Foreign direct investment (FDI) in Botswana

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI inflows into Botswana stood at USD 216 million in 2022 compared to a negative inflow of USD 319 million one year earlier. That same year, the total stock of FDI in Botswana reached USD 5.21 billion, around 27.2% of the country’s GDP. The mining sector attracts most of the FDI in the country. However, investments in the services industry (insurance and banking) have been growing in recent years. FDI primarily comes from the Southern African Customs Union (SACU), the European Free Trade Association (EFTA), Canada, and Zimbabwe.

The Government of Botswana is seeking to diversify its economy and secure more FDIs. The government encourages new investments and joint ventures and has put measures in place to increase investment in the agriculture, diamond, education, health, and transportation sectors. Furthermore, to assist foreign investors, the government has created the Botswana Investment and Trade Centre (BITC). Botswana provides favorable tax rates and lacks foreign exchange controls. The government has introduced a new National Investment Strategy (NIS) spanning 2023 to 2030, aiming to enhance both foreign and domestic investment flows in terms of quantity and quality. Initiatives have been launched to bolster economic activity and attract foreign investment, including the establishment of a diamond hub. This effort has attracted value-added businesses like cutting and polishing operations to the country. The country’s strengths lie in its low levels of corruption (the lowest in Africa), its good economic governance, its liberal tax system, and its stable democracy. Botswana has also received positive reviews from various international rating agencies, and the country is ahead of many of its neighbors. However, high production costs, a lack of skilled labor, and the country’s landlocked position are significant obstacles for potential investors. Furthermore, leading economists in the country have reported that the significant financial reserves generated by the diamond industry have resulted in a lack of interest from international investors led to believe that the country does not need an inflow of foreign capital. Botswana ranks 85th among the 132 economies on the Global Innovation Index 2023 and 36th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Botswana

Strong Points

The strong points of the Botswana economy include:

• Botswana is among the most stable and transparent countries in Africa
• Investors have preferential access to the Southern African Development Community’s (SADC) entire marketplace – over 292 million people (Duty-free access to South Africa, Namibia, Lesotho and Swaziland)
• Investors have access to double taxation avoidance agreements with South Africa, United Kingdom, Sweden, France, Mauritius, Namibia, Zimbabwe and Russia.
• The government does not impose foreign exchange controls, which guarantees free repatriation of profits, dividends and capital
• Educated workforce; 82% are literate and most speak English

Weak Points

The main challenges for foreign investors include:

• Infrastructural issues (power outages, shortages of water supply, slow Internet, limited logistics network)
• Important utilities and services remain under State ownership and are not open to private investment - foreign or national.
• Equal treatment to foreign investors is not guaranteed by law
• Foreign investors have no access to financial incentive schemes – such as the Credit Guarantee Scheme and a loan fund for citizen contractors

Government Measures to Motivate or Restrict FDI

The Government of Botswana grants the following measures to facilitate foreign investment:

• Manufacturing companies (including foreign) are subject to a reduced tax rate of 15% (instead of 22%) – subject to approval.
• Foreign companies granted with Development Approval Order can benefit from a tax holiday for a period of 5 to 10 years.
• Companies accredited as an International Financial Services Centre (IFSC) are subject to a reduced tax rate of 15% and are exempt from withholding tax and capital gains tax
• Companies accredited by the Innovation Hub are subject to a reduced tax rate of 15%
• Foreign companies are exempt from tax on dividends received from foreign source where the company holds 25% or more of the equity