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Africa's first welfare state: the experience of South African firms doing business in Botswana

Neuma Grobbelaar, Kaemete Tsotetsi

The South African Institute of International Affairs (SAIIA)

Business in Africa Research Project

17 May 2005

SARPN acknolwedges permission from Ms Neuma Grobbelaar, director of the Buisness in Africa project, for permission to post these reports on the SARPN website.
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Executive Summary

Botswana has traditionally been a strong economic partner of South Africa. The foundation for this relationship dates back to the establishment of the Southern African Customs Union (SACU) in 1910. As former British colonies, both South Africa and Botswana share many institutional, political, economic and cultural traditions. As a result, South Africans generally find the operating environment both familiar and reassuring.

The country’s spectacular growth over the last three decades has its origin in the prudent management of its rich diamond resources. The South African-based diamond giant, De Beers, has been the most significant investor since 1968 in this sector through its joint partnership with the Botswana government in the holding company, Debswana. However, South African investment in other sectors has increased substantially since 1994, with the dismantling of apartheid and the growing outward expansion of South African business activity into the rest of Africa.

Some of the main findings of this study are as follows:
  • Most South African investors view the Botswana business environment as stable, fairly free of corruption and investor-friendly. Many South African companies have a long-standing presence in the country that predates 1994. However, investment has increased in every sector in Botswana since the 1990s, including property development, banking and mining, although franchising and retail seem to be the most dominant. Although the latter is the most visible, it is not perceived in Botswana as adding substantial value to the economy.

  • Botswana’s membership of SACU holds clear advantages for South African investors, and has strongly supported the growth of the South African retail sector in Botswana. However, the study found that the Botswana government has mixed feelings about the benefits of SACU to its economy — especially in its earlier form, prior to the adoption of the re-negotiated customs agreement in 2002. SACU has been accused of undermining Botswana’s manufacturing base and drawing foreign investment away from that country. The close economic inter-linkages between the two countries also imply that South African economic policy decisions often have unintended consequences for Botswana.

  • Apart from mining, Botswana’s other sectors such as manufacturing, tourism and offshore financing are all contingent on the health of the South African economy and its trade relations with regional neighbours, in particular Zimbabwe.

  • Many South African businesses that were interviewed regarded Botswana as a springboard into the rest of Africa for their operations. Botswana’s good infrastructure was cited as a positive factor in this assessment.

  • Most South African companies considered the Botswana government’s strong local employment policy as a positive and understandable factor. However, they mentioned as drawbacks some of the difficulties that they had experienced in acquiring work permits for foreign employees where necessary skills were not available in Botswana. Ironically, the small population of Botswana is a factor that inhibits the expansion potential of the economy. Indeed the reluctance of the Botswana government to embrace the employment of non-Batswana raises the question whether the country will be able to sustain its current high growth levels. There are also increasing numbers of alarming xenophobic incidents in Botswana which are related to the spillover of economic refugees from Zimbabwe.

  • Many Batswana and South Africans commented that although consultation is one of the founding principles that ensures Botswana’s political stability, in reality this often translates into vacillation and a lack of decisive and quick action. This is reinforced by the dominance of the political space in Botswana by the Botswana Democratic Party (BDP) since independence. Although the uninterrupted rule of one party has also led to the development of a strong and vigorous opposition within the party itself, concerns were raised during the course of the survey that one-party dominance could have a negative impact on policy-making in the longer term.

  • Related to the above, a substantial proportion of society rely on the largesse of the Botswana government. The country’s social welfare policies, especially with regard to free education and subsidised housing, are becoming increasingly unsustainable. In recent years, the country has also experienced ‘qualified’ unemployment. Efforts to develop entrepreneurs through various assistance policies have been highly controversial, although the government’s intentions are sound.

  • A key challenge for government policy is the diversification of the economy. The Botswana government faces many obstacles in this regard. A number of these are external, and therefore difficult to manage at a domestic level. This study highlights some of the problems that the government has to overcome.

  • However, Botswana deserves credit for the development of an integrated, long-term vision for its society and its economy. The government has not shirked its task of identifying the many problems and challenges facing its society in a transparent and open manner and has flagged the diversification of its economy as a key objective.

  • As in the case in other countries in the SADC region, the dominance of South African business in Botswana (especially in the highly visible sectors) is very apparent. Some companies that have been in the country since the 1960s are now considered Botswana businesses; however, many of the newcomers are strongly associated with South Africa. Careful management of local sensitivities, combined with good corporate practice, is required to ensure the positive reception of South African investors in Botswana, as it is in the other countries on the continent in which South Africa has business interests.

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