March 17, 2008 —Despite being forced to compete with their economically powerful neighbor South Africa, the investment climate in Namibia, Botswana and Swaziland appears to be faring well, according to the results of the latest Investment Climate Assessment (ICA) conducted in each of the three countries.
Investment Climate Assessments are comprehensive country reports that draw upon the results of Investment Climate Surveys and other available information. They are used to identify and prioritize constraints on a country’s investment climate, benchmark reform progress, provide cross-country comparisons of investment climate indicators, and help countries forge broad consensus on priority areas for reform that can help spur growth and development. These assessments ultimately feed into World Bank operations and technical assistance.
Namibia
Namibia’s growth in recent years has been relatively high. The government aims to transform Namibia into an industrialized nation, but it faces the challenges of high unemployment, large capital outflows and exchange rate volatility.
The ICA report notes Namibia has a relatively attractive investment climate and that firms in Namibia are very productive even relative to firms in other middle income economies.
However, despite the overall positive assessment, Namibia performs less well in some areas -- cost of theft and security, worker education and skills, barriers to exporting, and some areas of regulation. Further, there is a particularly large gap in terms of perceptions and firm performance between micro-enterprises and the small, medium and large enterprises in Namibia. Objective measures of the investment climate also show that micro-enterprises face many additional challenges.
Investment Climate Assessments are often used along with other analytical tools, such as the World Bank's Doing Business Indicators, according to World Bank Private Sector Specialist Bernard Drum, who participated in a recent trip to Namibia, Botswana and Swaziland to present the ICA findings for those countries.
“They can assist in the design of reform programs which the Bank and other development partners can support,” said Drum. “They also often point out and flag issues in high priority areas that later become the subject of follow-up after more in-depth analysis.”
According to Drum, the private sector normally welcomes the ICAs as a vehicle for raising the visibility of their own concerns with policy makers.
“The private sector can also use the ICAs to get an objective overview on how favorable or otherwise the investment climate might be in a particular country,” he said.
Botswana
Botswana’s investment climate appears quite favorable. Despite this, firms are not very competitive when compared to firms in other middle income economies. Moreover, there are some problems: worker skills are low; the cost of crime is relatively high; access to credit is low; tax compliance is poor; and access to land is a problem. The World Bank team noted that in addition to the problems picked up in the investment climate survey, other problems are probably also playing a role: HIV/AIDS; the fact that Botswana is a small economy and the impact of the mining economy on competitiveness.
The investment climate is made up of location-specific factors that shape the opportunities and incentives for firms to invest productively, create jobs, and expand. These factors include macroeconomic and regulatory policies; the security of property rights and the rule of law; and the quality of supporting institutions such as physical and financial infrastructure.
In each country the World Bank team presented the findings in workshops involving policymakers and private sector leaders, local think tanks and development partners, among others. Drum said in all countries the debates were lively and interesting, providing thoughtful questions and insights as the team moves forward with continued work on the issue.
Swaziland
Swaziland firms are among the most productive in Sub-Saharan Africa, but they are less productive than firms in the most productive middle-income countries, such as South Africa, the coastal areas of China or Malaysia. They compare more favorably with firms from lower middle income countries such as Cape Verde, Thailand, or other areas of China. Similarly, the investment climate in Swaziland is quite favorable, especially when compared to the investment climate in other countries in Sub-Saharan Africa. A topic of discussion in the presentation of the ICA was how the country would respond to declining Southern Africa Customs Union revenues, especially given the concern about tax rates in the survey. The World Bank team noted that improving tax administration and compliance would both increase revenues and would probably improve perceptions about tax rates since firms are often more willing to pay taxes when they believe the system is fair.
Findings
The investment climate in all three countries appears to be quite good, according to Drum. He notes firm level productivity is quite high.
“All three are doing relatively well compared with most of their comparators in Sub-Saharan Africa. But they fare slightly less well when compared with middle income countries elsewhere,” he said.
Namibia, Botswana and Swaziland are competing with a highly productive neighbor, South Africa, Drum notes.
“Since they cannot change their size or location or demographic characteristics, they need to do all they can to improve the things that they can change, in the area of policies and institutions,” he said.
The three countries share common development challenges, he noted: the need to improve access to finance for micro and small businesses and the need to upgrade technical and managerial skills and improve the delivery of much needed training.
The World Bank plans follow-up surveys in these countries, as well as in South Africa and Lesotho.
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