Business
Botswana diversifies into financial services: financial hub gains traction
Botswana’s big idea for diversification of the largely mineral-dependent economy is the establishment of a world-class financial services hub in the capital city, Gaborone, to develop cross-border financial and business services within Africa.
Although it has to compete with the region’s biggest and longest-established financial center, South Africa, the hub has gained traction in recent years by attracting regional and global players. This has been helped by Botswana’s reputation for political stability, along with sound fiscal and economic policies, an excellent credit rating and its generally pro-business approach.
Another key driver has been the incentive package on offer for firms that choose Gaborone as their domicile. Established in 2003, the International Financial Services Center (IFSC), now headed by acting chief executive Letsebe Sejoe, provides accredited companies with a sustainable low-tax environment, access to a growing double-tax-treaty network and other benefits.
Botswana’s standard corporate tax rate is 25 percent, but IFSC-accredited firms pay a discounted rate of 15 percent and are exempt from with-holding tax (normally 15 percent) on interest, dividends, management fees and royalties paid to non-residents. They are also exempt from capital-gains tax (15 percent otherwise) and zero-rated for the standard 10 percent VAT.
Accredited firms include AON Risk Solutions, a subsidiary of the US global insurance broker Aon Corporation, and African Alliance, part of the Johannesburg- and London-based merchant banking firm Brait Group. Others include investment-management firm Ariya, a subsidiary of Jersey-based Ariya Capital Group; micro-business and short-term finance provider Letshego; and offshore call centre PTA Solutions.
Another firm, Vantage Capital, is raising finance from international investors, including development finance institutions, to provide mezzanine finance – combining debt and equity – to medium-sized enterprises across different sectors in African target markets. Luc Albinski, managing partner of risk capital for Vantage, is considering Botswana as a potential jurisdiction for the Vantage Capital Fund II. The fund targets a closing of US$250 million by the end of March.
Last year it obtained an initial US$25 million funding commitment from the African Development Bank.
Albinski says Botswana is “quite cost competitive” and notes it has easy access to Johannesburg and Cape Town. But he says it is early days: “We’re going to have to see whether Botswana is able to attract a critical mass of fund managers.”
