- Small economy with limited opportunities listed among the factors
Business Monitor International (BMI), Fitch Group research arm, has indicated that Botswana’s small economy with limited business opportunities is among factors that results with international investors shunning the country and dampens efforts to attract Foreign Direct Investment (FDI).
According to BMI’s recent Trade and Investment Risk Index report, in addition to risks related to governance, labor supply, limited transport infrastructure and shortage of power and water international investors shun Botswana due to its limited economic diversification and less multi-sector investment opportunities.
In the report released last week, BMI indicated that the small and undiversified economy is not appealing to international investors and the factor has been ranked among risks that could negatively affect FDI growth in the country. The report has indicated that with a score of 100 representing the lowest risks and 0 showing the highest risks, Botswana’s score of 53.0\100 in economic openness shows that there are improvements that should be done about the country’s undiversified economy which demoralize from setting up businesses.
The BMI report has indicated that due to delayed investment in power and water infrastructure, utilities supply has emerged as another factor which limits the country’s ability to attract FDI. In the report, BMI projected that businesses based in Botswana will face increasingly an overburdened utilities sector over the short-medium term, as demand for electricity and water outpaces supply. “Businesses operating in Botswana will continue to face significant electricity reliability challenges over the medium term as demand outpaces supply and investment in power infrastructure will fail to bridge the power deficit, resulting in frequent load-shedding which inhibits productivity in key sectors such as mining. Water scarcity is also a key concern,” reads the report in part.
The report noted that though utility costs remain low by regional comparison, the need for businesses to install back-up electricity generators and water storage facilities, considerably raise marginal costs for investors. “A lack of prioritization of the water and electricity utilities sector before the crisis would dampen the currently underway efforts to attract FDI, despite significant public funding. As a result, water shortages and the related power shortages will continue to interrupt economic activity throughout 2017 and 2018,” reads the report in part.
BMI researchers have indicated that Botswana’s restricted sea access via its over-reliance on a few neighboring ports translates into longer trade times and transport costs, representing another major disadvantage for investors and foreign businesses in the country. “Botswana’s trade environment is complicated by its status as a landlocked country and the lack of extensive road and rail connections, particularly in the western regions of the country, inhibiting trade route selection. This represents the largest source of logistics risk to businesses in Botswana, and the challenge is compounded by the underdevelopment of air freight transport, which places notable pressure on the national rail and road network,” said BMI.
The researchers have indicated that although the absence of port facilities is an unavoidable investment risk in Botswana, the streamlining of trade procedures through automation and the provision of electronic government services, combined with the construction of numerous dry ports and increased investments in rail and road capabilities can partially mitigate the notable trade costs incurred by investors. The researchers have added that Botswana’s appeal to international investors can only improve if the continued investment and the development of associated transport and power infrastructure completed successfully.
On labour issues, BMI researchers indicated that there are significant labour risks that emanate from the small size of the population, restricting recruitment options, particularly for labour intensive. They added that the quality of tertiary education is also of particular concern as it is failing to supply companies with highly skilled labour.