South Africa’s massive economy with its strong industrialisation and large population, casts a shadow across the region in the race to attract Foreign Direct Investment. There are ways around the challenge however. Staff Writer, MBONGENI MGUNI, speaks to the experts from the world’s largest FDI research institute
Any talk of Foreign Direct Investment (FDI) and industrialisation in Botswana inevitably touches on the events of Wednesday January 12, 2000 when 900 citizen jobs were thrown onto the street after the inglorious closure of the Hyundai assembly plant in Broadhurst.
On that day, the country’s pride and joy, its very own vehicle assembly plant, closed its doors despite previous assurances that operations will keep going.
Insult was added to injury when, in September 2014, a shiny new Hyundai assembly plant was opened in Benoni, Gauteng with officials there hailing the massive job creation it will lead to.
The Hyundai episode has remained singularly symbolic of the fact that South Africa casts a large economic shadow over Botswana, grabbing FDI, technology and skills with its larger population and better industrialisation.
The collapse of Hyundai created many “experts” on the matter, who felt that South Africa – unwilling to share the vehicle assembly market place within SACU – had dealt Botswana an unjust and robust elbow to its tender industrial abdomen.
South Africa reportedly filed a rules of origin complaint against the Hyundai plant arguing that because it used Semi-Knocked Down kits, the cars it produced did not qualify for favourable SACU duty provisions. This, the experts say, was due partly to South African workers questioning why Botswana-made vehicles were competing in their market and also due to Big Brother’s “traditional” desire to see all SACU-bound FDI end up in Gauteng.
The situation has meant that Botswana supports South African jobs across many industries, including vehicle assembly, through an import bill, which is dominantly supplied by South African producers.
There is a way out of the shadow however. Henry Loewendahl, an FDI expert with 20 years industry experience having worked with over 150 governments and global corporations in 60 countries, has ideas on how Botswana could manoeuvre into a better position. According to Loewendahl, four factors drive the direction FDI flows. FDI is market seeking, where big populations such South Africa, Nigeria and Egypt hold an advantage. It is also efficiency seeking where investors are looking for efficient locations, with skilled workforce and costs, from where to provide goods or services to the wider region. FDI can also be commodity or resource seeking, which is the most common in Africa. Lastly, it can be asset seeking where investors obtain strategic assets, whether tangible or intangible that may be critical to their long-term strategy but are not available at home.
“The first point is to build on what you have,” Loewendahl says.
“You can say, ‘I have mines, now what’s the value chain of those,’ and build from
“This involves capturing more of the value add around the mines and this also means companies have less reasons to close down. They are more embedded in the country, around the mines.”
The FDI expert sees opportunity for greater development of the mining industry cluster, including an incentives package for greater investment inflows. The Botswana Chamber of Mines is already driving a new strategy around using the mines’ collective buying power to draw from FDI and investment into manufacturing and services supporting the mines. Another strategy to defeat “the shadow” is to copy the example of Wales, which like Botswana, lives in the shadow of England. Chris Knight, global commercial director at the world’s biggest FDI research company, FDI Intelligence, explains. “The Welsh leverage themselves to investors by saying they are two hours away from London and they play on the fact that they are close to that financial hub,” he says.
For Botswana, this strategy will involve marketing the fact that Johannesburg is about 40 minutes by air or three hours’ drive from Gaborone. Investors can enjoy the numerous investor incentives, superior investment climate, safety, peace and stability Botswana provides, while still able to connect to the world via a quick connection in Johannesburg.
“Connectivity and accessibility is critical,” Loewendahl explains.
“In addition, you have to look at specialising in areas where you have something different that does not depend on having a larger labour force or market. Resource seeking FDI will always be driven by the resource. Tourism is a resource and it’s about building the infrastructure and positioning the industry differently from anyone else.”
Botswana, Loewendahl says, also has an opportunity to specialise as a hub for technology and innovation, following on the example of Mauritius. The FDI expert notes the developing work being done at the Innovation Hub and says Botswana is on the right track.
Another country to learn from is Chile.
“Chile established something called “Set-up Chile” and they have attracted thousands of start-up enterprises in the technology sector, with easy permits and a bit of capital,” he says.
“That’s something Botswana can consider, becoming a niche for entrepreneurs and making it easier for people to come in and set up these businesses.”
“The opportunities are in the diamond supply chain, tourism, technology and these start-ups.”
Both FDI experts believe Botswana is undermarketed and more efforts could be made to raise awareness globally.
“This country is very clean, very friendly, safe, with a nice living environment and connectivity to the world,” Loewendahl says. “It may need to be packaged a bit better however.”
Escaping the shadow, it appears, is possible.