Botswana’s Business Climate – A Mixed Bag of Opportunities and Challenges

Key Opportunities & Challenges in Botswana’s Business Landscape

Botswana is situated in the heart of Southern Africa and is often praised for its stable political environment and steady economic growth that provides a solid foundation for business operations. The Enterprise Survey Botswana 2023 conducted by the AfricaScope for the World Bank identifies several key positive aspects of the business environment. These include a diverse mix of new and established businesses, indicating a dynamic and evolving market. Firms across multiple sectors benefit from a relatively well-developed telecommunications infrastructure, facilitating connectivity and market access.

To read more abour AfricaScope’s Research Surveys and Financial Consumer & MSME Surveys click here 

There is also a notable emphasis on improving workforce skills through formal training, which is essential for enhancing productivity and competitiveness in the private sector. However, as the Enterprise Survey Botswana 2023 reveals, the business climate in the country presents a complex mix of opportunities and challenges. Key issues impacting the business environment, include unreliable infrastructure, particularly electricity and water supply, which disrupt operations and increase costs. Access to finance remains a significant challenge, with many firms relying on internal funds due to limited availability of bank loans. Workforce dynamics reveal a need for greater gender inclusivity and enhanced training opportunities to boost productivity. Lastly, customs delays hinder international trade, emphasizing the need for more efficient procedures to facilitate export and import activities.

A Comprehensive Survey Unveiling Botswana’s Business Dynamics

The survey covered various critical aspects of the business environment, including infrastructure, access to finance, workforce characteristics, and regulatory frameworks. A notable aspect of the survey is its scope, encompassing small, medium, and large firms across multiple sectors, excluding agriculture and public utilities. This broad coverage ensures that the insights derived are representative of the private sector’s diverse experiences and challenges. By examining these factors, policymakers and business leaders can better understand the strengths and weaknesses of Botswana’s business landscape.

The survey categorizes firms based on size and sector, providing a detailed breakdown of their characteristics. Small firms, defined as having 5 to 19 employees, constitute the majority, followed by medium-sized firms (20-99 employees) and large firms (100+ employees). The sectors included range from manufacturing to retail, construction, and IT, ensuring a comprehensive view of Botswana’s business landscape.

An interesting finding from the survey is the age distribution of firms. The data indicates a diverse mix of new and established businesses, with varying levels of experience and market presence. This diversity plays a crucial role in understanding how different types of firms navigate the business environment and respond to economic policies.

Workforce dynamics are another critical area explored in the survey. The percentage of female participation in employment, top management, and ownership is highlighted, showing a need for greater gender inclusivity in the business sector. Additionally, the survey sheds light on the formal training provided by firms, which is essential for enhancing workforce skills and productivity.

Infrastructure – The Backbone of Economic Activity

A well-developed physical infrastructure is vital for any economy’s growth and competitiveness. The survey examines the quality and reliability of Botswana’s infrastructure, including electricity, water supply, and telecommunications. These elements are crucial for the efficient operation of businesses and their ability to connect to markets. The efficiency of infrastructure services is imperative for economic growth, and in Botswana, it takes around 23.6 days to obtain a water connection, highlighting potential challenges firms face in accessing this vital resource.

One of the key findings is the challenge of electricity reliability. In Botswana in 2023, it is crucial to note that 64.2% of firms experience electrical outages, showcasing a significant challenge in electricity reliability. This is further emphasized by the average of 2.4 electrical outages firms face in a typical month, indicating potential disruptions and increased costs for businesses. Additionally, firms in Botswana take around 40.4 days to obtain an electrical connection, which can pose as a barrier to entry and investment due to service delays and additional costs incurred. The percentage of firms experiencing electrical outages and the average number of power outages are significant indicators of infrastructure performance. These outages can disrupt production, increase costs, and reduce overall profitability, posing a significant challenge for businesses.

Water supply is another critical area, particularly for manufacturing firms that rely heavily on water in their production processes. When examining water infrastructure, it is notable that firms in Botswana experience delays of approximately 42.0 days in obtaining a water connection. This delay is substantial and could hinder operational efficiency and competitiveness, especially for industries where water is a crucial input in the manufacturing process. Furthermore, the delays in obtaining water connections might act as barriers to entry and investment, impacting the overall business environment and economic growth in the region. Addressing these delays and improving the reliability of water supply infrastructure is essential for reducing operational costs, enhancing competitiveness, and fostering a conducive business environment for sustainable growth and development.

Navigating International Trade

Participation in international trade is essential for firms seeking to expand their market reach and enhance their competitiveness. International trade plays a significant role in the private sector, but in Botswana only 6.3% of firms export making up 10% of their total annual sales. Moreover, 41.9% of firms use material inputs or supplies of foreign origin, indicating a reliance on foreign sources for production. Efficient customs procedures are crucial, as shown by the average of 3.6 days to clear imports from customs, illustrating the importance of streamlined import processes for businesses in Botswana.

Access to finance is a vital aspect for businesses in Botswana, with 92.2% of firms having a cheque or savings account. Additionally, 29.8% of firms utilize banks to finance investments, while a substantial proportion of 70.3% rely on internal sources to finance their investments. Moreover, 11.6% of firms use supplier or customer credit to finance working capital, showcasing the diverse sources of financial support available to businesses in the region.

Efficient financial markets are essential for facilitating business operations, with only 11.9% of investments in Botswana financed by banks. Internal sources account for a more significant proportion of investment financing at 70.3%, indicating a self-reliant approach by many firms. Access to diverse sources of finance, including supplier credit and equity or stock sales, enables businesses to fund their operations and growth effectively.

Management Practices and Firm Performance

The survey also examines firm performance through indicators such as annual employment growth and real sales growth. These metrics provide a clear picture of how the business environment influences firm growth and productivity. Policymakers can use this information to identify areas where improvements are needed to support private sector development.

Informality is another significant issue addressed in the survey. The presence of informal firms that do not comply with regulations can create an uneven playing field for registered businesses. The survey highlights the extent of informality and its impact on the formal sector, emphasizing the need for policies that encourage formalization and compliance with regulations.

Sound management practices are a key determinant of firm productivity and overall performance. In the realm of management practices, particularly in Botswana, firms with at least 20 workers are key players. Figure 1 showcases the Management Practices Index, indicating a focus on organizational efficiency and effectiveness, quality of management practices and strategic decision-making. Botswana has a lower management practises index than firms in other sub-saharan African and upper middle income countries.

  

Figure 1:Management practices index (Source: ES Botswana World Bank)

When delving into employment growth and revenue figures, the data from Botswana unveils notable trends. Figure 2 outlines the annual growth rates in employment and real sales, offering a snapshot of the evolving business landscape. Although annual employment growth is below that of enterprises in sub-Saharan Africa and upper middle income countries, its real annual sales growth is significantly higher. Understanding these growth patterns is vital for policymakers to assess the health of the private sector and identify areas for intervention or support.

Figure 2: Annual employment and sales growth (Source: ES Botswana World Bank)

Informality in businesses is a crucial aspect to consider, particularly when analyzing the business environment in Botswana. Figure 3 sheds light on the prevalence of informal firms and the challenges they pose to formal businesses. With 40.5% competing with informal businesses, but one is lower than what is found in sub-saharan africa and upper middle income countries. Registering of firms at the start of operations in Botswana is 92.2% which is higher than the situation in sub siren and upper middle income countries. By examining the competition from unregistered firms and the registration status of currently active enterprises, policymakers can develop strategies to level the playing field and encourage formalization within the private sector.

Figure 3: Firms and informality (Source: ES Botswana World Bank)

Toward Developing A Thriving Business Environment in Botswana

The Enterprise Survey Botswana 2023 offers valuable insights into the country’s business environment, highlighting both strengths and areas for improvement. By addressing challenges such as infrastructure reliability, access to finance, and regulatory compliance, Botswana can create a more conducive environment for businesses to thrive.

Policymakers, business leaders, and stakeholders must work together to implement reforms that enhance the business climate, support firm growth, and promote sustainable economic development. With targeted efforts, Botswana can unlock its full potential and ensure a prosperous future for its private sector.

To read more click on World Bank icon

Leave a Reply

Your email address will not be published.