Botswana FDI could remain stagnant

….despite improvements in 2018 FDI rankings


In its 2018 Africa Investment Index (AII) released last week, Quatum Global, the Switzerland research company indicated that Botswana could, this year, struggle to significantly increase her Foreign Direct Investment (FDI) revenues, despite the improvements recorded in the latest Africa FDI rankings.
While the country’s overall FDI rankings improved from the 10th position recorded in 2017 to the 4th position this year. Potential investors could, this year, continue shunning the country and invest in other African countries.
The 2018 Africa Investment Index indicated that the small size of the economy, low investment in infrastructure, slow economic growth, low liquidity, exchange rate risks and low population when compared to other African countries, are major factors which are expected to result with the country continuously losing potential investors to other African countries in 2018. Out of 54 African countries Botswana has been ranked 45th on economic growth ranking. According to the index report, the lower ranking on economic growth means, slow economic growth is the major factor which results with investors shunning the country. The index has noted that Botswana ranked 42nd on total population showing that due to its low population investors has been demoralized to set up businesses in the country and the country economy could continue struggling to attract international investors.
The research company found that Botswana could lose international investors to other African countries as foreign investment in the country faces high risks of financial loss due to unfavourable exchange rates. The latest AII FDI rankings shows that due to unfavourable exchange rate when compared to other African countries, investors would reject the country and rather invest in Benin which ranks 2nd in exchange rate, Central African Republic 3rd, Senegal 4th, Mali 5th, Niger 6th or Burkina Faso which has been the 7th country with low risk of financial loss due to exchange rate. According to Quatum Global findings investors coming to invest in Africa could reject Botswana and invest in Guinea-Bissau, Ghana, Libya, Egypt and Ethiopia which have been ranked the top 5 countries most preferred by international investors due to their high liquidity.
Quatum Global researchers have emphasized recent findings that Botswana’s ability to attract investors is expected to be limited by low and delayed investment in water, power and transport infrastructure when compared to its neighbouring countries and other countries in the continent. It has emerged that investors find it very costly to do business in Botswana than in other African countries such as, Mauritania, Mozambique, Niger Ethiopia and Libya. According to observers while utility costs remain low when compared to other countries in the continent, the need for some businesses such as mining companies, to construct water infrastructure, power and roads before production significantly raises costs of doing business in Botswana.
EY, an international research company which provides advisory services on economy and capital markets has indicated that in its bid to improve its attractiveness to FDI and increase its FDI revenues, Botswana should focus on increasing the size of its economy and fast-track economic diversification. “Foreign investors tend to gravitate toward the larger, more diverse economies in Africa. These include South Africa in the south, Morocco and Egypt in the north, Nigeria in the west and Kenya in the east. Collectively, these markets attract 58% of the continent’s total FDI on annual basis. Given that these markets are the dominant anchor economies in their respective regions, they provide investors with greater scale and relatively more mature markets,” said EY analysts. The analysts indicated that despite its political stability when compared to other African countries, latest results show that Botswana is struggling to attract increased FDI and cannot compete with other countries in the continent. According to the analysts, results show that the key hub economies South Africa, Nigeria, Kenya, Egypt and Morocco remain Africa’s top recipients by FDI projects.