Thursday, May 6, 2021

Special Economic Zones could be the magic in injecting life into FDI

The recent approval of the special economic zones (SEZs) in Botswana by parliament is expected to set in motion a renewed direction in attracting private capital.

Keletsositse Olebile, Executive Director in strategy and competitiveness at the Botswana Investment and Trade Centre (BITC) informed a Zimbabwean delegation that recently visited Botswana that approval spurred the groundwork in building the incentives and legislative framework that will guide investment promotion. 

The SEZs build-up is kept on track by the Botswana Investment and Trade Centre (BITC) whose role includes investment promotion and attraction and export development. 

Olebile also highlighted that about three locations have been earmarked for housing the SEZs. This includes the vast land, owned by government, within the vicinity of the national airport; the second being the Fairgrounds business park which already reflects a concentration of financial services companies. Government therefore intends on building on this existing make up to create a fully fledged financial services hub. Finally, the area around Pandamatenga which because of its inherent farming landscape will also be designed to take the shape of a farming hub. 

Though the attraction of foreign direct investment (FDI) seems to portray a fallacious achievement, the establishment of SEZs is expected to add to quite a number of efforts heeded by government in its earnest attempt to realize real and tangible results in diversifying the country’s economic base.  Despite that it is to a certain extent considered illusory by proponents of this subject, being economists and industry titans, the efforts taken by government to lure investors into the country demonstrate a strong political will. Political will is regarded a crucial ingredient in the success of SEZs. The general sentiments however is that it will depend on how well packaged the framework proves itself to be in terms of convincing investors to set up shop here. 

It remains to be seen if the set-up of SEZ’s will revamp the current state of FDI. An independent report cites that incentives only matter after the foreign investor has established a presence in a host country. This means that BITC may have to offer more than just the incentive and legislative framework to seriously attract private capital into the country. 

On the other hand, the 2015 economic review for the third quarter (Q3), complied by the illustrious local economist Keith Jefferies and his team under the think tank, Econsult, elucidates its observations on the state of FDI in Botswana. The review recognizes firstly the need for Botswana, like any developing nation, to harness the value of FDI so as to ensure sustainable growth and development. This acknowledgment is reflected in the nature and shape of FDI that established itself due to the economic make up of the country. It cites the example that because Botswana previously experienced recurring current account surpluses it therefore limited its need for capital inflows given that the country accumulated an excess savings over investments.   

In its assessment of whether the investment policy has been successful, the review provides insight based on the international investment position data over the period 2005-2014.  It makes note of the gradual rise of FDI between 2005 and 2008 which however was disrupted by the 2008/09 economic meltdown of which following that FDI plummeted sharply. It highlights however that in 2011 FDI surged, indicating a sharp recovery due to Debswana’s cut 8 project and the relocation of Diamond Trade Centre into Botswana. This momentum, it points out, was unfortunately not sustained as FDI began to decline in 2012 to where it is today. The review explains this trend with the view that due to the dominance of the mining sector in Botswana’s FDI it therefore follows that its sensitivity to major variations in global demand results in its highly variable performance, as seen in recent years, and thereby impacts on economic growth. Another reason it offers is that the shift from mining, manufacturing and agriculture towards services has limited FDI given that generally service activities need somewhat of a small fixed capital compared to mining and manufacturing. 

“Overall, Botswana’s investment policy has not been successful as it should have been, despite the government’s efforts to make the business environment competitive to attract direct investment. Furthermore, better data is necessary to enable improved monitoring of FDI trends in different sector of the economy,” asserts the review. 

RELATED STORIES

Read this week's paper