Foreign direct investment (FDI) in Botswana

FDI in Figures

According to UNCTAD's World Investment Report 2022, FDI inflows into Botswana increased from USD 32 million in 2020 to USD 55 million in 2021, as the global economy bounced back from the initial impact of the pandemic. That same year, the total stock of FDI in Botswana reached USD 5.1 billion. 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). 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 neighbours. However, high production costs, a lack of skilled labour 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.

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