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Botswana: a fine balance.

Having a lot of money is one thing, having most of it in the same basket is something else again. This is the position the government of Botswana finds itself in and is determined to put to rights.

Diamond-rich Botswana, an arid, half-million square kilometre piece of real estate wedged between South Africa to its east and south, Namibia and Angola to its west and Zimbabwe to the north, has an embarrassment of riches and is drawing up plans to put the balance right. By far the bulk of the national income is from diamond sales; it mines the gems in greater quantity than anywhere else in the world in partnership with De Beers. What Botswana wants is to be less reliant on diamond income by creating other sources of revenue. The trick is to broaden the economy, not by stunting diamond revenues, by keeping them on the rise, and encouraging other income earners to catch up and rapidly grow the economy in more ways than one.

Botswana is making a two-pronged attack to achieve this end. It is already well down the road in its drive to establish a well-rounded, export oriented manufacturing sector with an eye on regional markets and, more recently, to establish the country as an international financial services centre for southern Africa. It has already started courting, with some success, South African financial groups to move their operations to Gaborone. From July this year, the capital is being energetically marketed as a better place for, initially, South African financial services groups.

What gives Botswana both an edge and a reason to fast-track its financial services industry is South Africa's increasing relaxation of its foreign exchange controls legislation. One of these is a recently passed law which allows South African companies to invest up to R250m in Southern African Development Community (SADC) countries. By getting in now and establishing itself as the bankers' 'Switzerland' of choice, Botswana hopes to rake in a lot more investment in this sector when South Africa's forex laws are swept away completely.

Enormously lucrative

It all makes a lot of sense. Botswana is able to offer tax incentives that South Africa will probably never consider, so basing the management of big turnover capital such as unit trusts, offshore banking and short-term insurance in Gaborone could be an enormously lucrative move for all parties. In addition, Botswana makes the perfect springboard for South African companies to invest in other countries in the region. It's a stroke of good fortune that Botswana is the headquarters of the SADC secretariat, and the cities of Gaborone and Johannesburg are under 400km apart by road and less than an hour's hop by air.

While Botswana's financial aspirations are gutsy and its hopes high, it won't all be easy sailing. The Indian Ocean republic and SADC member, Mauritius, is a few years ahead and is also ready to capture more of the sub-continents financial business. The fact that it is about a thousand kilometres offshore is no longer a disadvantage as distance means nothing in these days of electronic banking.

But, while the competition promises to be fierce, both Botswana and Mauritius recognise that there's more than enough business to go round and that a geographically expanded financial services industry will do more good than harm. Botswana has already demonstrated its chutzpah is stealing marches on the rest of the SADC Romans. Some 10 years ago it took canny advantage of the absence of tariff barriers between customs union partners of South Africa, Botswana, Namibia, Swaziland and Lesotho by assembling Korea's Hyundai cars near Gaborone and flooding the South African market with them. The move angered both the South African government and South African motor car industry and led to some hasty rewriting of customs union tariff regulations.

Botswana is a dangerously innovative country, and has the financial muscle and the skills to back up its drive for economic expansion.

The SADC and the rest of the world would be wise to keep an eye on it.


Geographical location: Southern Africa, bordered on the west and north by Namibia, on the north by Zambia, on the north-east by Zimbabwe and on the south and south-east by South Africa.

Area: 600,372 square kilometres.

Population: 1.5m.

Date of independence: 30 September 1966.

Capital: Gaborone

Currency: Pula: 1 pula = 100 theba.

GDP: $4,5bn.

GDP per capita: $3 217.

Economy: Dominated by mining, which (predominantly diamond output) accounts for 35% of GDP, 49% of government revenue and 78% of exports. Tourism, hotels and restaurants account for a further 16% of GDP, with general government 17% and financial services taking up 11% of GDP.

Major exports: diamonds, vehicles, textiles, copper, nickel and meat products.

Inflation: 6.4%.

Unemployment: 21.5%.

Languages: Setswana and English.
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Title Annotation:reducing reliance on diamond income by creating other sources of revenues; Special Report: Botswana
Author:Nevin, Tom
Publication:African Business
Date:Sep 1, 1999
Previous Article:Gold crisis: damage limitation begins.
Next Article:Deficit sets off minor tremors.

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