to the need for sustainable inward investment and diversification away from mining which generates over 70 per cent of foreign earnings and 41 per cent of GDP.

The government is encouraging private sector development through an attractive tax system, abolishing exchange controls and providing a range of investment incentives. It also has made it easier for skilled foreigners to come for work.

The country wants to be a regional financial hub, and the International Financial Services Centre, modelled on Dublin's IFSC, offers a 15 per cent tax rate to international finance companies. Manufacturing companies arealso taxed at 15 per cent, compared to 25 per cent elsewhere.

This year Botswana received 68.6 per cent in a major index of economic freedom and rates 36 in global rankings.

The index, developed by the Wall Street Journal and the Heritage Foundation, a Washington DC think-tank, saw Botswana score 70 per cent on investment freedom due to laws that encourage foreign investment, with the one-stop shop for investors established by the Botswana Export Development and Investment Authority (Bedia) given the thumbs up.

Ms Kungo Lentswe, head of communications at Bedia, says Botswana is reaching out to investors and offers a stable economic environment.

"Our motto is to be a friend to any investor and Botswana is a tranquil place to live without the crime or xenophobia of South Africa."

The Bedia has a focus on industry, beef, pharmaceuticals, glass and leather, and is also interested in helping investors in textiles, engineering products, printing and publishing, IT, tourism and data processing.

It lists market access as one of the other big reasons to invest with Botswana's exports admitted quota and duty free to South Africa, Swaziland and Namibia through the Southern African Customs Union (SACU). It also gets preferential access to more than 170 million people in the Southern African Development Community (SADC) and quota and duty free access to the EU and the US.

It lists other reasons as: liberal policies, a zero tolerance towards corruption, good transport infrastructure and modern telecommunications, harmonious labour relations and an educated workforce with high adult literacy rates (81 per cent).

Johannesburg-based Navaid Burney, managing director of Emerging Capital Partners, a private equity firm, expects the high growth Botswana has enjoyed to last.

"They are doing everything right in liberalising the economy and other countries such as Zambia are taking note," he says.

He said that although the economy is underpinned by mining, there are other opportunities for development.

"Tourism is doing very well, and is successfully aimed towards low volume, high yield. Also, power generation is an interesting place to be, with the country sitting on huge coal reserves, and for international financial services companies there are better fiscal arrangements than say South Africa."

Peter Brennan, a corporate restructuring specialist now based in Donegal, previously worked for eight years with International Development Ireland (IDI) in Botswana, directing projects to restructure semi-state bodies such as the Botswana Development Corporation and Botswana Telecoms. He can't recommend the country enough.

"As Ireland has been to Europe in recent years, Botswana is to the continent of Africa. It is the jewel of African investment opportunity and I would advise all potential investors to closely examine its merits in making their investment decision."

"Given its geographic location, Botswana is a natural hub for servicing all other countries in the region and offers opportunity in the area of tourism, financial services, agriculture and the IT sector," he says.

Surrounded by countries with large populations - 60 million plus in South Africa, Mozambique, Zimbabwe, etc. - and developing economies, it offers a stable financial base in Africa to outside investors.

He listed other pull factors such as the country's English-speaking, well-educated workforce (the Government has a longstanding policy of sponsoring large numbers of its students to attend overseas universities); good and growing transport infrastructure; a consistently stable economic performance lead by a highly competent and long-standing minister of finance; a developing capital market; the presence of major multinationals such as Barclays, Standard Chartered Banks and of course De Beers; and a Dublin-style International Financial Services Centre.

He pointed out that a big consideration for any company is the services available to expatriate staff when they relocate. Gaborone, the capital, offers all the modern conveniences of a European city with excellent schooling, medical and other facilities, shopping, restaurants, cinemas, etc.

James Campbell, managing director of Irish exploration firm African Diamonds which is listed on the Botswana stock exchange, describes the country as "one of the most investor friendly countries not only in Africa, but in the world".

"The people have great integrity and are a joy to work with, and although they can be cautious and take their time making decisions, in hindsight they are usually right," he says.

He added that Gaborone is shooting up at an unbelievable rate.

Barney O'Reilly holds the franchise for Panasonic business systems in Botswana and is also the honorary consul for the Irish Embassy.

"There is money to be made, and a fair amount of industrial investors have already arrived from the Far East," he says.

According to O'Reilly corruption is virtually zero, though bureaucracy could be improved.

"I have been operating for 21 years in Botswana and have only once been asked for a bribe - which I did not pay.

"In every country there is a bureaucracy, and in Africa this bureaucracy is cubed. However, Botswana is doing their best to cut back and are conscious of where the problems are."

Apart from occasional slow decision making, there are some other downsides. The Southern Africa sub-region is paradoxically both the most economically developed in Sub-Saharan Africa and also has the highest global HIV/Aids rate. Botswana is no exception, with an estimated adult prevalence rate of 23.8 per cent, though almost 86 per cent of patients who require anti-retroviral drugs get free access.

The country is sparsely populated; the Kalahari Desert covers 84 per cent of the territory, and has a very young population of just 1.7 million. Unemployment is around 18 per cent.

Electricity is pricey as it's mostly imported, though if the planned Mmamabula power station goes ahead it will become a net exporter. Transport costs are high due to its landlocked state and inflation is creeping upwards, averaging around 7 per cent last year. However, on balance the benefits of thsi country win out - it has a lot going for it and offers an attractive base to investors wishing to break into the Dark Continent. It's not nicknamed the Switzerland of Africa for nothing.