Investment Climate
BLNS Countries
Embassy of the Kingdom of the Netherlands, Pretoria
Mei 2011
1
Content
Namibia…………………………………………………………………………….p.3
Swaziland………………………………………………………………………….p.13
Lesotho…………………………………………………………………………….p.20
Botswana…………………………………………………………………………..p.25
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Namibia
1. General economic environment
Namibia has a population of about 2.2 million people. The population density in the country is low.
Namibia became independent in 1990 and has historically been largely dependent on South Africa. The
country has experienced a decade of moderate growth, averaging 4.2 per cent per year, thanks mainly to
strong performance in diamond production and sound macroeconomic policies. Unfortunately, it is also
characterized by one of the most unequal income distributions on the African continent and persistent
poverty. The country is facing major challenges, which include ensuring employment-creating growth,
strengthening competitiveness and a smooth process of land reform.
Namibia belongs to the Southern African Customs Union (SACU), comprised of Botswana, Lesotho,
Namibia, Swaziland and South Africa. Namibia is highly dependent on SACU revenues (to which South
Africa is the greatest contributor), since they contribute over 1/3 to Namibia’s GDP.1 However, there are
big political pressures on the South African Treasury to revise the revenue formula, which could
significantly affect Namibia’s economy.
In addition to this membership, the country also belongs to the Southern African Development Community
(SADC)2 and the Common Monetary Area (CMA)3. Furthermore, Namibia was a party to the SADC-EPA
negotiations with the EU. EPA negotiations aim to replace the non-reciprocal (unilateral) preferential trade
arrangements between the EU and the ACP countries4 with WTO acceptable reciprocal free trade
agreements. However, the EPA process is not merely a neutral market access exercise; the economic
development of the ACP participants an imperative to be negotiated. Although no actual agreement has
been signed, Namibia signed an Interim EPA that allows duty-free and quota-free access of all Namibian
products to any of the 27 EU member states from January 2008.
Inflation in Namibia has been relatively high, varying from 4.1 per cent in 2004 to 8.8 per cent in 2009.5 As
just mentioned, real GDP growth has been moderate. From a downfall in 2009 due to the global
economic crisis to a 4.4 per cent estimated growth in 2010. The GDP composition by sector is roughly as
follows: primary industries 18.6% (mining and quarrying 10%, agriculture & forestry 5.1%), secondary
industries accounting for 19.7% of GDP and the tertiary industries 54.6%. 6 Furthermore, the
unemployment rate remains very high (51.2% in 2008) 7 and the public debt is expected to rise
significantly in 2011 due to the fact that the budget is including the Targeted Intervention Programme for
Employment and Economic growth (worth N$9.1 billion). The Namibian dollar is pegged one tot one to
the South African Rand.
The Namibian economy is mostly export driven. Its exports consist mainly of uranium (yellow cake),
diamonds, gold, lead, zinc and other minerals, fish and fish products, meat and meat products, grapes
and light manufactures; since mining, tourism, fishing and agriculture are its key industries. Over 80% of
Namibia’s imports originate in South Africa, and many Namibian exports are destined for the South
African market or transit that country. Outside of South Africa, the EU (mainly the UK) is the chief market
for Namibian exports. China, India and Brazil are believed to be upcoming export markets. This makes
1
According to the IMF.
Currently SADC has a membership of 15 Member States, namely; Angola, Botswana, Democratic Republic of Congo (DRC),
Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania,
Zambia and Zimbabwe.
3
CMA comprises of Lesotho, Swaziland, South Africa and Namibia.
4
African, Carribean and Pacific States
5
http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG
6
Bank of Namibia; https://www.bon.com.na/ers/reports/rpt.aspx?rpt=%2fERSReports%2freal%2fgdpactivity_percentage
7
According to the Namibian Labour Force Survey 2008
2
3
the economy vulnerable to change in multilateral/bilateral trade agreements. Since Namibia is dependent
on trade agreements to gain preferential entry.
1.1 Infrastructure
Transport
Walvis Bay has a well-developed, deep water port, considered by many one of the best in Western Africa,
and Namibia's fishing infrastructure is most heavily concentrated there. The Namibian Government
expects Walvis Bay to become an important commercial gateway to the Southern African region. The
plan is to construct a new container terminal and dry dock facility for oil rigs at Walvis Bay in a move to
become the west coast’s alternative for congested ports in the southern and eastern parts of Africa.
The first phase of port expansion (dredging and land reclamation to create a new container terminal) will
be finished by 2014/15 and will increase capacity from 350.000 TEU to 900.000.
Namibia has an immense network of 64,800 kilometers of roads but only 7,800 kilometers are tarred. A
4,600 kilometer tarred highway network links most of the economically-significant areas (such as
Windhoek, Walvis Bay and the Oshakati area) and neighboring countries, Angola, Botswana and South
Africa (distance to both Johannesburg and Cape Town is 1500 km). The Trans Caprivi Highway and the
Trans Kalahari Highway were 2 long-haul road projects completed in the late 1990s, the former aiming to
run to Zambia and Zimbabwe and the latter through Botswana. These arteries enable Namibia to provide
land-locked central African countries with an outlet to the sea, as well as significantly reducing journey
times to commercial important Gauteng area in South Africa.
Government officials acknowledge that many segments of Namibia’s more than 2,300 kilometres of rail
infrastructure require urgent rehabilitation. The railway net is being extended to the Oshikango, at the
border with Angola. Furthermore, air transport is important because of Namibia's size. There are more
than 135 airports (mainly airfields near lodges and farms), 22 of which have tarred runways, including the
international airport outside Windhoek. Walvis Bay is also a significant export airport for fish and fish
products, with direct connections to Europe (Frankfurt and Munich) and to regional destinations such as
Luanda and Lubango (Angola), Lusaka (Zambia), Maun (Botswana), and Johannesburg and Cape Town.
Most other destinations can be reached via Johannesburg and/or Cape Town.
Energy
Energy should not form an immediate obstacle for companies to invest in Namibia, it may however well
be an obstacle in the near future.
Growth in the mining sector, which is the largest consumer of electricity and water, depends on ample
supply of electricity and water. A second water desalination plant at the coast is planned. Mining is a
heavy energy consumer but many rural households still have no access to the electricity network. All
petroleum products have to be imported as Namibia does not have oil fields. The expansion of the
electricity generation sufficient for the growth in the uranium sector is however more complicated. A gas
field, discovered in 1974, may be developed in the not too distant future, in principle to generate
electricity. Coal is imported from South Africa to generate electricity in the very old Von Eck power station
since the supply from South Africa has virtually dried up. Nampower (the Namibian Power Corporation)
has embarked on a number of projects to increase electricity generating capacity in the country.
NamPower is involved in the Kudu Gas to Power project. This project entails the development of the
Kudu gas field and a power station powered by the Kudu gas field. First electricity is currently expected
late 2014/early 2015. Nampower has also embarked on the planning of other projects, such as
hydropower stations in the Kunene River at the border with Angolo, the lower Orange River at the border
with South Africa and at the Popa Falls near the border with Botswana. Although it appears that these
have dropped in the list of priorities.
4
Telecom
Namibia’s telecommunications infrastructure is currently undergoing transformation. The state owned
Telecom Namibia is the fixed line telecom provider and is currently embarking on an ambitious
programme to update Namibia’s telecommunications infrastructure. They wish to achieve direct benefits
such as affordable bandwidth costs, and access to the rest of the world (connectivity). The indirect
benefits would be foreign direct investment, business opportunities for online offerings, hosting services
and access to the global labour market. Of equal importance, the initiative will drive down the cost of
international bandwidth in Namibia and present regional business opportunities. At the moment, only
around 5 per cent of the population has access to internet and the cell phone penetration rate is only 50
per cent8, which is considerably lower compared to South Africa (97.2 per cent). However, this market is
developing rapidly.
All in all, primary infrastructure (roads, rail, air, energy and telecommunications) is relatively well
developed and modern in Namibia. Nevertheless, development of infrastructure, especially in the rural
areas, is required for economic growth.
1.2Labour
While most Namibians are economically active in one form or another, the bulk of this activity is in the
informal sector, primarily subsistence agriculture. In the formal economy, official estimates of
unemployment are around 51 %. Despite high unemployment there is a critical shortage of skilled labour.
The government is pursuing education reform with financial help from a.o. the European Union and other
European countries (ETSIP) to address this problem. Although the country has allocated more resources
as a proportion of GDP to education than most other African countries, the outcome is not good. Drop-out
and repetition rates remain high and Namibian school students perform poorly in subjects such as English
and mathematics compared to other countries in the region.
.
The Namibian constitution allows for the formation of independent trade unions to protect workers’ rights
and to promote sound labour relations and fair employment practises. There are two main trade union
federations in Namibia representing workers: the National Union of Namibian Workers (NUNW), which is
affiliated with the ruling SWAPO party, and the Trade Union Congress of Namibia (TUCNA), which is not
affiliated with any party. About 35% of the workers belong to a Union. The Unions carry considerable
authority and even had labour brokers abolished in 2009. This ruling had a considerable amount of
impact on the neighbouring economies as well, especially on South Africa (as the unions got inspired by
this ruling). In the end of 2009 the decision on banning was reversed by the Namibian Supreme Court.
Nevertheless, matters like this show the level of power of Unions in the Namibian economy, which
companies should take into account. As well as the unofficial strikes that occur quite regularly.
1.3 Corporate Social Responsibility
There is a general awareness of Corporate Social Responsibility (CSR) in Namibia amongst the business
community, although there is little research to show that Namibian consumers choose to trade with firms
based on their CSR programs. Most large firms including State Owned Enterprises (SOEs) have well
defined (and publicised) social responsibility programs that provide assistance in areas such as
education, health, environmental management, sports and Small Medium Enterprise (SME) development.
Many firms include their Black Economic Empowerment (BEE) programs within their larger CSR
8
Source: AfricaNext, 2009. The Future of African Mobile Profitability: Stupendous Value, Mobile Darwinism & The Next Phase of
Growth, AfricaNext, report AFN2223025;
http://www.proparco.fr/jahia/webdav/site/proparco/shared/PORTAILS/Secteur_prive_developpement/PDF/SPD4_PDF/Issue-4Private-Sector-and-Development-Key-Data-What-are-the-Economic-and-Social-Impacts-of-the-Mobile-Phone-Sector-in-DevelopingCountr.pdf
5
programs. At the moment, there is no formal Black Economic Empowerment Policy- or a Transformation
of Economic and Social Empowerment Framework (TESEF)-, as it is officially called in Namibia. In
addition, there is no uniform and written definition of BEE which is acceptable to all in Namibia. Therefore,
firms operating in Namibia’s most important industry, the mining sector generally have visible CSR
programs that focus on education, community resource management and environmental sustainability,
health and BEE/TESEF.
TESEF outlines company ownership of up to 50 per cent to be achieved over several years for
Historically Deprived Namibians (HDNs), 50 per cent of HDNs in management cadres, 50 per cent of
board members, 50 per cent of deprived women in top, middle and junior management and 80 per cent of
previously deprived individuals (DIs) in all permanent staff.
The various BEE components will translate into points for an eventual scorecard to be scrutinised by a
TESEF Measurement Secretariat, which will be overseen by a TESEF Governing Board. Companies
have to register there for TESEF compliance and to obtain their scores. White women also fall under DIs
but their ownership is limited to 30 per cent.
However, with the delay caused by the SWAPO headquarters, no law for TESEF is in sight yet and
economic analysts doubt that it will happen this year. The financial sector recently adopted a voluntary
BEE policy along similar lines as the proposed TESEF, and it was given the green light by Finance
Minister Saara Kuugongelwa-Amadhila.9
Many Namibian firms have HIV/AIDS workplace programs to educate their employees about how to
prevent contracting and spreading the virus/disease. UNAIDS estimated the adult prevalence rate to be
between 11% and 15.5% for 2009 based on HIV prevalence studies in pregnant women. Some firms also
provide anti-retroviral (ARV) treatment programs beyond what may be covered through government and
private insurance systems.
2. Political context
Namibia enjoys a relatively stable political system under a multi-party democratic constitution, thus
political risk in the country is low. Due to the great size of SWAPO, Namibia is in fact an one party state
with an ineffective opposition.
The situation seems however more complicated than at first sight. The founding president Nujoma, for
instance, retired in 2005, but is said to be still ruling from behind the scenes.
State-owned enterprises operate in many key sectors of the Namibian economy. The government has
stakes (often 100% ownership) in companies in the following sectors: telecommunications (fixed and
mobile voice and data services: Telecom, MTC), energy (NamPower), water (Namwater, transport (air,
rail, and road: Transnamib), postal services (Nampost), fishing (just one or two state companies), mining10
and tourism (Namibian Wildlife Resorts). Nonetheless it is still the Government’s position that the private
sector is and should be the main creator of new jobs. The government is therefore actively seeking
foreign investment as a way to develop the economy, generate employment and boost foreign exchange
earnings. The Foreign Investment Act for example guarantees foreign investors’ treatment equal to that
given to Namibian firms, fair compensation in the event of expropriation, international arbitration of
disputes between the investors and the government, the right to remit profits and access to foreign
exchange.11 For the manufacturing sector there are also investment incentives and special tax incentives
available.12
‘Namibia: Mining Sector Gearing for BEE’, The Namibian, 4 february 2010; http://www.sarwatch.org.
At present only Diamonds, Namdeb and De Beers Marine Namibia. However very recent, Namibia established Epangelo Mining,
which is the country’s first state-owned mining company.
11
Act No. 24, 1993, Foreign Investment Amendment Act 1993, Part I, section 3.
12
EPZ Act
9
10
6
Land issue
Up to now, the government has pursued the policy of ‘willing seller-willing buyer’ in order to redistribute
land. This policy basically reflects the working of the market principle, but requires that farms have to be
offered to the government first. However, because of the low process of redistributing farm ownership, the
government has embarked on expropriation of farms which are not commercially exploited, mainly owned
by foreigners for private hunting purposes, with compensation (likewise, constitutionally provided for),
whereby the amount of compensation can finally be settled by the Namibian Court.
Corruption
The World Bank’s Worldwide Governance Indicators reflect that corruption is a problem. Transparency
International ranked Namibia 56 out of 178 countries in its 2010 corruption perceptions index, which
measures the perceptions of businesses and country analysts about the degree of corruption in a country;
Namibia scored 4.4. The government has shown improvement in addressing the problem. There exists an
Anti-Corruption Commission13. The Director of the Commission must refer matters concerning committed
offences and all relevant information and evidence to the Prosecutor-General. The independent media
are very instrumental in uncovering corruption, however insufficient cases are followed through in court to
conclusion.
3. Business climate
Namibia is ranked 69 out of 183 economies in the doing business survey 2011. 14 The economy does not
get good credits for the ease of setting up a business. The cost of starting a business is high and it is very
time consuming. The main bottleneck in the system appears to be at the registrar of companies.
Companies also face costly import and export procedures, with significant delays.
In addition, Namibia ranks as one of the worst for procedures and cost as far as transfer of land is
concerned. Firms who want to acquire land therefore face considerable barriers unless they have already
accumulated capital assets. A notable aspect involves the exception related to agricultural land. Due to
Namibia’s ongoing land reform and resettlement process, legislation restricts non-resident foreigners from
purchasing agricultural farmland.15
According to a research among firm managers in 2007 16, the following obstacles were perceived as
serious obstacles to firm’s operations; crime, high tax rates, worker skills, corruption and access to
finance. Surprisingly, regulation and infrastructure were not mentioned as serious concerns.
Objective evidence from the Enterprises Survey on losses due to crime and the cost of crime and security
in the countries suggest that the direct costs associated with crime are high in Namibia. 17 The median
firms reports that the combined cost of crime and security is about $132 per worker per year or 0.6 per
cent of sales. This is lower than in SA but is quite high compared to most of the comparator countries. 18
Other than crime, managers in Namibia were more likely to say that tax rates were a serious obstacle
than any of the other areas. The basic rate for the corporate income tax is 35 per cent (for certain mining
activities even higher), which is relatively high. However, qualified manufacturers can apply for an
13
http://www.accnamibia.org
Doing Business 2011, A copublication of The World Bank and the International Finance Corporation, p. 182.
15
Doing Business in Namibia: 2011 Country, Commercial Guide for US Companies.
16
An assessment of the investment climate in Namibia, Volume I: Main report, World Bank, June 2007.
17
An assessment of the investment climate in Namibia, Volume I: Main report, World Bank, June 2007.
18
Botswana, South Africa, Swaziland, Argentina, Chile, Mauritius and Malaysia.
14
7
incentive rate of 18 per cent.19 In Botswana for instance, the base rate for manufacturers is only 15 per
cent.
As mentioned before, Namibia is also faced with a high rate of unemployment. Despite the high
unemployment rate, there is a critical shortage of skilled labour. Manufacturing companies in particular
mention inadequate worker education and skills as a serious obstacle, but also the retail and service
sectors complain about this. Importing working skills from abroad is very difficult, since the process of
obtaining work permits for foreign nationals is perceived as the most challenging regulation to deal with. 20
Due to the high rate of unemployment, the informal sector has remained an important alternative for
employment. Formal enterprises that have to compete with these informal firms sometimes find
themselves at a competitive disadvantage since their informal competitors can avoid costs associated
with regulation and taxation.
Although companies in Namibia use bank credit less than in the non-SACU economies, it is important to
note that in other ways financial markets in Namibia display a reasonable level of development. The
country has a stock exchange, the Namibia Stock Exchange and the banking sector is well capitalised
and profitable. Government and the Bank of Namibia are highly critical regarding the high banking fees
and reluctant lending to SME’s and for start-ups. Non-banking financial institutions, i.e. insurance
companies, also have sound balance sheets. Most banks Standard Bank Namibia, First National Bank of
Namibia and Nedbank, with the exception of Bank Windhoek, and non-bank financial institutions, i.e.
insurance companies including Old Mutual and Sanlam are branches of and/or have significant equity
participation from South African firms, a factor that facilitates access to South African capital markets. The
disadvantage of this could be that these South African mother companies don’t tend to have Namibia as
their first focus area. Average and median interest rates are about 12 per cent, which is comparable to
the other comparator countries.21 Of the funds collected in Namibia by companies, 30 per cent must be
re-invested in the country.
Access to finance tends to be a serious obstacle, especially for SME’s. Starting capital for new
businesses is difficult to come by. One notable aspect however is that commercial farmers, still mainly
white, are less likely to say that access to finance is a serious obstacle to their enterprises’ operations
and growth. Access to finance for microenterprises remains a very serious concern.
Furthermore, employers must consider and plan for the impact of HIV/AIDS on their workforce. UNAIDS
estimated the adult prevalence rate to be between 11% and 15.5% for 2009 based on HIV prevalence
studies in pregnant women.22 The crude death rate was estimated around 8 % in 2009. 23
4. Sectors with potential/ opportunities
Namibia imports almost all of its consumer goods and most of its primary resources are exported, largely
unprocessed. Opportunities exist to introduce new consumer goods and manufacturing investment for
both local and international markets. However, while the Government continues to mention that the
manufacturing sector is the key to achieving higher growth and employment, and despite a host of lavish
tax incentives, Namibia has not succeeded in boosting manufacturing to any significant extent, as
productivity in the country remains considerably low.
A potential investment area however is the energy sector. Namibia has great potential for renewable
energy forms such as solar and wind power. The government is committed to promoting the use of
renewable sources of energy to complement conventional electricity supplies. One of the measures
Namibia has taken is the Solar Revolving Fund which has been in existence since 1996 and which aims
19
Namibia: Investment Legislation, Incentives, and Institutions, Foreign Investment Advisory Service, (A joint service of the
International Finance Corporation and The World Bank), December 2006.
20
Namibian business and investment climate survey 2009.
21
Doing Business in Namibia: 2011 Country, Commerical Guide for U.S. Companies.
22
http://www.dat.unaids.org
23
http://www.unicef.org/infobycountry/namibia_statistics.html
8
to address financing barriers by subsidising loans for solar home systems, solar water heating
technologies and photovoltaic water pumping. Another is the Namibia Renewable Energy Program
(NAMREP). A non-profit organization dedicated to Renewable Energy in Namibia is REINNAM. 24
Moreover, there should be opportunities for companies that provide equipment and services to mining
operators, since Namibia has a wealth of natural resources including diamonds, zinc, copper and
uranium. According to the World Nuclear Association, Namibia is the world’s fourth largest producer of
uranium oxide, with two operation uranium mines and several more mines planned to become operational
by 2013.
The government also actively encourages processing of agricultural products. The main commercial
agriculture activities include livestock farming and production of table grapes. However there is potential
for extensive horticulture products such as olive oil and dates. Beside agriculture, mariculture is a sector
with high potential. Primarily oyster farming has the potential to grow rapidly. Namibian oysters grow to
market size in nine to 15 months compared to about three years in other areas. In 2006 there were eight
companies involved in farming oysters in Namibia, which until 2006 were selling 70% of their production
to South Africa. Total production increased from 247 tonnes in 2004 to 302 tonnes in 2005 when new
markets where discovered in Asia.25
Tourism is a sector with possibilities as well; e.g. Namibia’s sanddunes, wildlife, etc. However,
exponential growth in this sector is not likely to occur.
5. Conclusion
Most of the countries in the region –particularly Botswana and South Africa- have relatively attractive
investment climates and Namibia shares many of its strengths with these countries (e.g., relatively good
infrastructure, relatively clean government, and relatively modest regulatory burden). As a result, firms
from Namibia have to compete with relatively efficient firms from these other countries in both national
and regional markets and Namibia has to compete with these same countries to attract foreign
investment.
Unfortunately, as well as their strengths, Namibia also shares many of their weaknesses, such as high
losses due to crime, high unemployment, especially among workers with little education. The domestic
market is small, competition is relatively low and the country is relatively remote.
An important area of concern is that worker skills and education appear to be a greater problem in
Namibia than in other countries in the region. Namibian students score worse with respect to reading and
writing than students not just in Botswana, Lesotho, South Africa and Swaziland, but also worse than
students in several low income economies in the region.
The lack of skilled people combined with a poor work ethic and restrictive labour regulations have been
identified by the Global Competitiveness Report 2007 as the main impediments to competitiveness in
Namibia.
24
REINNAM has the following aims and objectives: Partner in the regional SAREIN Network; Link to the SAREIN Web Pages
http://www.sarein.org; Respond to inquiries on Renewable Energy and related issues; Manage and compile a Namibian Database
on Renewable Energy projects and stakeholders; Administer a Renewable Energy Library; Monitor and report on Renewable
Energy Developments in Namibia and the Region; Raise awareness and disseminate Information about Renewable Energy in
Namibia; Coordinate Renewable Energy inquiries between end-users, stakeholders and international agencies; Establish high
profile links between relevant national and international stakeholders; Actively encourage real Renewable Energy project
implementation in Namibia; REINNAM is concerned with anything in the field of: Solar Energy (thermal and photovoltaic); Wind
Energy; Biomass Energy; Hydro Energy; Tidal Energy; Energy Efficiency; Energy Technologies; Research and Testing Facilities.
25
Fishery an d Aquacultu re Co untry Profiles Nam ibia, Food and Agriculture Organisation of the United
Nations; http://www.fao.o rg/f ishery/cou ntrysector/FI -CP_NA/en
9
All in all, despite the weaknesses, Namibia remains a good country to invest in, especially when
comparing the country with other countries in the region. It can also be used as a gateway to Africa.
Companies established in Namibia could be used to serve the South African market in particular, since
both countries are member of SACU and CMA, competition is much lower in Namibia than in South Africa
and the Rand is pegged 1:1 to the Namibian dollar. There are considerable investment opportunities in
several markets as has been shown previous in this report. Nevertheless, in order to do business
effectively in Namibia, it is important as in all other countries in the region and worldwide to have a local
presence or a local partner. It is worthwhile to establish business relationships before tender opportunities
are announced.
10
Contact details Namibia
-
Renewable Energy Information Network of Namibia (REINNAM)
http://www.polytechnic.edu.na/reinnam
+264-61-2072088
-
World bank: Chunlin Zhang (Lead private sector development specialist)
T 0027 12348 8895 e-mail: czhang@worldbank.org
M 0027 71 852 4499
-
African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
Crestway Block B, 3 Hotel Street, Persequor Park, 0020 Pretoria
T 0027 790198513
e.ruganzu@afdb.org
www.afdb.org
-
Ger Kegge (Hon. Consul)
kegge@iway.na
T 00264 61 223733
-
Namibia Chamber of Commerce and Industry (NCCI)
P.O.Box 9355
2 Jenner Street
c/o Simpson & Jenner Streets
Windhoek-West
Windhoek Namibia
Tel: +264-61 228809
Fax: +264-61 228009
E-mail: ncciinfo@ncci.org.na
Website: www.ncci.org.na
-
Ministry of Trade and Industry
Dr. Malan Lindeque (Permanent Secretary)
Brendan Simbwaye Building
B Block, Goethe Street
Private Bag 13340, Windhoek
Tel 283 7111, Fax 22 0148 (Minister)/ 220227 (PS)
-
Department of Trade and Commerce
The under-secretary
Tel 00264061028307332
Fax 002640610220227
kamboua@mti.gov.na
-
Directorate of International Trade
The director
Tel 00264061028307331
Fax 00264612503865
11
mwayangapo@mti.gov.na
-
Namibian Competition Commission
The secretary
PO Box 2104
Windhoek
Tel 002640610224622
Fax 0026461401900
-
SACU
Ms T Moremi
Tel 00264 612958000
execsec@sacu.int
www.sacu.int
-
SADC- PF
Dr Esau Chiviya
00264612870000
info@sadcpf.org
-
Agricultural Bank of Namibia
Manager- Marketing, Communication and Research
Mr. Regan Mwazi
Tel 002642074111
info@agribank.com.na
12
Swaziland
1. General economic environment
The Kingdom of Swaziland is a small landlocked country with a population estimated at less than a million
people. It is classed as a medium-development country by the United Nations (UN) and as a lower
middle-income country by the World Bank. These classifications are unfavourable for Swaziland since it
cannot count on as much aid money anymore as it could when it was qualified as a lower income country.
One of the reasons for these higher classifications is that the country is characterised by a very unequal
income distribution amongst its people; with 56 per cent of wealth held by the richest 20 per cent of the
population, while the poorest 20 per cent own less than 4.3 per cent. 26
Since over 50 per cent of government expenditures used to be financed with Southern African Customs
Union (SACU) receipts and SACU revenues have declined, the country faces a significant budget deficit.
The dependence syndrome of the country on SACU receipts is a major concern and needs government’s
action to counter the consequences of the declining SACU revenue. With the prevailing situation,
Governments’ deficit will escalate to unsustainable levels which in turn will compromise Government
savings. It is with this state of the fiscus that government is intensifying her efforts to enhance tax
collection to diversify her revenue through the establishment of a Revenue Authority.27
Meanwhile, gross investment has remained relatively low in recent years. Total investment stood at 13.6
per cent of GDP in 2009; though it is expected to improve slightly, it is expected to remain low in line with
slower growth in FDI inflows exacerbated by the stiff competition in the region, where potential investors
continue to prefer other countries in the region other than Swaziland as their ideal investment location.
The repatriation of 30 per cent of the assets of insurance and retirement funds held abroad was meant to
boost domestic savings and hence investment in the country. However, the positive effects of this
measure are yet to be seen.
With a limited domestic market, Swaziland relies heavily on export-based agricultural commodities and
industries. South Africa is the main trading partner. In this small economy, subsistence agriculture,
fisheries and farming occupies about 70 per cent of the general populace. The industrial manufacturing
sector has diversified since the mid-1980s and mining has declined in importance in recent years. Sugar
and wood pulp remain important foreign currency exchange earners. It is however not clear whether the
sugar industry will remain vital, since sugar prices in the EU have declined in 2007.
Global economic conditions in general continued on a downward trend and according to the latest IMF
report, output decreased from 3.4 per cent to 0.5 per cent. Other macroeconomic indicators confirm the
not so impressive performance of the domestic economy. Swaziland has maintained relatively low
savings and investment rates. The inflation rate in Swaziland has been high, and was particularly high in
2008, being 12.6 per cent. It has declined the last couple of years to an estimated 5 per cent in 2010. The
debt stock to GDP ratio fell as well to 14.2 per cent from 17.9 per cent recorded in the previous financial
year.28 As already mentioned, export-oriented industries drive the economy and provide 80 per cent of
GDP. Real GDP growth has been low and is estimated 2 per cent in 2010, after 1.2 per cent growth in
2009.29 This was partly due to the downturn of South Africa’s economy, which traditionally takes up about
60 per cent of Swaziland’s export commodities and about 80 per cent of imports originate there.
Swaziland has always maintained strong economic and trading links with South Africa. Since Swaziland
has a limited domestic market, its growth and development are highly influenced by climatic conditions,
global trends and commodity prices, as well as capital and aid flows.
26
http://www.un.org.sz/index.php?option=com_content&view=category&layout=blog&id=27&Itemid=87
Annual report 2009/2010, Central Bank of Swaziland.
28
Annual report 2009/2010, Central Bank of Swaziland.
29
Annual report 2009/2010, Central Bank of Swaziland.
27
13
Swaziland is a member of the Southern African Customs Union (SACU), comprised of Botswana,
Lesotho, Namibia, Swaziland and South Africa. SACU currently represents the largest market for
Swaziland’s export products. Besides SACU, the country is also member of the Southern African
Development Community (SADC) as well as of the Common Market for Eastern & Southern Africa
(COMESA). COMESA is currently working towards the establishment of a Customs Union, which will
allow for the free movement of goods and services between member states.
Furthermore, Swaziland is a beneficiary to the GSP scheme (Generalised System of Preference), which
provides for goods that originate from developing countries to be imported into industrialised countries at
reduced customs levies.
The country continues to face enormous social challenges, with poverty at 69 per cent and the HIV/AIDS
pandemic standing at around 42 per cent of the adult population and 27 per cent of the total population
(being the highest in the world). This means that about one in four of the population is HIV-positive, with a
significant difference in infection levels among women (31%) and men (20%). Swaziland also has the one
of the highest estimated HIV incidence rate in the world currently at 2.9 per cent. The number of people
living with HIV is currently (2009) estimated at 168,612 and approximately 14,700 new infections occur
every year. The situation impacts negatively on the population, both in terms of structure and numbers.
Reduced life expectancy and a decline in the birth rate continue to be the trend. Life expectancy is
estimated to have even further declined by 2015 to 32.5 years of age. The pandemic has a devastating
effect on the economy and social services. Although the problem is addressed, ARV’s are not popular
due to various reasons concerning the peoples’ believes. The system of marriage, which allows polygamy
doesn’t work in advantage of the issue either. There is an organisation called National Emergency
Response Coalition to HIV/AIDS (NERCHA). NERCHA is not an implementing body, its goal is rather to
organize and manage the nation’s war against the AIDS epidemic. Acting as the conduit for funds
received from Government and the U.N. Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria,
NERCHA works with organizational and community partners across all sectors to ensure that
comprehensive services are delivered at the grass-roots level throughout the nation. With NERCHA’s
leadership, the nation has created and implemented a strategic response to HIV/AIDS that has impacted
thousands of Swazis. The response has focused on local, community-driven solutions that align with a
national vision. These programmes are geared to be sustainable and to target all segments of Swazi
society, the uninfected, the infected and the affected. 30
.
1.1 Infrastructure
The government recognises the importance of infrastructure for development and an especially important
component for Foreign Direct Investment (FDI). Swaziland’s infrastructure is relatively good. The country
enjoys well-developed road links with South Africa, but only 30 per cent of the 3600 km road network is
fully tarred. It also has railroads which run east to west and north to south, linking Swaziland with the Port
of Maputo in Mozambique and the ports of Richard’s bay and Durban in South Africa.
Although a significant part of the country has remained rural, the telecommunication system in the cities is
generally well organised.
Swaziland's major source of commercial energy in the form of electricity, petroleum products and coal,
are imported from South Africa.
Most of the country's electricity needs (70%) are met from the South African Electricity Company
(ESKOM). The electricity supply is unstable because the grid is relatively weak and operating in excess
of its rated capacity. Frequent interruptions and voltage fluctuations are therefore common features.
Efforts to resolve these problems and improve the reliability of the supply have culminated in the current
installation of a 400 KV line linking the three countries: Swaziland, South Africa and Mozambique.
30
http://www.nercha.org.sz/
14
Since the demand for electricity supply is likely to increase with respect to demand of the vast majority of
households which are currently not connected to the national grid, more efforts will be required for the
promotion and development of alternative renewable energy resources.
1.2 Labour
Swaziland has a severe shortage of local employment opportunities. There is a high level of domestic
underemployment and subsistence farming. Poor production conditions in rural areas are causing
migration to urban areas where unemployment is increasingly obvious. An estimated 10 per cent of the
work force is employed in South Africa as mine workers, teachers, and domestic servants. The
unemployment figures of the country are not reliable. Unofficial figures estimate the unemployment rate at
around 40 per cent, but that could even be higher. In such an economic climate it is difficult to imagine
how the labour unions have the power that they do. They work together with South African Unions and
even with Unions from overseas. The Unions however tend to be quite reasonable and not too
problematic.
2. Political context
Swaziland is an independent country with the King as Head of State. The political situation in the country
is generally stable.
Some believe Swaziland is on the cusp of upheaval at the moment, after a 60% fall in Southern African
Customs Union receipts last year, coupled with an International Monetary Fund-led structural adjustment
programme. Thousands of public servants have recently protested against the country’s economic
downturn, complaining of unpaid salaries and job cuts. In response, King Mswati III- bearing in mind that
his salary had increased by 23 % - called for Swazis to ‘work harder and sacrifice more, instead of
protesting against the country’s economic downturn’. The demonstrators were supported by the Congress
of South African Trade Unions (COSATU), which is trying to bring democracy to Swaziland. Although
protests and demonstrations tend not to last long in Swaziland, the government has agreed to organise a
workshop hosted by the International Labour Organisation (ILO) to train the police in how to deal with
labour protests.31
The government headed by the Prime Minister is said to be democratically elected. However, for the last
38 years, political parties have been banned and declared illegal, which means they cannot contest in
elections. Moreover, Parliament has no powers, but is a mere rubber stamp of the royal family. The
economy of Swaziland is centred around the Royal Family and his friends.
The government however does recognise that boosting and sustaining economic growth requires a strong
private sector. Private sector development is thus an integral part of the government’s economic growth
agenda, which thus recognises the need to continue its efforts at fiscal policy and structural reforms;
securing greater market access in regional and multilateral trade programs, improving labour productivity
by focusing on skills development and curbing the spread of HIV/AIDS; and enhancing the regulatory
framework. However, the result and effectiveness of these policies have not been evaluated yet.
3. Business climate
Industry in Swaziland is mostly centered on processing agriculture products which include sugar, citrus,
canned fruit, cotton, wood pulp and livestock. Other activities include but not limited to production of soft
drink concentrates, beverages, textiles and manufacturing of fridges. The economy of Swaziland has
been contracting over the years, as I already mentioned, and performance of industry was affected by the
general slowdown in economic activity and a downturn in FDI inflow. The country has seen fewer new
31
http://mg.co.za/article/2011-05-06-swazi-festival-boycott-call
15
investments and a slow growth in expansions. The appreciation of the exchange rate coupled with the
economic global meltdown has only worsened the situation, evident in contraction in the activities of the
two institutions mandated to promote development through attracting investment, SIPA and SIDC.
Together the institutions approved only 28 projects in 2009 valued at E237.9 million. The size of the
economy and the absence of natural resources such as minerals remain a setback for the country and
the ability for SIPA to attract new Foreign Direct Investment.32
Swaziland is ranked 118 out of 183 economies in the Doing Business Survey 2011. The country does not
get good credits in particular for the ease of starting a business, registering property and enforcing
contracts. Although trading across borders has improved due to reforms, Swaziland still ranks only 147,
since import and export of goods remain very time consuming and expensive.
Companies in Swaziland are likely to report that competition from the informal sector, crime, theft and
disorder as well as access to finance are serious problems; more than any other area of the investment
climate. The average cost of theft and security per worker however is lower than in other countries in
SACU, though it is higher than in most of the non-SACU comparator countries. The drive to curb and
control corruption and dishonesty is causing enormous delays and frustrations for normal business along
the way. Some even so big, that it becomes doubtful whether the measures as a whole, are bringing net
benefit to the country.
Expropriation and nationalisation are prohibited. The land tenure system in Swaziland is confusing for
investors, as much of the land is held by the monarchy in trust of the people of Swaziland. Land leases
are unclear and uncertainty exists as to the details of land ownership rights.
Furthermore, companies might find the legal system confusing at times, since Swaziland has a dual legal
system comprised of Roman-Dutch law and customary law.
Labour and employment are other major issues which frustrate business. As already mentioned, the
unemployment figures are not reliable at all; unofficial rates are estimated around 40 per cent, but are
said to could be even higher. Beside the high HIV/AIDS prevalence a shortage of trained workers in
specialized fields exists and has resulted in a heavy reliance on expatriate technicians, accountants and
engineers. There are government departments set up to control the issuing of work permits for outside
persons. Those work permits, which last for only 2 years, are very carefully monitored and it is very
difficult to get experienced people from outside Swaziland to work here unless they have qualifications
and experience that make them rare. The government policy requires hiring qualified Swazi workers when
possible, which is understandable. However the system is not being applied consistently. This is a rather
negative factor for new businesses establishing themselves in Swaziland, as a new investor will inevitably
rather bring in staff that he can trust to make his investment work, rather than use people he/she is not
comfortable with, at least not initially.
Another performance requirement affects only exporters who wish to label their product as made in
Swaziland; local export authorities require that the local content of such exports be at least 25 per cent.
As well as some limitations on free movement of goods/services, since border posts have become more
difficult.
As a result of low per capita incomes, and limited international reputation as a destination for foreign
direct investment, the country has not traditionally had sufficient appeal to investors. Its position as a
small landlocked country bordering on South Africa and Mozambique makes it heavily dependent on its
neighbours for access to the sea and to world markets, as well as for supplies.
Nevertheless, Swaziland is home to more than fifty companies from the USA, the UK, Japan, the
Republic of China, Germany and South Africa. Such international companies, all with stellar reputations
32
Annual report 2009/2010, Central Bank of Swaziland.
16
and highly socially-responsible company policies see the country as very hospitable to investors. It is said
to have good infrastructure; good access to the ports of Richards Bay, Durban and Maputo, a generally
supportive operating environment; and most importantly, good access to regional and international
markets. Swaziland is small. There is one community, the same tribe, so culturally it tends to be easier to
deal with. Furthermore, the country does not have the racial history of antagonism (that SA does), which
could make things easier for companies.
The country also provides incentives for qualifying investors, particularly those in export-driven
manufacturing, which include a 10 per cent corporate tax rate, as opposed to the standard 30 per cent; no
withholding tax on declared dividends; factory shells rented at cost; and a 150 per cent training
allowance.
4. Possible opportunities
The Swaziland Investment Promotion Authority (SIPA) provides needed services for investors and
implements strategies for attracting desired foreign investors.
Although privatisation is high on the government’s official agenda, progress in a given sector can be very
slow. Nevertheless, franchising opportunities, such as restaurants and retail shops, are plentiful in
Swaziland and have been successful in the past. Because of the climate, the soils and the water,
Swaziland forms a good country for agriculture. Some irrigated land, currently planted with sugar cane,
will likely switch to new crops due to a decline in the EU price for Swazi sugar. The change in production
will demand new capital investment and a shift in farm inputs, which could form a potential sector to
invest in. It is advisable to visit Swaziland prior to establishing a business. Some foreign businesses
partner with Tibiyio Taka Ngwana (a Royal family owned company), Swaziland Industrial Development
Company (SIDC) and/or SWAKI (Swaziland Kirsh Industries).
5. Conclusion
Swaziland enjoyed high rates of foreign investment during apartheid, but since South Africa’s democratic
transition, growth and FDI have fallen. Although Swaziland’s government strongly encourages foreign
investment, and has done so for the past 15 years, it has not been very effective in implementing that
policy. The emphasis on foreign investment is more a matter of policy statements by the government than
a matter of laws and institutions to support such policy. However, calls for more concerted action on this
policy have intensified in the last few years as Swaziland has suffered from the general economic
recession.
The country has the highest rate of HIV/AIDS in the world. It also has a complex land tenure system,
since the land is owned by the King. Furthermore Swaziland is still ranked very badly for the ease of
starting a business, registering property and especially enforcing contracts. Procedures are costly and
very time consuming.
Nevertheless, foreign investors are free to invest in most sectors of the economy; no formal policies or
practices are discriminatory to foreign-owned investors and the political situation has been stable for
many years. Though, investors should be aware of state-run or state-sanctioned monopolies as well as of
the tension between the expatriate business community and a government otherwise friendly to foreign
investment as far as residence and work permits are concerned.
17
Contact details Swaziland
-
World bank: Chunlin Zhang (Lead private sector development specialist)
T 0027 12348 8895 e-mail: czhang@worldbank.org
M 0027 71 852 4499
-
African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
Crestway Block B, 3 Hotel Street, Persequor Park, 0020 Pretoria
T 0027 790198513
e.ruganzu@afdb.org
www.afdb.org
-
Per Noddeboe (Hon. Consul)
pnoddeboe@upswazi.com
-
The federation of Swaziland Employers and Chamber of commerce
Contact van Rob de Vos op TRALAC meeting.
Zodwa F. Mabuza, CEO; BA MSc Econs
Emafini Business Centre
Malagwane Hill
PO Box 72
Mbabane H100, Swaziland
Phone: 002684040768/4408
Mobile 0026876026083
zodwa@business-swaziland.com
www.business-swaziland.com
-
Swaziland Investment Promotions Authority (SIPA)
T 00268 2404 0470
-
Bongiknkosi Thwala - Swazibank (bongorie@gmail.com)
-
Mduduzi Gamedze - AgroMet (gamedze@gmail.com)
-
Lonkhululeko Sibandze - Chief Economist (lonkyps@yahoo.com)
-
Komati basin water authority
P.O. Box 678
Phone:+268 437 1463/4
Fax:(268) 437-1460
Email:maguga.office@kobwa.co.za
-
Menzi Dube - Ministry of Agriculture (menzi_dube@yahoo.co.uk)
-
Emmanuel Ndlangamandla
The Executive Director
Coordinating Assembly of NGOs (CANGO)
Tel: (+268) 404 6586 direct line
(+268) 404 9283
Fax: (+268) 404 5532
Mobile: (+268) 602 4743
18
Email: director@cango.org.sz
Website : www.cango.org.sz
-
The Central bank of Swaziland
www.centralbank.org.sz
-
NERCHA; National Emergency Response Council on HIV and AIDS
The National M&E Coordinator
Tel: (+268) 404 1720 / 1703
Fax: (+268) 404 1692,
Email: info@nercha.org.sz
Postal Address: PO Box 1937, Mbabane, Swaziland
19
Lesotho
1 General economic environment
Lesotho is an extremely mountainous developing nation completely surrounded by the country of South
Africa, with over 2 million inhabitants. A significant amount of the population is from Chinese origin.
Lesotho’s economy is based on water and electricity sold to South Africa, manufacturing, earnings from
SACU, agriculture, livestock, and to some extent earning of labourers employed in South Africa. The
country also exports diamonds, wool, and mohair. Being a developing nation, Lesotho is very reliant on
donors.
Lesotho is a member of many regional economic organizations including the Southern African
Development Community (SADC) and the Southern African Customs Union (SACU). However, Lesotho is
considerably poorer that the other countries in the SACU and also compared to other countries in the
region.
In SACU tariffs have been eliminated on the trade of goods with other member countries, which include
Botswana, Namibia, South Africa, and Swaziland. With the exception of Botswana, these countries also
form a common currency and exchange control area known as the Common Monetary Area (CMA).
For years, Lesotho has depended on receipts from SACU for up to 60 per cent of its budget. The global
economic crisis saw Lesotho's share of SACU revenue decline by about 50 per cent in the 2010-11
financial year and while those revenues are expected to recover somewhat this financial year, the amount
entering the national reserves will continue to decrease as the government repays a deficit owed to the
Union. This is expected to lead to sharply wider fiscal and external imbalances.
Inflation in Lesotho has been high, averaging 8.5 per cent between 2007 and 2009. In addition, real GDP
growth has been low; 4.5 per cent in 2008 and only 0.9 per cent in 2009 due to the global economic
crisis. Lesotho is highly dependent on South Africa’s economy. Economic activity has slowed down due to
a significant reduction in the major exports and reduced workers’ remittances from South Africa.
The GDP composition by sector is roughly as follows: agriculture 7.1 per cent, industry 34.7% and
services 58.1 per cent. The unemployment rate is significant as well as the public debt. The latter is
estimated around 55% per cent of GDP in 2010 and even 65.7 per cent in 2011.
1.1 Infrastructure
Infrastructure in Lesotho is relatively undeveloped with poor coverage and low-quality services. The
Government of Lesotho (GOL) recognizes the need to expand coverage, improve quality, and ensure
efficient delivery of infrastructure services and has embarked on a series of reforms in the
telecommunications, power, water and transportation sectors.
Transport
Although the number of paved roads is gradually increasing, the majority of Lesotho’s 6,000 kilometres of
roads are unpaved. There is a short rail line (freight) linking the capital city of Maseru with Bloemfontein in
South Africa that is owned and operated by South Africa.
Energy
Lesotho is almost completely self-sufficient in the production of electricity due to the completion of the first
phase of the Lesotho Highlands Water Project (LHWP) and generated approximately $24 million annually
from the sale of electricity and water to South Africa. The revenue is however mismanaged. Significant
parts of Lesotho still have no access to electricity, they are still dependent on borehole water.
20
Although, the ‘Renewable Energy-based Rural Electrification in Lesotho’-project33 aims at reducing
Lesotho’s energy-related CO2 emissions by introducing renewable energy technologies as a substitute
for fossil fuel (paraffin and diesel) in rural areas and improving peoples’ livelihoods by improving their
access to and affordability of modern energy services. The project will aim to remove barriers to the widescale utilisation of renewable energy technologies and to meet the basic electricity needs of households,
small businesses and of community users like health clinics and schools.
Telecom
Technological change, the introduction of competition in cellular telephony and the privatization of the
fixed-line operator have resulted in a sharp increase in tele-density and a diversification of services to the
end users. Although the telecommunications coverage has expanded rapidly in recent years, coverage
remains very low.
Internet coverage and access to bandwidth remains low as well as the quality of the internet service.
Moreover, the quality of fixed line service remains poor as well Aside from the relatively lower quality of
service ad lack of access to telecommunications technology, the high cost of services to consumers also
hinders the expansion. Increasing competition in this segment of the market could contribute to lower
prices and higher quality services, as at the moment the main players are Telcom, Vodacom and Econet.
1.2 Labour
The labour market is characterized by low demand in relation to supply. Lesotho has labour laws,
however violation of these laws occurs regularly. Union organisation is permitted.
A significant amount of the Lesotho labour force is absorbed by South Africa. Because hardly any jobs
are being created in Lesotho, and the labour force continues to increase, which has resulted in an ever
rising unemployment rate. This problem is compounded by a number of factors, the most prominent being
diminishing employment prospects in the agricultural and government sectors, a small industrial base,
and the retrenchments of South African mining industries. Furthermore, a growing class of Chinese
entrepreneurs is running small businesses in Lesotho. The Chinese seem to take over the business
climate, as the locals find it hard to compete with these Chinese retailers. Moreover, they enter into
agreements with Lesotho to assure their presence in the country.34
On top of all of this, Lesotho is among the countries with the highest HIV/AIDS prevalence in the world,
with about 35% of the population being HIV positive. The AIDS epidemic in Lesotho has had a
devastating impact on the country. Crippling poverty combined with AIDS has caused average life
expectancy to drop to 51 years.35 The impact on individuals, families and the whole nation is being felt as
adults become too sick to work, and children orphaned by AIDS are left to run households.
1.3 Corporate social responsibility
Over the past years, there have been substantial improvements to workplace conditions in Lesotho.
Government attention to labour conditions has increased, as has the attention of international buyers to
social compliance in the country. Key buyers have clearly communicated their codes of conduct to
suppliers in Lesotho; monitoring of conditions at supplier facilities is more frequent and intensive; and in
some instances buyers have worked with suppliers through training and capacity building programs.
There is general agreement that the most severe workplace violations no longer are prevalent in the
segments of the industry that supply to major international buyers. However, still to be addressed are
minor health and safety violations, concern over labour relations and cultural and communication
33
A project of the United Nations Development Programme; http://www.undp.org.ls/energy/renewable_energy.php.
http://ls2.mofcom.gov.cn/aarticle/chinanews/200602/20060201506693.html
35
CARE Lesotho (2004, April) ‘Lesotho’s Strength is its People: A Rapid Appraisal of Home and Community Based Care’ p.5
34
21
challenges. While the Lesotho labour code is strong, there is a general understanding that enforcement
could be improved.
Furthermore, an extremely high HIV/AIDS infection rate among garment workers has led to conflicts over
benefits such as sick and funeral leave. It is clear that any CSR initiative in Lesotho should include a
HIV/AIDS component.36
2. Political context
The state is heavily involved in most economic activity, fuelling high levels of government spending and
preventing the emergence of entrepreneurial vitality. Although many prices are freely determined in the
market, the government influences prices through state-owned enterprises and utilities, especially in
agriculture.
Significant barriers to trade constrain poverty-alleviating growth. Lesotho’s burdensome regulatory
environment increases the cost of foreign and domestic investment, constraining the development of a
vibrant private sector. Although, bureaucratic procedures in Lesotho are relatively cheap and simple, the
problem however is about delivery, which is half-hearted and slow. Additionally, significant corruption and
high tax rates raise the cost of economic activity in Lesotho.
A major challenge is the lack of planning framework that provides the business sector and other
development partners with a sense of direction in terms of development priorities and focus.
Although government’s commitment to delivering a policy and regulatory environment that promotes
entrepreneurship, savings, investment and broad-based wealth creation is clearly articulated in all of its
key policy and strategy documents, Lesotho’s performance in providing such an environment is falling
behind its competitors.37
3. Business climate
Lesotho is ranked 138 out of 183 economies in the Doing Business survey 2011. The business
environment is not conducive to systematic growth of local businesses.
Lesotho’s laws and regulations make it time consuming and expensive for businesses to comply. There
are a lot of cumbersome procedures coupled with unnecessary bottlenecks which make it comparably
difficult for investors to do business in Lesotho. Despite several reforms underway, the country is slipping
in regional and international rankings because other countries reform faster.
Lesotho has an underdeveloped financial system, lacking dynamic competition. It has been closely tied to
South Africa through the Common Monetary Area. The high cost of credit hinders entrepreneurial activity
and the development of a vibrant private sector. Reflecting the lack of efficiency and depth in the financial
sector, capital markets remain rudimentary. Some of the very glaring deficiencies of the Lesotho economy
are the lack of facilities such as a stock exchange and functional merchant banks. In addition, the lack of
country-resident pension funds or medical aid funds means lack access to significant resources for
development and social investment.
Ranking way above 100 in the Doing Business survey 2011 and maintaining a declining trend mean that
Lesotho is losing the competitiveness and as a result maybe forfeiting potential investment opportunities
which are required for sustainable economic growth and employment which are key in poverty alleviation.
The lack of investment opportunities in Lesotho also means that most of the money made in the country
gets repatriated out of the country.
In essence the local business operates in an environment that has the following constraints and
challenges that restrict economic growth and development in Lesotho and therefore impact negatively on
citizens and business:
- Poor service delivery by the public and private sector
36
37
Competition and Corporate Social Responsibility in Lesotho’s Apparel Industry, FIAS, June 2006.
Priority Support Programme; Supporting investment climate reform for growth in Lesotho, August 2008.
22
Lack of capital to finance projects, infrastructure and business growth.
Poor management of resources (especially human and IT infrastructure)
High capital outflow to RSA – Lesotho capital creates jobs for South Africans.
Not enough capital invested in Lesotho by Basotho
No clearly defined strategies on economic growth and development to match or keep up with the
SACU neighbours and the world at large.
- Poor implementation of strategies that focus on employment opportunities, creation of wealth and
sustainable economic growth
- Weak fragmented business sector.
What remains the major challenge is the lack of planning framework that provides the business sector
and other development partners with a sense of direction in terms of development priorities and focus.
-
4. Sectors with potential/specific opportunities
Lesotho has to offer cheap labour and ample bare land, which would make it suitable for production
plants across sectors as an alternative to South Africa, e.g. textile firms.
In order to get an attractive business climate, the infrastructure of the country needs a significant amount
of improvement. Therefore, this could be an interesting field to invest in; e.g. building and town planning.
Another field worth investing in is education. Skill development and education institutions are needed for
the country to develop. Offering expertise to the country could in that regard be very beneficial.
The financial sector as well as the health sector requires expansion and development. More banks are
needed, as well as experts in the field who can assist government and district governments as well as
companies.
Since water is Lesotho’s main natural resource and given the fact that water is relatively rare in Africa,
this resource should be explored further by possible investors.
Tourism could be another potential area, since Lesotho has magnificent landscapes and has the
ingredients to become a lucrative ski resort in the winter. Nevertheless, investment in these areas with
potential will only have a possibility to succeed when infrastructure improves.
5. Conclusion
All in all, the country’s economy has declined over the years. This shows the inability of the country to
improve the economic environment which is necessary to gain considerable growth.
Lesotho’s economy is currently facing acute fiscal and external position imbalances. This is mainly due to
declining SACU transfers as a result of the global financial crisis. This implies that Lesotho’s international
creditworthiness is likely to be severely affected making the country a high sovereign risk economy. This
is detrimental to investment and hence economic growth.
In addition, South Africa is considering reforming the SACU revenue tariffs, which could have an even
more devastating effect for the economy of Lesotho.
Despite the commitment of the government of Lesotho to reform, the country is falling behind its
competitors in terms of the pace of reform. International and regional competitors are reforming faster,
with the result that Lesotho is losing trade, investment and job opportunities to competitor countries.
Moreover, as reform to the business environment is being delivered predominantly through donor
programmes- the implication is that these donor funds are not being utilised to the maximum benefit for
Lesotho.
23
Contact details Lesotho
-
World bank: Chunlin Zhang (Lead private sector development specialist)
T 0027 12348 8895 e-mail: czhang@worldbank.org
M 0027 71 852 4499
-
African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
Crestway Block B, 3 Hotel Street, Persequor Park, 0020 Pretoria
T 0027 790198513
e.ruganzu@afdb.org
www.afdb.org
-
HC MASERU, LESOTHO
Consul:
Mw T.E.M. (Thea) van Mastrigt
Adres:
Lancers Inn, Private Bag A216, Maseru
Tel. No:
(0026622) 312114
Fax No:
(0026622) 325961 / 310223
Consul thuis:
(0026622) 333810 Cellphone Consul: 082 334 4606
E-mail:
lancersinn@leo.co.ls
Assistant:
Johnny van Mastrigt
Adres:
PO Box 698, Ladybrand 9745
Tel. No:
00266 58039300
E-mail:
johnny@lancersinn.co.ls of dutchconsul@lancersinn.co.ls
24
Botswana
1. General economic environment
Botswana is a landlocked country with around 1.8 million inhabitants. The population density in the
country is very low. Botswana has a reputation for excellent macroeconomic management, modest
inflation, and extremely rapid growth.38 Botswana has a relatively attractive investment climate.
The economy is built on the diamond mining industry, and this sector still dominates. As of the last
quarter of 2010, mining contributed to 50 per cent of overall GDP growth and it supplies about a third of
the government’s total revenue. It however only accounts for about 5 per cent of employment. Botswana
enjoyed the highest GDP growth rate in the world from 1970 to 1999 (8.3 per cent) and is expected to
grow by 6.3 per cent in 2011. With the non-mineral GDP growth rate estimated to reach 4.8 per cent in
2011. Other sectors only account for a very small percentage of GDP. The manufacturing sector accounts
for about 4 per cent, the agriculture sector accounts for only 2 per cent of GDP and the service sector
represents about 10 per cent of GDP. Furthermore, Botswana has no public debt.
The Bank of Botswana’s target inflation rate is 3-6 per cent, although it has rarely been within the target
since the Pula devaluation in May 2005. Inflation maintained a downward trend during most of 2009, due
to the global economic crisis, but is expected to fall in the target again in 2011.
Botswana is a member of the Southern Africa Customs Union (SACU), comprised of Botswana, Namibia,
Lesotho, Swaziland, and South Africa. Under this arrangement, South Africa has collected levies from
customs, sales, and excise duties for all five members, sharing out proceeds based on each country's
portion of imports. Botswana also signed an Economic Partnership Agreement with the European Union
in December 2007, and, as a member of SACU, it signed a preferential trade agreement in 2004 with
Mercosur.
In addition, Botswana is a member of the 15-nation Southern African Development Community (SADC),
and Gaborone hosts the SADC Secretariat's headquarters. SADC has a broad mandate to encourage
growth, development, and economic integration in Southern Africa. SADC's Trade Protocol, calls for the
elimination of all tariff and non-tariff barriers to trade among the 12 signatory countries. However,
implementation of the protocol has been slow and is not yet complete.
1.1 Infrastructure
In general, the country’s transport and telecommunications infrastructure is good, though internet access
is still relatively expensive and slow.
An "inner circle" highway connecting all major towns and district capitals is completely paved, and the
Trans-Kalahari Highway connects the country (and, through it, South Africa's commercially dominant
Gauteng Province) to Walvis Bay in Namibia. The Civil Aviation Authority of Botswana (CAAB) has been
established as a regulator of the air transport services to further enhance the transport system.
Botswana imports 80 per cent of its energy and is sensitive to rate hikes by neighbouring power suppliers,
therefore the cost of energy is high. However, a new coal power plant in Botswana is on its way.
1.2 Labour
Botswana has a high unemployment rate (estimated at 26.2 per cent in 2008) and a severely narrow
worker skills base. Retention of workers and absenteeism can pose problems, and the high rate of
HIV/AIDS affects the workforce on a broader basis. In addition, managers often cite productivity of the
workforce as the main point of frustration. Productivity is incredibly low amongst workers, whereas
salaries are relatively high, especially compared to Asian countries.
38
World Bank Group, Africa region, private sector unit.
25
The lack of trained local citizen professionals is generally resolved by the use of expatriates. The process
of getting a working permit for an expatriate can however be very burdensome, since the country tries to
stimulate the employment of residents.
Although Botswana citizens are permitted to participate in trade unions, trade unions are not active and
only represent a minority of workers.
1.3 Corporate Social Responsibility
Corporate Social Responsibility is highly recognized and embraced by government, foreign and local
firms, and customers. Increasingly, business, NGO’s and the Government are pulling together to promote
business, social and environmental progress.
2. Political context
Botswana is a mature democracy, with a remarkably stable political scene. The Government tends not to
be corrupt and behaves in a conflict avoiding way. Although one major party has been in charge for many
years now, elections are held regularly and do not tend to cause any problems. A considerable amount of
money is spent on infrastructure, schools and hospitals throughout the country.
The Government of Botswana seeks to diversify the economy away from diamonds into goods such as
pharmaceuticals, textiles, clothing, and leather products, as well as services such a tourism, financial
products, business process outsourcing and research. Domestic firms are heavily dependent upon the
government for many services. The government plays an important role in allocating credit and also
counts for a significant amount of domestic sales, especially for domestic firms. Which makes that
Botswana firms are not highly competitive. In order to solve this, Botswana has developed anti-trust
legislation and policies to ensure appropriate competition in the business environment, which is expected
to begin operation in 2011.
Botswana also reserves some business sectors solely for citizen participation. 39
Notable to mention is that the government is said to be moving towards privatizing a number of stateowned businesses. The government would like to use privatization to increase foreign direct investment in
the country, though there are significant concerns in government circles that the political costs of
privatization are high, e.g., extensive job losses. This accounts for the controversy and delay surrounding
the privatization effort.
Furthermore, the government has engaged in an active policy regarding HIV/AIDS. It is providing
leadership and programs to combat the epidemic including free anti-retroviral treatment and a nationwide
Prevention of Mother-to-Child Transmission program, since it recognizes that HIV/AIDS will continue to
affect the economy.
In 2010, Transparency International rated Botswana the least corrupt country in Africa, and 33 rd out of
178 countries. Botswana has a strong legislative regime to combat corruption, though procedures can be
very time consuming.
Foreign investors’ complaints generally focus on the inefficiency and/or unresponsiveness of mid-level
and low-level bureaucrats in government. The Government has introduced a Performance Management
system to improve the service and accountability of government employees, but its effectiveness has not
yet been evaluated.
39
Such as butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), certain
types of restaurants and bars, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors,
funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects
under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of
manufacturing activities including the production of furniture for schools, welding, and bricklaying.
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3. Business climate
Botswana is ranked 52 out of 183 economies in the doing business survey 2011. The economy however
does not get good credits for dealing with construction permits, since it takes 243 procedures, 167 days
and 264.5 per cent of income per capita in order to get a construction permit. The ease of starting up a
business is another negative aspect of Botswana’s economy, as well as cross-border trading. Companies
face costly import and export procedures, with significant delays.
Although the investment climate is mostly favourable, there remain some obstacles. According to a
research among firm managers in 2007, the following obstacles were perceived as serious obstacles to
firm’s operations; cost of crime, access to finance, access to land and worker skills.
Botswana is relatively unfavourable with respect to the cost of crime. The median firm reports that the
combined cost of crime and security is about $112 per worker per year or 0.6 per cent of sales, which is
lower than Namibia and South Africa, but remains higher compared to other countries.
Limited access to finance is another obstacle. Although financial markets appear relatively developed,
and access to finance in Botswana is similar to access in other SACU countries, access in the SACU
economies in general and in Botswana in particular is worse than in most of the other middle-income
comparator countries.
Notably to say is that foreign investors usually enjoy better access to credit than local firms due to the
limited capital base of the local entrepreneur and conservative lending policies by commercial banks.
In a recent report the access to land was noted as one of the largest regulatory concerns in Botswana.
The report noted that difficulties in land administration and problems associated with land allocation in the
major urban areas make land a serious concern. Firms are less likely to own their own land and are more
likely to have attempts at land purchases fail than in most of the comparator countries. 40
In addition, worker skills are marked as a considerable market challenge, partly due to the country’s small
population, and partly due to lack of opportunities for workers to gain experience and training. Botswana
offers too few experienced managers and specialists. Furthermore, the productivity amongst workers
tends to be very low. However, investors who would like to retain expatriates to fill these roles will face the
problem that work and resident permits for expatriate employees are subject to increasing bureaucratic
delays and hurdles.
The problem of skill shortage does not appear to be entirely due to a shortage of educated workers. The
average worker in Botswana is as well, or better educated, than workers in most of the middle-income
comparator countries. This suggests that the problem might be with either the quality of education or the
curriculum. Firms can deal with this, to provide firm-based training. This however hasn’t turned out to be a
very favourable option amongst firms up to now.
Apart from the mentioned obstacles, firms seem to have few complaints about areas such as regulation
and infrastructure. Other areas such as taxation, macroeconomic instability and corruption tend to be
relatively favourable for Botswana as well. Since Botswana rated the least corrupt country in Africa in
2010 and the tax system provides up to as little as 15 per cent corporate tax and up to a maximum of 25
per cent income tax. Although tax rates are low in Botswana, tax compliance is poor.
The Botswana government has made good efforts to attract foreign investors. The Botswana Export
Development and Investment Authority (BEDIA) serves as the main point of contact for foreign investors.
Investor friendly policies include the absence of exchange control regulations. Profits and direct
investment can be repatriated without restriction from Botswana.
40
By FIAS 2004.
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A final issue is the impact of HIV/AIDS on the private sector, since the prevalence rate was estimated
around 17 per cent for persons aged 18 months and older. The Government has an active policy in this
area, which appears to be reducing the impact that HIV/AIDS has on the private sector.
4. Sectors with potential/opportunities
Mining investment opportunities exist in Botswana. The mining sector continues to perform well, and
copper and nickel are showing strong profitability. Botswana already has a long history of engagement
with miners and the Botswana Government has an excellent record in dealing with mining companies.
Furthermore, energy remains an important sector to invest in, since Botswana aims to reducing its
dependence on South African power and becoming a net exporter of electricity. The renewable energy
sub-sector is also poised for growth, especially solar-energy. However, the pace of this growth will
depend on government policy decisions such as whether to allow feed-in tariffs and the further
development of appropriate standards.
In addition, the tourist sector continues to grow, which provides significant employment opportunities.
There also is a steady demand for health services and medical/surgical equipment in Botswana.
Outsourcing could be another opportunity. Botswana has potential to become a center for business
process outsourcing, financial services including banking and insurance, call centres and research.
However, high internet costs and a poor IT skills base have prevented these areas from strong growth.
Thus, if internet costs would drop, Botswana could be increasingly attractive for such businesses, since it
has good telecommunications and road infrastructure, a well-developed banking sector, and well
educated English speakers.
Although Botswana has relatively good infrastructure, this field could still be an opportunity to invest in, as
well as the field of education. Especially since the Government is aiming to diversify the economy from
the mining industry.
When one decides to go and invest in Botswana, one should establish a relationship with a local firm.
Investors increase their chances of successfully navigating the bureaucracy to start their project by
partnering with a local firm. In order to gain access to government loans and grants, having a local
partner is even mandatory.41
5. Conclusion
Although the analysis in this research suggests that there are some areas where the investment climate
might need to be improved, it is important to note that none of these obstacles, apart from possibly the
worker skills, appear to be particularly bad.
This suggests that other factors are probably also playing a role. One such factor is likely to be the small
size (in terms of population) and remoteness of the economy. Another factor is the effect that is the
macroeconomic effects of the large mining economy has on the competitiveness of the rest of the
economy.
The sovereign credit ratings by Moody's and Standard & Poor's clearly indicate that, despite continued
challenges such as small market size, landlocked location, and sometimes burdensome bureaucratic
processes, Botswana remains one of the best investment opportunities in the developing world.
41
Doing business in Botswana: a country commercial guide for US companies 2011.
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Contact details Botswana
-
World bank: Chunlin Zhang (Lead private sector development specialist)
T 0027 12348 8895 e-mail: czhang@worldbank.org
M 0027 71 852 4499
-
African Development Bank: Eva Ruganzu (Principal Country Programme Officer)
Crestway Block B, 3 Hotel Street, Persequor Park, 0020 Pretoria
T 0027 790198513
e.ruganzu@afdb.org
www.afdb.org
-
Jan Pit (Hon. Consul)
00267 717 77706
nederland@info.bw
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