At the meeting, whose theme was ‘FDI - Know our status,’ Hudson made a presentation on Botswana’s current economic scene, and its impact on new investors.
Hudson, who was the deputy governor of Bank of Botswana (BoB) from 1983 to 1990 and is also managing director of Phaleng Consultancies, said that between November 1996 and August 2004, the currency had a net upward real effective revaluation of about 18 percent. “This has made exporting unnecessarily difficult and importing easy,” he claimed.
He said the much contested and controversial 7.5 percent devaluation of February this year “only half-solved the problem.”
Because of the high Pula, he said other competitors for the much sought after FDI such as Namibia are becoming more attractive because Namibia has a 34 percent price advantage over Botswana. In exchange rate terms, P1.00 is equivalent to N$1.34 and both countries have an unattractive small population of fewer than two million people. In comparison, he said Namibia has similar regulations to Botswana concerning work permits for expatriates, minimum wages for unskilled labour even though it is lower than in Botswana, corporate income tax, sales tax, exchange control and other things. He however said companies that qualify for Namibia’s Export Processing Zone (EPZ) have other advantages, among others; no corporate income tax, no sales tax on export, no transfer duties, permission to hold foreign currency accounts at the local banks, virtual exemption from work permits, free repatriation of capital and profits and no strikes or lockouts permitted at EPZ companies.
To this end, Hudson proposes that the Pula be devalued by another 10 percent “to get it back into more ‘neutral’ territory”. Rather than a once off huge devaluation, he said the devaluation exercise could be done in 20 phases of 0.5 percent.
He said this would help the marginal exporters such as Bamagwato Concession Limited (BCL) Mine and Botswana Meat Commission (BMC) as well as marginal import substituters in the name of Kgalagadi Breweries Limited (KBL); brick moulders, and crop farmers. Statistics show that BCL’s FDI liabilities decreased in 2002, resulting in a reduction of the dominance of the mining industry in total FDI. The 2003 BoB Annual Report writes; “by the end of 2002, the share of mining had declined to 71.3 percent of total FDI from 81 percent in 2001.” Hudson further called for a research to differentiate exchange rate sensitive exporters who are neutral about the exchange rate.
He also argued that the 10 percent devaluation would help boost the government’s coffers substantially from revenue earned in diamond exports and “thus assist the Minister of Finance to balance the budget in 2005/06,” he said. He also argued that a 10 percent devaluation would be less unpopular than an increase in the rate of value-added tax (VAT) to 15 percent.
