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Africa is open for business

By Seretse Khama Ian Khama
May 25, 2011

By Seretse Khama Ian Khama

A decade ago, doing business in Africa was once perceived as a difficult and complex undertaking due to various reasons including, among other things, the cost of doing business, the numerous processes associated with the issuance of clearances such as work and residence permits, a fragile investment climate and inadequate infrastructure. In addition, conflicts and war emanating from undemocratic elections, undemocratic practices, corruption and abuse of good governance compounded to the unattractiveness of doing business in Africa. But, with fewer conflicts, more democratic elections and economic growth rates that gradually have begun to compete with those of other developing regions, Africa is proving itself a continent of positive change.

To this end, Africa has realized the importance of having an open trade regime and moving away from protectionist policies of the post-independence era. This has been done by replacing import substitution policies with trade liberalization. The recent wave of liberalization in Africa has been driven by events in the multilateral arena with successive negotiations having been concluded under the GATT/WTO.

Even more recently regionalism has come to the fore throughout the continent. According to the World Bank, Africa is the continent that more than others is pursuing regional integration arrangements whether it is within the continent or abroad (World Bank 2005). Therefore Africa is liberalizing both at the regional and multilateral level.

Africa’s desire to integrate into the world economy can be witnessed in a number of ways, one of which is its willingness to alter domestic policies to create conducive business environment to enable integration into the world economy. The structural adjustment policies adopted in post-independent Africa serve as an example of the willingness of African governments, regardless of their successes or short comings, to create an environment that would attract foreign direct investment (FDI) and enhance trade.

Governments throughout Africa have been adjusting policies to better compete for FDI by, amongst others, developing investor friendly immigration laws, offering tax breaks, creation of industrial parks, promoting trade facilitation and protecting property right.

The continent is indeed open and ready for global business. China, India and Brazil as well as Russia have already started doing business in Africa. As a result of this upsurge in economic activity, traditional trading partners such as the United Kingdom, USA, Japan, Germany, France and others are considering business opportunities in Africa with renewed interest and vigour.

More opportunity exists for Africa to further open up, in “doing business”. For example, an annual series of reports issued by the World Bank and the International Finance Corporation indicate that two African countries ranked among the top 10 reformers worldwide who have made the most significant advances, pointing to the fact that other African states can do the same. However, the role of the government is extremely important in achieving this, given the limited capacity of other stakeholders such as the civil society and the private sector.

Thus, governments should aim at increasing the capacity of their agencies to address impediments to doing business but also to diversification efforts. As partners, governments and other stakeholders can also identify new products or sectors of strategic economic value for further exploration and exploitation. Finally, governments should create an enabling business climate and regulatory framework to allow enterprises to flourish.

There are a number of success stories emerging from both African and foreign entrepreneurs, who have proved that with a little financial push and an enabling business environment, much can be achieved in promoting private investment and closing the poverty gap in Africa.

According to the Overseas Private Investment Corporation (OPIC) and the UN trade agency, UNCTAD, Africa offers the highest return on direct foreign investment in the world, far exceeding all other regions. While petroleum products are the driving force behind those returns, other sectors offer impressive growth. Among the top performing sectors are tourism and construction in addition to telecommunications.

Locally, Botswana offers political and economic stability resulting from a proven record of good economic governance, stable macroeconomic environment and economic growth, a liberalized economy and free market enterprise.

Having abolished foreign exchange controls in the past two decades Botswana continues to provide a conducive investment climate and boasts of transparent international legal instruments, thereby allowing banks and other credit institutions to provide credit and loans to non-resident controlled companies.

The tax regime in Botswana is very attractive and is the lowest in the region at 15% for manufacturing companies, Botswana IFSC and Botswana Innovation Hub companies and 25% corporate tax for others entities. Botswana further offers free repatriation of profits, dividends and capital and has double taxation treaties with a host of countries including  South Africa, UK, Sweden, Mauritius, India and Russia.

Seretse Khama Ian Khama is the President of Botswana.

Photo: Kenyan men work at a road construction site near Isiolo town, north of Kenyan capital Nairobi, July 7, 2008. The road which will join Isiolo town and Ethiopia is being built by China Wuyi, a Chinese state company, and funded by African Development Bank and the Kenyan government. The project will cost 48 billion Kenya shillings ($735 million), according to the Chinese company. REUTERS/Antony Njuguna

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