Botswana - Foreign investment
Since independence in 1966, Botswana has been open to foreign investment. With the discovery of diamonds in 1967, this has also meant an economy dependent on diamond mining and, more importantly, the diamond monopoly strictly maintained by the De Beers Company. Highly developed auditing and security systems, developed to preserve the diamond monopoly, helped minimize corruption in Botswana and give its bonds the highest rating in Africa.
From 1966 to 1999, Botswana had the highest average growth rate in the world (9%), a record its still holds, though by 2002 the average had fallen to 7%. This did not translate into significant foreign investment outside of the mining sector, however, nor into a solution for chronic high unemployment (officially 21%, but generally thought to be closer to 40%). Moreover, recent controversy about "conflict diamonds" and the HIV/AIDS epidemic in Botswana have led to substantial divestment by traditional investors, De Beers of South Africa and Anglo American of the United Kingdom.
The government began actively encouraging foreign investment in the mid-1980s. Government policies offered attractive tax rates (10% on corporate income), including a five-year tax holiday, capital grants on new projects, and duty-free access to the large South African market (source of 80% of foreign direct investment). Botswana also enjoys duty-free access to the European Community for most of its products (source of 15% of foreign direct investment). Its liberal policies allow unrestricted repatriation of earnings and capital. Furthermore, it has a substantial financial assistance policy for foreign investors and has established an export processing zone in Selebi-Pikwe. Investment law is scrupulously observed by the Botswana bureaucracy and courts. Investment incentives, including cash grants, have been offered to small and medium-scale investors for labor-intensive schemes, particularly outside urban areas. The complete liberalization of exchange controls occurred in February 1999.
In the late 1990s, with the exposure of the link between De Beers' purchases of uncontrolled raw diamonds to maintain its monopoly and socially corrosive brutality in diamond-producing countries, the diamond industry transformed to a system of certified diamonds and a list of "Suppliers of Choice." Although Botswana's diamond mining company, Debswana, continued to be owned 50% by the Botswana government and 50% by De Beers Centenary, the latter, in 2002, became part of the private holding company De Beers SA, 45% owned by the London-based mining conglomerate, Anglo-American, and 45% by the Oppenheimer Group. Botswana's two other major mining companies, Tati Nickel and BCL (copper, nickel, cobalt), had become 85% owned and 50% owned, respectively, by LionOre Mining of Canada, to which Anglo-American had sold its shares.
The HIV/AIDS epidemic in Botswana, with over 35% of the population 15 to 49 years old estimated to be HIV positive, affects everything, including foreign investment. Anecdotal evidence suggests it has increased production and training costs for companies and reduced the pool of skilled labor available for foreign investors.
Foreign direct investment (FDI) is chiefly in mining, accounting for 75.2% of FDI in 1999, down from 80% in 1998. The largest investors have been the Anglo-American Corporation, which bought out De Beers, and LionOre of Canada, which bought out Anglo-American interests. AMAX mining is also important. The retail and wholesale trade sector accounted for 9.1% of FDI inflow in 1999 and manufacturing, 3.1%. The British Commonwealth Development Corp. has invested in a Lobatse slaughterhouse and in three large cattle ranches, two in the northern part of the country and one on the Molopo River in the Kalahari. H. J. Heinz (South Africa) owns 80% of Kgalagadi Soap Industries, with assets of over $5 million. Houston-based brick manufacturer, Interkiln Corp., has a 17.5% interest in the Lobatse Clay Works. Owens-Corning owns 50% of a plant producing fiber glass piping for water transportation, in conjunction with the BDC.
Other areas of investment included specialty agricultural production; construction; and manufacturing of textile, health and beauty, agricultural and construction equipment products. The government seeks investments in infrastructure, telecommunications, tourism, and housing development. It is estimated that total direct foreign investment (FDI) exceeded $1 billion in 1998. The inflow of FDI averaged $98 million 1997 and 1998, but fell to $36.7 million in 1999. For 2000 and 2001, annual FDI inflow averaged about $57 million.
Botswana's prudent financial and monetary policies have contributed to continued strong performance on Botswana's stock exchange. In 2002, its index increased 8.5% in dollar terms and the market capitalization of listed stocks reached $1.67 billion, up from $1.27 billion in 2001 and from $295 million in 1992. As of 31 December 2001, US holdings of Botswana securities totaled $23 million, $20 million in equity shares, $2 million in long-term debt, and $1 million in short-term debt.