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Date: 2009-09-18

Botswana again ranked as a World Economic Freedom leader

Botswana has again been placed among the top performers in the 15th annual Index of Economic Freedom, which was published by the Heritage Foundation and Wall Street Journal. This year's Index measured the level of economic freedom in a 183 countries and territories, once more focusing on 10 specific categories: labor freedom, business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights and freedom from corruption.

Scores in each of these categories are averaged to create an overall score for each country or territory on the index. With an improved overall score of 70 (69.7) Botswana is now ranked 34th in the world and second in Africa, after Mauritius, scoring well above the world average on eight of 10 economic freedom areas measured.

The report further notes that Botswana's global competitiveness is founded on a sensible business regulatory environment, openness to foreign investment, and relatively flexible employment regulations. Hong Kong retained the highest overall index rating (90.0), followed by Singapore (87.1), Australia (82.6), Ireland (82.2) and New Zealand (82.0). The Africa region as a whole is described as having continued to make significant overall progress, notwithstanding the negative impact of the global recession.

In the report's country profile Botswana is characterized as "a politically stable multi-party democracy with a market-oriented economy that encourages private enterprise", which despite its significant natural resources has "avoided the perils of corruption and violence that often accompany such endowments"

Botswana's judicial independence, protection of property rights, and world class financial sector are also praised. The authors, however, take the view that Botswana could still do more to improve its scores in trade freedom and freedom from corruption, further adding that:

"Public Enterprise Evaluation and Privatization Agency was created to drive privatization, but it lacks effective legal authority, and progress has been limited.'

The 2009 Index was edited by Ambassador Terry Miller, Director of Heritage Foundation's Center for International Trade and Economics, and the Foundation's vice president for foreign affairs, Dr. Kim Holmes. Additional Information: Reproduced below are the scores and summaries of Botswana's performance in each of the ten economic freedom categories.

1. Business Freedom - 71.2

The overall freedom to start, operate, and close a business is relatively well protected under Botswana's regulatory environment. Obtaining a business license takes less than the world average of 225 days. The government has established a one-stop shop for investors, and the process for closing a business is easy and straightforward.

2. Trade Freedom 69.0

There are very few non-tariff barriers, but the government maintains import bans and restrictions on some products, a cumbersome standards regime, domestic bias in government procurement, and weak enforcement of intellectual property rights. Ten points were deducted from Botswana's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 75.1

Botswana's tax rates are among the lowest in Southern Africa. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT), a property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 35.2 percent.

Government Size 70.6

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 31.3 percent of GDP.

Monetary Freedom 71.8

Inflation has averaged 8.3 percent in recent years. Most prices are set by the market, but the government maintains price policies for some agricultural and livestock goods and is able to influence prices through numerous state-owned enterprises and service providers.

Investment Freedom 70.0

While generally open to foreign participation in its economy, Botswana reserves a number of sectors solely for citizen participation. Increased foreign investment plays a significant role in privatization of state-owned enterprises. Investment regulations are transparent, and bureaucratic procedures are streamlined and open, although somewhat slow. Investment returns such as profits and dividends, debt service, capital gains, returns on intellectual property, royalties, franchise fees, and service fees can be repatriated without limits. Foreign exchange is not difficult, and there are no restrictions on foreign exchange accounts or international transfers. The constitution prohibits the nationalization of private property.

Financial Freedom 70.0

Botswana's competitive banking system is one of Africa's most advanced. Generally adhering to global standards in transparency of financial policies and banking supervision, the financial sector provides ample access to credit for entrepreneurs. In 2007, there were seven commercial banks, mostly foreign-owned. The government is involved in banking through state-owned financial institutions and a special financial incentives program that is aimed at increasing Botswana's status as a financial center. Credit is allocated on market terms, although the government provides subsidized loans. Reform of non-bank financial institutions has continued in recent years, notably through the establishment of a single financial regulatory agency providing more effective supervision. Insurance and pension funds have grown rapidly, and Botswana now boasts over 100 private pension funds and 32 insurance companies. The state owns the Botswana Motor Vehicle Insurance Fund, but private firms dominate the insurance sector. The Botswana Stock Exchange is small but growing.

Property Rights 75.0

The constitution provides for an independent judiciary, and the government respects this in practice. The legal system is sufficient to conduct secure commercial dealings, although a serious and growing backlog of cases prevents timely trials. The protection of intellectual property rights has improved significantly.

Freedom from Corruption 54.0

Transparency International's Corruption Perception Index rates Botswana as Africa's least corrupt country. It is ahead of many European and Asian countries and has a proven record of honest economic governance.

Labor Freedom 70.0

Botswana's employment regulations are relatively flexible. The non-salary cost of employing a worker is very low, and dismissing a redundant employee can be almost costless.

 

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