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A special report on south africa’s stranglehold over botswana’s economy

While Botswana remains a politically independent state, its economy is however hamstrung. Lack of diversified beneficiation and direct industrial protectionism – so far by five presidents – has delivered the country’s most significant earners to South Africa, essentially shutting Batswana out of the largest contributors to GDP. KEABETSWE NEWEL and LAWRENCE SERETSE report

On the 27th November 2012, Professor Michael Porter of Harvard Business School gathered then president Ian Khama and members of his Cabinet to lecture them on the structure of the economy of Botswana and a strategic direction going forward. In Professor Porter’s presentation titled ‘Botswana: Towards a New Economic Strategy,’ the message was short and simple.
“Botswana lacks economic independence because the economy is controlled from South Africa,” he said, noting that South Africa was both a blessing and a curse to Botswana because as an African powerhouse, South Africa controlled all economic activity in Botswana, which obstructs economic independence and citizen economic drive.

THE MINING SECTOR

The mining sector is the mainstay of the Botswana economy, with diamonds leading the pack. But government and citizens play a limited role, leaving investors from Canada, the United Kingdom, Australia and South Africa running the sector. Government has a 50 percent share in Debswana in partnership with De Beers. However, evidence shows that Botswana plays a limited role in the value chain, letting De Beers, a company owned 85 percent by South Africa’s Anglo American, have its way.

Another valuable diamond mine, Karowe Mine, which produces highly valuable rare gems, is owned 100 percent by Canadian company, Lucara Diamond Corp. Government only benefits from royalties and tax while profits are shipped off to Canada.
Irish firm Botswana Diamonds also does exploration in Botswana. Coal Bed Methane (CBM) explorer, Tlou Energy, is owned by Australian investors together with another CMB miner Raven Energy Resources.
A Cap Resources, a mineral explorer, is also Australian owned, together with coal exploration company, African Energy Resources Limited.

THE FINANCIAL SECTOR

Botswana’s financial sector is indisputably controlled from South Africa. The banking sector, which has assets valued at around half of Botswana’s GDP, is notable for the total absence of an indigenous bank. It is only now that BBS is in the process of being Botswana’s first indigenous commercial bank, despite the sector going back as far as 1897 when Standard Chartered Bank first opened a satellite office in the country.

Standard Chartered Bank was locally incorporated in 1975. Further, 25 percent of its shares are listed on the Botswana Stock Exchange (BSE) while Standard Chartered Holdings (Africa) BV, a subsidiary of Standard Chartered PLC, owns the remaining 75 percent. This simply means that 75 percent of the money that Standard Chartered Bank makes belongs to UK-based Standard Chartered PLC as dividends.

FNB Holdings Botswana, which is fully owned by First Rand Bank South Africa, holds a controlling 70 percent stake, in the P8 billion plus worth of the banking giant. FNBB is the most profitable company on the Botswana Stock Exchange (BSE), making over P600 million on average annually. Interestingly, however, First Rand in SA has a diversified shareholding that includes a stake held by the Black Economic Empowerment (BEE) trust, Royal Bafokeng Holdings (RMB Holdings), the largest shareholder of First Rand, REMGRO, as well as shares held by senior management.

Like FNBB and Standard Chartered, Barclays Bank Botswana and Stanbic Bank Botswana are essentially controlled by external shareholders. ABSA Group Ltd commands over 67 percent stake in Barclays Bank Botswana. The Standard Bank Group, the largest bank in Africa by assets, owns Stanbic Bank in Botswana.

Banc ABC is now owned by the Atlas Mara Group, an investment company based in London. Banks fall under an economic sector classified as Finance and Business Services by Statistics Botswana. The sector pumps over P20 billion on average into Botswana’s GDP annually, the equivalent of over 15 percent.

NON-BANK FINANCIAL INSTITUTIONS (NBFIS)

In 2017, assets of Botswana’s non-bank financial institutions were valued at P123 billion, accounting for 68 percent of GDP, according to regulator Non-Bank Financial Institutions Regulatory Authority (NBFIRA). These are mostly asset managers, insurance firms and micro lenders. Evidence shows
that they are South African dominated.

Botswana’s largest and most diversified insurance firm, Botswana Insurance Holdings Limited (BIHL), is controlled from South Africa by Sanlam Emerging Markets. Sanlam now owns 58 percent of the over P4.7 billion worth company by market capitalization. The remaining stake is held by pension funds, especially the Botswana Public Officers Pension Fund (BPOPF). This makes Sanlam the controller of a company that makes around P600 million in profits annually.

BIHL has a controlling stake in Letshego Holdings Limited, a behemoth micro lending company. BIHL, through Botswana Life Insurance Limited (BLIL), holds 23.7 percent in Letshego.

Stockbrokers Botswana has an 8.3 percent stake in Letshego while the remaining shares are held randomly by various local minority investors. This strategic controlling stake in Letshego indirectly trickles down to Sanlam, which owns BIHL in majority.

Further, BLIL holds 35.4 percent in Funeral Services Group (FSG), Botswana’s largest undertakers that has delisted from the BSE. FSG controls the funeral services value chain in Kagiso and Lyns funeral parlours, major cemetery companies.

BIHL also wholly owns Botswana Insurance Fund Management (BIFM) with over P27 billion in assets under management, as well as the biggest life insurer, Botswana Life Insurance Limited, which controls 70 percent of the insurance market.

ASSET MANAGERS

The biggest asset management companies that manage billions of pula in pension funds are also South African dominated. Allan Gray, African Alliance, Investec and Stanlib, to mention but a few, are all South African. The only Botswana owned fund manager in the big guns league is Kgori Capital.

INSURANCE SECTOR

Further, insurance companies like Hollard, Liberty and First Mutual are also controlled from South Africa. Insurance sector premiums are valued at more than P5 billion while assets exceed P21 billion, according to the Non-Bank Financial Institutions Regulatory Authority (NBFIRA).

INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS

The largest mobile phone company, Mascom Wireless, is owned 53 percent by MTN, a South African mobile giant. Mascom is owned by three shareholders indirectly through a company called DECI Investments. MTN is the biggest shareholder at 53 percent, BPOPF has 40 percent while Econet JV (based in Mauritius) has 7 percent. As a leading mobile phone operator in Botswana, Mascom makes the most money in Botswana’s telecommunications industry and pays handsome dividends to its shareholders. However, being owned mostly by MTN, the SA-based giant enjoys most of the Botswana-based company’s profits.

With subsidiaries worldwide, Orange is the French leader of telecommunications. Orange Botswana is controlled 73.6 percent by the French company while 26.3 percent is held by various private investors. Orange is the second largest after Mascom, but it is the largest mobile money operator through Orange Money which transacts millions monthly.

THE TOURISM SECTOR

Owned by American investors TPG Growth and The Rise Fund, eco-tourism outfit Wilderness Holdings Limited has over 20 camps in the Okavango Delta, charging fees of between P8 000 and P20 000 per night per person. It also has concessions in the Central Kalahari Game Reserve (CKGR), making it the most valuable eco-tourism outfit in Botswana. It makes over P1 billion annually in revenues.

Wilderness enjoys the tourism sector’s money together with Chobe Holdings Limited through its subsidiaries Desert and Delta and Ker & Downey. Chobe is controlled 31.9 percent by a pan-African financier called African Finance Holdings Limited. Australian firm Angold (Pty) Ltd owns 9 percent while other shareholders own 5 percent or less. Chobe has more than 15 luxury camps in the plush Okavango area.

A UK-owned company called And Beyond also enjoys lucrative concessions together with Belmond Safaris. Great Plains, a company owned by former president Ian Khama’s friend Derek Joubert, also owns lucrative concessions in the tourism sector.

CLOTHING AND FURNITURE RETAIL SECTOR

Three companies in Edcon Group, Pepkor Holdings Limited and Mr Price Group dominate the market in Botswana. Pepkor Holdings Limited wholly controls Pep Stores, Ackermans, Dunns and Shoe City, to mention but a few. The company also owns HI-FI Corporation, a renowned electronics and household goods provider. Further, it owns computer store Incredible Connections and Bradlows Furniture store.

Edcon Group, another South African company, owns Edgars stores, Jet stores and CNA stores nationwide.
South African retailer, Mr Price Group, operates Mr Price clothing stores all over Botswana. It also runs Mr Price Home, which deals in household products, as well as Miladys, another clothing retailer. Further, Sheet Street (selling blankets and household products) and Mr Price Sport also fall under the Mr Price Group.

The Foschini Group, another South African company, owns American Swiss and Sterns, two leading jewellery stores. The company also runs Foschini clothing store, Exact, Fabiani, Markham, Sportscene and Total Sports, to mention but a few.

RESTAURANTS AND EATERIES

South African company Famous Brands runs Steers, Wimpy, Debonairs Pizza, Fishaways, Mugg & Bean, Milky Lane, Fego Café and Europa, which are spread all over Botswana.

Franchise rights for KFC Botswana restaurants are owned by Bradleymore’s Holdings (Pty) Ltd. Bradlymore’s Holdings Pty Ltd is a joint venture between South African company Baobab Khulisani South Africa (Pty) Ltd and Netherlands controlled petroleum services provider Vivo Energy Africa Limited.

FAST MOVING CONSUMER GOOD RETAILERS

CA Sales, the largest milti-billion FMCG distributor, is controlled in majority by PST Group in South Africa.

THE MOTOR INDUSTRY

A major market player is South African owned business Barloworld, which deals in brands such as VW, Audi, Ford, Mazda and Volvo.

Political analyst at the University of Botswana (UB), Leonard Sesa, believes that without a clear foreign policy, Botswana continues to labour under weak regulations that govern its socio-economic and political relations with foreign countries, leaving the mainstays of the country open to external dominance.

Deputy Secretary General at the Botswana Federation of Public Sector Unions (BOFEPUSU), Ketlhalefile Motswegwa, says a localization policy is needed to ensure that Batswana benefit from the high-end economic sectors. An economy dominated by external players, says Motshegwa, leads to exportation of jobs, capital flight and transfer pricing, which robs the Botswana economy of its rightful development. “Call centres of banks and insurance companies are in South Africa because the decision makers are there. If the call centres were here, they could have employed Batswana,” he says, adding that top management at most of these institutions are non- Batswana while locals in any meaningful positions mostly occupy middle management.

Further, Motshegwa says when dividends are paid, most of the money goes abroad. “Management services, procurement and supplies, as well as consultancy services are also acquired from the foreign owned parent companies in a quest to bill the local firms millions in ‘costs.’ This allows the foreign shareholders to take money from Botswana in transfer pricing,” he notes.
The Minister of Investment, Trade and Industry (MITI) Bogolo Kenewendo agrees that the economy is mostly controlled by foreign entities. “What we are saying now is that it is time for us to create our own. This is why we are busy with protectionism policies aimed at empowering locals and reserving some sectors only for locals,” says Kenewendo, adding that the Botswana Investment and Trade Centre (BITC) has a special wing that is focused on developing domestic investments to create a balance with foreign investment.

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