VII. Investment Climate The Government of Botswana has a liberal private foreign investment incentive scheme and welcomes joint venture operations. The April 1989 Overseas Private Investment Corporation (OPIC) investment mission to Botswana led to a major investment by a U.S. firm in a brick-manufacturing facility which began production in late 1991. In addition, OPIC is an equity partner in the Gaborone Sheraton Hotel which opened in 1990. An OPIC Mission in 1991 laid the groundwork for future business in computer distribution, television and telephone services, engineering services, and food processing. There have no been recent changes in investment regulations affecting foreign investors. Proposed foreign investment projects are vetted by the Ministry of Commerce and Industry; although investment proposals with significant local employment potential are encouraged, there is no discrimination against capital-intensive projects and well-conceived foreign investment proposals are generally approved. Foreign investors are treated equally with local investors. Although the process is being streamlined, the application for and issuance of work permits for expatriate workers is cumbersome and acts as a disincentive for some potential investors. The Government of Botswana offers a number of incentives to foreign investors under the Financial Assistance Policy (FAP). The FAP includes: training grants; tax holidays; capital grants for new employment creation, investment in rural areas, foreign trade zones, and manufacturing projects. Foreign investors are treated equitably under the FAP, which imposes no performance requirements on the foreign businessman applying for its benefits. A. Transfer Policies There has been no tightening of Botswana's policies controlling the availability of foreign exchange for the repatriation of profits earned from foreign investments over the last year. Indeed, the trend has been towards further liberalization of Botswana's already liberal regulation. The Botswana Pula has remained strong and is, for all intents and purposes, freely convertible. -- Profits and Dividends: Profits of a branch company or share dividends move abroad without restriction on the amount to be repatriated. Such transactions are so routine they have been given over to commercial banks. Transactions are, however, subject to verification of ownership to prevent money laundering. -- Royalties, Franchise Fees, Service Fees: With only verification of ownership and no quantum limits, repatriation flows freely. The Bank of Botswana does check service fees to see that they are in line with what is being charged elsewhere and to encourage local firms to use indigenous services, if available. -- Capital Transactions: There are no restrictions on the type of foreign investment, type or national origin of the investing firm. -- Disinvestment: Capital moves freely out of Botswana, i.e., it is repatriatable. But, capital of more than Pula 50 million (USD 18.5 million) can be taken from Botswana only with Bank of Botswana notification and permission. This allows the Central Bank to prevent a heavy dent on the balance of payments. However, as a practical matter, Pula 50 million is such a large figure that the only firm so far affected is mining giant Anglo-American/de Beers. The Bank of Botswana has advocated the removal of all remaining exchange controls, thus moving Botswana from IMF Article 14 to Article 8. Piecemeal liberalization has been going on for some years. Most recently a new formula allows nearly 100 percent repatriation of the disposable income of expatriate employees. Botswana has a well established free market system. There have never been any attempts to expropriate foreign assets, nor is there any discrimination against U.S. or foreign companies or investments. Botswana is a member of the International Center for the Settlement of Investment Disputes (ICSID), and joined the Multilateral Investment Guarantee Agency (MIGA) in 1990. The U.S. Embassy is unaware of any investment disputes with U.S. or other foreign investors over the past few years. B. Performance Requirements/Incentives The Government of Botswana does not impose any performance requirements on foreign investors. It is the official policy of the Government to encourage foreign firms to hire qualified Botswana nationals for positions rather than expatriates; however, it is recognized that the lack of employment skills among the local labor force forces many investors to hire expatriate managers and technical personnel. There are currently 12,000 expatriates working in Botswana -- one percent of the total population. No export subsidies are provided by the Government although a "duty drawback" is payable to Botswana-based firms which import an item, add value to it, and re-export. There are special incentives too for attracting foreign investment in the manufacturing sector in the mining town of Selebi-Phikwe, but a potential investor is free to choose the site of his plant. There are no requirements for Botswana nationals to own shares of a foreign-owned company, nor is there any requirement for foreign equity to be reduced over time. Technology transfer is not a prerequisite for approval of foreign investment. C. Right to Private Ownership and Establishment of Commercial Enterprises. Botswana law guarantees the right of private ownership. There is a brief list of enterprises reserved for ownership by Botswana citizens. Examples are liquor stores, small grocery establishments, dairies, and filling stations. Low-value government construction contracts are also limited to citizen-owned companies; these restrictions, however, are not a meaningful impediment to foreign investment. The right to establish, acquire, and dispose of interests in business enterprises is protected. D. Protection of Property Rights Trade marks in Botswana are protected by the Trade Marks Act and the United Kingdom Trade Marks Act. The Patents and Designs Protection Act governs patents and designs, but it is important to note that only rights granted in the United Kingdom or South Africa may be re-registered in Botswana. Local registration is purely a protection act. Botswana is a member of the African Regional Industrial Property Organization (ARIPO) which is located in Harare, Zimbabwe. The Botswana Patent Office conducts a preliminary formal examination of a patent and then submits the application to the ARIPO office, which will then grant or deny the patent or design and advise the Botswana Patent Office, which will then decide whether or not to reject the grant. The applicant for the patent may designate a number of states which are members of ARIPO as territories in which the patent may be protected. Botswana is not a signatory of the Bern Convention on Intellectual Property Rights, however. E. Regulatory System: Laws and Procedures There is relatively little regulation of foreign business activity in Botswana. The Employment Act of 1982 does, however, provide basic guidelines for employment in Botswana. This labor legislation controls minimum wages, length of the workweek, annual and maternity leave, hiring and termination. Although the law applies to both domestic and expatriate workers, some categories -- such as managers, executives, administrators, and professional staff -- are excluded from that part of the Act covering hours of work, overtime, rest periods, annual leave entitlement, sick leave and working on public holidays. Health and safety laws, embodied in the Factories Act of 1973, are designed to provide basic protection for workers from unsafe working conditions. Neither law represents an impediment to investment. All transfers or issues of securities in a locally registered company to a non-resident require prior approval by the Bank of Botswana. Share capital may be exported only when the shareholding has been disposed of or upon liquidation of the company; the Bank of Botswana must approve the export. Approval is usually given if the Bank of Botswana believes the transaction is reasonable, and any applicable tax on the transaction has been paid. F. Efficient Capital Markets and Portfolio Investment Local fiscal regulation facilitates the free flow of financial resources. Foreign investors may obtain credit on the local market; however, Botswana banks may only lend up to an aggregate of Pula 300,000 (USD 110,000) to corporations and resident branches of companies which are controlled, either directly or indirectly, by non-residents. Amounts over Pula 300,000 require Bank of Botswana approval. The Bank of Botswana will take into account the level of equity that a non-resident entity has on its balance sheet; those entities with strong equity bases are generally given permission to borrow more locally. The Overseas Private Investment Corporation (OPIC), currently has two projects in Botswana: the Sheraton Hotel, and the brick-manufacturing Lobatse Clay Works. OPIC is a minority equity partner in both ventures. In addition, OPIC made a USD 2 million loan to Orient Express Hotels in 1993 to allow that company to upgrade a series of safari camps in the Okavango Delta. Botswana is a member of the Multilateral Investment Guarantee Agency (MIGA). The U.S. and Botswana concluded a Bilateral Investment Agreement in 1968 whereby OPIC programs are available to U.S. investors in Botswana. Botswana has an abundance of unskilled labor, but lacks skilled workers in almost every speciality - from machinery repair to airline pilots. Many key managerial and civil service jobs are filled by expatriates, although most public ministries and parastatals have programs to indigenize some of these positions. The Government is aware of the lack of qualified workers as an impediment to foreign investment and, as noted, has eased granting of work permits for expatriate workers. Foreign investors should anticipate the necessity to hire expatriate technicians and managerial personnel; South Africa, the U.K., Zimbabwe and the United States are all often used as sources of such skills. The current generation of Batswana is the first to be introduced into the modern economy; therefore management-labor relations are still evolving. Low productivity by the Botswana labor force is a recognized disincentive to foreign investment. Government is attempting to address the problem by providing improved vocational training and financial assistance (under the FAP) to firms which propose staff training programs; nevertheless, potential investors will continue to face this problem in the foreseeable future. Botswana does not have any areas designated as duty-free import zones, although there are special incentives given to investors willing to locate manufacturing facilities in Selebi-Phikwe, which has been designated an "Export Processing Zone" (EPZ). Foreign firms are given the same opportunity to invest in the EPZ as local firms. Statistics on foreign direct investment in Botswana are unavailable. The U.S. Embassy estimates, however, that U.S. firms have invested USD 115 million in Botswana's manufacturing sector alone. Most of these investments have entered Botswana over the past five years. G. Major Investments by U.S. Companies in Botswana --Lazare Kaplan Botswana opened its USD 3 million facility in August, 1993. The diamond-cutting plant employs approximately 400 people, and is set for a major expansion. --Owens Corning Pipe (Botswana) began production in November, 1993 in its USD 4 million factory in Gaborone. The facility produces glass reinforced plastic pipe (GRP), for water transfer projects. --St. Paul Companies of Minnesota holds a 49 percent interest in the Botswana Insurance Company (BIC), which has extensive property and cash/equity holdings in Botswana. --Colgate Palmolive has a wholly-owned subsidiary in Botswana employing 45 employees. --H.J. Heinz, Inc., the U.S. food giant, owns Kgalagadi Soap Industries (Pty) Ltd., with assets between USD 5 and 10 million. --Caltex Oil (Pty) Ltd., a marketing company jointly-owned by U.S. companies Chevron and Texaco Oil companies, has an estimated total asset value of USD 1.5 million. --Sheraton Hotels has an eight percent interest in the Gaborone Sheraton Hotel. --Interkiln Corporation of America (Houston, Texas) has a 28 percent interest in the Lobatse Clay Works, a brick-making factory in Lobatse, a town approximately 70 kilometers from Gaborone.