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  • TRADE IN FINANCE: CROSS-BORDER INVESTMENTS IN BOTSWANA

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    Trade in Finance: Cross-Border Investments in Botswana

     

     
     
    International Trade Forum - Issue 2/2010

    Africa is emerging as an attractive investment destination and a key market for goods and services. Southern Africa, in particular, has changed significantly in the past decade showing a reduction in levels of indebtedness, an increase in the number of politically stable and democratic countries and solid measures to curb corruption.

    Situated in the heart of southern Africa is Botswana. Long the continent's most politically stable country, it is positioned as a domicile and gateway for investment and trade with the rest of Africa. It is English speaking and is characterized by sound economic management, respect for the rule of law, an efficient health system, high regulatory standards, an absence of foreign exchange controls, abundant raw materials and minerals, and competitive business infrastructure.

    Competitive Business Environment

    Through successive national development plans, Botswana has endeavoured to improve the competitiveness of its business environment with domestic and foreign direct investment attraction initiatives aimed at stimulating investment and broadening the country's industrial base. The investment strategy also seeks to deregulate the economy to strengthen the functioning of markets and promote the emergence of a dynamic private sector through which the country can competitively participate in regional and international markets.

    As part of the national investment strategy, Botswana has set up the Botswana International Financial Services Centre (IFSC), which is mandated to establish and develop Botswana as a world-class hub, taking advantage of the increased emphasis on trade between developing countries (South-South) and delivering a wide range of financial and business services to clients in other countries. Sectors that the Botswana IFSC is targeting include international businesses, international funds, insurance and banking firms, business process outsourcing and call centres.

    Botswana is located in the middle of the 15-member Southern African Development Community (SADC), which makes business access into the surrounding countries, including South Africa, easier and cost-effective. Botswana's corporate and income tax regimes are the lowest in southern Africa.

    Fiscal Incentives

    A multinational company accredited under the Botswana IFSC to conduct cross-border business is taxed at a corporate rate of 15%. It is also exempted from withholding taxes on dividends, interest, management fees and royalties paid to non-Botswana residents. IFSC companies also enjoy exemption from capital gains tax and are zero rated for value-added tax.

    Botswana is aggressively expanding its Double Taxation Avoidance Treaties (DTAs) to increase its attractiveness. If a company accredited to the Botswana IFSC suffers taxes in another jurisdiction where Botswana has not yet ratified a DTA, the multinational will be afforded a tax credit of up to 15% of the total figure of taxes incurred.

    Internationally benchmarked legislation is currently at an advanced stage to position Botswana as a leading jurisdiction for housing additional modern business structures such as trusts, limited partnerships, limited liability partnerships and protected cell companies.

    The IFSC assesses applicant companies and may grant them specific internationally competitive fiscal incentives enabling them to extend their business footprint throughout Africa.

    Attracting Business

    Some of the multinational companies that have set up in the Botswana IFSC (most with existing operations in regional countries and some throughout Africa) include:

    • ABN Amro moved its regional diamond financing operations from South Africa
    • Banc ABC, a leading African merchant bank
    • African Alliance International, a funds management company
    • Vantage Mezzanine Fund, a mezzanine financing company investing in opportunities across Africa.

    Other examples include:

    • Island View, which operates a US$ 60 million shopping mall complex, office park and conference centre in Dar es Salaam, United Republic of Tanzania, funded by capital from Botswana and other international sources.
    • Letshego is a well-established pan-African micro-lender listed on the Botswana Stock Exchange that provides micro-loans in Botswana, Swaziland, United Republic of Tanzania, Uganda, Namibia, Zambia and Mozambique.
    • Bourse Africa will operate a pan-African commodities and derivative exchange to trade commodities produced (initially maize, cocoa, gold and crude oil) in Africa. Increased trade among African countries, as well as between Africa and international markets (at more remunerative prices) is expected, stimulated by the introduction of price discovery.

    The need to find capital to fund regional operations and inadequate regional regulatory frameworks remain challenges to further significant cross-border trade expansion.

    The development of Africa's infrastructure will continue to present a key investment opportunity, as will other sectors such as telecommunications, particularly in the mobile sector. The rise of the African middle class will expand the consumer base and provide increased demand and market opportunities in infrastructural development.

    The small size of the majority of regional economies and bureaucratic obstacles to trade will slow growth in the short term. It is to be hoped that initiatives at a more micro level, such as the IFSC, will spur governments to move faster to create true regional market access for trade in goods and services. In this regard we expect to see the growth of more African multinational companies that will utilize IFSC services to enhance their growth possibilities.