Monday, May 17, 2021

What gives Botswana a competitive edge?

Though it has been widely discussed and dissected in various fora, the subject of Foreign Direct Investment (FDI) is pertinent and still remains relevant to date. The reality is that FDI has proven to be evasive for Botswana, and local economists and researchers have persistently argued that the country’s focus on the matter is misaligned and unresponsive.

A newly published research paper by University of Botswana (UB) academics Dr. Moffat and Mavis Moalosi-Kolobe, which discusses FDI and economic diversification, provides a thought provoking analysis of the FDI landscape within the Botswana economy, though it does not disclose any ground breaking information. The paper brings to the forefront the misuse of the term, “competitiveness” as it is defined by the global competitiveness report, versus what investors perceive as attractive to business and market opportunities that lure them to a particular region. On numerous occasions, Botswana has been accused of its obsession with competitiveness and doing business rankings that when translated to actual benefits do not produce tangible results.

The global competitiveness report defines competitiveness as a “set of institutions, policies and factors that determine the level of productivity of a country.” In this case, competitiveness is encapsulated in 12 pillars; namely institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and lastly innovation. The research paper by Dr. Moffat and Mavis Moalosi-Kolobe argues that Botswana’s allure will continue to be misplaced if the country maintains its fixation with competitive rankings that do not take into consideration the real impediments to business such as the high cost of doing business.

“If Botswana is to attract the FDI it requires, more attention needs to be paid to the cost of doing business, and not just improving the business climate and competitiveness. Competitiveness reports do not measure competitiveness in terms of whether Botswana firms can produce goods and services at a lower cost than firms in other countries,” argues the paper.

Taking into consideration the 12 pillars mentioned above, the research paper makes an interesting comparison with what investors consider to be the main motivations to investing in Africa. A survey of investors from emerging countries found that the biggest incentive for firms to invest in Africa is access to new markets, which in the case of Botswana is a tough call to answer because of the country’s inherent small market. Gaining access to natural resources and inputs also trends as a huge motivation for investing in an African country. This explains why Botswana has been largely successful in attracting FDI in mining which constitutes the biggest inflow of capital.

“Firms that invest in Africa seem to be less concerned about political risk and other non economic factors than firms that don’t invest in the region. They are also less likely to worry about security,” said the paper.

These findings are in stark contrast to what the global competitiveness report highlights as important factors to attracting business in Botswana. Moalosi-Kolobe said in an interview with Sunday Standard that improvements in Botswana’s rankings are owed largely to a sound macroeconomic environment, adding that factors such as low corruption, reliable and transparent institutions contribute to strengthening the country’s positioning. Botswana is ranked fourth in the Sub-Saharan behind South Africa and Mauritius.

“For a middle income country in transition to an efficiency driven economy, the goods market must become efficient. Going forward, combined efforts across all areas will be needed if the country is to reduce its heavy dependence on the mining sector and to set its economy on a more diversified growth path,” said Dr. Moalosi-Kolobe.

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