- Says 51 percent citizen ownership requirement will hurt local economy
- Balance citizen empowerment with pragmatic approach – Business Botswana
- Batswana retailers say foreign companies not interested in citizen empowerment
In an ongoing tussle between Government’s renewed passion for citizen economic empowerment and the interests of big business linked to property companies, financiers and retail chains- a lobby group comprising of South African businesses, banks and property companies is said to be engaging Government to find alternatives to the revamped Trade Act of 2008- which reserves some business categories for citizens and requires a controlling interest by citizens in those businesses.
The lobby commissioned a position paper which argues that the Botswana Citizen Reservation laws in the Act will do more harm than good, calling for a balance. The paper titled Policy Note: The Impact of Reservation Policy in Retail Sector on Botswana Economy argues that the country’s reservation laws are running contrary to the desire of making Botswana a more attractive investment environment in the face of a foreign direct investment which plummeted by half in the last decade.
The lobby group posits that reservation and the exclusion of foreign investment runs in conflict with government policies like the Botswana Excellence Strategy (2008) which emphasises the importance of FDI. The lobby however concedes that the Reservation Policy is a powerful weapon, “although a somewhat blunt one, with both positive and negative aspects”.
“On the positive side, it provides a supportive environment for the growth of citizen-owned businesses. However, this will only work if there is sufficient access to the other requirements for successful businesses, notably skills, experience and finance,” says the paper.
“On the negative side, reservation reduces economic growth, investment and employment creation, by restricting the supply of capital for investment, as well as access to supply chains, branding, product design etc. It also restricts consumer choice. Furthermore, by excluding FDI in certain activities, it reduces FDI inflows and creates an image of Botswana to the world that the country is “closed for business”.
The paper states that the main retail sub-sectors affected by the reservation policy are General Dealers and General Clothing, both of which are restricted to citizens only and these are both key retail sub-sectors.These categories include some of the largest South African retail chains operating in Botswana, including Pep Stores, Ackermans, Mr Price, Woolworths, Jet Stores (General Clothing) and Clicks, Mr Price Home (General Dealers).
“In the past, these and other foreign-owned chains wishing to invest in Botswana were able to secure exemptions from the reservation requirement, and the Minister of Trade and Industry allowed them to be issued with licences. Although this was still subjective and on a case-by-case basis, the consistent application of the exemption gave some confidence to foreign investors and property developers, for whom clothing chains in particular provide a key segment of their business,” the lobby writes.
“Recently, however, the approach has changed, and licence applications by Clicks, Mr Price and Pep to open new stores have been rejected, with exemptions refused. It is reported that the licences will now only be approved if these foreign investors provide for 51 percent citizen ownership of their Botswana operations,” said the lobby.
The lobby says that locally originating businesses such as CB Stores, Options, Mafia Soul, Sole Shoes, JB Sports, Taku Taku, and Topline (clothing and footwear), Furnmart and Homecorp (furniture) have not been impeded in their growth by foreign businesses. “Not only have these locally-owned firms managed to compete with foreign chains in Botswana, but most of them have also successfully expanded into neighbouring countries, competing with those same South African chains in other places. So protection through reservation is not necessary for successful Botswana firms to thrive.”The lobby says that protection through reservation will have some of the following impacts: Some proposed new stores that are part of these chains will not now open, with a negative impact on job creation, and worsening the problem of unemployment; Developers of retail property are having to re-think their plans, and future retail mall developments are much less likely to occur, thereby reducing investment opportunities for citizen investors and pension funds; The requirement that clothing retail chains and those classified as general dealers enter into joint ventures whereby the citizen partner holds 51 percent or more of the equity seriously undermines Botswana’s reputation for fair dealing with foreign investors; this is very similar to the indigenisation requirement imposed by Zimbabwe, which has had a disastrous impact on inflows of FDI into Zimbabwe, and on the economy more generally; both domestic and foreign investors may redirect their investments elsewhere.
“If a requirement that foreign investors can only get approval by granting 51 person ownership to citizens is enforced, Botswana runs the risk of being classified in the same category as Zimbabwe,” says the lobby in conclusion.They also assertsthat more than half of the firms listed on the Botwana Stock Exchange have used Botswana as a base to expand elsewhere in Africa, citing Choppies, Sefalana and Furnmart and others such as Letshego, Turnstar, RDC, Primetime, Chobe and BIHL have also done so successfully, in sectors such as retail, property and financial services.
“There is a danger of hypocrisy if foreign firms are prevented from setting up business in Botswana, while emerging Botswana firms are dependent on being allowed to invest in other countries in the region. This could in turn invite retaliation from other governments, which would undermine the broader growth prospects of citizen-owned firms as they are being encouraged to compete outside of the country – a key element of the Economic Diversification Drive,” they stated.Business Botswana President Lokwalo Mosienyane told The Gazette Business that a balance should be struck between citizen economic empowerment and allowing foreign owned businesses to thrive. “They might be foreigners but these are Botswana based businesses paying taxes in Botswana and using Batswana owned banking services and even the shopping malls they occupy are owned by Batswana,” said Mosienyane.“I don’t hear them saying they don’t want citizen economic empowerment but rather that they should be consulted, we are not saying there should no be citizen economic empowerment and we as Business Botswana have worked so hard to try and achieve a Citizen Economic Empowerment law but where is the Act now?” he asked rhetorically.
“There is a need to look at the whole value chain and such changes must not be done abruptly,” he added.However, a group of Batswana retail operators recently pledged solidarity with the Minister of Investment, Trade and Industry, Vincent Seretse, over his hard-line stance to not offer exemptions to South African retailers to get trading licenses for business lines reserved for citizens.
In a letter copied to Business Botswana’s Lokwalo Mosienyane, the retailers said that they support Seretse’s stance as they are at the mercy of cartel behaviour exhibited by big moneyed South African retailers who dominate the local retail mall shop spaces, dictating terms and not willing to bend to Government’s Citizen Economic Empowerment intentions.However, the Head of Retail Sector Committee at Business Botswana, Odirile Merafhe, when reached for comment by this publication, declined to comment on the origins of the position paper or reveal its proponents, saying it is still an internal conversation with the Ministry of Trade and thus he would reserve his comments.