Botswana’s Foreign Direct Investment (FDI) as a percentage of the national output has declined by 50 percent since 2011, frustrating efforts of economic diversification, a 2015 third quarter (q3) economic review by Econsult Botswana has revealed. The report said that a general trend in FDI in Botswana showed a downward movement when compared to the size of the economy. It was compiled by Dr Keith Jefferis and his team Brandon Basele and Sethunya Sejoe. The trio announced that apart from the peak in 2011, FDI has declined from nearly 5 percent of GDP in 2006 to only 2.5 percent of GDP in 2014 – a fall of almost 50 percent.
The trend over this ten year period is clearly downward.
The Botswana Investment and Trade Centre (BITC) Annual Report for the year to March 2014 noted that BITC-registered companies invested P691 million over this period, but does not distinguish between domestic and foreign investment. An alternative data source is the information published by Bank of Botswana in the Botswana Financial Statistics. Specifically, the International Investment Position (IIP) is published each year, and among the various components of the IIP is investment by non-residents in Botswana. By tracking changes from year to year, annual flows of (net) FDI can be derived.
So, using the IIP data over the period 2005-2014, it is clear that in Pula terms, FDI inflows vary considerably from year to year. Notably, after increasing slowly between 2005 and 2008, FDI decreased significantly in 2009 – 10 before recovering sharply in 2011, then dropped back since then. During these periods, Botswana was hit by the 2008-9 global financial crisis, which was felt by the global economy and caused investment flows everywhere to decline. The peak in 2011 is attributable to economic activity in the mining sector, particularly investments associated with Debswana’s “Cut 8” project to extend the life of the Jwaneng mine. Other notable economic activities included the relocation of the Diamond Trading Centre (DTC) to Gaborone and investment in sectors like finance.
Dr Jefferis and his team attribute the FDI decline to Botswana’s fluctuating performance in global competitiveness rankings. “For instance, Botswana’s score deteriorated on the World Bank’s Doing Business ranking in 2015 as compared to 2014, but improved slightly in the World Economic Forum’s Global Competitiveness Index,” said the Econsult team.
The three economists also pointed to poor work ethic of the labour force, inefficient government bureaucracy, restrictive labour regulations, access to finance and the small market size as problematic factors for doing business in Botswana.
Other factors such as the high costs of internet connectivity, transport and disruptions from the water and electricity sector negatively affected the doing business environment. Overall, Botswana’s investment policy has not been as successful as it should have been, despite the government’s efforts to make the business environment competitive to attract direct investment. Furthermore, better data is necessary to enable improved monitoring of FDI trends in different sectors of the economy
Tshepang Loeto, an analyst at Investec Asset Management, agreed with the Econsult trio. He said that for Botswana to attract FDI, the country needs to offer a better package compared to its peers. “Currently we have water and power challenges. These on their own make investors jittery because the cost of doing business would be high,” Loeto said.
Further, Loeto pointed to the fact that with the depressed economic growth, investors fear that the reduced economic activity would actually lead to lower business yields, hence a bad investment choice. Analysts predict that the 2016 economic growth would be at two percent, with the worst case scenario being a one percent economic growth.