Botswana: Horizon Scanning 2022

Africa Connected

By:
  • Terence Dambe, Managing Partner, Minchin & Kelly, DLA Piper Africa, Botswana

What is the current investment appetite in the region? Do you see this changing in 2022?

With the lifting of COVID-19-related travel restrictions and the end of lockdowns in most jurisdictions, there appears to be a slow but increased appetite for investing in the Southern Africa region. The Minister of Finance and Economic Development recently announced that Botswana now expects economic growth of 9.7% of GDP for 2021, compared with the 8.8% forecast in February 2021, helped by higher diamond sales and a recent rebasing of GDP accounts. Botswana’s growth rate is projected to be the highest in Africa for 2021. S&P revised the country’s economic outlook from negative to stable. This positive news bodes well for increased investment in 2022, particularly in the diamond mining sector. However, with experts talking of the prospect of a possible COVID-19 fourth wave before the end of the year, it remains to be seen whether or not a possible rise in infections will put a damper on investment prospects. The current vaccination rates in Botswana are very encouraging in terms of both availability of the vaccines and uptake by the eligible population. This provides hope that a fourth wave will either be avoided or greatly diminished and not have a significantly negative impact on economic activity and investments.

In which sectors do you expect to see increased investment and/or financial movement in the next 18 months?

In Botswana, diamonds, which are the mainstay of the economy, have seen greatly improved international sales. In 2020, Botswana’s biggest diamond mining company, Debswana Diamond Company (a 50/50 joint venture between the government and De Beers), experienced a 30% fall in diamond sales. The sales of rough diamonds rebounded by 41% in the first half of 2021, driven by the reopening of key markets the US and China. The more favourable trading climate has resulted in renewed interest, with diamond cutting and polishing companies wanting to establish manufacturing facilities in Botswana. This is no doubt welcome foreign direct investment that bodes well for increased economic activity.

The tourism sector will benefit greatly from the relaxing of travel restrictions and some of the new measures such as the introduction of digital COVID-19 vaccine passports. After being restricted from traveling for almost 18 months, tourists from Europe and the US appear to have a renewed appetite for travel. This has resulted in increased bookings in the hospitality industry.

Where do you see the key areas of growth or opportunity for businesses operating in your country?

One of the areas with great potential growth and opportunity in Botswana is in the agribusiness sector. Botswana is heavily dependent on South Africa for the provision of food. The initial closure of the borders between the two countries at the start of the first lockdown in April 2020 highlighted the level of dependency on South Africa for most products, particularly food supplies. The government has made improved food security a national priority. This has given rise to renewed interest in farming. We foresee the agriculture sector and its entire value chain being a major sector for growth, providing increased formal and informal employment opportunities and stimulating the growth of small, medium and micro enterprises.

Which sectors have been most affected by COVID-19 and what have businesses in those sectors done to cope with these changes or potentially benefit from new opportunities?

Tourism was the sector most negatively affected by COVID-19. It goes without saying that travel restrictions and concerns about infection rates in Southern Africa resulted in tourists being weary of or simply prevented from travel for business or leisure. The sector was hit particularly hard, with revenues falling by close to 95% according to tour operators. This devastated the sector. Many establishments had to close down or place staff on unpaid leave and facilities were placed under care and maintenance. Some of the better performing hotels and lodges that were fortunate to have significant cash reserves continued to maintain staff salaries, while scaling down operations.

One of the welcome outcomes of the travel restrictions has been the hospitality industry being forced to give more priority to domestic tourism. Traditionally, the establishments in the major tourist areas, particularly the Okavango Delta, focused on wealthier consumers, and priced accordingly. Of late, more favourable rates and packages are being offered to residents to make holidays in those areas more affordable.

What is the most relevant regional or pan-African economic trend that you expect to see in the next 18 months?

Africans have realised the massive economic opportunities that intra-African trade can bring. The creation of the African Continental Free Trade Area, starting from January 1, 2021, is undoubtedly a major positive development towards the realisation of increased intra-Africa trade. We foresee more infrastructure projects that will enhance trade and economic development coming to the fore. An example of this is the recent completion of the Kazungula Bridge over the Zambezi River, connecting Botswana and Zambia. The bridge is a major boost to the trade links between the industrial and commercial centres in South Africa to most countries in the Southern Africa region.

In terms of the legal services market, what growth are you seeing on the horizon in the next 18 months?

In the last two years, Botswana has passed numerous pieces of legislation addressing anti-money laundering and combating the financing of terrorism. Furthermore, on September 24, 2021, the Data Protection Act came into force. The result of these new laws is that compliance will become a major growth area in the provision of legal services. With the risks faced in the event of a failure to comply with the various new laws in this area, businesses are seeking more legal assistance on how to implement and maintain compliant practices and processes.

Employment law should also come to the fore. A state of emergency relating to the pandemic that was declared by the president came into effect on April 2, 2021. The government took a very dim view on any termination of employment during the state of emergency period. With the lapsing of the state of emergency on September 30, 2021, we expect employers to seek legal advice on their obligations to workers given the financial challenges businesses are facing as a result of the subdued trading resulting from the pandemic, and the resultant financial challenges. Staff reduction measures will undoubtedly be a consideration for some businesses to stay afloat.

DLA Piper Africa is a Swiss verein whose members are comprised of independent law firms in Africa working with DLA Piper.