The country’s transformation agenda involves tweaking the economy to wean it off from diamonds, and spring to life the sluggish economy through export-led growth. However, this might be a stillbirth as the government plans to use old tactics that have proved ineffective so far in attracting investors who can spur the country’s growth through export-oriented firms.
Botswana, which has depended on diamond exports earnings since their discovery in the late 1960s, has struggled to build a diversified economy, with diamonds accounting for more than 90 percent of exports. The downside of the one-sided economy has become apparent over the years, evidenced by massive trade and budget deficits whenever there are troubles in the diamond industry.
The Mokgweetsi Masisi administration which fired to electoral victory in October 2019, after putting economic transformation at the centre of its campaign, says its priority is the promotion of export-led growth anchored by diversified export base. It is a message that has been repeated by past administrations, and all implemented differently, but with the same failed results.
The former president Festus Mogae drove this agenda through Botswana Export Development and Investment Authority (BEDIA), while Ian Khama’s administration delegated the responsibility to Botswana Investment and Trade Centre (BITC), which was created when BEDIA merged with International Financial Services Centre (IFSC) in 2012. For Masisi, he has bet his cards on Special Economic Zone Authority (SEZA) to jumpstart the diversified export market.
Dr Thapelo Matsheka, minister of Finance and Economic Development, used the budget speech on Monday to outline the country’s export strategy that will focus on special economic zones that will attract export-oriented firms.
“This is aligned to national priority of promotion of export led growth. The benefits of SEZs can only be realised through implementation,” Matsheka said.
To attract investors who are expected to set up businesses in the eight identified economic zones, Matsheka revealed that last year July, cabinet approved a comprehensive and internationally competitive incentive package that SEZA will use to attract Foreign Direct Investment (FDI). The incentives include a five percent corporate tax for the first ten years and 10 percent thereafter, provision of fully serviced land, fast tracking of land allocation, providing single window and streamlined investor facilitation processes, waiver on transfer duty on land and property and property tax exemption for the first five years of operation.
If most of the incentives sound familiar, that is because they are, and to some, the past experiences with the incentives serves as reminder of the perilous road ahead of SEZA. The Selebi Phikwe Economic Diversification Unit (SPEDU), the investment promotion agency owned by the government, to coordinate investment promotion and economic diversification in the SPEDU region in sectors of agriculture, tourism and manufacturing industries, has failed to use the same incentives to bag major investors.
In 2018, ministry of Investment, Trade and Industry (MITI) officials disclosed that SPEDU was struggling to attract top investors despite the 5 percent tax for start-ups and 10 percent tax charge for established businesses. Aside from tax concessions, the government has proposed a 30 percent off-take of locally produced products and services; a minimum 50-year land lease; and a one stop service centre to ensure easy flow of information.
Besides failing to attract foreign direct investment, local companies that have taken the bait to set up in the SPEDU region are yet to benefit from the incentives offered as the government lawyers are working on the legal framework to iron out legal incontinences that have been identified.
The slow progress made through SPEDU is said to have frustrated the government, resulting in a setup of a special committee of cabinet to expedite SPEDU region revitalization, also to deal swiftly with issues hindering progress.
Last year, ex-MITI minister Bogolo Kenewendo told parliament in July that SPEDU has been beset by challenges since inception, noting shortage of infrastructure, serviced land, delayed land allocations, lack of investment incentives, utilities and lengthy Environmental Impact Assessment (EIA) processes amongst others, as well as issues of legislation that needed review.
To observers, it will be interesting on how the government intends to use the similar incentives for SEZA but avoiding the pitfalls that have hindered SPEDU. Already, SEZA has awarded a P100 million project to Bothakga Burrow for the detailed design, infrastructure development and construction of Boulevard 1 Road at its flagship Sir Seretse Khama International Airport (SSKIA).
The area has been zoned as a mixed use special economic zone with core activities being diamond beneficiation, aerospace and aviation, cargo, agro-processing, pharmaceuticals, engineering, specialist automotive and plastics injection moulding.