"Milking cow for investors"
Findings from Botswana

In April 2001 Trade Union Research Project (TURP), located in South Africa carried out research on Botswana's garment industry. Researchers visited factories and interviewed management, trade union representatives, Governmental organizations, as well as garment workers.

Botswana is a landlocked, generally semi-arid Southern African country. It is a small population of approximately 1.6 million people, which is threatened by the highest rate of HIV/AIDS infection in Africa.

Economically, it is considered an African success story with an employment rate, per capita income and currency value exceeding even those of South Africa. The government posted a P150 million (R195 million) budget for the 1999/2000 fiscal year. Foreign exchange reserves, which can cover the costs of 28 months of imports, are amongst the highest in the world. The country rates the fourth highest African country on the United Nations human development index and 48th on the UN's gender empowerment measure. Adult literacy stands at 74.4%. The country's economy grew at an average of 7% during the 1990s and it has been one of the fastest growing countries in the world since 1965, achieving an average growth rate of 13% from 1970 to 1990. (1)

This growth and development, of course, has come mainly from the diamond and livestock resources of the country and the export of these products. The government claims that recent growth, however, has come from the abolishment of exchange controls, reduction of personal and company taxes and the privatisation of government assets. The government also claims that its drive to restructure the economy towards a diversified, modern manufacturing economy has led to recent growth.

Non-mining sectors grew by 9% in the 1998/1999 fiscal year causing the economy to grow inspite of a 4.4% drop in output in mining during that year. The previous year saw non-mining sectors grow by 7.3%. (2)

Manufacturing grew by 5.4% in 1998/1999 and 4.7% in 1997/1998. Botswana still has a very small manufacturing sector. It makes up just less than 10% of total formal employment (24 000 people) and contributes only 5% towards total export earnings of the country, although its contribution is growing. The government has become increasingly concerned with the inability of the existing mining-dominated economy to provide sufficient employment for the population. (3)

The government has seen the need to build the manufacturing sector of the economy as an answer to this concern. This has previously mainly been done through attracting foreign investment to the country. A recent official list of all manufacturing licenses awarded to clothing and textile firms reveals that 325 manufacturers have been awarded licenses to manufacture "wearing and other apparels". The presence of a further 13 companies is known to the researchers giving a total of 338 companies. About 51% of these are totally foreign owned and 25% of the licenses were awarded to joint ventures between Botswana citizens and foreign companies. The remaining 24% were awarded to domestic (or "citizen") manufacturers.

There are foreign investors from a wide range of countries, and no country dominates investment outright. Companies from Britain, South Africa, India, Zimbabwe, Zambia, Ghana and Pakistan account for 50% of the licenses awarded to foreign or joint venture investments. The "top ten" in terms of licenses awarded is recorded in the table below:

Table 2. Top ten foreign country investors in clothing and textiles in Botswana, as measured by licences awarded as at 27 April 2001 (4)

Of the 338 licenses awarded, our research was able to confirm the actual presence of 97 of these companies.

Citizen-owned companies tend to be smaller companies (employing less than 50 people) while foreign-owned and companies owned jointly by citizen and foreign investors tend to be larger companies. Of the 97 companies located, 34 of these employed more than 50 people, while the rest employed below 50 (15 of these employed below 10). An interview with the Botswana Export Development and Investment Authority (BEDIA) revealed that many more of the larger companies have successfully engaged in exporting compared to the smaller companies. The implied focus of citizen investors on the domestic market above export markets suggests that foreign-owned companies will continue to dominate garment and textile investment, this is mainly because of larger markets and better prices offered by export markets. Citizens do not access investment assistance (this is captured in the Financial Assistance Programme, FAP, explained below); this is only available to foreign investors..

Most of the companies are situated in Gabarone (the capital), although an increasing amount of investment is located in Selebi Phikwe, an industrial decentralisation zone on the Eastern border about 500km north of Gabarone.

Botswana is a part of a number of trade and investment partnerships. These include:

• The SACU, which is currently Botswana's largest market for most manufacturing exports. Botswana's membership to SACU will allow it to benefit from the RSA/EU trade agreement signed last year.
• The Cotonou Convention, allows quota and custom duty free exports of industrial and agricultural products to the European Union. In particular, the EU is Botswana's largest market for diamond and meat product exports.
• The SADC Trade Protocol, which sets out a plan for reducing import tariffs between SADC countries to increase trade within the region. In the long term, this may remove the need for the SACU's continued existence and, indeed, will undo a lot of the advantages created for Botswana through the SACU since other SADC countries will get access to the SACU market at reduced tariffs.
• The GSPs, which allows preferential access for certain Botswana-produced goods to the USA and European markets. The USA is now Botswana's third biggest market for manufactured goods.
• A bilateral trade agreement with Zimbabwe, allows for duty-free trade between the two countries subject to local content rules. This agreement accounts for the high level of Zimbabwean investment in Botswana.
• A bilateral agreement with Germany, that aims to facilitate increased investment between the two countries.

Botswana is also a signatory to the GATT and a member of the WTO. Although it anticipated otherwise, Botswana was excluded from the "special rule" for less developed countries under the Africa Growth and Opportunity Act. The special rule applies only to those countries with GDP per capita's of less than $1500 and provides extra trade benefits to these countries. Regardless, Botswana will only enjoy duty-free access to US markets for garment products made from fabric and yarn either produced in the US or in AGOA beneficiary countries. Those countries that are eligible for the special rule will have an additional period in which duty-free/quota-free access to the US market for apparel made from fabric sourced anywhere in the world. This limited access to AGOA benefits will have a major impact on future levels of garment and textile investment in Botswana. This is explained below.

Manufacturers reasons for investing in Botswana given during the interviews were unanimous: the strong basket of incentives offered through the Financial Assistance Package (FAP). The FAP incentives, under which the far majority above-mentioned companies (would) have invested, included the following tax-free, non-refundable grants and fixed capital assistance:

• "Unskilled labour grant", in which manufacturers are refunded 80% of their factories' shop-floor wage bill in the first two years of production. This is reduced to 60% for the third year; 40% for the fourth year; and, 10% for the fifth year.
• "Capital grant", which paid P 1 000 (about R 1 300) per job created by a foreign or joint-venture investment and P 1 500 (about R 1 950) per job created by citizen investment.
• "Training grant", in which manufacturers are refunded 50% of their training costs to citizen employees (costs covered include tuition, board and lodging, travel, materials and wages) for the first five years.

In addition, the FAP, BEDIA and the Botswana Development Corporation (BDC) all offer financial assistance for building development. The result was that some investors paid little or nothing in making their investments.

This was all provided alongside other commonplace measures including allowing duty-free import of machinery and raw materials used in the production of export goods.

Without the FAP, however, the manufacturers saw little reason for investing in the country. One Selebi Phikwe based manufacturer mentioned: "Our investment was only possible through the government's incentive programme. There are no advantages to investing in Botswana besides these incentives. The import burden from the strong exchange rate is very high".

A Zimbabwean carpet manufacturer set up operation in Botswana because of his country's strong trade links but complained that investing there was "more of a hassle" than a benefit because of the limited domestic market and no locational advantage against strong competition within the SACU market. Yet another company, producing denim jeans, believed that once the benefits of the incentive package came to an end it would be through their skill and experience to negotiate for orders, as well as their strategy to focus on basic, low margin products that they would make it.

The strong reliance on the FAP to attract investment has not been a sustainable development option for Botswana. BEDIA captures it this way: "Many quarters in the country do question the contribution of foreign direct investment to the economic development of the country. Doubts are raised, especially based on the negative experience of previous investors who came to the country and, then sneaked away quietly after having benefited from the Financial Assistance Programme (FAP) of the government. Some even came with equipment fit for a museum. Obviously their equity in the project was also very low, if any investment was made at all." (5)

The establishment of BEDIA has been an attempt to improve the impact of foreign investment on the country. In particular, they have introduced the following:

• A screening process for foreign investors to assess their investment intentions and potential impact,
• Placing a limit on government contribution to foreign investments to 50-60% of the total investment, forcing the foreign investor to contribute substantial funds, and
• Providing added incentives for foreign investors who go into joint ventures with Botswana citizens thereby increasing domestic capital and the rate of technology transfer to local hands. (6)

This new approach hopes to avoid the common practice where investments last 5 years (the length of time that the FAP is available to companies). This practice of liquidating operations after or within five years has caused the Botswana Manufacturing and Packaging Workers' Union (BMPWU) to lament that Botswana is "a milking cow to investors". Supporting this comment, government officials in the Department of Industrial Affairs - responsible for administering the FAP - complained that they could not cite a lasting investment example from the FAP's 18-year history.

While the government has taken steps to end this incentives abuse, it is doubtful whether Botswana will be able to attract the same level of investment as in the past. Other reasons for the potentially bleak future for Botswana's garment and textile industry include Botswana's exclusion from the special rule of the AGOA which limits its investment attraction potential and the signing and implementation of the SADC Trade Protocol, which reduces it's privileged access to South African markets through the SACU agreement.

Botswana's government has implemented a programme of achieving "sustainable development" through trade and investment promotion and privatisation of state assets. This it believes will cause it to achieve its Vision 2016 goal of "prosperity for all". The current character of investment and the experience of those employed through this investment tell a different story, however. Instead of prosperity, there is high employment insecurity, low wages, no government protection from labour law violations by employers, poor health and safety, hostility from employers and government interference in trade union affairs. The research conducted in Botswana revealed:

The high rate of liquidations leaves workers in desperate financial positions. The Insolvency Act has not been amended in 20 years, and according to the law workers are to receive P 100 (about R 130) each when a company liquidates. This is not even 20% of a month's pay at the minimum wage. Because companies often shut down operations overnight, workers are never prepared and are suddenly without income. Further, the labour laws state that employers need to pay workers severance pay only after they have completed 60 months (5 years) of employment. (7) However, most companies liquidate when their government incentives run dry which is just under five years of operation. This leaves workers with no severance pay either.

Employers abuse the minimum wage rulings. The Botswana government sets the minimum wage for the lowest job only. Currently, for manufacturing this translates to P2.05 per hour (about R 2.67 per hour). Some employers were found to be paying all workers, regardless of skill, task or experience on this level. In most companies visited, over 50% of workers were on minimum wage. In addition, the minimum wage is intended as an "entry point" to be used during probation or induction periods, yet workers in some companies remain on these wages throughout their employment.

Poor health and safety. The Act which should be currently responsible for this issue - the Factories Act - is largely silent on occupational health and safety. Currently, the Botswana Federation of Trade Unions (BFTU) is pressuring for, and drafting, an Occupational Health and Safety Act to deal with this issue. Some companies visited did not have basic first aid kits available to workers. There was little ventilation and no protective clothing or dust masks provided to workers. Labour inspectors are considered by the BMPWU to provide no support or protection in this regard.

No government protection against labour law violations by employers. There is an ombudsman for labour issues, but according to the union, "he has not done anything for labour." Also, the Industrial Court does not have the support of workers. Cases take forever to be heard, or as the union claims, "employers bribe the court to lose the cases". The right to strike exists, but the procedures are to "labour's disadvantage", according to the union. The complexity of the procedures is such that there has never been a legal strike in Botswana. Wildcat strikes are more commonplace. This concerns the union because "employers are not shy to call the police who act harshly and use teargas" on the striking workers. The union concludes that: "where there is no union, there is avoidance of labour laws". Further, while the government has made an effort to ratify all the ILO conventions, it has made no attempt to align its labour code to these conventions. A major problem related to this is that the ILO conventions require that employers consult with the trade union when liquidating, however the Employment Act does not require any consultation.

Government interference in trade union affairs. The labour laws allow for interference of government in trade union affairs. For example, it allows for a district labour commissioner to attend trade union meetings. Elected union officials are not allowed to work full-time for the union. This greatly restricts the ability of unions to organise and effectively represent workers.

Employer hostility to workers' exercising their right to organise. The union faces continuous problems from employers who refuse to recognise it or exercise hostility towards the union during its organising of workers. This is largely expressed in companies' refusal to allow "check off" payment for subscriptions causing the union to gather most subscriptions by hand. The result is that they have many more unpaid members, particularly in outer lying areas, where it is more expensive for the union to travel. Organising check off systems is currently the union's primary mission and employers continue to be "headstrong" and "play for time" on this issue - in particular, the unionists complain of foreign companies refusing to allow check off systems to be implemented. The union receives no funds other than the subscriptions.

Notes:

1. B&T Directories, Botswana Review of Commerce and Industry 2000/20001, 20th edition, Gabarone: B&T Directories, 2001
2. B&T Directories, 2001, as above.
3. B&T Directories, 2001, as above
4. Compiled from statistics supplied by the Division of Industrial Affairs of the Botswana Department of Commerce and Industry.
5. BEDIA, Annual Report, Gabarone: BEDIA, 2000.'
6. BEDIA, 2000, as above.
7. After this length of service employers need to pay one day's pay for each month of service up to 60 months and two days pay for each month worked after 60 months; this money is dispersed when workers are retrenched.