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Country Commercial Guides FY 2000: Botswana Report prepared by U.S. Embassy Gaborone, Botswana, released July 1999 Note*

CHAPTER VII: INVESTMENT CLIMATE STATEMENT

Openness to Foreign Investment

Botswana is widely regarded as an attractive place to do profitable business. The 1998 Africa Competitiveness Report produced by the World Economic Forum places Botswana third in Africa behind Mauritius and Tunisia in terms of overall competitiveness. The prudent economic management of the Botswana Government coupled with good fortune--an oasis of diamonds--has resulted in many years of sustained economic growth under conditions of macroeconomic and financial stability. While GDP growth in 1998 remained an impressive 8.3%, the economy is not without problems. The Asian economic crisis resulted in a fall in demand for diamonds, which resulted in a decision to hold back diamond production from the market. This has led to a decline in diamond exports by 12% from 1997 and the country's first predicted budget deficit since 1990 estimated at $325 million. While better than expected diamond sales in the first half of 1999 have improved government revenue forecasts for this year, the 1998 shortfall has given new impetus to the Government's attempts to diversify Botswana's economy.

In addition to this "diamond dependence", the country faces a continuing high rate of unemployment of about 21%. The Botswana Government is giving this problem high profile as is evidenced by the theme of the 1999 Budget Speech, "Creating an Enabling Environment for Sustainable Employment Creation and Poverty Reduction." The Government's employment creation strategy has included instituting measures that are conducive to private sector growth. The need for foreign direct investment to achieve full growth potential and for the alleviation of unemployment is recognized by both government and private sector as critical.

The Botswana Government has been committed to creating a regulatory framework favorable to investors. Its strategy has focused on the liberalization of exchange controls, a process concluded with the complete abolition of all exchange controls in February 1999. In addition the Government has reaffirmed its commitment to combating crime, including corruption, and to improving the delivery of the judicial system. It has also attempted to provide assistance to investors through general investment incentive schemes, including Botswana Government grants and tax relief. Foreign investors are given equal access to general incentive schemes in all economic sectors, save those reserved for Botswana citizen investors. Investment of foreign capital in job-creating industrial projects, particularly in import substitution and exports is strongly encouraged.

The Botswana Government attempts to assist investors through its various parastatal development entities which provide assistance and/or financing to potential foreign or domestic investors. Botswana's former Trade and Investment Promotion Agency (TIPA) under the Ministry of Commerce has been reorganized into an independent parastatal, the Botswana Export Development and Investment Agency (BEDIA). Whereas TIPA's role was primarily informing foreign investors of the possibility of investment opportunities, BEDIA will attempt to actively assist investors. BEDIA is designed to act as a "one-stop shop" to minimize bureaucratic delays and costs. BEDIA will assist investors in pre-investment support services including purchasing or leasing property, obtaining work and residence permits, obtaining necessary licenses and other regulatory authorizations, and providing initial start-up grants. While creating BEDIA, the Government was also reorganizing the Botswana Development Corporation (BDC), its development financing parastatal. BDC had previously provided loans and equity capital to virtually any project presented to it which could be seen as having a loosely-defined "development" component. This resulted in significant monetary losses which the Botswana Government had to cover. The revised BDC is examining proposed projects based not only on "development" grounds but also on their economic viability, loan repayment ability and the likelihood of return on its investment. In addition, the new BDC is actively seeking out possible investments and investor partners, rather than awaiting projects. The National Development Bank (NDB) completes the triumvirate of investment assistance agencies. A parastatal, NDB offers competitive long-term loans to finance development projects. NDB is active primarily in certain targeted areas designated by its board of directors on a semi-annual basis.

While generally open to foreign participation in its economy, Botswana does reserve some sectors solely for citizens. Most were imposed by Parliament out of a fear that other non-citizen African and South Asian residents were opening businesses in areas traditionally controlled by Batswana. The restrictions are not retroactive, and businesses in existence prior to the law's passage remain in the hands of their non-citizen owners. In addition, many foreign investors have continued to invest in certain areas, such as gas stations, through franchising to Botswana citizens. The Ministry of Commerce which has responsibility for licensing businesses, has generally issued licenses to foreigners to operate businesses related to these areas whenever there has been any ambiguity as to whether the licensing prohibition applied. At present, the law prohibits foreign participation in school furniture manufacturing, and the welding and bricklaying trades. The law also states "licenses shall only be issued to citizens of Botswana or companies wholly owned by citizens of Botswana to carry on the following trades or businesses -

A) hawkers and vendors
B) butchery and fresh produce
C) general trading
D) petrol filling station
E) bottle stores (liquor stores)
F) bars other than those related to hotel establishments
G) chibuku (traditional beer) bar
H) village type restaurant take away including restaurant liquor license
I) supermarkets, but excluding chainstores and franchise operations,
J) simple specialty operations such as clothing boutique, footwear, etc."

The Ministry of Commerce has taken an expansive interpretation of "chainstores" concluding it means any store with more than one outlet and has allowed the exemption to apply not only to supermarkets, but also to simple specialty operations and general trading stores. Hence, large general merchandise markets, restaurants and the dominant grocery network, all owned by foreigners, operate without restriction. Foreign investors are allowed to participate in all other sectors. Foreign firms are accorded national treatment and there are no formal or informal polices that are discriminatory to foreign owned firms. There are no stringent screening mechanisms for licensing that could cause an impediment to investment, limit competition, or protect domestic interests at the expense of foreign investment. Both BDC and NDB now carefully screen potential projects prior to involvement for commercial viability, but there has been no evidence that domestic investors have been favored over foreign ones in the process.

The Botswana Government in the early 1990's embarked on a plan to privatize most state enterprises. They have already made impressive progress in this regard and have sold off most commercial enterprises. Remaining parastatals in the electricity, telecommunications, transportation, water, real estate, cattle and mining sectors have been "commercialized." This is a term used by the Government to describe a process by which all government subsidies have been eliminated and the enterprises told to run as if they were private businesses with the Government treated as a shareholder. In the Government's view, this process has been highly successful as, with the exception of the Selebi-Phikwe copper/nickel mine, all remaining parastatals are returning money to government coffers. The Government has previously indicated that with the exceptions of Debswana (diamond mines) and the Diamond Valuing Agency, it ultimately intends to privatize all parastatals. This process, however, has been slowed due to the enterprises' commercial success. A high-level task force established to examine the potential advantages and disadvantages of privatization submitted its report to the government at the end of July 1998. The Government claims to be studying the recommendations outlined in the report, and holding further consultations, but no mention was made of the process in this year's budget speech. The reality may be that future privatizations are on hold as long as the enterprises concerned remain profitable.

In previous privatizations, the Government has highlighted promoting efficiency and growth as its ultimate objective. In practice, however, it also wanted to create new opportunities for citizen businesses. Foreign investors have always been allowed to participate in the country's privatization programs from the initial stage at which companies are advertised. However, the Government has on some occasions given preference to domestic investors even when foreign bids were higher. In addition, to outright privatization, the Government has at times sold off a portion of its equity in parastatals to private investors. Limited domestic capital means that foreign investors have been welcomed in most instances. Botswana citizens, however, are often given exclusive first rights to purchase this equity. "Contracting out" services to the private sector by the Botswana Government or parastatals has not been widely done. However, there exists a wide range of functions and services within the public sector, which could potentially be provided to government or to parastatals by the private sector. In instances where "contracting out" has been used citizen owned companies have not been given preferential treatment.

Conversion and Transfer Policies

Botswana is the second country in the Southern African Development Community (SADC) to abolish exchange controls. The complete elimination of controls on current and capital accounts is expected to enhance Botswana's competitive position for investment flows destined for the region. However, with this new change in policy, it has become necessary for the Government to develop the capacity to monitor data on capital flows to provide early warning signals of potentially destabilizing activity. Commercial banks are now required by regulation to have investors fill out basic forms (Form A and Form S for outward and inward transactions respectively) indicating name, address, identity, purpose and details of beneficiary prior to processing investors' transfer requests or loan applications. Other government agencies also monitor large international capital inflows so that appropriate policies can be implemented to reduce any destabilizing effects on the economy.

There are no restrictions on converting or transferring funds associated with an investment into a freely convertible currency and at a legal clearing rate. Investors are allowed to remit funds through a legal parallel market. Non-residents can trade in and issue Pula-denominated bonds, provided such instruments are listed on the Botswana Stock Exchange and are long term. They can also hold stakes in Botswana companies. Residents are permitted to invest overseas and borrow offshore. Travelers are no longer restricted on how much currency they may carry on their person or in their baggage, but they are required to declare to the customs and excise officials at the port of departure any cash amount in excess of Pula 10,000 (approx. $2200). All quantitative limits on foreign currency access for current account transactions; both for businesses incorporated locally and for permanent residents of the country have been removed. Dual listings are permitted on the Botswana Stock Exchange. Non-residents are able to hold bonds with maturity periods of over one year. Participation in any bond issued by non-residents will no longer be restricted by exchange controls. This is a move to encourage inward portfolio investments deemed beneficial to Botswana, to develop domestic capital markets, to diversify investment instruments, and to increase the potential demand for domestic bonds. Botswana's new "Letlole Saving Certificate" (the equivalent of a U.S. treasury bond) can be purchased only by Botswana citizens.

Efforts to promote the development of a deeper private/parastatal bond market is evident by the floating of the following bonds on the Botswana Stock Exchange:

A 14 % fixed interest bond amounting to Pula 50 million (approx. $11.3 million) for a period of seven years issued by the Botswana Development Corporation;

A Pula 50 million (approx. $11.3 million) bond floated by the Botswana Telecommunications Corporation, redeemable in the year 2008; and

An authorized limit of Pula 500 million (approx. $113 million) issued at a floating rate by Investec Overseas Finance Ltd.

The Government permits the establishment of foreign currency denominated accounts in Botswana. At present commercial banks offer accounts denominated in U.S. Dollars, British Pounds, German Marks and South African Rands. Businesses and other bodies incorporated or registered in Botswana may open such accounts without prior approval from the Bank of Botswana. The Government also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the person is allowed immediate repatriation of all proceeds. Investment returns such as profits and dividends, debt service, capital gains, returns on intellectual property, royalties, franchise fees and service fees can all be repatriated without any quantum limit. There is no difficulty in obtaining foreign exchange. The occurrence of severe shortages of foreign exchange that would lead banks to block transactions is highly unlikely. With international reserves of approximately $5.96 billion, Botswana will not experience foreign exchange difficulties in the foreseeable future. The Botswana Pula is, for all intents and purposes, freely convertible.

Expropriation and Compensation

The Constitution of Botswana prohibits nationalization of private property. The Government of Botswana has never pursued a policy of forced nationalization, and we have no reason to believe that it would consider expropriatory actions.

Dispute Settlement

The Botswana Constitution provides for a judiciary, which is independent of both the executive and legislative powers. Civil law is based on Roman-Dutch law while criminal law is built on familiar tenets of the English legal system. The legal system is sufficient to conduct secure commercial dealings. Secured and unsecured creditors enjoy the same rights under bankruptcy proceedings as they would in the United States, and foreign and domestic parties have equal recourse to the judicial system. A proven judicial and legal structure is in place. Botswana is a member of the International Center for the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA).

Performance Requirements/Incentives

The Government of Botswana does not impose any performance requirements on foreign investors. Partnership with a local investor has occasionally been given as an unwritten requirement for success in government tenders, particularly in sectors officially reserved for nationals. For general investments in unreserved sectors, however, there are no requirements for equity participation by Botswana nationals. Technology transfer is not required of foreign investors. Investors are encouraged, but not required, to purchase from local sources. Foreign exchange is available to all investors, domestic or foreign, irrespective of export volumes. There are no government-imposed conditions on permission to invest, location in specific geographical area, specific percentage of local content, local equity, substitution for imports, export requirements or targets, or local source of financing.

It is the official policy of the Government to encourage foreign firms to hire qualified Botswana nationals rather than expatriates, and the granting of Work Permits to expatriates can in some instances be made contingent upon establishment of demonstrable "localization" efforts. The application for and issuance of Work Permits for expatriate workers are cumbersome, but generally not an impediment to doing business in the country. The Government recognizes that the shortage of technical and managerial job skills among the general population necessitates the import of expatriate labor and generally grants Work Permits for positions which cannot be filled by an appropriately trained Botswana citizen or for which the company requires job-specific training. After the start-up period, however, the Government will often require evidence that a citizen is being trained to assume some of the expatriate positions, particularly at the middle-management level. The issuance of Work Permits to nationals of South Asian and West African countries, as well as Zimbabwe, China and South Africa has become a political issue. Obtaining Work Permits for nationals of these countries or renewing their existing permits can be particularly difficult.

The Government of Botswana offers foreign investors equal access to export and investment incentives. Incentives are categorized as follows:

(I) Export Incentives:

A duty drawback facility available for investors when purchasing raw materials to be used for the production of exportable merchandise.

Exemption from sales tax when importing machinery and equipment required in production of exports.

With the establishment of the Botswana Export Credit Insurance and Guarantee Ltd (BECI), investors are now able to purchase coverage against (a) the insolvency and inability of buyers to pay for purchases and (b) political risks, such as losses caused by import restriction, war, and, more commonly, the prevention of foreign exchange transfer for payment by the buyer's country. Policy holders benefit from protection against trade losses and an assessment of the creditworthiness of trading partners.

(II) Investment Incentives:

Under the Financial Assistance Policy (FAP), assistance is provided by specific grants to employment generating projects. FAP incentives are granted to productive projects that aim at expanding the economy beyond the cattle and mining (diamond) sectors. Qualifying activities include manufacturing, small-scale mining, some mineral processing, agriculture other than cattle, tourism and selected industries that service the manufacturing sector. As the emphasis of FAP is on job creation, labor intensive enterprises are favored. Potential assistance under the FAP includes capital grants, unskilled labor grants, and training grants.

Capital grants are issued to medium and large-scale projects. Non-refundable grants are awarded to expanding and some new productive businesses with a minimum economic rate of return of six percent. Unskilled labor grants are provided for citizens earning wages close to the statutory minimum. Reimbursements are made at three-month intervals. A training grant of 50% for citizens off-the-job training costs is reimbursed during the first five years of the project.

The Local Procurement Program (LPP) channels a proportion of the Central Government's supplies procurement to locally based small, medium, and large-scale manufacturers. This program envisages giving up to 30% of the Government's annual budget for supplies to qualifying firms. Beneficiaries must be licensed, employ not more than 200 persons and/or have an annual turn over of between Pula 200,000 ($50,000) and Pula 5,000,000 ($1,250,000), and have an investment in productive machinery of between Pula 50,000 ($12,500) and Pula 5,000,000 ($1,250,000 million).

(III) Other:

Other forms of direct and indirect assistance may be identified and requested by the potential investor as an alternative. This is done through a Development Approval Order. The Order would include the types and rates of additional tax relief, which are granted to an investment, deemed as beneficial to the development of the economy of Botswana. An Education and Training Expenditure Approval is also available, and provides for a training incentive.

Right to Private Ownership and Establishment

There are no restrictions on ownership, size of investment, sources of funds, marketing products, source of technology, or method of training in Botswana. Foreign and domestic private entities may freely establish, acquire, and dispose of interests in business enterprises. As previously discussed, there is a brief list of enterprises reserved for ownership by citizens, but these restrictions are not a meaningful impediment to foreign investment. Competitive equality is the standard applied to private enterprises in competition with public enterprises with respect to access to markets, credit, and other business operations.

Protection of Property Rights

Botswana is expected to introduce new legislation including the development of a Competition Policy, Consumer Protection Act, Trade and Liquor Act and Copyright Act. The Ministry of Commerce and Industry is currently preparing the final draft of the copyright legislation, which will be presented at the sitting of Parliament in November 1999. The new legislation will protect the rights of creators of literary, artistic, dramatic, cinematography works, and computer programs, as well as broadcasting organizations. This is an effort to bring the country into conformity with TRIPS provisions on copyright, the layout design of integrated circuits, and geographical indicators by 2005. Government officials, recognizing that the lack of copyright protection is a negative element in their investment climate, understand that the provisions of TRIPS and of the Uruguay Round require substantial improvement.

The Botswana Bureau of Standards is a member of the International Organization for Standardization (ISO). The function of the Bureau is to assist with standardization, testing of goods, metrology/industrial calibration and quality management. A Standards Council to control the implementation of the Standards Act has been established and various national committees are being established. The office has been established to ensure that domestic manufacturers produce quality goods that can penetrate the international market.

The legal environment for science and technology in Botswana needs to be raised to modern international standards. Current legislation is insufficient and does not provide adequate protection for new kinds of intellectual property such as computer programs, music discs, and tapes. An Industrial Property Act (IPA) was enacted in 1997 to replace the old Trademarks Act, and the Patents and Designs Protection Act, which protected only items registered in the United Kingdom or South Africa. It provides better protection for both foreign and domestic innovators through patents on inventions and trademarks. IPA fully complies with the Trade Related Aspects of Intellectual Property (TRIPS). Under the new Act, Botswana is supposed to have its own registry with a Commissioner of Patents. Implementing regulations for the Act have not yet been issued. IPA does not cover layout design or plant varieties, which will have to be the subject of separate legislation.

Chapter 33 of the Deeds Registry Act regulates and protects the recording of secured interests in property. The Attorney General's chambers is responsible for administering the registration of mortgage bonds and deeds of transfer for the acquisition and disposition of property respectively. The legal system in place is non-discriminatory and applies equally to both domestic and foreign investors.

Botswana is a member of the African Regional Industrial Property Organization (ARIPO) which is headquartered in Harare, Zimbabwe. Botswana became a member of the Berne and Paris Conventions and the World Intellectual Property Organization (WIPO) in 1998.

Transparency of the Regulatory System

The regulatory system in Botswana is transparent. Bureaucratic procedures are streamlined and open, although somewhat slow, and not excessively overbearing compared to other African countries.

The Central Tender Board (CTB), an independent and autonomous body, is composed of representatives of various government ministries, and located within the Ministry of Finance and Development Planning. The CTB is responsible for the award of all government tenders. The tender process is open and lobbying of the CTB or its members is strictly prohibited. In general, the CTB bases its award of government tenders on cost and technical merit, although at times other considerations including citizen participation undoubtedly come in to play. A Central Tender Board decision is an exclusive prerogative and not a public forum. The appeal of a CTB decision is possible only when evidence of irregularities in the tender process can be produced.

All labor laws are continually being reviewed to ensure that development of harmonious labor relations is not impeded. The recent establishment of an industrial court further enhances and strengthens impartiality in labor disputes. The Employment Act of 1992 provides basic guidelines for employment in Botswana. This labor legislation controls minimum wages, length of the workweek, annual and maternity leave, hiring and termination.

The Regulation of Minimum Wages Order provides for minimum wage rates. Work Permits regulate employment of non-citizens in Botswana in any occupation for reward. Non-resident consultant and supervising engineers or directors of companies registered in Botswana, however, are exempt from obtaining Work Permits. Every private company should have at least one director resident in the country. Health and safety laws, embodied in the Factories Act of 1973, are designed to provide basic protection for workers from unsafe working conditions. Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting and provision of safety precautions. Health inspectors carry out periodic checks at both new and operating factories. Neither law represents an impediment to investment.

Botswana tax policies and laws are favorable. Botswana is considered one of the lowest tax jurisdictions in southern Africa. Corporate tax rates remain unchanged in 1999 at 15% company tax and 10% additional company tax. Manufacturing enterprises, as defined by the Manufacturing Development Approval Order of 1996 now amended to include milling and bricklaying, and companies engaged in financial services pay a single concessionary tax of 15%. For the year 1999-2000, the maximum marginal rate of income tax remains at 25%.

Efficient Capital Markets and Portfolio Investment

The banking system in Botswana is sound. The confidence of investors in the country was demonstrated by the licensing of Investec Bank Botswana in 1998 to fill the gap in long-term investment lending. Investec is to provide investment and merchant banking services including underwriting and brokerage, financial solutions to selected market problems, investment advisory services, select deposit taking and trade finance.

Commercial banks are well capitalized, and solvent. 1998 was a competitive year as they introduced new products and undertook vigorous marketing campaigns, reflected in the increasing number of short-term personal loan products extended to the public. The country's policies support the free flow of financial resources. Credit is allocated on market terms and foreign investors have access to credit on the local market. They generally enjoy much better access to credit than do local firms, which is the result of the often limited capital base of the local entrepreneur, conservative lending policies by commercial banks, and the variety of strengths (personnel, technological, logistical) adhering to the bigger foreign investors.

Non residents are no longer restricted from participating in the issue of bonds on the stock market by exchange controls. This is a step to encourage inward portfolio investments deemed beneficial to Botswana. The removal of exchange controls has also made it possible to invest pension funds offshore. In the last few years there has been a net out flow of portfolio investment from Botswana. This is due in part to Botswana's financial surplus and the limited range and number of domestic financial instruments available to investors.

The central bank - Bank of Botswana - has an impressive track record for managing both the commercial banking sector and the country's monetary policies. There are four commercial banks in Botswana -- Barclays Bank of Botswana Ltd., First National Bank of Botswana Ltd., Standard Chartered Bank of Botswana Ltd., and Stanbic Bank Botswana Ltd. All have correspondent relationships with U.S. banks. Total assets of the banks amounted to approximately Pula 6,534.9 million ($14 million) at the end of January 1999, an increase of 31.5% since January 1998.

Total lending extended by commercial banks and a leasing company increased rapidly by 54.5% in December 1998 in nominal terms compared to 5.91% a year ago. In real terms, the growth rate of credit extended to private businesses remained positive at 36.6% reflecting the increasing strength of the private sector. Foreign investors may obtain credit on the local market and have good access to existing credit facilities. Botswana banks may lend to non-resident controlled companies and other non-resident owned business entities in Botswana without referral from the Bank of Botswana. A debt/equity ratio of 4:1 is generally applied.

Authorized dealers and credit institutions licensed by the Bank of Botswana are allowed to make foreign currency denominated loans, financial leases and other forms of financial support to their customers in Botswana whether they have onshore accounts or not.

Botswana has a stock market now trading 14 publicly held companies, of which five are financial (including three banks), with a current market capitalization of Pula 3.22 billion ($700 million), up from Pula 2.33 billion in December 1997. The relaxation of exchange controls in 1997 saw the dual listings of foreign stocks on the Botswana Stock Exchange, (BSE). So far, nine companies have dual listed. BSE continued to perform well in 1998 with the domestic companies index, which measures how well domestic company share prices have performed on average, rising from 708.5 in December 1997 to 946.7 at the end of December 1998. The foreign companies index, which consists of a capitalization-weighted average of the prices of the dual listed stocks, fell from 258.8 in December 1997 to 219.0 in December 1998, partly due to the weakness of the shares of the diamond company, De Beers, which continued to suffer from the slow down in global diamond sales. The BSE index expressed in dollar terms recorded a growth rate of 14% by the end of 1998, much lower than the 92% recorded the previous year. As mentioned earlier, two bonds were issued during 1998, bringing to three, the number of bonds that are trading on the market.

Botswana has established development financial institutions that supplement the role of commercial banks, offering specialized services, which are targeted at certain economic sectors and activity. Of particular interest to the foreign investor will be the Botswana Development Corporation (BDC) and the National Development Bank (NDB).

There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises. There are no known laws or regulations specifically authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation or control.

Political Violence

There is no political violence in Botswana, nor is there likely to be.

Corruption

The Government of Botswana has declared war on corruption and economic crime. The Directorate on Corruption and Economic Crime (DCEC) has been working with various departments on their administration procedures. Since its inception in 1994, DCEC (which was established with the objective of policing the country's regulatory system, and increasing security of investment, both foreign and domestic) has undertaken 1,313 investigations. By 1998, 788 investigations had been completed, resulting in 180 persons being charged with offences. In addition, the Directorate has embarked on an education campaign to educate the public on the evils of corruption.

A few cases of substantial misappropriation of money and land have been exposed in recent years by the press. Although government workers may occasionally ask for a tip or a gift, they will generally perform their service even when refused. The government bureaucracy is paid on time and is provided a living wage. Investors with experience in other developing nations describe the lack of obstruction or interference by government as among the country's most important assets. Although local businessmen will frequently lament the rise in corruption in Botswana from past levels, more complaints focus on the reputed inefficiency, unresponsiveness, and even arrogance of mid to low-level bureaucrats in government. Ad hoc efforts have been undertaken to promote greater competence in the civil service, but a systematic reform effort has yet to be launched.

Bilateral Investment Agreements

Botswana and the United States entered into an Investment Guarantee Treaty soon after the country's independence. Botswana has bilateral trade agreements governing the duty-free entry of goods with Malawi and Zimbabwe, in addition to membership, along with South Africa, Namibia, Swaziland and Lesotho, in the Southern African Customs Union (SACU). Other countries with bilateral trade agreements with Botswana based on most favored nation include China, Czech Republic, Korea, Romania, Russia, Slovakia, South Korea and Zambia. None of these agreements are specifically "investment" agreements. Botswana is a signatory to the Lome Convention and participates in the Generalized System of Preferences.

OPIC and Other Investment Insurance Programs

OPIC insurance is available to U.S. investors in Botswana. Botswana is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

With high levels of unemployment and underemployment, Botswana suffers no shortage of potential workers. The skill base is still limited, and employers may have to engage in significant training efforts depending on the industry. Retention of workers and absenteeism can be problems, while managers often cite productivity of the workforce as a point of frustration. The lack of trained Batswana professionals is generally resolved by the use of expatriates.

Organized labor represents only a small portion of the formal sector workforce in Botswana, concentrated in the mining sector, and, to a lesser extent, in the banking sectors. Botswana law provides for the right of association, but most foreign investors will not encounter a unionized workforce in the near term. Only on very rare occasions have the established unions resorted to work stoppages.

Botswana law protects worker rights in a number of commonly defined areas, and, in the formal employment sector, standards for length of workweek (48 hour maximum), minimum wage, and prohibition of child labor are almost universally upheld.

Free Trade Zones/Free Ports

Botswana is a member of the Southern African Customs Union, (SACU), which unites it with South Africa, Lesotho, Namibia, and Swaziland in a customs free zone. With the exception of certain foodstuffs, import permits are not required for goods entering Botswana from the common customs area. SACU applies a common external tariff against goods entering from outside the customs union. Foreign-owned firms have the same investment opportunities as host country entities. Botswana has signed and ratified the SADC Trade Protocol which calls for the establishment of a free trade zone among the 14 member states. Along with 10 other member states, Botswana is engaged in negotiations intended to finalize implementation of the protocol by year end 1999.

Foreign Direct Investment Statistics

Foreign direct investment trends show that FDI forms a major portion of capital flows into Botswana, followed by portfolio investments, which have shown considerable increase since the establishment of the Botswana Stock Exchange in the 1990's. Private capital flows in Botswana have primarily gone into the development of infrastructure involving major mining projects, and in recent years, have extended to the manufacturing sectors.

Botswana has recorded a net inflow of foreign direct investment in recent years. This has however been partly offset by net outflows of portfolio investments (in the form of tradable securities) and other investments. The Bank of Botswana has derived country and industry classification of investment data from the results of the most recent balance of payments survey. Tables in Appendix D show the trends and patterns of foreign investment. The most recent data is for December 1997.

Estimates obtained from the survey indicated that most foreign equity and non-equity investments have come from South Africa (80%). The remaining 20% is from the European Union (12.7%), most notably the U.K. and Luxembourg, the United States (3.3%), other European countries (2.6%) and others (1.4%). Investment from South Africa is concentrated in the mining, trading and transport sector, while investment from the United States was mainly in the service, manufacturing and tourism sectors. The sectoral breakdown of foreign direct investment is not surprising, the majority of which was channeled into the mining sector.

Major U.S./Foreign Investors

-- The United States Group, St. Paul Fire and Marine of Minnesota bought out Botswana General Insurance, a short term insurer in November 1997. The St. Paul group bought 100% of the Botswana company for $3.6 million and has agreed to invest a further $2.82 million.

-- Owens-Corning has invested heavily in a local production facility (Flowtite Botswana) currently producing fiber glass-reinforced plastic (GRP) pipe for water transfer projects. Owens Corning holds a 49% interest in the Botswana company and is in partnership with the Botswana Development Corporation and a consortium of local investors.

-- H.J. Heinz, Inc., owns 80% of Kgalagadi Soap Industries, representing assets of well over $5 million.

-- Caltex Oil (Pty) Ltd., a marketing company jointly-owned by U.S. companies Chevron and Texaco, has an estimated total asset value of $1.5 million.

-- Interkiln Corporation of America (Houston, TX) has a 17.5% interest in the Lobatse Clay Works, a brick-making factory in Lobatse.

-- Among non-U.S. investors, by far the largest is the Anglo-American Corporation (De Beer's), which has a multi-million dollar stake, along with the Government of Botswana, in the country's dominant diamond mining industry.