Newspaper article The Christian Science Monitor

Botswana Stands to Gain as South Africa Changes

Newspaper article The Christian Science Monitor

Botswana Stands to Gain as South Africa Changes

Article excerpt

FEW economies are better positioned than Botswana's to capitalize on the much-anticipated post-Apartheid market of Southern Africa.

Decades of stable government and financial prudence in this country have produced one of the continent's most enviable balance sheets. Botswana earned more than $300 million last year from its investment portfolio alone.

But rising urban unemployment may mark a weakness in the government's fiscal policy that some economists say could stunt the ability of Botswana's private sector to compete in an expanded regional market. Botswana lacks a substantial domestic manufacturing base. The country's membership in the South African Customs Union has largely undercut efforts to diversify the economy, according to diplomats here in the capital.

Despite extensive government promotion of commercial and industrial development, including equity financing, subsidized rents, and loan and overdraft guarantees, private investors have shied away from Botswana's small domestic market and the country's high interest rates.

Textile plants in the north produce jeans for Europe and the United States, but the economy remains dominated by diamond production.

With an unemployment rate approaching 30 percent, investors here in Gaborone say that looser foreign-exchange controls and an increased focus on export manufacturing are needed to create jobs.

"Export orientation is crucial to diversifying Botswana's economy," says one Western economist. "Considering the lack of sound investment opportunities, the government must restructure its incentive scheme to take advantage of opportunities in the South African market."

When South Africa officially becomes a part of the regional economy, the high tariff barriers under which South African industry has prospered will fall, business leaders here hope.

"It all depends on how the new South Africa deals with its own problems," said Baledzi Gaolathe, managing director of Debswana, Botswana's largest diamond producer that is owned by the government and DeBeers.

Mr. Gaolathe, a former permanent secretary in the Ministry of Finance, predicts that when tariffs are reduced, Botswana's financial-services sector and the strength of its currency (based on reserves of more than $3.5 billion) will make the country a magnet for investment in southern Africa.

No matter what happens in South Africa, Botswana may benefit. …

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