Botswana
1 Policy, Plans and Priorities
NDP 10
The Tenth National Development Plan 2010-16 (NDP 10) is the last six year plan that brings Botswana up to the end date of the long term plan set out in Presidential Task Group for a Long Term Vision for Botswana (1997) Vision 2016: Towards Prosperity for All. The theme of NDP 10 is “Accelerating Achievement of Vision 2016 Through NDP 10”.
The economic strategy for NDP 10 includes:
· Restrain Government spending to limit the impact of the global recession on the budget;
· Direct Government spending to enhance the productivity of both the public and private sectors;
· Direct spending on infrastructure, education and training towards the needs of the private sector;
· Give priority to clearing the backlog in the maintenance of public sector assets;
· Reduce the disadvantages of being land-locked by taking every opportunity to export to neighbouring markets, and to export services with negligible transport costs;
· Act urgently to reduce the regulatory constraints on the private sector and in particular for foreign investment, to encourage private sector investment, and to improve Botswana's rating in international comparisons of the investment climate.
NDP 10 states that Botswana will pursue a strategy aimed at supporting efforts by Government and the private sector to:
· Create a private sector enabling and supportive policy environment;
· Stimulate increased investment flows; and
· Enhance the competitiveness of the private sector.
Budget 2010
Botswana (2010) Budget Speech 2010 “Transforming Our Economy After the Crisis: 2010 and Beyond” the Minister of Finance and Development Planning stated that “The National Export Strategy, the National Trade Policy and the Investment Strategy which are aimed at facilitating trade and private sector development are also at advanced stages of completion and their implementation is expected to start during the 2010/11 financial year. The review of the Industrial Development Policy of 1998 and the Industrial Development Act of 2006 is expected to be complete by June 2010, to further provide a simplified and efficient business licensing process and the registration of micro businesses. In addition, implementation of the Directive on the use of Locally Manufactured Goods and Services will be reviewed with a view to evaluate previous performance and suggest appropriate measures that will assist both local manufacturers and service providers to increase their output for the domestic and export markets. The review is expected to be concluded in October 2010.” (In April 2010 Parliament adopted the National Trade Policy).
The mining sector, in particular diamonds, contributes about a third of Botswana’s GDP, 75% of export earnings and 55% of Government revenue. The Government strategy is to diversify the economy away from the mineral sector through an industrial policy geared towards manufacturing for export markets. Potential investment opportunities include textiles, garments and accessories to take advantage of duty free and quota free access to EU under the Cotonou Agreement, and to US under the African Growth and Opportunity Act (AGOA). Other potential sectors with investment potential are leather products, glass manufacturing, jewellery (cutting, polishing and setting diamonds and semi-precious stones to move from a diamond producer to a World Diamond Centre), tourism, data processing, business process out-sourcing and off-shore activities, software development, ICT activities and financial services.
2 Investment Promotion
2.1 Institutions
The Ministry of Trade and Industry is responsible for industrial, investment and trade policies. Private sector and public enterprises are represented by the Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) and the Botswana Exporters and Manufacturing Association (BEMA).
Government Statements on Institutions
NDP 10 states that “The inflow of FDI has been low. Direct investment to Botswana increased by only 12.5% in nominal terms in the six years to the end of 2008. In part, this may be because the role of attracting investment remains fragmented. There are too many role players: Botswana Development Corporation (BDC), IFSC and Botswana Export Development and Investment Authority (BEDIA). Government aims to rationalise the functions of these institutions by assigning their role in attracting investment to one entity as well as improve their coordination.”
Budget Speech 2010 states that “the Botswana Export Development & Investment Authority (BEDIA) is to be merged with the International Financial Services Centre (IFSC), under the Ministry of Trade and Industry.”
BEDIA
The BEDIA Act 1997 provides that BEDIA is to promote, attract, encourage and facilitate the establishment of export-oriented enterprises and selected services. The aim is to achieve economic diversification, rapid economic growth and creation of sustained employment opportunities. BEDIA is to identify markets for local manufactured products and identify or provide factory buildings for start up manufacturing enterprises.
BEDIA Support and Services
BEDIA provides support and services to potential and existing investors by:
· Identifying and promoting investment opportunities to new and existing investors,
· Investment advice;
· Identifying joint venture partners for Botswana businesses,
· Organising visits and meetings between potential investors and Botswana businesses,
· Acquiring, purchasing, selling, developing or otherwise dealing with property including contracting for the construction of factory shells,
· Facilitating investors in obtaining of approvals, permits, grants, registration and other regulatory authorisation licences,
· Provide an after-care service to investors,
· Providing economic and trade statistics and research to sustain and enhance competitiveness,
· Organising inward and outward investment missions,
· Organising trade fairs, exhibitions and missions,
· Operating a resource centre with internet facilities, periodicals, journals and other relevant information materials for the business community,
· Make recommendations to the Government on changes in the statutory and administrative framework affecting the investment and export climate.
BIFSC
Botswana International Financial Service Centre (BIFSC) was established in 2000 to improve the macro-economic environment and introduce a liberalised foreign exchange regime by stimulating cross-border financial services from Botswana in currencies other than the Botswana pula (BWP). IFSC operations benefit from tax incentives and are subject to a regulatory structure. There is legislation to prevent money laundering and associated white-collar crimes, and to ensure the integrity of international financial services operations. Provisions on the prevention of concealment and disposition of the proceeds of crime have been strengthened.
BDC
Botswana Development Corporation Limited (BDC) was established in 1970 as the main Government agency for commercial and industrial development. The Government is the sole shareholder in BDC. BDC provides a wide range of financial services. BDC may take an equity shareholding in projects of a significant size and strategic importance. BDC provides loan finance at competitive interest rates usually repayable over ten years. BDC offers investors a wide range of business premises at competitive rentals. BDC states that as a development financier it has been instrumental in the growth of the property market through its 100% owned properties and partnerships. BDC has undertaken major infrastructure development on commercial land for a high-end business park. On completion, commercial plots will be available for sale and development through public tender.
Other Institutions
The Citizen Entrepreneurial Development Agency (CEDA), established in 2001, provides training, mentoring, and concessional loans to citizen-owned businesses to promote economic empowerment of citizens.
Botswana Technology Centre (BOTEC) fosters industrial and scientific development through research and technology innovation in collaboration with the private sector. The Rural Industries Promotion Company (RIPCO) promotes industrial development and employment in rural areas by assisting in the dissemination of technology. The Botswana National Productivity Centre (BNPC) acts as facilitator of productivity/quality know-how and methods.
In 2006, DTC (Debswana Trading Centre) Botswana, was established as a 50:50 joint venture between De Beers and the Government of Botswana. The objective is to make diamonds available for sale in Botswana for local manufacturing. This is part of the local beneficiation strategy of De Beers to generate greater benefits in diamond-producing countries through the development of downstream activities in the diamond industry, ranging from sorting and valuing diamonds, cutting and polishing, to the manufacture of jewellery. It is hoped that DTC Botswana will stimulate ancillary activities, such as banking, security and IT. In November 2007 16 diamond manufacturing companies (sight-holders of DTC Botswana) were licensed in Botswana. DTC Botswana expects to sell diamonds worth at least US$500 million to local sight-holders.
2.2 Investment and Export Incentives
Botswana relies mainly on a favourable investment climate as the major attraction to investors. Botswana has stable political and economic systems and policies, a respected legal system, available land and labour resources, access to international markets, liberalised foreign capital and income transfers and relatively low tax rates.
Export Credit Insurance and Guarantee
Botswana Export Credit Insurance and Guarantee Company (BECI) provides export credit insurance for Botswana and foreign exporters. The company was established in 1996 as a wholly owned subsidiary of BDC. BECI offers insurance against non-payment by foreign buyers resulting from commercial risk (default and insolvency) and political risk (transfer delays, strikes, war or import restrictions that prevent entry in the buying country). The insurance cover is for up to 85% of commercial risks and up to 90% of political risks on exports of goods and services.. The Government reinsures political risks under the Political Risk Reinsurance Act 1997, and commercial risks are reinsured by the private reinsurance market.
The CEDA Credit Guarantee Scheme was established to address the difficulties of small, micro, and medium enterprises (SMMEs) with limited security in obtaining bank loans. Participating loans institutions are guaranteed 75% of the net loss on loans provided to SMMEs and the loan threshold is Pula (P) 4m (US$564,000). CEDA provides concessional loans at 5% interest rate for loans up to P500,000 and at 7.5% for loans up to P 4 million (with repayment periods up to 15 years). In 2003, CEDA established a Venture Capital Fund to provide equity to citizen-owned enterprises and joint ventures between citizens and foreign investors. In 2007, CEDA started operating the Young Farmers Fund to provide subsidised loans and training to young agricultural producers.
2.3 EPZs, Freeports and other Special Economic Zones
Botswana does not have EPZs, free trade zones or free ports. IFSC special treatment for financial services.
2.4 Tax Incentives
IFSC Tax Incentives
· A corporate tax rate of 15 per cent until 2020
· Exemption from withholding taxes on interest, dividends, management fees and royalties paid to a non-resident
· Exemption from VAT and Capital Gains Tax
· Access to 200% tax training rebate
· Income from disposal of shares in IFSC company is tax exempt
· Credits for withholding taxes in other jurisdictions
· Access to double taxation treaties
· Tax exemptions for collective investment undertakings (for unit trusts and collective investment structures).
Customs Incentives
Industrial Rebate Concession: This exempts from payment of customs duties of some raw materials used for products sold either for local or external market. The customs duty liability will cease once the goods are manufactured or exported. This concession applies to industries such as textiles, foodstuff and beverages.
General rebates: This is available for companies that are exclusively export-oriented. It applies to raw materials that are not exempted above, but are imported for manufacturing and re-exported and the raw materials are not available locally.
Customs Duty Drawback Facility: This facility is limited to manufacturing companies that export outside the Common Customs Area (CCA), where they claim refund on customs duties they paid for imported raw materials. The application for the drawback must be lodged with proper documentary evidence within one month after export of the final goods.
Schedule 470.03: Manufacturing companies registered under this schedule are allowed to import raw materials duty-free, provided that 100% of output is exported outside the CCA. The company that sells some of its produce within the CCA will pay duty only on raw materials used to manufacture goods sold in the CCA.
Machinery and equipment: All machinery and equipment for purposes of manufacturing is imported duty-free.
Registration and bonded store: For a company to import raw materials under any of the above duty rebate concessions, it must first apply to the Director of Customs and Excise to be licensed to operate a rebate store. All materials imported under the concessions will be taken direct from port of entry to the rebate store and no other material will be allowed. Machinery and equipment imported temporarily for a specific project does not require bonded storage.
Duty Credit Certificate Facility: This is a product-specific duty rebate facility and it applies to clothing and clothing accessories, household textiles, yarns, fabrics and other textiles. The companies should have been exporting products from these materials to markets outside the SACU area for at least a year. The amount of duty rebated is a given percentage of the value of the exported goods, not the actual rate of customs duty. These percentages are 25% for clothing and accessories, 8% for yarn, 17.5% for household textiles and 12.5% for fabrics and other textiles.
2.5 International Trade & Export Promotion
See BEDIA above.
The Botswana Meat Commission has a statutory monopoly on beef exports. A study on the long-term viability of the beef sector, commissioned by the Government, has identified areas for reform, including the incentive structure, land tenure system, liberalisation of markets, and the export monopoly of BMC.
See above customs incentives under Tax Incentives.
2.6 Other Issues
Citizen Economic Empowerment
In the 2010 Budget Speech the Minister of Finance and Development Planning stated that “Government continues to promote citizen economic empowerment by implementing programmes that enhance citizen participation in economic activities and business ventures. This can be evidenced by a large share of Government expenditure that goes towards education and training as well as health. Provision of education is critical for human resource development, thus enabling Batswana to participate in economic activities. Furthermore, to realise Government’s goals of economic diversification, private sector development and competitiveness, the nation’s human resource must be healthy. It is for this reason that Government continues to provide health services at subsidised rates to ensure health for all, and enhance productivity at the work place for both the public and the private sectors.
While the policy on citizen economic empowerment is still being prepared, there are ongoing efforts such as provision of student loan / grants for those qualifying for tertiary level education; reserving certain categories of business to citizens and the local preference scheme. Citizen economic empowerment is also promoted through the implementation of mega projects in the country. The process, which enables citizen contractors to participate in mega projects, entails unbundling of large projects into smaller components that are more manageable by citizen contractors. Examples of these include Dikgatlhong and Lotsane Dams, expansion of Morupule Power Station, Botswana International University of Science and Technology, and the four Senior Secondary Schools in Nata, Shakawe, Mogoditshane and Mmadinare. Where projects are awarded to non-citizen contractors, such contractors are encouraged to outsource or sub-contract some activities to smaller citizen companies. Capacity building of the citizen artisans is also ongoing. This is expected to enable them to find employment as well as assist them to meaningfully participate in the projects once employment is secured.”