Global rating company, Fitch Group has indicated that despite huge investment in infrastructure, Botswana will this year continue to struggle to attract Foreign Direct Investment (FDI).
In the 2018 updated report on risks facing businesses operating in Botswana, the rating company indicated that Botswana could continue failing to attract FDI when compared to other African countries, following the Morupule B disputes that threaten availability of power for business activities and the entire economy.
The company indicated that contractual disputes threaten the viability of the Morupule B project. “The 300MW unit 5 & 6 expansion of the Morupule B power plant is at the risk of being cancelled due to the ongoing contractual dispute between the government and the two firms, Marubeni and Posco Energy. Marubeni and Posco Energy have demanded USD800 million sovereign guarantee in order to minimise risk of a default by the Botswana Power Corporation,” cautioned the company in the report.
Fitch indicated that while the country currently has stable supply of power, businesses operating in the country face significant electricity reliability challenges over the medium term as demand could outpace supply and investment in power infrastructure likely to fail to bridge the power deficit. “This could result in frequent load shedding which inhibits productivity in key sectors such as mining, a development which could result with potential foreign investors shunning the country.”
It noted that foreign investors shun Botswana due to its weak transport network. “While Botswana’s trade environment is complicated by its status as a landlocked country, the lack of extensive road and rail connections, particularly in the western regions of the country, is worsening the situation as it inhibits trade route selection.
“This represents the largest source of logistics risk to businesses in Botswana, and the challenge is compounded by the underdevelopment of air freight transport, which places notable pressure on the available national rail and road network,” the report said.
Another challenge, the report said, is lack of port facilities, which according to the rating company increase the country’s reliance on ports for neighboring countries; a development which results with high trade costs.
It highlighted; “Botswana’s lack of port facilities constitutes a major disadvantage for lowering trade costs and times. Over-reliance on a few neighbouring ports translates into longer trade times and transport costs, representing a major disadvantage for investors and foreign businesses in the country. Coupled with the country’s underdeveloped air freight transport links, trade in Botswana is therefore reliant on the country’s road and rail networks.”
Fitch researchers further added that Botswana’s attractiveness to FDI could remain low as e-commerce opportunities remain muted in Botswana compared to regional peers such as Kenya, due to low internet penetration levels.
The researchers indicated that Botswana’s FDI attractiveness can only improve significantly in the short to medium term if the on-going investment in the development of associated transport and power infrastructure is successfully completed by 2020.
The latest Africa Attractiveness Index by EY research entity has revealed that Botswana, which was the 7th most attractive country to FDI in 2016 when compared to other African countries, has dropped to 10th position. According to the index, investors are highly likely to shun Botswana and invest in Morocco, which is the most attractive destination for FDI followed by Kenya, South Africa, Ghana, Tanzania, Uganda, Cote d’Ivoire, Mauritius and Senegal.