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PP TO REIWFAUACIYTNTCUL BE ADJUSTED TOPROVIDEWOMEN EASIER ACCESSTO FINANCIAL

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SUGAR CITRUS OR PALM OIL FOR EXPORT WE SUGGEST INTERVENTION

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07 -1 A C AS I F I E 2 4K 5

OUTGOINGUNCLASSIFIED TELEGRAMDepartmentofState

PAGED3 OF 03 STATE 1356 1 3117 0453 ID7569 BY THE GEMINI TEAM BE GUIDED BY THAT PRINCPLE AND SEEK WAYS TO ASSURE ECUITABLE ACCESS BY WOMEN TO PROJECT RESOURCES AND OUTPUTS

(Ci THE PlD DOES NOT DISCUSS THE SOUTH AFRICAN MARKET

OR THE IMPACT OF A POST-APARTHEID SOUTH AFRICA UPON PRIVATE INVESTMENT IN BOTSWANA NEVERTHELESS THE

IMPACT COULD BE SIGNIFICANT AND RELATIONS BETWEEN BOTSWANA AND SOUTH AFRICA ARE LIKELY TO HAVE AN ENORMOUS EFFECT ON THE COURSE OF PRIVATE BUSINESS DEVELOPMENT IN BOTSWANA IN THE AREA OF EXPORTS SOUTH AFRICA IS BOTSWANAS MAJOR MARKET THE PROJECT COULD ATTEMPT TO

DEVELOF ALTERNATIVE MARHETS BUT THE MAJOR EMPLOYMENT GENERATED IN EXPORT JOBS WLPROBABLY COME FROM PRODUCT] OLD OUTH AFRICA OR FROM SOUTH AFRICAN COMP -ES MOVING 0 BOTSWANA TO EXFORT OUTSIDE SOUTH AFR IN AN f COMPLETE FROJECT ANALYSIS WOULD

REO_ AN ExAli ON OF SOUTH AFRICAS INFLUENCE

NEGA 0r I bull UPON THE PROSPECTS FOR INCREASING INVESTMENI i UUTSWANA FOR EXAMPLE WHAT EFFECT DOES SOUTH AFRICA HAVE UPON TRANSPORTATION FUEL SUPPLY RAW MATERIALS ETC WHAT LEVEL OF INVESTMENT NOW COMES FROM

SOUTH AFRICA AND WILL THIS FALL OR INCREASE F SANCTIONS ARE REMOVED WHAT PORTION OF BOTSWANAS FUTURE INDUSTRIAL GROWTH WILL BE DIRECTED TOWARD THE SOUTH

AFRICAN MARKET BECAUSE OF TRANSPORTATION LIMITATIONS

(LOW VALUE HEAVY PRODUCTI WHAT INDUSTRIES WOULD BE DEPENDENT UPON THE SOUTH AFRICAN MARKET

THE ECPR AGREED THAT THE PP SHOULD INCLUDE AN ANALYSIS

OF THE IMPACT OF SOUTH AFRICA UPON THE FROPOSED FROJECT PURPOSE

(0) THE BED AND GCAFR SUGGEST THAT THE MISSION REVISE THE lEE TO REQUEST A CATEGORICAL EXCLUSION FOR COMPONENTS 2 AND 3 SINCE THE SPECIFIC ACTIONS THAT AID WOULD FINANCE ONLY TA AND TRAINING (AFTER

DELETION OF THE CREDIT COMPONENTS) WOULD NOT THEMSELVES HAVE m DIRECT IMPACT ON THE ENVIRONMENT WHICH IS THE SCOPE OF REGULATION 16 DISCUSSION IN THE lEE OF THE ENIRONMENTAL EFFECTS OF ACTIONS FOLLOWING AFTER A IS IPTERVENTIONS (SUCH AS THE FOLLOW-ON INVESTMENTS) MAKING IT CLEAR THAT THIS DISCUSSION IS OUTSIDE THE SCOPE OF REGULATION 16 IS COMMENDABLE THIS COMPORTS WITH BROADER AGENCY CONCERNS REGARDING THE ENVIRONMENT

ESPECIALLY IN RELATION TO THE GROWTH AND DEVELOPMENT OF AFRICAN INDUSTRIES

THE BED SUGGESTS THAT FOR OBVIOUSLY ENVIRONMENTALLY

SENSITIVE INDUSTRIAL SECTORS (EG TANNING)

ENVIRONMENTAL TA BE PROVIDED TO HELP ESTABLISH LOCAL TECHNICAL AND MONITORING EXPERTISE IN SUCH SECTORS THIS WOULD INCLUDE DEVELOPMENT OF INDUSTRY-SPECIFIC

GUIDELINES IT IS LIKELY THAT RATHER THAN THREE DAYS

TWO WEEKS OF TIME FROM THE REGIONAL ENVIRONMENTAL OFFICER WILL BE REQUIRED FOR PP PREPARATION

6 ACTION REQUIRED

PRIOR TO THE PREPARATION OF THE PP THE MISSION SHOULD

SEND TO AIDW ADDITIONAL INFORMATION REGARDING THE TWO MAJOR ISSUES DISCUSSED ABOVE IN PARAGRAFH 3 AFTER

REVIEW AND APPROVAL IV THE BUREAU OF THE ADDITIONAL INFORMATION A DECISION WILL BE MADE ON PROJECT AUTHORIZATION VENUE BAKER

UNCLASSIFIED

THE BOTSWANA PRIVATE ENTERPRISE DEVELOPMENT PROJECT (BPED)

I Introduction

This paper is in response to the basic questions of 3Aand 3B in the ECPR guidance cable (STATE 135612) USAID truststhat it satisfies any lingering PID concerns and that we can move ahead with the preparation of the project paper and authorization in the field

We have made some modifications in the project The mostimportant is reduction of the targets to eliminate thefinancial market component which translates also into fewer outputs We have also reduced the number of long-termpersonnel and increased the short-term consultancies The amount of US funds is slightly lowered to $143 million (Seerevised Illustrative Budget p 37)

It is important while assessing this project tounderstand that Botswana has many special characteristics andthat a strong relationship of trust and cooperation hasdeveloped between Government of Botswana officials and theBotswana business community on one hand and USAID Thereforewhile what we are projecting in this project is by no means an easy task one should not be misled if antizipated objectivesseem in some cases to be rather substantial What we aretargeting is based upon our best analysis of what is possiblethrough a continuing and relentless policy dialogue and thespecific elements of roject assistance that are laid out inthis paper and in the PID With the projects institutional contractor we will have the capacity to manage and implementBPED activities as they will be further defined in the ProjectPaper

USAID assistance includes a minimum necessary level oflong-term advisory assistance less than in the PID (3 insteadof 7 positions) The scenario in 3B of the guidance cableessentially does not apply in Botswana and particularly in thisproject Where we have advisors in BPED they are bracketedwith counterpartstraining as appropriate Moreover Batswana have shown an effective management capability of their own resources as documented fully by the IBRD and others Therationale for advisors in individual cases is outlined in this paper and what this means in creating sustainable institutions is touched upon 1 The GOB has plans for localization of eachposition tracks them and is careful to ensure that technicalassistance is not substituting for a qualified Motswana

Advisors have played a central role in USAID effectiveness in Botswana And when their work iscompleted and counterpartssuccessors are ready to take over without outside help it happens A good example isthe OPEXers under the BWAST projects -- in 1986 there were 35 by FY 1992 there will be 0 and nearly all of those positions will be filled by trained locals

1

2

As part of this background it is no secret that Botswanahas many unique characteristics with its open society anddemocratic tradition It has an excellent human rights recordand is non-racist The democratic environment is astrengthening element to the fundamentally conservativepragmatic and private sector-oriented economy This economy in many respects is exceptional a free system of foreign exchangeallocation repatriation cf profits a stable government alack of corruption and predatoryno attitude towards business 2

The country has exhibited sound financial managementThere has been prudent managenment of the countrys resourcesA senior World Bank official who was in Botswana recentlystated that the country should be commended for the fact thatit has not wasted its reserves and resources and is movingcautiously with excellent financial discipline He madevarious comparisons with other African countries who once wererelatively in as good (or better) a financial position asBotswana but who now are in deep trouble As examples of areasin which Botswana is on target -- there are no high tariffsprotecting inefficient industries there are few subsidiesthere is little statism in the productive sector (The PostOffice was privatized last year in the last two years theBotswana Development Corporation has totally privatized tenenterprises and partially privatized another 11) It is truethat Botswana has been blessed with considerable mineral wealthwhich has helped greatly in progress made It is also truethat they have used the revenues from those minerals resources well

These are in summary the basic essentials of anenabling environment in Botswana conducive to the developmentand support of a strong private sector

USAID has helped in strengthening this private sector fabric through

9 A strategy assessment and evaluation and a private sectorstudy which identified areas requiring changes Support for a 1988 national conference in Francistownbetween government and the private sector which identifiedvarious constraints to further development of the privatesector and emphasized the enabling environment approach to change0 Technical advisory assistance on improvements in policyand procedural areas0 Support for increased US investment (working closelywith the Embassy and AIDW) and A program of strengthening of citizen businesses throughtraining consultancies and credit

2 The World Bank cites Botswanas track record on page 162 of the 1989 report Sub-Saharan Africa from Crisis to Sustainable Growth

3

We have also engaged in considerable high level dialogueon important and inter-related policy issues We have beenable to speak on many issues affecting the private sector andin related areas such as population educational change forgreater relevance and environmental considerations The pointnow is what are the next steps and why we proposed this effortin support of the private sector This paper along with thePID answer that In summary the environment is ready forsignificant change and for AIDs playing a key role thattranscends the level of resources available in the project

The enabling environment for private sector growth inBotswana referred to is indeed commendable but it is fragileWhat Botswana is building slowly can be destroyed quickly Itis easier to tear down than to build the type of open economicand political society that is emerging in Botswana Thephilosophy behind this project is to continue to support thisBotswana process to help them in the difficult task ofstrengthening the basic structure of an economy whichessentially pointed

is in the right direction and correctly

attacking various constraints and weaknesses

Institutional capacity needs to be built there needs tobe a local ability to carry out a continuous review inassessing and modifying policies affecting the private sectorThere needs to be a reinforcing and broadening of the existingpositive attitudes and understanding in government of theprivate sector and a parallel strengthening of the localbusiness community and its capacity to represent its interest to government This effort must be based fully upon a sharedGOB-private sector of insense priorities which USAID canfacilitate the process of GOB-private sector collaboration inaddressing USAIDs role is therefore that of a facilitator or a catalyst

Essentially we in conjunction with the GOB and privatesector are talking about attacking certain critical constraints based upon defined BPED selection criteria andidentified through several studies in which the GOB privatesector and USAID have cooperated and targeting assistance toselected high-growth potential non-traditional segments ofthe economy The development of this project has been based upon close cooperation among the GOB the private sector and USAID An inter-mininsterial reference group which includedthe private sector has worked closely together for an extendedperiod to develop this project This type of close cooperationwill continue in implementation

The project operates in the universe of three primaryconstraints 1) The need to maintain sound fiscal and monetarypolicies 2) Insufficient private investment in non-traditional sectors and 3) Insufficient numbers of sufficiently preparedand able workers

4

In this project we have focused on the second of theseprimary constraints This paper insets forth the directionwhich we are going and what we expect to achieve The paperdiscusses constraints covers their selection and describes how we plan to attack these to reach the stated objectives of the project

USAID believes that the project can succeed through theinjection of a modest amount of AID human and financial resources because of (1) the commitment and will of the GOBand private sector (2) the contribution of the GOB and otherdonor agencies and (3) the concentration of AID resources on targeted segments in and affecting the private sector TheMission the Government and the Botswana private sector areanxious to move further ahead on what is proposed in this project

5

II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

THE BOTSWANA PRIVATE ENTERPRISE DEVELOPMENT PROJECT (BPED)

I Introduction

This paper is in response to the basic questions of 3Aand 3B in the ECPR guidance cable (STATE 135612) USAID truststhat it satisfies any lingering PID concerns and that we can move ahead with the preparation of the project paper and authorization in the field

We have made some modifications in the project The mostimportant is reduction of the targets to eliminate thefinancial market component which translates also into fewer outputs We have also reduced the number of long-termpersonnel and increased the short-term consultancies The amount of US funds is slightly lowered to $143 million (Seerevised Illustrative Budget p 37)

It is important while assessing this project tounderstand that Botswana has many special characteristics andthat a strong relationship of trust and cooperation hasdeveloped between Government of Botswana officials and theBotswana business community on one hand and USAID Thereforewhile what we are projecting in this project is by no means an easy task one should not be misled if antizipated objectivesseem in some cases to be rather substantial What we aretargeting is based upon our best analysis of what is possiblethrough a continuing and relentless policy dialogue and thespecific elements of roject assistance that are laid out inthis paper and in the PID With the projects institutional contractor we will have the capacity to manage and implementBPED activities as they will be further defined in the ProjectPaper

USAID assistance includes a minimum necessary level oflong-term advisory assistance less than in the PID (3 insteadof 7 positions) The scenario in 3B of the guidance cableessentially does not apply in Botswana and particularly in thisproject Where we have advisors in BPED they are bracketedwith counterpartstraining as appropriate Moreover Batswana have shown an effective management capability of their own resources as documented fully by the IBRD and others Therationale for advisors in individual cases is outlined in this paper and what this means in creating sustainable institutions is touched upon 1 The GOB has plans for localization of eachposition tracks them and is careful to ensure that technicalassistance is not substituting for a qualified Motswana

Advisors have played a central role in USAID effectiveness in Botswana And when their work iscompleted and counterpartssuccessors are ready to take over without outside help it happens A good example isthe OPEXers under the BWAST projects -- in 1986 there were 35 by FY 1992 there will be 0 and nearly all of those positions will be filled by trained locals

1

2

As part of this background it is no secret that Botswanahas many unique characteristics with its open society anddemocratic tradition It has an excellent human rights recordand is non-racist The democratic environment is astrengthening element to the fundamentally conservativepragmatic and private sector-oriented economy This economy in many respects is exceptional a free system of foreign exchangeallocation repatriation cf profits a stable government alack of corruption and predatoryno attitude towards business 2

The country has exhibited sound financial managementThere has been prudent managenment of the countrys resourcesA senior World Bank official who was in Botswana recentlystated that the country should be commended for the fact thatit has not wasted its reserves and resources and is movingcautiously with excellent financial discipline He madevarious comparisons with other African countries who once wererelatively in as good (or better) a financial position asBotswana but who now are in deep trouble As examples of areasin which Botswana is on target -- there are no high tariffsprotecting inefficient industries there are few subsidiesthere is little statism in the productive sector (The PostOffice was privatized last year in the last two years theBotswana Development Corporation has totally privatized tenenterprises and partially privatized another 11) It is truethat Botswana has been blessed with considerable mineral wealthwhich has helped greatly in progress made It is also truethat they have used the revenues from those minerals resources well

These are in summary the basic essentials of anenabling environment in Botswana conducive to the developmentand support of a strong private sector

USAID has helped in strengthening this private sector fabric through

9 A strategy assessment and evaluation and a private sectorstudy which identified areas requiring changes Support for a 1988 national conference in Francistownbetween government and the private sector which identifiedvarious constraints to further development of the privatesector and emphasized the enabling environment approach to change0 Technical advisory assistance on improvements in policyand procedural areas0 Support for increased US investment (working closelywith the Embassy and AIDW) and A program of strengthening of citizen businesses throughtraining consultancies and credit

2 The World Bank cites Botswanas track record on page 162 of the 1989 report Sub-Saharan Africa from Crisis to Sustainable Growth

3

We have also engaged in considerable high level dialogueon important and inter-related policy issues We have beenable to speak on many issues affecting the private sector andin related areas such as population educational change forgreater relevance and environmental considerations The pointnow is what are the next steps and why we proposed this effortin support of the private sector This paper along with thePID answer that In summary the environment is ready forsignificant change and for AIDs playing a key role thattranscends the level of resources available in the project

The enabling environment for private sector growth inBotswana referred to is indeed commendable but it is fragileWhat Botswana is building slowly can be destroyed quickly Itis easier to tear down than to build the type of open economicand political society that is emerging in Botswana Thephilosophy behind this project is to continue to support thisBotswana process to help them in the difficult task ofstrengthening the basic structure of an economy whichessentially pointed

is in the right direction and correctly

attacking various constraints and weaknesses

Institutional capacity needs to be built there needs tobe a local ability to carry out a continuous review inassessing and modifying policies affecting the private sectorThere needs to be a reinforcing and broadening of the existingpositive attitudes and understanding in government of theprivate sector and a parallel strengthening of the localbusiness community and its capacity to represent its interest to government This effort must be based fully upon a sharedGOB-private sector of insense priorities which USAID canfacilitate the process of GOB-private sector collaboration inaddressing USAIDs role is therefore that of a facilitator or a catalyst

Essentially we in conjunction with the GOB and privatesector are talking about attacking certain critical constraints based upon defined BPED selection criteria andidentified through several studies in which the GOB privatesector and USAID have cooperated and targeting assistance toselected high-growth potential non-traditional segments ofthe economy The development of this project has been based upon close cooperation among the GOB the private sector and USAID An inter-mininsterial reference group which includedthe private sector has worked closely together for an extendedperiod to develop this project This type of close cooperationwill continue in implementation

The project operates in the universe of three primaryconstraints 1) The need to maintain sound fiscal and monetarypolicies 2) Insufficient private investment in non-traditional sectors and 3) Insufficient numbers of sufficiently preparedand able workers

4

In this project we have focused on the second of theseprimary constraints This paper insets forth the directionwhich we are going and what we expect to achieve The paperdiscusses constraints covers their selection and describes how we plan to attack these to reach the stated objectives of the project

USAID believes that the project can succeed through theinjection of a modest amount of AID human and financial resources because of (1) the commitment and will of the GOBand private sector (2) the contribution of the GOB and otherdonor agencies and (3) the concentration of AID resources on targeted segments in and affecting the private sector TheMission the Government and the Botswana private sector areanxious to move further ahead on what is proposed in this project

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II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

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231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

2

As part of this background it is no secret that Botswanahas many unique characteristics with its open society anddemocratic tradition It has an excellent human rights recordand is non-racist The democratic environment is astrengthening element to the fundamentally conservativepragmatic and private sector-oriented economy This economy in many respects is exceptional a free system of foreign exchangeallocation repatriation cf profits a stable government alack of corruption and predatoryno attitude towards business 2

The country has exhibited sound financial managementThere has been prudent managenment of the countrys resourcesA senior World Bank official who was in Botswana recentlystated that the country should be commended for the fact thatit has not wasted its reserves and resources and is movingcautiously with excellent financial discipline He madevarious comparisons with other African countries who once wererelatively in as good (or better) a financial position asBotswana but who now are in deep trouble As examples of areasin which Botswana is on target -- there are no high tariffsprotecting inefficient industries there are few subsidiesthere is little statism in the productive sector (The PostOffice was privatized last year in the last two years theBotswana Development Corporation has totally privatized tenenterprises and partially privatized another 11) It is truethat Botswana has been blessed with considerable mineral wealthwhich has helped greatly in progress made It is also truethat they have used the revenues from those minerals resources well

These are in summary the basic essentials of anenabling environment in Botswana conducive to the developmentand support of a strong private sector

USAID has helped in strengthening this private sector fabric through

9 A strategy assessment and evaluation and a private sectorstudy which identified areas requiring changes Support for a 1988 national conference in Francistownbetween government and the private sector which identifiedvarious constraints to further development of the privatesector and emphasized the enabling environment approach to change0 Technical advisory assistance on improvements in policyand procedural areas0 Support for increased US investment (working closelywith the Embassy and AIDW) and A program of strengthening of citizen businesses throughtraining consultancies and credit

2 The World Bank cites Botswanas track record on page 162 of the 1989 report Sub-Saharan Africa from Crisis to Sustainable Growth

3

We have also engaged in considerable high level dialogueon important and inter-related policy issues We have beenable to speak on many issues affecting the private sector andin related areas such as population educational change forgreater relevance and environmental considerations The pointnow is what are the next steps and why we proposed this effortin support of the private sector This paper along with thePID answer that In summary the environment is ready forsignificant change and for AIDs playing a key role thattranscends the level of resources available in the project

The enabling environment for private sector growth inBotswana referred to is indeed commendable but it is fragileWhat Botswana is building slowly can be destroyed quickly Itis easier to tear down than to build the type of open economicand political society that is emerging in Botswana Thephilosophy behind this project is to continue to support thisBotswana process to help them in the difficult task ofstrengthening the basic structure of an economy whichessentially pointed

is in the right direction and correctly

attacking various constraints and weaknesses

Institutional capacity needs to be built there needs tobe a local ability to carry out a continuous review inassessing and modifying policies affecting the private sectorThere needs to be a reinforcing and broadening of the existingpositive attitudes and understanding in government of theprivate sector and a parallel strengthening of the localbusiness community and its capacity to represent its interest to government This effort must be based fully upon a sharedGOB-private sector of insense priorities which USAID canfacilitate the process of GOB-private sector collaboration inaddressing USAIDs role is therefore that of a facilitator or a catalyst

Essentially we in conjunction with the GOB and privatesector are talking about attacking certain critical constraints based upon defined BPED selection criteria andidentified through several studies in which the GOB privatesector and USAID have cooperated and targeting assistance toselected high-growth potential non-traditional segments ofthe economy The development of this project has been based upon close cooperation among the GOB the private sector and USAID An inter-mininsterial reference group which includedthe private sector has worked closely together for an extendedperiod to develop this project This type of close cooperationwill continue in implementation

The project operates in the universe of three primaryconstraints 1) The need to maintain sound fiscal and monetarypolicies 2) Insufficient private investment in non-traditional sectors and 3) Insufficient numbers of sufficiently preparedand able workers

4

In this project we have focused on the second of theseprimary constraints This paper insets forth the directionwhich we are going and what we expect to achieve The paperdiscusses constraints covers their selection and describes how we plan to attack these to reach the stated objectives of the project

USAID believes that the project can succeed through theinjection of a modest amount of AID human and financial resources because of (1) the commitment and will of the GOBand private sector (2) the contribution of the GOB and otherdonor agencies and (3) the concentration of AID resources on targeted segments in and affecting the private sector TheMission the Government and the Botswana private sector areanxious to move further ahead on what is proposed in this project

5

II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

3

We have also engaged in considerable high level dialogueon important and inter-related policy issues We have beenable to speak on many issues affecting the private sector andin related areas such as population educational change forgreater relevance and environmental considerations The pointnow is what are the next steps and why we proposed this effortin support of the private sector This paper along with thePID answer that In summary the environment is ready forsignificant change and for AIDs playing a key role thattranscends the level of resources available in the project

The enabling environment for private sector growth inBotswana referred to is indeed commendable but it is fragileWhat Botswana is building slowly can be destroyed quickly Itis easier to tear down than to build the type of open economicand political society that is emerging in Botswana Thephilosophy behind this project is to continue to support thisBotswana process to help them in the difficult task ofstrengthening the basic structure of an economy whichessentially pointed

is in the right direction and correctly

attacking various constraints and weaknesses

Institutional capacity needs to be built there needs tobe a local ability to carry out a continuous review inassessing and modifying policies affecting the private sectorThere needs to be a reinforcing and broadening of the existingpositive attitudes and understanding in government of theprivate sector and a parallel strengthening of the localbusiness community and its capacity to represent its interest to government This effort must be based fully upon a sharedGOB-private sector of insense priorities which USAID canfacilitate the process of GOB-private sector collaboration inaddressing USAIDs role is therefore that of a facilitator or a catalyst

Essentially we in conjunction with the GOB and privatesector are talking about attacking certain critical constraints based upon defined BPED selection criteria andidentified through several studies in which the GOB privatesector and USAID have cooperated and targeting assistance toselected high-growth potential non-traditional segments ofthe economy The development of this project has been based upon close cooperation among the GOB the private sector and USAID An inter-mininsterial reference group which includedthe private sector has worked closely together for an extendedperiod to develop this project This type of close cooperationwill continue in implementation

The project operates in the universe of three primaryconstraints 1) The need to maintain sound fiscal and monetarypolicies 2) Insufficient private investment in non-traditional sectors and 3) Insufficient numbers of sufficiently preparedand able workers

4

In this project we have focused on the second of theseprimary constraints This paper insets forth the directionwhich we are going and what we expect to achieve The paperdiscusses constraints covers their selection and describes how we plan to attack these to reach the stated objectives of the project

USAID believes that the project can succeed through theinjection of a modest amount of AID human and financial resources because of (1) the commitment and will of the GOBand private sector (2) the contribution of the GOB and otherdonor agencies and (3) the concentration of AID resources on targeted segments in and affecting the private sector TheMission the Government and the Botswana private sector areanxious to move further ahead on what is proposed in this project

5

II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

4

In this project we have focused on the second of theseprimary constraints This paper insets forth the directionwhich we are going and what we expect to achieve The paperdiscusses constraints covers their selection and describes how we plan to attack these to reach the stated objectives of the project

USAID believes that the project can succeed through theinjection of a modest amount of AID human and financial resources because of (1) the commitment and will of the GOBand private sector (2) the contribution of the GOB and otherdonor agencies and (3) the concentration of AID resources on targeted segments in and affecting the private sector TheMission the Government and the Botswana private sector areanxious to move further ahead on what is proposed in this project

5

II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

5

II CONSTRAINTS TO ACHIEVING GROWTH OF PRIVATE SECTOR INVESTMENT IN NON-TRADITIONAL SECTORS

A The Hierarchy and Magnitude of Constraints

The analysis which follows details and describes thehierarchy of constraints against achieving an increase inhousehold incomes through BPED investmentemployment generationactivities This hierarchy is represented pictorially inFigure 1 To the extent appropriate in this level of analysisthe magnitude of each constraint is indicated in the analysis

The analysis and Figure 1 note the constraints whichimpinge on achievement of the project purpose When aconstraint has been identified but BPED is not addressing itan explanation of how it is being addressed is given

B The Relation of Constraints to EOPS and Options

The relationship of each constraint to the EOPS of BPEDcan best be seen by examining Figure 2 in Section III and itsaccompanying narrative wherein BPEDs purpose outputs andinputs are shown in a similar but flip-side hierarchy Adiscussion of the options to each BPED activity can also befound in Section III Section IV contains further comments onthe PID Preliminary Estimate of BPEDs Quantitative Impact

C Interrelationship of Constraints

The hierarchy of constraints in Figure 1 are those whichhave been identified from the development of the set of necessary and sufficient activities needed to achieve theproject purpose Being related to necessary and sufficientactivities overcoming all of the constraints on the primarylevel is important to achieving the project goal

BPED selection criteria allocate project resources inrelation to the importance of the sub-constraints confrontingachievement of BPEDs purpose - to increase private sectorinvestment in non- traditional sectors This criteria alsoincludes consideration of the absorptive capacity of theimplementing intermediaries which will receive assistance andMission advantages of continuing to work in areas of presentinvolvement and where the Mission has programmatic andorganizational strengths Based upon this criteria USAID hasgiven highest priority for BPED involvement to sub-constraint 22 under the investment primary constraint number 2Long-term strengthening of the basic structure of an economywhich is essentially headed in the right direction but whereopenness is a fragile thing however requires that there beappropriate change in all seven areas on this level The workof the GOB and other donors which are also heavily involved inattacking these sub-constraints has figured strongly in theprojcct design process (all of this is discussed more fullybelow)

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

Figure 1 Hierarchy of Constraints to Attaining the Program Goal

Insufficient Employment Generation and

Household Incomes

Need to Maintain Insufficient Privato inufficient Numberh Sound Fiscal and I Investment In of Sufficiently PreparedMonetary Policies Non-Traditienal Scators and Able Workers

Risk of Inadequate Continued Access Protective RegionalRegional Basic to Extend Trade Policies

Instability infrastructure Markets Regimes and Acoess

Undeaeveloped Citizen nesffie e Pity Low Capacity to BuOwned Enterpriss and oit AndtoPrite iI Po rtlowiedonPatcptonWeak to end Regulations tcForeign investmentsad andImplementatloin

22 __ 23___ __ _ __ 24___ __ _ _o Private sector i Coand to Export

221 231 241 Inadequate itzn Inifoln apct

Sector K Poor Knowledg3 to Analyze Policies orT noloiesan of Opportunities and-influence ChangeOpotnie

Business Skills and of Privae Por Lcanlogendg

222 232 242

Lack of Adequate Insufficient Ability of GO ac oeinKowegSupport for Micro to Devello Implement and P F K ee

Small Business Administer Private Sector of Botswana hiestment Citizen Entrepreneurs Promotion Policies Opportunitie

_ __Z2233 243

Potential InvestmentFinance and Insufficient of WomanOwned PaltnersFinancing Mechaniams Businesses

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

6

The Botswana economy and private sector are growing andbecoming more dynamic but greater diversification and jobcreation are required Capitalizing and building on whatexists now requires greater private investment innon-traditional areas of the economy by a strategy of promotingforeign and local targeted investments According to analysesconducted as part of MAPS and various other studies newforeign investment will have the quickest impact on substantialemployment gains diversification of the industrial and exportbase technology upgrading and selected skills developmentYet expanded citizen skillsknow-how and participation ofcitizens in the private sector is also absolutely essential tohelp ensure long-term stability and growth of investment and employment And the strengthening of GOB and private sectorpolicy-related efforts must be undertaken to allow both foreignand citizen-based investments to increase and prosper

Figure 1 identifies seven sub-constraints under 2 toreaching the project objective (21) risk of regionalstability (22) underdeveloped citizen-owned enterprises andparticipation in private sector (23) restrictive policies andregulations and weak implementation (24) low capacity to attract and absorb foreign investment and to export (25)inadequate basic infrastructure (26) continued access to external markets (27) protective regional trade policiesregimes and access BPED proposes to employ resources in three of these seven areas The top priorities in terms of the BPEDselection criteria above are reflected by the order in whichthey are listed (numbers correspond to those used further below)

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

23 Restrictive Policies and Regulations and Weak Implementation

24 Low Capacity to Attract and Absorb ForeignInvestment and to Export

Of course not all new private sector investment relies on the relaxation or elimination of constraints in all three ofthe areas listed above Small entrepreneurs will start andexpand new businesses without the participation of foreignpartners new investuent will continue to come in to Botswana as it has in the recent past without changes in GOB policiesand the GOB will continue to make some headway in improving its policies and their implementation without a strong privatesector business association to encourage changes

However to maximize the investment employment andhousehold income increases sought additional GOB and privatesector institutional capacity needs to be built There needs to be a strong ability to carry out a continuous review inassessing modifying and implementing policies and regulationsaffecting the private sector There needs to be a

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

7

strengthening in capabilities to promote foreign investment andexport growth and a building and strengthening of the localentrepreneurial class and local business skills The 1987USAID Strategy Assessment and Evaluation and the follow-onPrivate Sector Strategy Study plus MAPS and various WorldBankIMF studies have been consistent in their recognition andimportance of these needs These are strategic constraints andtheir gradual reduction over time is critically important tomeeting BPED objectives We have also commented on the otherfour sub-constraints to meeting the project objective andwhile important they do not fit the BPED selection criteriaand are being dealt with by others

The nature of the constraints identified and theirinterrelationship do not lend themselves well to a sequentialstrategy of addressing them They are better dealt withthrough a strategy of a synergistic approach which builds uponthe complementarity of the constraints All constraints to theprojects objective are adequately being addressed either bythe GOB itself or together with USAID other donors and theprivate sector No single constraint is presently sooverwhelming as to inhibit progress in addressing the otherconstraints Botswanas situation is unlike some othercountries in Africa where failure to deal with for examplefundamental fiscal and monetary policy issues has handicappedefforts to attract domestic and foreign investment promoteemployment develop a strong local business community diversify the economy and other development efforts

D The Relative Order of Importance of the Constraints

Each of the three constraints to BPEDs goalimportant necessary to eliminate and is

capable of being dealtwith by the Mission the private sector and the GOB workingtogether as further detailed below and elsewhere in thisdocument There is however a relative order of importancewhich can be used carefully to further understanding of the project

Dl Primary Level Constraints

Among the three primary level constraints (see Figure 1)the number order in which they appear is their relative orderof importance Without continuing economic stability throughsound fiscal and monetary policies primary constraint 1little if any growth will be possible in the economy andhousehold incomes and employment will in fact most likelydeteriorate Primary constraints 2 and 3 insufficient investment and sizequality of the work force are moredifficult to rank The Mission has a second project in the PID stage which helps deal with this third constraint Howeverincreased investment must precede or at least parallel workforce improvement Some additional private sector investmentis possible without increases in the size and quality of thelocal work force although these may be limited and not of thepreferred variety in all cases as further explained belowImproving the work force may however bring more short-termnegative results if opportunities to employ new skills are notavailable Such a situation could breed instability

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

a

Optimally improvements will grow in parallel and eventuallybe in accordance with supply and demand

D2 Secondary and Tertiary Level Constraints

Again the order of the numbers given to the constraintsindicates their relative importance The discussions presentedwith each of the seven second level (sub-constraints) and nine third level constraints (barriers) infer why they have been classified as they have

E The Set of Constraints to Achieving the Project Goal and Their Magnitudes

1 Need to Maintain Sound Fiscal and Monetary Policies

The maintenance of appropriate and solid fiscal and monetary policies is essential to the overall strength and stability of the economy The GOB has performed well here and has instituted sound pragmatic policies While the Mission will still have an informal policy dialogue in the maintenance of sound fiscal (tax budget etc) and monetary (exchangerates money supply intecest rates etc) policies and credit availability except for credit policy this will not be a basic focus of BPEDs efforts This general area involves a broad macro-economic effort in which the World Bank has entered into a dialogue we plan to maintain our close coordination with the World Bank on this

A particular issue which was raised in the Washingtonreviews was the question of negative interest rates on savings(most loan rates are positive) The government has expressed concern about this issue and the draft macro outline of its National Development Plan (NDP VII) has indicated that this is an area where further modifications must be made (some changesoccurred in the last few months) However this is not an area per se that is inhibiting the growth of private sector investment at this time given ample liquiditybank resources for lending Indeed one could make the case that low interest rates are in fact an incentive to the private sector with its increased consumption A rather unique situation exists in Botswana where a great deal of the savings is generated by the government so that the disincentive to individual savings is not that acute a problem in the short-run and during the life of the BPED project

Negative interest rates on savings is a broader issuebearing on the long-term question of the strengthening of the economy and the mobilization of domestic resources to finance investment particularly as capital resources generated from the mineral sector diminish negative interest rates facilitate consumption and decrease saving incentives

The question of credit will be addressed by BPED (see223 below) but the primary constraint of fiscal and monetary policies is in the hands of the GOB and the IBRD and outside the project

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

9

2 Insufficient Investment in Non-Traditional Sectors

Insufficient-investment in non-traditional sectors is theconstraint at area

the heart of the BPED project It is in thisthat USAID has had the greatest involvement up to thispoint and where we will continue and expand and focus ourefforts in the BPED project It fits most clearly with BPEDselection criteria A key is to help to maintain and improvean enabling environment for the private sector The basicstructure of that environment is a solid one It is moving inthe right direction and by comparison with many other countrieshas many commendable features There is also a fragility inthe openness in the economy and its corollary politicalmilieu This project is trying to help strengthen thatenvironment and to build upon it including building upon thework that USAID has already done in support of the private sector

In its 1988 Staff Report the IMF made the followingremarks The authorities envisioned that with diamondrevenues slowing the private sector must and theshould assumeleading role in generating growth and employment over thelonger run Given the small size of Botswanas economy thatgrowth would have to be primarily export led The authoritiesrecognized however that the transition away from an economydependent on diamonds would be neither rapid nor easy DespiteBotswanas strong financial position there are importantconstraints to development The report cited the severeshortage of skilled and semi-skilled labor as limiting both thepace of private sector development and the Governments ownimplementation capacity The report further noted importantbottlenecks in the provision of physical infrastructureparticularly serviced land for commercial industrial and residential development

In a sense there are several sub-constraints under theoverall constraint of insufficient investment innon-traditional sectors which we might term as barriers toresolving the constraint We are going to focus on three ofthese basic barriers One is restrictive policies andregulations and weak implementation The second isunderdeveloped citizen-owned enterprises and participation inthe private sector and the third is low capacity to attract andabsorb foreign investment and to export More focus will begiven to the first two than the last but all three are keyelements

Discussions of these and the other barriers follow

21 Risk of Regional Instability

This may be considered the most important barrier to thegrowth of investment and particularly the foreign investmentcomponent In fact it is important to the entire question ofBotswanas economic development and the maintenance andstrengthening of its political structure as well What happensin South Africa is critical not only to investment andenterprise in Botswana but also to other countries in southernAfrica The prospects are certainly better today than they

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

10

were a year ago for non-disruptive changes in economic interrelationships For the purposes of this exercise we have assumed that changes in South Africa would be evolutionary andtherefore not disruptive to regional economic stability

22 Underdeveloped Citizen-Owned Enterprises and Participation in Private Sector

Attacking this barrier is fundamental to the project It breaks down into three components as follows

221 Inadequate Citizen Business Skills and Poor Knowledge of Opportunities

An increase in the number and quality of citizen-owned enterprises and percentage participation in the private sector is absolutely the key element in the project The Botswana local private sector is to be strengthened and for the privatesector to flourish there must be a strengthening of the local citizen entrepreneur and business manager at both urban and rural levels (As one element of this see the USAID Agricultural Sector Assessment discussion on page 151 on thegeneration of product demand from rural areas brought about byincreased agribusiness development in Botswana) Increased attention must be given to fortifying business skills andfacilitating understanding and action to take advantage of new opportunities

Citizens do not have a long tradition in the commercialindustrial sector Examples of family businesses being handed over to the next generation are rare Some recent gainshowever have been made The registering of new businesseslargely by citizens has shown steady growth from 528 in 1981 to an estimated 1714 in 1989

USAID has participated in this in a variety of ways -shythrough for example financial management seminars and business start-up seminars which have attracted large numbers of firms and individuals Training has been held at the Botswana Institute of Development Management (IDM) and at otherlocations in such fields as management financial administration and skills training in such vocations as specialized as bone carving

The creation of a Small Business Association in November1989 indicates the emergence of the citizen business communityas well as the effectiveness of the training and short-term technical assistance provided to the private sector This association was initiated by 25 of the 150 participants who took intensive financial management training in late 1988 and early 1989 At the launching of the association and morerecently through structured questionnaires the foundingmembers largely attributed their recent business success and newly-developed drive and initiative to this training course The fifteen participants who completed a questionnaireindicated a cummulative increase in investment of one million Pula ($500000) and 76 new employees The association membership has now swelled to 250 as it has become the SmallBusiness Division under the Botswana Confederation of CommerceIndustry and Manpower (BOCCIM)

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

ii

In this program we expect to intensify this effortthrough continued work with BOCCIM the key business organization in the country in conjunction with IDM and otherlocal training and technical assistance entities Our proposedfforts are discussed in Section III

The project paper will discuss a Which business skillsb Which elements of knowledge c Relate a and b to numbersand sizes of firms d Discuss intermediary organizations whichprovide services support and represent citizenbusinesspersons and e Discuss how BPED will implement activities

222 Lack of Adequate Support for MicroSmallBusiness Citizen Entrepreneurs

The economic base in Botswana is too small to absorb thegrowing numbers of people seeking wage employment Citizenentrepreneurship must increase over the long-term to absorb jobseekers However there is very little support especially insecondary cities and rural areas for local entrepreneurseither to start new enterprises or to implement successfully asthey become operational This project will help develop alocal capability principally through BOCCIM to provide thissupport to citizen micro and small-business entrepreneursThis eventually will become a totally private sector capabilityof providing support through a nationwide network of linked organizations and services

We will work closely with the Peace Corps in thiseffort One BPED person will be assigned to work throughBOCCIM with a Peace Corps person assigned in the hinterland (ateither Selebi Phikwe or to Francistown) to assistcoordinating training and

in support activities and development ofthe network Other Peace Corps activities will be involved

As stated in the BPED PID prior to the design ofproject paper the a small enterprise team will develop an overall strategy for support to micro and small businesses Based onthis the project paper will a Discuss the size andcomposition of the micro and small business sector b Describewhat is desirable and necessary and not there such as theservice network which covers rural areas c Treat ORegan (SeeAnnex G of PID) World Bank and MAPS findings and GOBpronouncements in favor of attention to this sector and itsgrowth and d Describe USAIDs specific plans

223 Lack of Access to Finance and Insufficient Financing Mechanisms

A related area is the question of finance for Batswanabusinesses The problem is not the absence of credit due to alack of funds The availability of funds is not itself aconstraint The allocation or use of available funding ishowever a problem The role of BPED and the Mission is toassist in improving the flow of these funds to the business community and hence maximize their effect on growth of GDP and employment

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

12

But BPED will not undertake a credit program per se TheMission has a separate loan guaranty facility through which itsunderstanding of Botswana banks and credit operations isincreasing and which will be judged on its merits and decisionswill be made based on results whether to continue modify orexpand this PREI assisted effort BPED will however look atvarious models and undertake action oriented studies todetermine how financing for more and smaller local businesses can be increased

Finance is a major impediment to small and middle-sizedfirms This is an unquestoned constraint mentioned first byvirtually all citizen business people when asked to identifythe greatest constraint to initiating and expanding a locallyshyowned enterprise The banks are awash with liquidity butsecurity and collateral requirements are high Various meansneed to be explored to bring about further change to makefinancing easier to get than it is today Venture capital peer pressure related credit systems the use ofnon-governmental organizations as conduits special interest groups such as the Botswana Womens Finance House and otheralternatives will be examined Micro and small-business creditinvestigations will likely be done in conjunction with the AIDW Gemini Project venture capital with AFRMDI etc

The project paper will discuss a NumbersTypes of firmswith and without access b Types of finance available and sources of this finance c Statistics on the importance offinance as brought out by the World Bank and in MAPS and otherdialogue exercises d Need to study and recommend changes ofcertain elements of credit such as interest rates eUnderstandina of small business financing and attitude of commercial banks and BDC and f USAID efforts)

23 Restrictive Policies and Regulations and Weak Implementation

This is an area which is improving from what it was a fewyears past What we intend to do is to assist the governmentand the private sector in their changing of policies andstrengthening of implementation This is the entire questionof regulation of the private sector -- to minimize regulationto the extent possible and to support changes which essentiallyfree up the economy even more than it is at the present time

As you look at Botswana on a relative basis it has aremarkably open economy with free foreign exchange allocationsfull repatriation of profits an independent judiciary that hashelped to preserve the integrity of the system a minimum ofcorruption a lack of subsidies and statism etc Yet therehave been policy elements which have served to slow the growthin the private sector And even where policy change hasoccurred implementation progress has not always beenparallel The modifications which have taken place are adirect result of the Francistown conference supported by USAIDpolicy development work performed with BOCCIM and the UNDP andbased on recommendations made in the Missions 1987 StrategyAssessment and Evaluation and follow-on Private Sector StrategyStudy

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

13

The IMFs Staff Report (1988 p 19) summarizes this as follows

The staff noted that while Botswanas liberal trade and payments system should and was playing an important role in attracting foreign investment the way irn which other types of regulations were being implemented was apparently a majordisincentive to investors In the missions discussions with both public and private sector managers the difficulty in obtaining licenses and permits--including work permits for skilled labor--was frequently cited of the mainas one obstacles to new foreign investment and to the expansion of productive activity more generally This had had an importantcost to Botswana in terms of lost employment and output and the authorities needed to simplify speed up and coordinate the various required procedures

The following are two key areas which the GOB and the private sector have indicated a willingness to address

1 Work and residency permits

Much improvement has been made to the policy For many years foreign investorsmanagers and other foreign staff have received two-year work and residency permits renewable every two years Realizing that this did not generate long-termconfidence and security for foreign investors the GOB revised its policy following the Francistown conference to permit (1) an initial three-month temporary permit (2) an initial five-year permit (3) renewable for another five years and (4)followed by established residency (and work permit) similar to the US green card While this policy change is significant implementation remains a problem For examplefinal approval of a work permit application can take up to 15 months The system can handle 120 applications a week while upto 100 a day are received in Gaborone alone The need for automating the system identified in a 1987 ILO report still remains

2 Licensing permits

Similar to work and residency permits some positivechanges have been made in the licensing proceduresPreviously the Ministry of Commerce and Industry (MCI) decided upon all licensing applications with appeals referred to the President of Botswana Now MCIs Director of Industrial Affairs chairs the licensing decision-making committee andappeals are submitted to the Minister Also vacant positionshave been filled and delays have been reduced somewhat Implementation and procedural problems however still remain Delays (up to six to eight weeks) and inappropriate decisions sometimes result from inexperienced staff an unautomated system authorities making commercial judgements and competitors allowed to object among other things

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

14

231 Insufficient Capacity of Private Sector to Analyze Policies and Influence Change

Our objective is to facilitate overall policy changes and an overall system of open access and dialogue on economic matters within the private sector and with the public sector The main avenue for change-will continue to come throughBOCCIM which was a strong instrument at the Francistown Conference We need to work with this organization whichrepresents the businesses in Botswana responsible forapproximately 80 of the business activity (in terms of volume of business and growing rapidly in its small businessmembership) and is the recognized voice of the business community in identifying the question of policy modifications and speeding up of their implementation There is aconsiderable reservoir of knowledge in the private sector ofwhat rules and regulations need to be improved Our dialoguethrough such structured surveys as that conducted under MAPSand frequent contact with the business community haveidentified a number of these including work and residencepermits and business licenses And some improvement has taken place

While BOCCIM has many strengths its capacity to respondand take initiatives in analyzing a broad range of policiesaffecting private sector growth needs to be strengthenedCurrently BOCCIM relies on its membership to discuss taxissues with the GOB and uses a local consultant on labor relations legislation On other issues its capacity to draw upon expertise both international and local (which is limited) and respond quickly is less strong

In positioning a person at BOCCIM BPED will assistBOCCIM and various industries to make specific recommendations to Government on policies and implementation procedures thatrequire further modification or strengthening These will bedefined much more fully in the project paper The BOCCIM-basedactivities will be structured both to obtain short-term resultsand to strengthen BOCCIM as an institution and increase itsability to carry out an ongoing and effective dialogue with the GOB

In the informal sector the basic question is not so much one of restrictive policies and regulations as it is thequestion of promotion the training of people and access tocredit and support services In encouraging promotion USAIDwould caution the GOB not to place any additional controls on these emerging entrepreneurs

The project paper will discuss a Numbers and locationsof capable policy analysts in the private sector b Identitiesand capabilities of private sector advocacy organizations cPast and future forums for discussing and resolving policyissues d Lack of knowledge and policies which encourage thegrowth of the informal sector and selected approach to be takenby BPED including the involvement of the Peace Corps intechnical assistance and extension services and e Specificinvestment and export-related policies needing to be changedexamined

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

15

232 Insufficient Ability of GOB to DevelopImplement and Administer Private Sector Promotion Policies

There are several Batswana policy analysts in theMinistry of Finance and Development Planning (MFDP) Five wererecently trained thein United States under BWASTthe projects(one has moved to the Ministry of Education) In additionthere is a cadre of expatriate advisors at MFDP some of themunder the aegis of the former Williams College contract (nowthe University of Toronto contract) There are few policyanalysts at the Ministry of Commerce and Industry although itis responsible for formulating and implementing industrialpolicies In both Ministries the policy staff is young andlacks experience particularly with regard to issues affectingthe private sector

Yet the overall situation is complex in terms of thequestion of basic attitudes and values towards the privatesector in the government Quite often at policy levels thereis support for various changes that need to be made instrengthening the private sector but at other levels thereoften is reluctance to make changes a predilection forgovernment intervention and involvement rather than leaving theeconomy open to free and fair competition And competition isthe goal that is what the Mission is encouraging

USAID is convinced that changes in attitudes are takingplace The Francistown Conference helped in this andgovernment speeches and reflectmessages continuing changeMore can take place through a variety of programs that will bekey elements in the project This is institution building andcapacity strengthening shy through long-term training ofofficials who will play prominent roles andseminars to reach personnel who implement the

impact courses and regulations andhelp determine basic policies Attention will also be given torationalizing the function certain units perform within their

ministries

The project paper will discuss a Numbers of capablepolicy analysts in the GOB b Institutions with the mandate toset and implement policies affecting the private sector andchanges needed c How to affect knowledge and attitudes ofpolicy implementers and d Examples of implementationbottlenecks problems with administration of policies andpriority order of specific BPED initiatives including training

233 Impeded Growth of Women-Owned Businesses

A related area that should be looked at is theimpediments to the growth of woman-owned businesses There aremany women-owned businesses but experts agree that they are aresource that must be more fully assisted to effectivelystrengthen the private sector

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

16

A WID report done for the Mission in conjunction with BPED PID design and the WID Sectoral Keynote Issues Paperprepared by the GOB for NDP VII indicate areas of concern and action The keynote paper expresses GOB concerns in the area of developments planning as

(a) Lack of adequate gender-disaggregated information has resulted in inadequate planning for women

(b) Misunderstandings about the changing roles of men and women resulting in inadequate planning of programs and projects has led to diminished returns to investment and

(c) Lack of clear-cut government policy on women has made it impossible for program design and delivery

The project paper will discuss a Legal impediments b Cultural impediments c Access to credit d Lack of a goodadvocacy organization and e Other items in the WID and keynote reports with a defined action plan

24 Low Capacity to Attract and Absorb Foreign Investment and to Export

Foreign investment and export growth in non-traditional areas is an imperative if jobs are to be created for a rapidlyexpanding labor force The local private sector is not starting from a large enough base to absorb even with reasonably accelerated growth the number of job seekers This necessity is fully recognized by the GOB and private sector They agree that increased capital and new technologyinvestments must be made which are oriented to and capable of producing competitive non-traditional goods for the export market due to the limited size of the domestic market

If the countrys three traditional commodities are discounted and the economy is examined in terms of non-traditional exports versus non-traditional elements of GDP the increase in non- traditional exports over the last four years is 20 percent annually Textiles (54) processed meat products (300) oils and fats (550) soap pharmaceuticals and cosmetic products (350) machinery and appliances (200) and transport machinery and equipment (300) are examples of segments with rapid growth rates While representing only 7 of total exports in 1987 non-traditional exports do in fact exist and have been growing in importance

However there is presently no system and little expertise to attract foreign investment to Botswana which is most profitable to Botswana in the long term ie in which the Batswana participate and technologies and skills are transferred The Republic of South Africa has taken greatestadvantage of growing demand-side opportunities which have increasingly appeared over the last decade or more

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

17

Recent efforts by OPIC and AID have demonstrated thatit is indeed possible to attract productive investments Because of this participation the investments which were attracted will involve joint ventures Batswana skilled jobstechnology transfer and potentially increased agricultural activity

Efforts such as those of AIDW and OPIC while necessaryto get the ball rolling and excellent for their specificemployment generation technology transfer and export impacts can be only catalytic in nature because of the manpoweravailable in US offices to conduct this type of promotion But they have shown that US companies can do business in Botswana and provide models for use in attracting additional investments It is now up to the Batswana to learn how to takeadvantage of their growing economy and improving business environment to attract additional productive foreigninvestment BPED will concentrate on ties with the US but activities and techniques transferred to counterparts will serve to increase Botswana interaction with the EEC Asian markets etc

241 Poor Local Knowledge of Technologies and Opportunities

The constraints faced by the Batswana businesspersoninclude knowledge of a narrow range of exportablenon-traditional export commodities the non-competitive nature of many domestically produced products on the export marketand difficulty in obtaining information about markets andpotential business partners The project proposes to helpovercome these obstacles to the extent possible at this time This wil be accomplished through local training consultanciesand such programs as external business travel to the US under the Entrepreneurs International program and possibleparticipation in the Trade and Investment Service of the International Executive Service Corps

242 Poor Foreign Knowledge of Botswana Investment Opportunities

The ability of Botswana to promote business opportunitiesand target foreign investors from Botswana and through its embassies overseas is very limited The competition ofneighboring countries for foreign investments is strong and the opening of Eastern Europe to foreign investors has manypotential investors attentions distracted The possibilityexists that sanctions will be lifted from South Africa and that investments which might have come to Botswana will go there instead It is not clear however that the mere lifting of sanctions will automatically and immediately make South Africa an attractive investment opportunity These are the constraints that BPED will address primarily through targetedpromotion in the US and partial support for selected investments satisfying AID and GOB criteria

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

243 Inadequate Counselling and Assistance cor Potential Investment Partners

Three local organizations are providing assistance topotential investors and their local investment partners These are the Botswana Developmerrt Corporation BOCCIM and the GOB Trade and Investment Promotion Agency (TIPA) All threeorganizations have demonstrated needs to improve theirknowledge and abilities to provide the information necessaryfor potential investors to make decisions In this minor component of the project BPE) will provide short-termtechnical assistance to these organizations through combinedconsultancies by IESC volunteers trade specialists and localprofessionals (lawyers and accountants)

25 Inadequate Basic Infrastructure

This is a key area to the growth of the Botswana privatesector and to the achievement of the purpose of this projectUSAIDs involvement here will be encouraging action throughpolicy dialogue and discussion particularly in the service area where the Mission has already had considerable dialogue onthe importance of additional sites and services ie servicedland Urban housing is a problem for both expatriates and forlocal employees The current backlog on housing is roughly50000 units While the planned accelerated delivery of 40000serviced plots over the next three years will help the limitedcapacity of the construction sector to supply housing willretard alleviation of this problem USAID has consistentlystressed as a policy issue the important role which must beplayed by the private sector to increase housing availability

English medium schools need to be increased not only inGaborone but in secondary cities such as Selebi Phikwe Thisis also a policy dialogue area in which personnel in theMinistry of Finance and Development Planning and Ministry of Commerce and Industry would be involved with BPED advisors BOCCIM and Mission staff

The African Development Bank will be involved intransport There is a need for expanding the road network For example in the Mashatu area most of their supplies arecoming in from South Africa because there is no all weatherroad which goes into the northwestern Tuli Block area

Telephone and telecommunications improvements are movingahead rapidly and the government plans to expand its efforts

Botswana previously was almost exclusively dependent onSouth Africa for energy but now is self sufficient Powerrates are relatively high and will be discussed under BPED Expansion is planned in power within the period ofproject If the government adheres to

the this plan this should

satisfy the power requirements of anticipated emerging industryfor the foreseeable future

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

19

In summary the Mission will not be involved in the infrastructure development area outside of collateral policydiscussions through BPED This is an area to be funded by the GOB the IBRD the African Development Bank and other donorsThe government in its projects is essentially talking about allocating sufficient funds-for infrastructure developmentduring the project period The Mission believes that infrastructure development will keep pace with private sector development needs but will be a continuing subject of policy dialogue

26 Continued Access to External Markets

In terms of exports in the non-mineral sector it isimportant to maintain ties with Zimbabwe and with the EEC this last with preferred treatment through the Lome Convention South Africa is not a major export recipient of Botswana Only4 of Botswanas exports go to South Africa mostly beef It is not anticipated that South Africa will become a majorimporter of Botswana commodities in the short and medium-term Much more important are such questions as the constraint of the size of the local market and what this means in terms of the types of industry that can develop what is the exportpotential to other SADCC countries particularly to Zimbabweand what is the export potential to the United States and the EEC It is important to maintain access to these areas South Africa is of course extremely important on the import side Itis critical to maintain access to imports most of which come from or through South Africa

These external market elements are however beyond the scope of this project except for discussions under the policyenvironment activities of BPED Certainly the governments strong intention is to keep the lines of access open as fullyas possible BPED will not have to deal with a xenophobia which would inhibit free-trade patterns There is a full sense that Botswana is supportive of relieving any constraints in this area which may be identified The present situation will likely only improve unless the political situation deteriorates In any event this area is essentially outside the confines of the BPED project

27 Protective Regional Trade Policies Regimes and Access

Protective trade policies of its neighbors limit Botswanas ability to increase trade and expand itsbusinesses This is true in relation to SADCC Member States as well as aspects of the Southern African Customs Union Naturally the GOB with substantive inputs from the privatesector negotiates trade agreements to its greatest advantage

This is not a major constraint at the present timealthough it could become so in the future It is not our intention for this project to focus specifically on this question

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

20

3 Inadequate Numbers of Sufficiently Prepared and Able Worker s

The general constraint of insufficient numbers ofsufficiently prepared and able workers is a fundamental problemwhich will be overcome over-the longer-term if the privatesector is to evolve substantially Part of this is related tobasic education Overall adult literacy is 77 80 of the school age population is in primary school 41 in juniorsecondary and 19 in secondary education There are approximately 17000 new workers entering the work force each year basically at the completion of junior certificate level which is nine years of education They have little work-related skills and the primary school curriculum has notgiven the greatest emphasis to those skills and attitudes related to the development of the private sector We are notattacking this question in the BPED project It will be anessential element of the Missions FY 91 education project

Part of this constraint and more important over the nextdecade to development of industry is the lack of sufficientvocational education opportunities Other donors are heavilyinvolved in this particularly the Germans the World Bank andthe British as well as the GOB Four Vocational TrainingCenters (VTCs) have been built with IBRD assistance and staffedby German experts The British have assisted the Botswana Polytechnic for several years and will provide technical assistance for the new Institute of Accountants

At the same time the Government has made it clear thatit expects the private sector to provide much skilled trainingon-the-job The Mission concurs with this basic thesis andwill encourage this through policy discussions with BOCCIM andin other forums However USAID will not be specificallyinvolved in vocational education in this project

Health is also an important consideration in terms of thecapability of individuals to perform jobs Again USAID is involved in this area in a limited fashion through the DistrictManagement Improvement Health Project and through the Botswana Population Sector Assistance Programs family planning effortswhich have a close correlation with health The Missionhowever will not be engaged in this sector in the BPED project The Norwegians are a major contributor in health as are the British and they have given every indication of continuing their help in this sector Certainly Botswanashealth system while still developing is improving rapidly and is better than in many developing countries

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

Figure 2 Hierarchy of Objectives Leading to the Program Goal

Accelerate Employment Generation and

Increase Household Incomes

_ _3_2+ + ++ ++ + +

a Increase Private

Non-Traditlonsl Sectors

25 28 27

22

Expand Citizen Partieipatlin In

Private Sctor owth

23

Improve Policy Environment and Implementation

24

Increase Capacity to Attract and Absorb Foreign Investment

and to Export

Increase Citizen Skills and Knowledge

of Opportunities

221

I 231

Strengthen Private Sector Ability to

Analyze PolIcles and InfIuenc2 Change

Increase Local Knowledge of

Constraints and Opportunities

241

222

Strengthen Small Enterprise

Entrepreneurial Baes Nationwide

232

Enhance 003 Ability to Develop and Implement

Private Sector Promotion Pol[ls

Increase Foreign Knowledge of

Botswana Opportunities

242

223

Develop Wider Arrayof Finaning

Mechanism anae Aaa to Finance

end

233

Improve Womens PartiiptonPolicies

Programs

243

Improve Counselingand Assistance to

Potential Investment Partners

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

21

III REVISED PROJECT ELEMENTS AND DISCUSSION OF OPTIONS

A The Project Design

The Mission has reduced the number of outputs to ninefrom thirteen These may be further reduced from nine seven as explained below during preparation of to

the projectpaper The number of long-term advisors has been reduced from seven to three One of these is an advisor under BOCCIMauspices to work with a Peace Corps colleague to assist inbuilding a nationwide network promoting micro andsmall-enterprises Another advisor is to be placed in BOCCIMfor strengthening that organizations capabilities in policyanalysis and advocacy and the third advisor will work with theGOBs Ministry of Commerce and Industry in policy developmentand implementation Figure 2 shows the relationship amongBPEDs purpose outputs and inputs

There are also now three areas not four of effortoriented to achieving BPEDs purpose of increasing investmentsin non- traditional sectors These are (numbers correspond tothose used further below and in Figure 2)

22 Citizen Participation in Private Sector Growth

23 Policy Environment and Policy Implementation

24 Capacity to Attract and Absorb Foreign Investment and to Export

The fourth strengthened financial markets has beeneliminated as a separate area of concern Some of the inputsoriginally in that area (policy new financial instruments andaccess to finance studies and workshops) have been placed withactivities in the first two areas listed above in accordancewith each activitys principal focus or noted as being handled by other donors

BPED will further concentrate its resources on areas 22and 23 although there is a horizontal integration amongprogress to accomplishment of all three since success in allthree is needed to achieve the project purpose

The project will require slightly less fundingshort-term consultants will need

More to be employed through theprojects institutional contractor These short-term advisorswill provide many of the specific inputs which were to be

provided by long-term advisors A revision to the budget toreflect these changes appears on page 37 Implementationmechanisms remain as presented in the PID

B Presentation of Outputs Inputs and Options

Figure 2 presents a hierarchy of inputs and outputsleading to the overall project goal of accelerating employmentgeneration and household incomes based on private sector growthin non-traditional sectors It portrays the relation of eachactivity to each of the outputs Outputs are grouped on two I u I1J

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

22

The options which have been or might have beenconsidered as alternatives to BPED outputs and activities are mentioned in the following review of Figure 2 Options to the outputs are not given as they are the necessary set of outputs to achieve the overall project objective They are howeveronly briefly discussed to a void redundancy with other sections of this analysis and also because of overlap with project paper requirements

The PID contains missing details on all of the activities mentioned below No new activities have been added during the current exercise Output numbers correspond to those shown in Figure 2 Outputs which have previously been discussed under Section II Constraints are not repeated here

At present unemployment is approximately 25 percentUnderemployment which is more difficult to measure is increasingly observable According to the World Bank and MAPS this situation is expected to worsen as about 20000 peopleenter the labor market each year compared with the 11000 to 14000 new job opportunities in the formal sector BPED proposes to assist the GOB and people of Botswana to address this problem

C Discussion of Outputs Inputs and Options

2 Increase Investment in Non-Traditional Sectors

22 Expand Citizen Participation in Private Sector Growth

221 Increase Citizen Business Skills and Knowledge of Opportunities

Inputs

All activities leading to this output will be channeled to and through BOCCIM Outreach service activities designedfor shorter-term impact will include ten industry studiesbusiness advisory services in five industry areas 100 skills seminars and the training of trainers

Options

a To increasing citizen business skills and knowledge of opportunities

Again as a target output of BPED there is no option seen to undertaking activities in this area There is widespread acceptance of the fact that more skilled and knowledgeable business people neededare in Botswana This has been the conclusion of all studies financed by USAID plus other comprehensive assessments including a just completeddraft Report of the Presidential Commission on the Review of the incomes Policy

If the small-scale entrepreneurial base were expanded(Output 222) and new financing mechanisms which increased

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

23

citizens access to credit were put in place (Output 223)but there were still few citizens with the skills and theknowledge of new opportunities to take advantage of the changes little new investment would result On a larger-scalebusiness level foreign investors will be more likely to form partnerships with local businesspersons who have business skills and can bring ideas which are new and for which the products have markets to the table

Policies which improve the environment for the privatesector will in and of themselves not produce new and morecompetitive businesses although they are a sine qua non of the enabling environment Knowledgeable and skilled business people are also an essential ingredient In addition theseactivities will expand business services to many lower income citizens in secondary city and market town areas The expectedincrease in rural business productivity and activities will help address the equity concerns of the projects goal statement

b To BOCCIM as the intermediary organization

As stated in item 221 above there are no viablealternatives to building BOCCIMs capabilities as a national business association and private sector assistance intermediary The Mission has no desire to create new organizations to do jobs which BOCCIM should be able to do nor to build capabilities in BOCCIM which other organizations are able to do

In the area of training for example Botswana has awealth of training institutions both public and private which provide a variety of short courses of value to the privatesector The publication Training Opportunities in Botswanaproduced under the BWAST project lists more than 125 providersin Botswana offering more than 500 courses of 30 hours or more in length To date over fifteen institutions have conducted public and private sector in-country training for over 650 participants under the BWAST II project Participants from slightly over 100 companies have attended these courses Providers of private sector training have included

0 Institute of Development Management - training insupervisory skills small business management sales and marketing management computer skills and personnel management

0 P-E Consulting - training in business start-up business planning financial management and productivity

0 Manpower Development and Training Associates - trainingin construction tendering and management

Although quality may not always be the highest nor consistent amongst the providers of training USAIDs positionshould be to further develop a competitive market among privatesector training providers as a means of improving quality and not to invest heavily in one or two institutions to dominate an already respectable marketplace

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

24

On the demand side the best investment by USAIDBotswana is tocontinue what BWAST started - developing a system wherebyprivate enterprises can channel their needs for human resource development BWASTs committee system for participantselection within BOCCIM is an excellent beginning and the process of strengthening BOCCIMs position as an articulator ofprivate sector training needs should be continued under the new project

So we are talking about institutionalizing a process and mechanisms within BOCCIM to ensure that demand (needs) drives the development of training programs Various small privatesector training and consulting firms will be strengthened as BPED resources flow to and through BOCCIM to train trainers andpartially fund courses BOCCIM itself will not be the traininginstitution in most of the training exercises under BPED

BOCCIM as a growing business association must collectfees from members to be able to perform services for them as is the case with US chambers of commerce Members in turnespecially small- businesspersons will only pay fees if abusiness association can offer services which they need and are willing to pay for Recipients will not only profit from the outreach services offered by BOCCIM but BOCCIM will als i profit from a larger fee-paying membership and its activitieswill become self sustaining as a result of these BPED activities

Sustainability after BPED assistance is gone will figure importantly into the BPED implementation plan of the project paper BOCCIM will obtain working capital from membership and service fees training grants from the GOB Financial Assistance Policy (FAP) and contributions fromindustry associates The project paper will detail expectations on membership marketing efforts and provideprojections for receipts and costs of operations and services

c To Project activities

The set of activities listed are those which BOCCIM willhave the institutional capability to effectively implementwith the mentioned long and short-term technical assistance External long and short-term training for citizen entrepreneursand managers has been rejected because of cost with theexception of external business travel of selected members of the business community included under output 241 below

The creation through BPED of an MBA program at the University of Botswana (UB) was also considered based onearlier USAID study However the Missions BWAST II projectalready is supporting at UBs request an individual under a two-year contract to act as the Head of the Accounting and Management Studies Department One of his main tasks is tohelp establish an MBA program at the University The Mission believes that the GOB will provide the future funding necessary to accomplish this

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

25

222 Strengthen Small EnterpriseEntrepreneurial Base Nationwide

Inputs

a One of the two long-term advisors originallydesignated for work in building the nationwide small-businessnetwork has been dropped from the project leaving onelong-term advisor to be located in BOCCIM to work with aPeace Corp counterpart outside of Gaborone

b Short-term technical financial assistance will begiven to three small-business development organizationsTswelelo the Peace Corps and the Botswana ManagementAssistance Program (BMAP) A PASA with the Peace Corps willprovide the vehicle for BPED assistance for their effortsAssistance to Tswelelo will be provided through theinstitutional contractor Other local organizations may beexpected to join the network and possibly receive similar assistance

Options

a To strengthening the small-enterprise entrepreneurialbase

The entrepreneurial base in Botswana is small incomparison to countries in Africa such as Kenya Nigeria andZaire Swaziland and Lesotho are much more similar in theirneeds to increase the numbers of indigenous entrepreneurs intheir countries Significant increases will come over the longterm with cultural change and the passing of new lifestylesfrom parent to child But short-term gains in the micro andsmall-business sectors are possible and it is theseentrepreneurs who will begin the process in their families andin their towns We have witnessed some changes as demonstratedby the formation of the Small Business Division at BOCCIMcited in Section 221 The number and diversity of citizenbusinesses have increased Traditionally Batswana haveoperated small grocery stores or bottle stores In recent years citizens have branched into furniture textilesexportimport professional services printing computertraining transport and other fields Leaving things as theyare means both that there will not be sufficient businessactivity to employ the increasing numbers of Batswana enteringthe work force each year and that economic and political andsocial stability are less likely to exist in the future - thesecond conditioned by the first

Foreign investment and the growth of existing businessesalone will not absorb all new workers or decrease the gapbetween the rate of new job generation and the growth of thelabor force nor will equity concerns be satisfied There mustbe capacity building of the micro small enterprise base if theprivate sector in its entirety is not only to flourish but to survive

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

26

b To working with the Peace Corps Tswelelo and BMAP and BOCCIM

This activity is relying primarily on a design developed in cooperation with the Peace Corps with assistance from AIDWand does tt involve the creation of a new institution The design wili be refined during project paper development in cooperation with these same partners The final selection of outreachnetwork members will be determined and justified in the project paper Other Botswana organizations which maybecome involved in the network are the GOB Integrated Field Service (the main extension agency of the GOB) the Institute of Development Management (which periodically gives courses for small-scale entrepreneurs) and the Womens Finance House (forinputs of special concern) But in essence USAID can assure that there will be close cooperation with the Peace Corps and with BOCCIM other entities involvement will emerge from full project paper design

223 Develop Wider Array of Financing

Mechanisms and Access to Finance

Inputs

Technical assistance and workshop inputs and a series of action studies and plans will compose the approaches to producing this output Workshops are planned for loan officers of the various financing institutions in Botswana (GOB and private) to meet and discuss issues with private sector entrepreneurs Short-term technical assistance will be given to the Botswana Development Corporation to plan and implementstaff workshops for small to large-scale lending programs Action oriented studies with implementation plans will be undertaken in such areas as venture capital womens finance new small-enterprise lending systems capital market development implementation of the recommendations made in the Evaluation of the Financial Assistance Policy (FAP) and Its Role in Botswana Business Development study co-financed by the Mission and the GOB and others

Options

a To Separating Finance Out as a Special Area of Concern

The World Bank has stated in its 1989 report Botswana Financial Policies for Diversified Growth that there is a need to improve the efficiency and effectiveness of the financial sector so that it can provide better services and so promote growth employment and better income opportunities for citizens

This report notes shortcomings in the availability of finance and the assistance given to those enterprises which are able to obtain it

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

27

For new small-scale enterprises the failure rate isestimated to be about 50 percent and although this is no worse than in most other LDCs it has probably contributed to commercial bank reluctance to lend for these types of activities Access to credit also remains constrained because of the strict collateral requirements of the banking system

Finance perhaps surprisingly was mentioned a majorasproblem by a higher percentage of medium to large-scaleexecutives than small -scale entrepreneurs in the dialoguephase of the MAPS exercise Of course this could be due to many small-scale entrepreneurs not even trying to obtain finance through GOB programs or the commercial banking system

BPED is leaving financial policies essentially to othersincluding the World Bank as noted earlier USAIDs concern isnot in establishing new mechanisms per se but in studying and facilitating ways to enable greater access to credit This deserves special and separate consideration Since the other

comprehensive of toelements of packages services small-scale entrepreneurs and larger enterprises are concerns of BPED(outreach services such as financing application preparationassistance to credit recipients etc) work in this area will be coordinated with other project findings and initiatives

b To the Project Activities

The Mission is not initiating new credit programs butwill help in their identification development and planning for implementation The mission already offers the Loan GuarantyFacility (from PREI) which is implemented through Botswanas three commercial banks BPED will examine inefficiencies andbottlenecks and propose creative alternatives developedthrough comprehensive study short-term assistance and workshopdialogue AFRMDIs venture capital project and SampTs Gemini project will be called on to provide expert advice Work will be conducted in coordination with the World Bank other donorsand the GOB and sponsored by private sector counterpartsTechnical assistance of a short-term nature may also be provided through BPEDs institutional contractor to the various organizations now attempting to provide finance to evaluateand improve their activities and increase coordination of efforts

Options which the Mission has considered include the start-up of new rural credit programs such as that representedby the peer-pressure driven Grameen Bank model of Bangladesh Neither this or other programs are ready to be undertakenhowever More experience and dialogue needs to take placebefore significant new amounts of money are provided to anyexisting program There are sufficient funds in the system for new financing mechanisms The first priority will be to make maximum use of existing funds rather than injecting additional funds into the system

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

28

23 Improve Policy Environment and Implementation

231 Strengthen Private Sector Ability to Analyze Policies and Influence Change

Inputs

a One policy advisor will be recruited to strengthenBOCCIM capabilities to identify issues affecting private sectorgrowth prepare papers on items of concern and assist BOCCIM toengage the GOB and all implementing parties in their review andimprovement The advisor will work with BOCCIM staff toestablish an advocacyissues management process An importantcomponent of this will be the identification and strengtheningof resources both local and international which can beaccessed as needed to provide the required level ofanalysis This process will be sustained by BOCCIM leadershipand finances before the end of the project

b Four BOCCIM membership workshops and five nationalGOBprivate sectordonor workshops will be sponsored by BOCCIMto discuss policy issues and recommend changes in part basedon papers prepared by BOCCIM with guided from the USAID-funded policy advisor

c At least four specific policy studies will beconducted (under the supervision of the advisor in a above andBOCCIM) These would include

a Work and residence permits

0 Licensing permits

Land and housing development

0 Price controls on retail goods and cost of electricity

Policy implementation plans will also be developed

d At least one informal sector action research studywill be conducted It will rely on project paper developmentfindings for definition in three areas of the informal andsmall-scale enterprise environment an area opportunitiesassessment a sub-sector analysis and an institutional analysis

e Two joint GOBBOCCIM studies will be funded throughBOCCIM on investment and export incentives

Options

a To strengthening the private sectors ability toanalyze policy and influence change

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

29

The output from this work is an important component ofprivate sector development in all countries Botswanaincluded Chambers of commerce business associations and manyother advocacy groups in the US are expert and active in this area spending millions of dollars to affect change Theprivate sector must be able to articulate and present its needs to public policy makers in rational and logical papers andother symposia to obtain the conditions which are necessary toimprove the environment for doing business

The Francistown Conference was a striking manifestation of this in Botswana From this conference can be found achange in GOB attitudes and increase in its efforts to promotethe private sector This conference was sponsored by the UNDPwith support from AID and the private seclor in both thepreparation and presentation stages It brought about a changein attitude by GOB officials which is continuing to bereflected in speeches and pronouncements by the governmentMore change can take place through additional informed effortsby the private sector to make its current and future needs known by government officials

The activities listed above compose BPEDs set of how tocorrectly identify and present needed changes through the private sector The activities under output 232 below represent actions necessary to gain acceptance andimplementation by the GOB of these changes Both are essential to the policy strengthening and change process

b To BOCCIM as BPEDs primary implementation intermediary

All of the activities under this output are to beimplemented through BOCCIM They are intended both to producebetter private sector promotion policies and to strengthenBOCCIM in the process BOCCIM is the lead private sectorbusiness association in Botswana and representative to theSADCC Regional Business Council There are no other businessassociations in Botswana which can potentially perform the role of organizer support organization and advocate of the private sector

Approximately 80 percent of the volume of businessactivity in Botswana is conducted by firms belonging toBOCCIM USAID has been working with BOCCIM through its BWAST Iand II Projects and through other funding sources includingsupport from AIDW and informally Continued implementationbuildingchange agent efforts through BOCCIM have beenrecommended in all assessments made of the subject Tostrengthen the private sectors ability to analyze policies andinfluence change there is at the present time no optionother than to work with and through BOCCIM

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

30

c To Project Activities

The set of activities listed above are intended both tohave short-term impact in that policies will change and therewill be an increase in investments resulting therefrom andlong-term impact will result from the strengthening of BOCCIM as the private sectors own-promotion vehicle

Two options to the list of activities were considered inPID design the use of short-term consultants in place of thelong-term advisor and long-term academic or short-termexternal training for BOCCIM personnel

It was decided to retain the long-term advisor sinceinstitution building and policy development are to be done inparallel The project needs the longer term involvement todevelop the local capability and system of effectively lookingat policies The advisor will serve the President Directorand Assistant Director of BOCCIM in a counterpartrelationship As for training we have decided againstacademic but BOCCIM employees may participate in export orinvestment promotion travel andor training programs (discussedbelow) either as resource people or to gain additional knowledge on selected areas of their concern

232 Enhance GOB Ability to Developand ImplementPrivate Sector Promotion Policies

Inputs

a BPED will strengthen the GOB Ministry of Commerceand Industry (MCI) through the efforts of a long-term advisorand the Ministry of Finance and Development Planning (MFDP)through short-term assistance The GOB has made a steady movetoward the localization of positions and has made it very clearthat they are running their own affairs In the Ministry ofFinance and Development Planning for example there are foureconomists who were sent to the US for training who are nowback and in key positions A US long-term advisor has alsorecently been hired directly by the MFDP (the leader of twoUSAID critical past inputs the Strategy Assessment andEvaluation and the Agricultural Sector Assessment) For these reasons the long-term advisor position originally in the PIDfor the MFDP has been changed to short-term assistance

The USAID program has provided significant resources totraining counterparts and other key personnel but is nowdecreasing the numbers of long-term advisors to a few very keypositions not only in this project but in others as wellFor example four years ago USAID had 35 OPEXers under itsBWAST projects and by fiscal year 1992 the number will be zero Almost all of these positions will have been filled by alocal person The advisor to MCI is critical MCI is a central ministry to BPED in terms of leadership instrengthening both local and foreign investment Having along-term advisor in place will help MCI in better assessingpolicies and implementation scenarios New leadership at MCIhas stressed the necessity of this positioning and the need to train members of its staff on-the-job

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

31

IV THE RELATIONSHIP AMONG PROBLEMS SOLUTIONS AND RESULTS

Throughout the text of this paper we have essentiallycovered all the points in paragraphs 3A and B of reftel But a final statement is needed on the question of relationships among problems solutions and results or impact

What this project addresses are three sub-constraintsunder the primary constraint of insufficient private investment in non-traditional sectors These keythree sub-constraints are in order of priority

0 Underdeveloped citizen owned enterprises and participation in private sectoL

0 Restrictive policies and regulations and weak implementation

Low capacity to attract and absorb foreign investment and to export

In attacking these constraints we are seeking as explained in the PID and as modified by this paper to reach several outputs (the number has been reduced partly because wehave dropped financial sector problems as a separatesub-constraint as it was in the original PID) These outputs include

0 A strengthening of the citizen businessperon in Botswana including an improvement in knowledge and skills a strengthening of the institutional capacity of the privatesector to carry out constructive dialogue with government and increased domestic investment

Stronger institutional capacity within the government to manage and improve policy and implementation affecting the private sector and a strengthening of basic attitudes and values vis-a-vis the private sector

0 Increased ability to attract foreign firms resulting in increased investment particularly in export areas

In doing this this project will have an impact as follows

Strengthening institutional capacity and sustainabilityand improving basic attitudes

Directly increasing investment by 175 new or expandedbusinesses in non-traditional sectors and employment by over 3600

A Citizen Participation in Private Sector

A basic element of the project is to strengthen private

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

32

sector institutions The Botswana Confederation of CommerceIndustry and Manpower (BOCCIM) is especially targeted by BPED for this institutional strengthening in the private sector Two long-term advisors are planned for BOCCIM which is the lead agency in the private sector side representing over 80 of thevolume of Botswana business Its advisors will work with BOCCIM personnel and businesses who are members of BOCCIM Through the B-MAP effort we will continue support activities There will be various training efforts Through this BPED will help BOCCIM strengthen its institutional capacity The long-term advisors to BOCCIM will have counterparts It is theintent that these counterparts will learn on-the-job and will independently employ new learning skills after the completion of BPED

The policy advisor assigned to BOCCIM will assist inhelping articulate the policies and implementation activities requiring change on the government side BOCCIM will serve as a central point for dialogue with GOB on policies andimplementation especially through BPED supported workshops and conferences Other private sector institutions are touched upon in this paper and will also participate The Peace Corpswill also have a major effort in small-scale enterprisedevelopment It is anticipated that this project with Peace Corps in the leading role will assist 500 small-scale enterpreneurs during its activities Studies will be made on awider array of finaacing mechanisms and access to credit Industry-specific studies will be undertaken The various training activities are anticipated to reach 2000 of business people during the period of the project The combination ofthese and other activities are expected to lead to an increase in investment estimated at $22 million and employment of 3600 (See page 36)

The project will also foster improvements in this areathrough business-specific advisory services business management seminars workshops etc directed to the private sector

All of the BPED activities are intended to be catalyticin nature The training to be given under BPED will address specific needs An example of how this has worked well in the past concerns training sponsored by USAID with PREIassistance in area ofthe financial management As cited inSection 221 15 participants (or 10 of total participants)recently completed evaluation questionnaires for trainingconducted in October 1988 and March 1989 Through this samplealone the training course was judged to have played a majorrole in investment and employment gains of one million Pula($500000) and 76 employees respectively Through the Small Business Division of BOCCIM a professional body which participants in this course founded other emerging business individuals also are being assisted In its first year ofoperation in Botswana the IESC program resulted in at least 50

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

33

new skilled jobs with more to follow for those enterprisesthat continue to grow Additionally through exportpossibilities uncovered by market studies several hundred newjobs are expected over the next two years (For a completereport see Gaborone 1506)

In all activities in this area BPED resources will bechannelled to and through local organizations to reach theappropriate target audiences in cost-effective ways and tohelp the Mission meet its institution building objectives Forexample short-term assistance will be given to BOCCIM toimprove its business advisory services in five high growthpotential labor intensive industry sub-sectors (The fivesub-sectors will be selected in the early stages of projectimplementation from areas such as (but not limited to)construction tourism specialized agriculture agribusinesshandicrafts business brokering and other professionalservices general manufacturing and the non-farm informalsector) Outputs will be new ideas and structures foropportunities in these non- traditional sub-sectors of the economy and BOCCIMs ability to perform additional analysesAgain this component as with most technical assistance andtraining under BPED will have a short-term impact leading toincreasing numbers of more skilled business people and increasing local investment It will also contribute fundamentally to sustainability -- to institution strengthening

B Government

Mission-supplied advisors have played an important rolein helping the GOBs Ministry of Finance and DevelopmentPlanning develop its policies and programs they have alsohelped through training of counterparts and other trainingactivities in strengthening the institutional capacity of theMinistry A by-product of their inputs can be seen in recentbudget speeches by the former and current Finance Ministers andby the various documents associated with the new developmentplan (NDP VII) Long before the term host country capacitybuilding was in vogue Mission supplied advisors were doingjust that in accordance with Mission objectives and their jobdescriptions Moreover their impact on private sector development has been enormous Healthy private enterprisessuch as exist in Botswana do not develop and grow in a sick economy

Although the GOBs capacity has been strengthenedconsiderably through Mission supplied long-term assistancesignificant work still remains to be done GOB requirementsfor trained personnel have simply grown more rapidly than thecapacity of the local system to fill needs In addition someof the Batswana who have been trained for key positions haveleft to take jobs in the Botswana private sector and must bereplaced While these losses are a concern to ministries such as the MFDP and MCI it is not a loss to the Botswana economyand it is in fact another sign that the private sector is developing

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

34

Nonetheless MFDP MCI and other ministries will continueto need long-term advisors for the near term As it nowstands bright educated young (in their twenties) Batswana are being promoted to senior positions out of necessity butthey lack the experience to develop policies and implementprograms This experience must be developed over timeHopefully other donors and the GOB itself as it is doing inthe MFDP will fund advisors to work with these young leadersin the same way USAID proposes to provide one advisor with theMinistry of Commerce and Industry The one advisor isessential to help in the continuing identification of policyand implementation areas requiring improvement and to assistin the training of a counterpart and personnel in theministry This institutional strengthening is essential sinceMCI is the critical lead ministry affecting the privatesector The end of project should see a greatly strengthenedministry in its capacity to facilitate private sector work

In only one case is external longer-term training beingfunded In this case of six GOB economists the Mission isattempting to help the government strengthens its policyanalysis and planning function 3

This effort to strengthen capabilities within thegovernment will be supplemented by BPED supported jointBOCCIMgovernmentprivate sector workshops and national policyconferences based upon the successful 1988 Francistown conference which will generate a stronger enablingenvironment These workshops and conferences will be supportedby BPED They will identify specifically policy andimplementation impediments Specific seminars will be held forGOB personnel on private sector requirements and activitiessensitive government personnel Consultancies will be made

to

available for specific policy and implementation problems as requested by government

C Foreign Investment and Exports

One indication of the export potential of Botswana is thesignificant number of foreign investors enquiring about andactually setting up operations US firms (Colgate-PalmoliveHeinz Interkiln and Kentucky Fried Chicken) have recentlyestablished themselves in Botswana From the visit of 28 USbusiness representatives representing 20 firms on an OPICMission last year one venture has been signed and another is on the table The former is oriented to the domestic market while the latter will export its products

Botswana is atypical among developing countries in thereturn rate of USAID sponsored long-term trainingparticipants Over 600 Batswana have been trained since 1978(short and long-term) Of these all have returned to Botswana except two

3

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

35

There has been a dramatic increase in the number ofcompanies demonstrating interest in Botswana over the last few years The Botswana Development Corporation receivesapproximately eight serious inquiriesproposals per month Arepresentative office of one of the large international accounting firms has information gathering visits on averagefrom ten firms per week They report that almost always theinquiring companies are interested in both serving the domestic market and exporting overseas

Products which are currently being produced which havegood export prospects include brass iron and leather goodsshoes clay and ceramic products textiles medical supplieswelding electrodes blankets packaging products industrial magnets and vinyl tiles Other export products currently underconsideration include knock-down furniture products crocodile skins and fish from fish farms MAPS identified nonshytraditional areas promisi ng high potential for investmentandor export as construction tourism specializedagriculture handicrafts business brokering and otherprofessional services seiected trade categories and generalmanufacturing

BPED inputs will increase the GOB and private sectorsability to become more proactive in the growth of investments and exports It will allow promotion programs to identify andattract potential investment partners in these and other potentially competitive non-traditional areas

Since 1985 six US firms have invested in Botswana -Heinz Colgate-Palmolive Sheraton Kentucky Fried ChickenPhelps-Dodge and Interkiln Another three investments whichhave been under discussion for some months may be implementedthis year

The interventions proposed in BPED to increase foreigninvestment and exports are ones that have been tried successfully in Botswana and draw upon lessons learned fromAIDs experience in other countries The literature clearlydemonstrates that general public relations efforts whichinclude overseas trips by government officials are notproductive On the other hand well-researched trips forspecific purposes by US business individuals to Botswana andtrips by Batswana overseas are likely to be cost-effective andproductive The OPIC inspired investment of $75 million willhave 100 jobs and the second likely investment of $125 million would lead to 500 jobs

The establishment of six US firms in Botswana since 1985and the positive results of recent US Government efforts to attractive businesses support the contention that the USbusiness community is ready to consider Botswana as an investment location and that targeted initiatives can reapdividends But it takes a continuing effort by both theprivate sector and the GOB BPED inputs will strengthen those capabilities

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

36

Experience to date combined with the PID analysis of theamount of investment which can be expected to accompany BPEDstimulated new business initiatives reinforces the assertionthat the PID estimate of $22 million in new investment is conservative

Final Note Number of New or Expanded Businesses fromboth Local and Foreign Investment

New Investment and Employment

The PID estimates that 175 new business or expansioninvestments in non-traditional sectors will be attributable inpart to BPED activities This breaks down into approximately30 per project year

In 1988 the last year for which full figures areavailable 1307 new businesses were registered in Botswana 4The number of new business registrations has shown a constantlyincreasing trend during the 1980s Estimates for 1989 as yetunconfirmed were for over 1700 new registrations

Over the years 1985-1988 the private sector employmentgrowth rate far exceeded that for parastatals local governmentand the central government pulling up total employmentpace of growth of the private sector has led many economic

The

analysts to conclude that the time in Botswana has arrivedwhere the private sector has become a leading growth sectornot merely responding to government spending stimuli Since1985 the most rapidly growing economic sectors in terms ofemployment have been construction (by 193) manufacturing(by 166) finance and business services (by 165) and commerce(by 157) Formal sector (private and parastatal) employmentgrowth between 1984 and 1987 was about 106

BPED will be working in non-traditional sectors wherethere are significantly fewer firms operating While weestimate that there are 7000 firms (5200 citizen1800 foreign)in Botswana there are far less than 1000 firms in the sectorsthe project seeks to expand Affecting 175 of this pool offirms represents a respectable impact From anotherperspective if 80 of newly registered firms fail (a failurerate based on US experience) this means a net gain of 340firms Thus the start-up or expansion of 30 new businesses per project year is certainly reasonable and consistent witheconomic activity in Botswana The BPED project is needed notonly to maintain this momentum but to increase the rate ofinvestment and employment growth particularly innon-traditional sectors through the development of a strongerpolicy environment and expanded institutional capacity to service the needs of the private sector

4 These are the number of businesses registered with theGOB Registrar of Companies Not all companies onRegistrar are operational In addition there

the are manysmall businesses such as taxis and hawkers who will not

have registered

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579

37

Illustrative Budget ($000s over 6-year LOP)

Inputs AID Host Country

(AID-financed) GOB Private

Long Term Technical Assistance 1560 860 360

Short Term Technical Assistance 2140 250 90

In-Country Training 1736 200 205

External Training 2147 650 120

Commodities 230 50 (vehicle and computer support for 3 LT advisors training amp export promotional materials)

Other Direct Costs 1800 550 2310 (include grants to BOCCIM and IESC)

Project Coordination 2384

(US amp local)

Evaluation amp Audits 300

Sub-total 12297 2560 3085

Contingencies (5) 615 128 154

Sub-total 12912 2688 3239

Inflation (5year) 1338 285 340

Total 14250 2973 3579