Botswana, renowned as one of Africa’s wealthiest nations on a per capita basis, stands out for its impressive infrastructure development; with an extensive network of well-paved roads, modern international airports, and the establishment of special enterprise zones, the country appears to possess the necessary foundation for robust industrial growth. However, Botswana has a very dismal record of attracting foreign capital being ranked only 160/180 in the world rankings of FDI as a percentage of GDP. At this low level of inward financial flows, supporting the vitally important Reset Agenda and concomitant job creation initiatives will be problematic. Furthermore, a perplexing characteristic emerges that Batswana themselves are reluctant investors too, preferring to focus their savings on cattle and land and not industrialisation and technology. From president to peasant, we are a risk averse nation.
Botswana’s limited investment
In this item we explore the reasons behind Botswana’s limited investment in industrial ventures and delve into this conundrum to shed light on possible explanations for the apparent disconnect between Botswana’s infrastructure abundance and its investment choices.
Our national infrastructure landscape indeed boasts remarkable achievements of which we should be justly proud, with approximately 10,000 kilometres of paved roads, six new international airports and the creation of special enterprise zones signify a government commitment to providing a conducive environment for economic activities. These infrastructure investments should serve as a catalyst for trade, commerce, and overall development. However, the question remains: why hasn’t Botswana witnessed a significant surge in industrial investment, given the favourable infrastructure conditions? One plausible explanation lies in a historical reliance on its vast natural resources, particularly diamonds, which have dominated the country’s economy for decades.
The revenue generated from the diamond industry has fuelled significant economic growth, leading to the prosperity that is enjoyed today. As a result, the focus on resource extraction and the accompanying service sectors has overshadowed the development of a diverse industrial base. The allure of the diamond industry’s profitability and stability may have diverted investment attention away from other potential industrial sectors. Another factor contributing to Botswana’s limited industrial investment could be the challenges associated with market constraints and global competition. Our relatively small population, approximately 2.4 million people, poses limitations on domestic market size. Industrial ventures often require economies of scale to remain competitive, which can be challenging to achieve within a smaller consumer base. This dilemma may be rectified through regional integration and tariff free trade between African nations. Furthermore, global competition from established industrial powerhouses may discourage potential investors from entering sectors where they perceive a disadvantage. This dynamic might discourage the exploration of industrial opportunities, despite the presence of favourable infrastructure.
Diversification Efforts and Future Outlook: Recognizing the need to reduce dependence on diamond revenue and foster economic diversification, the government initiated various programs to promote industrial development. These efforts include policies aimed at attracting foreign direct investment, promoting entrepreneurship, and supporting the growth of sectors beyond mining and services. Nevertheless, it will take time for the country to shift its investment focus and build a robust industrial ecosystem that leverages its infrastructure advantage effectively.
Botswana’s paradox of abundant infrastructure yet limited industrial investment underscores the complexities inherent in economic diversification and shifting investment priorities. While the nation’s impressive infrastructure achievements lay a strong foundation, historical resource dependency, market constraints, and global competition have influenced investment decisions. As Botswana continues its journey towards economic diversification, sustained efforts to promote industrial ventures, expand market opportunities, the cultivation of a culture of innovation will be crucial to fully capitalize on its infrastructure advantages and unlock the potential for a more balanced and resilient economy. Consequently, the Influence of education and cultural background on Botswana’s risk-averse investment approach requires objective analysis which should be the focus of academia. Education plays a pivotal role in shaping individuals’ risk perception and decision-making abilities. In Botswana, the education system has historically placed emphasis on stability, conformity, and secure career paths, especially in the public domain. As a result, Batswana tend to prioritize conservative investment options that offer a sense of security and stability. The risk-reward trade-off inherent in industrial ventures, which often involve uncertainty and entrepreneurial risk, may be perceived as too daunting or unfamiliar, discouraging potential investors from pursuing such opportunities. The cultural heritage of Batswana, primarily centred around cattle farming, has significantly influenced their investment mindset. Cattle have long been considered a symbol of wealth and social status in Botswana’s traditional society. The accumulation of livestock, a relatively low-risk investment with tangible value, has been ingrained in Batswana’s cultural psyche as a measure of financial security. To some extent the investment in improving the quality of cattle and goats may have flip-side in perpetuating the risk averse status quo. This cultural attachment to tangible assets and the aversion to intangible or high-risk investments may explain the hesitancy to engage extensively in industrial ventures. It is important to note that risk aversion is not necessarily detrimental to economic stability. In fact, the conservative investment approach among Batswana has played a role in preserving wealth and ensuring relative stability during times of economic uncertainty. The conservative mindset has allowed individuals to mitigate potential losses and maintain a certain level of financial security. However, striking a balance between risk aversion and embracing calculated risks is crucial for fostering industrial growth and seizing new opportunities. To encourage a shift towards a more entrepreneurial and risk-tolerant mindset, efforts are underway to promote entrepreneurship and innovation in Botswana. Initiatives focused on entrepreneurship education, mentorship programs, and access to funding for startups are being introduced to nurture a new generation of risk-takers. By empowering Batswana with the skills, knowledge, and support necessary to navigate and manage risks effectively, the country aims to create an environment conducive to industrial investment and economic diversification.
Small population and land area
Botswana’s relatively small population and land area can present challenges in terms of market size and access to regional markets. Investors often seek larger consumer bases and regional integration opportunities to maximize economies of scale and market reach. The landlocked nature of Botswana further adds to logistical challenges and may limit opportunities for certain industries. Addressing these limitations could involve exploring regional partnerships and trade agreements to expand market access. Perception plays a significant role in investment decisions. While Botswana may have favourable rankings for its business environment, the perception among investors might not align with these rankings. Improving the country’s marketing efforts to showcase investment opportunities, highlight success stories, and address any misperceptions can help attract greater domestic and foreign investment. It is noteworthy that the Ease of Doing Business Index (EoB) has seen a steady reduction in our ranking from 39th in 2008 to 87th out of 190 countries.
A breakdown of the EoB index is shown in the figure below.
Ease of doing business
Examples of successful investment attraction and economic growth are worth highlighting. Rwanda’s ease of doing business ranking improved from 159th in 2008 to 38th in 2020, according to the World Bank’s Doing Business Report. Foreign direct investment (FDI) inflows to Rwanda increased from $105 million in 2010 to $465 million in 2019, as reported by the United Nations Conference on Trade and Development (UNCTAD). The Kigali Innovation City project aims to attract $300 million in investment and create 50,000 jobs in the technology sector by 2030. FDI inflows to Ghana reached $2.65 billion in 2020, according to the Ghana Investment Promotion Centre (GIPC). Ghana’s ease of doing business ranking improved from 120th in 2019 to 118th in 2020, according to the World Bank’s Doing Business Report. The oil and gas sector has attracted significant investments, with over $30 billion invested in oil and gas projects since 2007, as reported by the Ghana National Petroleum Corporation. Mauritius ranks 13th out of 190 countries in the World Bank’s ease of doing business ranking for 2020. FDI inflows to Mauritius reached $427 million in 2019, as reported by the United Nations Conference on Trade and Development (UNCTAD). The country has signed over 50 double taxation avoidance agreements to promote investment and trade. FDI inflows to Ethiopia increased from $169 million in 2010 to $2.5 billion in 2019, as reported by the United Nations Conference on Trade and Development (UNCTAD). Ethiopia has developed industrial parks, including the Eastern Industrial Zone and Hawassa Industrial Park, which have attracted over 600 foreign companies and generated significant investment and employment opportunities. The country aims to attract $4 billion in FDI annually as part of its industrialization strategy, according to the Ethiopian Investment Commission. FDI inflows to Morocco reached $2.74 billion in 2019, according to the United Nations Conference on Trade and Development (UNCTAD). Morocco ranks 53rd out of 190 countries in the World Bank’s ease of doing business ranking for 2020. The Noor solar power plant, located in Ouarzazate, is one of the largest concentrated solar power plants in the world, with an investment of around $9 billion. These statistics highlight the progress and achievements of these countries in attracting investment and promoting business-friendly environments. They demonstrate the potential for Botswana to learn from these examples and adopt effective strategies to enhance its own investment climate and drive economic growth. There must be a change in investor attitudes towards more risky but higher rewarding investments.