Transcript Africa After Cancun: Trade Negotiations in Uncertain Times

‘Africa’s First Welfare State’
The Experience of South African Firms Doing
Business in Botswana
South African Institute of International
Affairs
17 May 2005
Outline
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Methodology
Key economic data
SA trade and investment linkages with
Botswana
Results of SAIIA survey
Impact of SA business presence/FDI
Policy recommendations
Key findings
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Methodology
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Qualitative and quantative in-country survey
of SA companies in Botswana
Representative sample group – every sector
Interviews with gov departments,
academics, donor agencies, development
bodies, private sector institutions
Data from companies supplemented by
BIDPA, BOB, BEDIA, MFDP, UNCTAD and
others
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Socio-Economic Snapshot
2002
Population
1.7 m
GDP
$7bn
GDP growth
3.1%
GNI per capita
$3,010
Inflation
8%
Foreign reserves
$5.4bn
Gross savings/GDP
38.5%
External debt
$480m
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GDP by Economic activity
Activity
Agriculture
1966 1975/76
42.7% 20.7%
2000/01
2.6%
Mining
Manufacturing
Water/Electricity
Construction
5.7%
0.6%
7.8%
36.5%
4.1%
2.4%
5.8%
Trade, hotels
Transport
Banking
9.0% 8.6%
4.3% 1.1%
20.1% 4.7%
10.3%
3.8%
10.9%
Social services
Government
GDP growth
9.8%
-
4.0%
16.0%
8.4%
17.5%
7.6%
2.3%
12.8%
2.8%
14.6%
18.4%
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Sectoral breakdown of
GDP, 2003
12%
Government
17%
Social and Pension services
3%
Agriculture
4%
4%
3%
9%
Mining
Manufacturing
Water and Electricity
Construction
6%
Trade
Transport
3%
5%
34%
Hotels and Restaurants
Banks and Business services
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NDP8 Gov budget Review
(Estimates and Actual, P m)
Revenues
1997/8 2002/3
% share
Minerals
Minerals
SACU
SACU
3,627
4,681
1,163
1,186
6,986
7,040
1,112
1,554
55.3%
53.7%
11.6%
14.3%
BOB
BOB
1,751
947
9,427
6,848
16.3%
9.9%
Other Taxes
Other Taxes
Total
Total
1,274
1,467
7,815
8,281
9,690
15,626
57,816
69,170
16.8%
22.7%
100%
100%
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Total number of employees by sector,
BOB
Sector
1995
2001
Agriculture
4,467
5,997
Mining
8,408
8,252
Manufacturing
23,381
30,874
Electricity/water
2,594
2,861
Construction
22,084
28,470
Commerce
44,944
49,904
Transport/Communications
9,006
10,120
Finance
17,452
19,177
Community/Personal Services
10,097
4,238
Education
3,608
6,480
Central Government
69,426
85,354
Local Government
15,921
21,040
Total
231,387
272,812
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Is Botswana facing a new
economic paradigm?
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Far-sighted use of foreign reserves: free education,
health services, housing, entrepreneurship (40% of
budget on social development and reaches 40% of
population) – 90% of development funds provided
by Botswana government (cumulative development
spending 70% higher than initially envisaged)
Presented a budget deficit in 1998/99, after 16
years of operating a budget surplus (last budget
deficit 1982/83)
Slowdown compounded by: global economic
downturn after 2001, diamond production has
peaked, foot & mouth disease, HIV/Aids, drought,
Zimbabwe crisis
Vision 2016: eradicate absolute poverty – requires 9
growth of 8% (instead 4 - 5% expected)
Trade and investment
linkages: SA and Botswana
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Shared cultural and colonial history –
familiar, operating environment
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Pragmatic political stance
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Defining feature of South Africa’s economic
relationship with Botswana is SACU
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SA is Botswana’s largest import partner,
whereas majority of Botswana’s exports
directed at Europe (perpetuates NorthSouth trade linkages despite SACU)
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Enjoys healthy trade surplus with the rest
of the world
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Exports: R6,419 bn & imports R 403m.
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Botswana’s trade partners,
2001, BOB
Region
Exports Imports
SACU
6.5%
77.6%
Zimbabwe
2.6%
3.2%
Other Africa
1.1%
0.3%
EU
79.1%
12.3%
US
1.0%
1.8%
Other
0.2%
4.5%
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Investment by Source,
2000, BOB
Country
FDI %
South Africa
60.9%
Luxembourg
25.2%
UK
9.9%
US
1%
Middle East
1%
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Value of Investment by
country, Pm
Country
1997
1998
1999
2000
2001
2002
RSA
3,311
3,871
3,940
6,572
6,829
5,423
Luxbrg
1,331
2,010
2,262
2,561
3,081
3,356
UK
118
113
1,303
1,111
814
673
Germany 616
761
859
1,208
18
181
Japan
224
306
196
74
549
851
US
448
465
226
340
385
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Investment by Sector,
2000, BOB
Sector
FDI %
Other %
Mining
79.3%
28.6%
Manufacturing
3.5%
4.9%
Finance
6.3%
2.9%
Retail
7.9%
2.0%
Electricity
0
8.4%
Property/Finance
1.6%
1.5%
Transport
1.1%
2.7%
Construction
0.1%
0.5%
Tourism
0.2%
N/a
Public Administration
0
48.2%
Other
0
0.3%
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FDI inflows: select SADC
countries, 1989 – 2002, $m
Year
Botswana Namibia Mozambique
1989-1994
1995
-29
70
70
153
-
1996
1997
1998
1999
2000
2001
2002
70
100
90
37
54
26
37
129
84
77
111
153
275
181
72
64
235
385
139
255
406
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Comparison: FDI Stock as
% of GDP, 1999, UNCTAD
Country
Botswana
South Africa
Zambia
Percentage
23%
42%
74%
Lesotho
Namibia
Singapore
36%
53%
97%
Malaysia
Ireland
65%
51%
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Results of SAIIA Survey
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Many SA company involvement predate 1994
(attracted by generous incentives and political
stability)
Several companies settled so long – regard
themselves as indigenous Botswana companies
Many newcomers in retail, franchise – highly
visible – strongly associated with South Africa
motivated by SACU (duty free access), high
disposable income, safe environment,
geographical proximity, infrastructure, labour
Largest investment into mining, De Beers through
Debswana (Orapa mine)
Dominant players in market: primarily Greenfield
and acquisitions, some joint ventures
98% of employees are locals (represented at
every level)
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Results cont.
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Business friendliness: Very favourable (incentives
for foreign-owned businesses, receptiveness of gov
to policy input, low corruption)
FDI incentives: foreign exchange controls abolished
in 1999, corporate tax 15% (manufacturing
companies + IFSC), no prohibitions on foreign
ownership, maximum personal and marginal tax
rate 25% (region’s average – 35%), VAT of 10%
also lowest in SADC
Private-public relations on sound footing
Strong confidence in the courts
Some companies that have been in Botswana over
15 years did complain about deteriorating business
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morals
Main constraints
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Dominant role of government indirectly
flagged re cost of utilities, unfair
competition of parastatals, lack lustre
performance outside mining
High confidence in fiscal prudence and
sound management policy, as well as
acknowledgement of broader debate of role
of governments in developing societies
Market size most critical concern (high
disposable income misleading – high
inequality (24% under $1 a day, 50% under
$2 a day), payment difficulties - highly
indebted society, access to finance difficult
(prime rate about 15%), still cash-driven
economy
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Main constraints cont.
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Labour: Lack of skilled labour, biased towards
British system, qualified unemployment, also result
of rapid growth of economy and impact of
HIV/Aids, xenophobia (lowest ranking that
Botswana has ever received from Africa
Competitiveness Survey (20th out of 24th) in 2001
Bureaucracy: slow processing of work permits
Unfair competition: Construction and property
development (profit margins in infrastructure
development slim, BOT projects rare)
Cost of utilities high: Water and electricity (drives
up manufacturing costs)
Constraints identified close correlation with WEF
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survey
Impact of SA investment
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SA investors have had considerable impact (early
entry & number of companies), prudent
management of diamonds with De Beers laid
foundation for economy
Contributed to diversification of economy,
employment creation, raised competitive levels,
instill business culture, built local capacity
Make contributions to medical aid & pension funds,
severance benefits, social programmes
Some concern about ‘hegemonic’ influence of SA
business (enforced huge trade imbalance, negligible
domestic linkages between two economies)
SA retailers have taken advantage of building of
several malls (anchor tenants), however, sector is 21
overtraded
Impact cont.
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Despite encouragement to procure locally – most
companies procure from SA
Botswana suppliers complain retail sector uses
country as a market for SA products, undermining
local manufacturing capacity, buying authorities
located in SA, no trade-off between two countries
Many restaurant franchises catering for urban youth
+ upwardly mobile middle class – viewed positively
creating local employment, transfer business skills,
ingredients obtained locally (support agri sector)
Although SA most significant investor in Botswana,
has not fulfilled government’s employment targets,
nor significant impetus to improve local
manufacturing
Some gov officials and academics expressed open
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disappointment in quality of SA investment
Negative impact of SA policies
on Botswana’s economic
objectives
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Survey found that many economic policies adopted
by the SAG to address local imbalances economy
have unintended consequences in Botswana
Examples: Failure of Hyundai Assembly plant in
2000, the EU TDCA, SA tax legislation on IFSC,
exchange rate volatility
In 2001 the SAG introduced new tax legislation
requiring SA companies operating in foreign
countries that charged a lower tax rate then in SA
to pay additional taxes if it was less than 90% than
the SA rate – affected all SA companies operating in
Botswana
Only addressed in 2003 when new double taxation23
agreement was concluded
Policy Recommendations
to Botswana
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BEDIA to be
strengthened
Appointment of foreign
skilled workers
Utility costs to be
brought down
Priority to employment
creation
Stigma of HIV/Aids to
be addressed
Increase productivity
levels
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Small business should
receive priority
Regulation (property
and banking sector)
strengthened
Act more quickly on
issues raised by private
sector
Exploit other resources
(gas, gold, coal)
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Policy Recommendations
to South Africa
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Great deal of sensitivity
about SA dominance
More high-level
meetings on a
functional level
Joint education and
training programmes –
business skills
improved
Encourage reputable
SA companies to move
into Botswana market
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Joint industrialisation
policies should be
considered
SADC governments
encouraged to use
contractors from the
region
Economic relations
should not be regarded
as a zero-sum game
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Key Findings
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Small, landlocked economy
such as Botswana very
vulnerable to developments
in the region – closer
relationship with SA
necessary
Despite strong economic
growth since independence,
not significant increase in
jobs (sound macroeconomic environment, less
successful micro-economic
environment) – More cost
sharing mechanisms
required
Skills important to address
diversification
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Quality of investment
outside mining
disappointing (faces
constraints typical of many
African countries, not
integrated into global
production hubs)
Goal set to reduce number
of people living in poverty
to zero by 2016 (requires
investment of 41% of GDP
per annum)
Deserves credit for
integrated, long-term vision
for its society and economy.
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Thank you

Neuma Grobbelaar
Head Business in Africa Research project
Contact details:
[email protected]
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