President Mokgweetsi Masisi in a desperate measure to turn around the fortunes of Botswana’s economy and create jobs has been trotting the globe in a bid to convince investors to come and set-up businesses in Botswana. While Masisi’s gesture is fundamental in re-energizing the economy which has been sluggish since the 2008 economic down turn, there are underlying factors that may thwart his ambitions.
The latest Global Competitiveness Report ranks Botswana 90th most competitive economy out of 140 countries, far much worse off than it ranked in 2009, where it was number 56 in the world. In the latest Doing Business Report, Botswana is ranked 86 out of 190 countries far much worse than it did in 2006, when it was ranked 40th in the world.
These two reports — The Global Competitiveness Report and Doing Business Report, published by the World Economic Forum and World Bank respectively, are the best indicators that Botswana can use to see how it is faring when compared to its competitors and why investors may choose other countries over Botswana.
In 2018, the World Economic Forum introduced a new methodology emphasizing the role of human capital, innovation, resilience and agility, as not only drivers but also defining features of economic success in the 4th Industrial Revolution. As a result, the GCI scale changed to 1 to 100 from 1 to 7, with higher average score meaning higher degree of competitiveness. The report is made up of 98 variables organised into twelve pillars with the most important including: institutions; infrastructure; ICT adoption; macroeconomic stability; health; skills; product market; labour market; financial system; market size; business dynamism; and innovation capability.
The Global Competitiveness Report also looks into the private sector’s capacity to generate and adopt new technologies and new ways to organise work, through a culture that embraces change, risk, new business models, and administrative rules that allow firms to enter and exit the market easily. The report recognises that an agile and dynamic private sector increases productivity by taking business risks, testing new ideas and creating innovative products and services.
In an environment characterized by frequent disruption and redefinition of businesses and sectors, successful economic systems are resilient to technological shocks and are able to constantly re-invent themselves. With the business dynamism and innovation capability recognised a key indicator in the 4th industrial revolution, Botswana is not among leaders in this respect and it there are emerging countries such as Kenya and Rwanda, who despite ranking inferior to Botswana in overall rankings, have entered the space with much needed agility.
Botswana Innovation Hub (BIH) Director of Marketing and Partnerships, Tshepo Tsheko contended last week at Botswana International Trade Centre (BITC) media engagement session that Botswana should build capacities in the ICT to attract tech giants to set-up in Botswana.
He said failure to do so would not make Botswana an attractive place to do business in as ICT is the driver of business for government and other organisations, noting that countries like Kenya and Rwanda are doing what Botswana had the opportunity to do in its economy.
“Botswana should make a decision on what we want to invest in. Investors will not do it for us, they are looking for market,” he said. “We want to be known for something in ICT and innovation, and we still have the opportunity to decide.” Tsheko said, what we say we are to the world does not matter, what matters is what people from other countries experience the moment they set their foot in the country.
He said currently there is credibility gap in ICT and innovation efforts in Botswana, because the local market is apprehensive which has resulted in local digital solutions not being taken. Tsheko expressed confidence that Botswana has necessary skills in ICT to solve challenges facing the country.
WHY HAS BOTSWANA LAGGED BEHIND IN ICT AND INNOVATION?
Although Botswana performs better than most countries in the Sub-Saharan Africa, with South Africa, Mauritius and Seychelles ranking ahead — there is a compelling need to invest in ICT and innovation in Botswana, according to the The Global Competitiveness Report.
Soon after being sworn in parliament in 2016, Bogolo Kenewendo, then a backbencher highlighted that Botswana’s snail progress was hindering the country from transforming its economy.
“Like I said in parliament during my contribution, businesses and investors do not care that we are a landlocked country, they are looking for a place where they can easily do business hassle free and reap the best rewards,”Kenewendo told WeekendPost then. Kenewendo observed that Botswana lacks agility and is moving at a snail pace, hence other countries such as Rwanda are able to perform better. In the past 10 years Rwanda economy grew at 7.2 percent on average, and also attracted foreign investment of 4.2 percent of its GDP over the same period, according to the Global Competitiveness Report.
In the same period, Botswana’s economy only experienced an average of 3.6 percent growth and attracted 2.8 percent in FDI. . “Some of them came here to benchmark in Botswana, then went back to implement because they have agility. The world is moving faster, so we need to be agile,” she said. Today, Kenewendo is the custodian of Botswana’s business environment as the Minister of Investment, Trade and Industry, a position she assumed after Masisi became president in April last year.
After taking over the reins, the youthful legislator admitted that that a lot has to be done in business reforms. She has since embarked on policy and regulatory reforms at her ministry to improve the business land scape in Botswana in order to improve the doing business rankings. Chief among the reforms were the adoption of the 2014 Doing Business Roadmap and Action Plan, whose objective is to reduce the cost of doing business in Botswana as well as create an environment where business is not hindered by unnecessary regulation and bureaucracy.
Last year parliament passed amendments to both companies and the registration of Business Names Acts as well as introduction of new pieces of legislation that allows for re-registration of both the existing companies and business names, paving way for the implementation of the Online Business Registration System (OBRS). The system is expected to be launched during the first quarter of 2019 and is expected to bring with it benefits such as improve data integrity, reduced turnaround times, less paperwork and improved overall efficiency.
WHAT IS THE STATUS OF BOTSWANA’S INFRASTRUCTURE?
Botswana is ranked 108 in infrastructure pillar in the Global Competitiveness Report. The infrastructure pillar looks at the quality and extension of transport infrastructure (road, rail, water and air) and utility infrastructure. This is so because the report indicate that better-connected geographic areas have generally been more prosperous. Well-developed infrastructure lowers transportation and transaction costs, and facilitates the movement of goods and people and the transfer of information within a country and across borders. It also ensures access to power and water—both necessary conditions for modern economic activity.
In 2017, Head of South African Development Community (SADC) Public Private Partnership (PPP) Network, Kogan Pillay warned that Botswana and Africa will go into recession in the next 10 years if the country does not adequately invest in its infrastructural needs. Pillay, who has vast experience in the implementation of PPPs and has previously worked for the South African government, is of the view that Africa’s big investors will shun the continent because of lack of infrastructure necessary for doing business.
“World Bank has warned about this happening,” he said at a workshop organised by Ministry of Finance and Economic Management. “Africa would not attract FDI (Foreign Direct Investment) because nobody would want to do business in a country which does not have infrastructure. It makes doing business difficult,” Pillay stated. According to Pillay, Africa needs US$ 90 billion to fund its infrastructural needs but it only has US$45 million availed for such.
It is believed that Botswana’s infrastructural needs can be resolved by developing an effective PPPs framework. Pillay believes that Botswana is not ready for PPPs until it develops a legal frame work which will guide investment and implementation of PPPs. “What Botswana has now is a policy, but you need to put it into law like other countries including South Africa,” he said. Pillay said PPPs are long term concessions to the private sector and should be done in a prudent manner to avoid forcing the country into bad commitment.
RESTORING INVESTOR CONFIDENCE
Botswana’s Foreign Direct Investment (FDI) ambitions have been met with counterproductive policies in the past decade which has led to frustrations and dent on Botswana as investment destination. In 2016, then BITC CEO, Letsebe Sejoe made shocking revelations that foreign investors are still finding it hard to pick Botswana as an ultimate place to do business because of the complications associated with running businesses in the country.
Sejoe then told the Parliamentary Committee on Statutory Bodies and Enterprises that Botswana is entirely opposite to what it has the world perceiving it as. Sejoe listed Permits and VISAs as the biggest challenge facing investors as he noted that delays in issuing the two frustrates inventors who end up going to other countries such as Rwanda, which has built a more conducive environment for investors.
The issue of permits and VISAs were reportedly handled by the Directorate on Intelligence Security (DIS), which has unlimited discretion on who is accepted or rejected. The parliament committee also heard that there was no turnaround time agreed on, and that the premises and VISAs can be rejected without explanation. Sejoe, who has since left the BITC then advised that part of solving the problem is to create a legal framework or policy which will guide certain procedures needed to facilitate business for companies lured by BITC to do business in Botswana.
He said while they have relationships with different stakeholders over facilitating the ease of doing business for foreign investors in Botswana, such partnerships are not binding and sometimes some institutions just ignore a request because they are not compelled by the law to do so. For instance, in countries like Mauritius they have what they call silent means approval. If a permit is supposed to be processed within 24 hours and there is no response after that time, the applicant has the right to go ahead because lack of response shows no objection,” he said.
Sejoe said Botswana should do the same, and design laws which promote business and protects investors if it is to continue being attractive to foreign investors. “Government does not appreciate the enormous impact the foreign direct investment can make in the country’s economy. We have this attitude of treating everyone the same,” he said. “There is also lack of appreciation of frustration experienced by these investors,” Sejoe added.
Sejoe said not only are new investors facing problems of permits, but that foreign owned companies, some which have employed hundreds of citizens are facing the same problem when they want to renew their permits. “Botswana is not an open economy like we say we are to the world.
There are people who have been doing business in Botswana for over 30 years and government rejected their application for citizenship over the period and all of a sudden they were told to go,” he said.
“Investors are cagey on this. Some who are already doing business in Botswana are sceptical about expanding their business because their future in Botswana is uncertain. Investors need certainty and some level of predictability,” he further advised.
Sejoe narrated that some companies with operational businesses in Botswana but with their directors residing outside Botswana have had their directors’ VISAs rejected when they wanted to attend a business meeting in Botswana; he said this recount proved that Botswana is a difficult environment to do business in.
Masisi has however admitted to this problem and has moved swiftly to act, the first step being to relief Director General of DIS Colonel Isaack Kgosi and further promising to embrace the policy of open economy.
WHICH COUNTRIES ARE FARING BETTER IN SUB-SAHARAN AFRICA?
Mauritius ranks 49th globally. With a score of 63.7 out of 100 it achieves the best performance in Sub-Saharan Africa, in line with 2017. Mauritius’s leading position in the region is reflected in a GDP growth consistently above 3 percent since 2006, and above 4 percent over the past three years.
The competitiveness performance of Mauritius is relatively strong in eight of 12 GCI pillars, where it ranks 67th or higher. Among these eight pillars Mauritius has achieved its best score on the Product market pillar (65.6, 19th), thanks to a high degree of openness (6th) and a non-distortive fiscal policy (62.6, 16th). In addition, Mauritius is characterized by strong business dynamism (66.5, 35th) and sustained by lean administrative requirements (83.2) that enable companies to open and close with relative ease.
Finally, Mauritius has achieved a strong performance on the Institutions pillar (38th, 62.9), second only to Rwanda in the region. This is a considerable competitive advantage in SubSaharan Africa, where 65 percent of economies score below 50. On the other hand, the pillars where Mauritius delivers a weaker performance are those related to human capital: the Labour market (58.3, 74th), Skills (61.0, 74th) and Health (77.7, 83rd) pillars.
In particular, Mauritius is penalised by high redundancy costs (73.6 weeks of salary, 136th) and limited participation in the various levels of the educational system (6.8 mean years of schooling, 106th). South Africa ranks 67th globally—with a score of 60.8—and attains the second spot in Sub-Saharan Africa.
Among its strengths, South Africa is home to a large market size (68.4), good infrastructure (68.6) and a well-developed financial system (82.1, 18th). More specifically, South Africa’s financial sector offers a Chapter 2: Regional and Country Analysis 36 | The Global Competitiveness Report 2018 relatively balanced access to various sources of finance, including credit (100.0, 11th), venture capital (33.0, 63rd), equity (100.0, 2nd) and insurance (100.0, 3rd).
In addition, South Africa’s innovation capability is relatively advanced (44.3, 46th), although limited by insufficient research and development (37.5).
Among its weaknesses, South Africa’s performances on the Health pillar (43.2, 125th) and Security (43.7, 132nd) sub-pillar are among the worst in the world. Driven by high incidence of communicable diseases and high rate of homicides (34 per hundred population, 135th), these factors are major challenges for the economic and human development of the country. Low ICT adoption (46.1, 85th) is another important restraint on South Africa’s competitiveness.
Only 54 percent of the adult population has access to the internet, and only 70 out of 100 people have subscribed to mobile-broadband services (66th). Similarly, the digital skills (116th) and critical thinking skills (78th) of the current workforce are inadequate for the progress of a successful economy in the Fourth Industrial Revolution.