Foreigners decry ban from public tenders
Government finds itself confronting mounting trepidation from foreign enterprises over the enforcement of the recently enforced Public Procurement Act’s Section 76(2).
This regulatory measure, which stipulates that all tenders under central government, local government, parastatals are exclusively reserved for 100 percent citizen-owned companies, has triggered apprehension surrounding the erosion of foreign direct investment (FDI), the imminent withdrawal of foreign corporations from the country's shores and resultant job losses.
What has frustrated the business community further is that not even joint ventures between citizen and non-citizen enterprises or majority citizen owned companies are allowed to participate, as the newly-enforced law does not provide room for that.
This lack of flexibility has exacerbated the concerns and limitations faced by businesses seeking opportunities in public procurement projects.
The ramifications of this tender reservation policy upon non-citizen owned enterprises have proven to be profound. A locally-based foreign investor who virtually engaged in the US-Africa Summit told this publication that, “we foreign-owned firms despite operating for decades face limitations and hostility in public procurement contracts, thereby minimising our growth prospects and diminishing our economic impact upon the local landscape”.
Consequently, concerns have been raised surrounding employment generation, skill development, and the broader economic advancement of Botswana. Critics have lamented the lack of studies or assessments undertaken to evaluate the economic and social consequences arising from the full reservation of tenders exclusively for 100 percent citizen-owned companies.
The absence of comprehensive analyses lends an air of arbitrariness to the decision-making process pertaining to tender reservations, lacking an evidence-based underpinning. A citizen business owner said it is incumbent upon authorities to strike a balance and encourage collaborations between citizen-owned and non-citizen owned companies, as this could bring a level playing field for all businesses while ensuring a sustained inflow of foreign investment and confidence, also aligning the country's commitment to international trade and investment agreements.
He added that mechanisms should be instituted to “facilitate joint ventures” between citizens and foreign investors, promoting collaboration and knowledge transfer. Botswana can strike a delicate balance between attracting foreign investment and nurturing local enterprises by permitting non-citizen entities to participate in tenders through strategic partnerships.
Another citizen who co-owns a distribution business in a 50/50 partnership with a South African partner company expressed deep concern about the impact of the new law on their business. He highlighted that the new procurement law now forces them to only compete in open international tenders, which are very few, which do not require them to be based in Botswana.
“Now we are wondering what is the purpose of operating in Botswana when the government excludes us from all local tenders and expects us to only compete in open international tenders against big companies.
“Our partners are contemplating to shut down the Botswana entity and move everything to the South African headquarters and distribute to Botswana from there”. The investor emphasised the disheartening nature of the situation, as it undermines their commitment to job creation for the workforce in Botswana.
Ensuring transparency and equity in the public procurement process is important. The government must proactively address these issues, particularly in light of big business events such as the US-Africa Summit, where prospective foreign investors must be meticulously apprised of the legislative framework and regulatory constraints affecting their investment decisions.
Transparently delineating the limitations imposed upon non-100 percent citizen-owned businesses within tender processes and providing unambiguous clarity are pivotal components in building trust and attracting foreign investment. Sources argue that the reservation policy tailored for citizen-owned companies, while conceived to promote local economic development, necessitates meticulous evaluation. They are of the view that thorough assessments ought to be conducted to gauge the ramifications of limited access for foreign investors in the public sector vis-à-vis job creation and overall economic progress.
The findings garnered from such assessments can profoundly inform policy decisions and identify areas necessitating prudent adjustments. “To mitigate risks and safeguard business continuity, measures must be instituted to address the potential consequences arising from the exclusion of non-100 percent citizen-owned enterprises in tender processes.
“Prudent allocation of resources to circumvent the loss of skilled labour, dwindling investments, and the decline of investor confidence constitute legitimate concerns that ought to be proactively managed through targeted policies and support mechanisms,” another business operator in the pharmaceutical space, pointed out. However, the implementation of Section 76(2) has engendered doubts pertaining to the government's steadfast commitment to providing stability and predictability for foreign investors.
The perception of restricted access and exclusivity within the public procurement sector may discourage future investments, impeding the country's economic growth and hampering overall development.
The tender reservation policy aimed at citizen-owned entities has also prompted inquiries regarding its harmonisation with other provisions outlined in the Public Procurement Act. Section 53(1) of said legislation underscores the necessity for procurement procedures to be conducted through open domestic bidding, ensuring equal participation by all service providers domiciled within Botswana, irrespective of their ownership structure, be it 100 percent citizen-owned or otherwise.
Detractors argue that the wholesale reservation of tenders undermines fair competition and stifles the ability of foreign businesses to make meaningful contributions to the local economy and foster growth. In response, the Public
Procurement Regulatory Authority (PPRA) through its Public Relations and Public Education Manager Charles Keikotlhae stated that reservation of tenders to citizens and to citizen contractors under Section 76 of the PP Act is not absolute.
The law under Section 76 (2) envisages prescription of reservation schemes that are to be applied in different areas. In addition to that, Section 78 (1) provides for the level of preference to be applied in a descending order as follows – joint venture between citizens and local contractors; sole citizen contractor; joint venture between citizens and local contractors, with majority shares held by citizen contractors; and association arrangements between citizen subcontractors and local contractors.
In addition, the Act also provides that preferences may be applied to any product produced in Botswana, which includes products produced by either citizens or non-citizens made in Botswana.
The above notwithstanding, Accounting Officers are required to satisfy themselves that there are no citizens or citizen contractors that are suitable and qualified to undertake procurement prior to engaging other contractors that are outside the scope of existing schemes.
PPRA denies any conflict between the two provisions. Further, that Open Domestic Bidding is a method of procurement as explained under Section 53 (1). On the other hand, in terms of Section 77 (2) and (3) Accounting Officers are required to adhere to any reservation or preferential schemes in place.
Consequently, Accounting Officers have to take into account such schemes irrespective of the method of procurement employed. In other words, given that the default method of procurement is open domestic bidding, when one starts a procurement, they start by the open domestic market, however within the domestic market they have to apply provisions of section 76.
For example, within the Domestic market there are non-citizens and citizen owned companies, however where there are 100 percent citizens that produce/provide a product/service, reservation has to apply.
As stated above, the reservation under Section 76 is not absolute, particularly taking into account the whole provisions of the Act and its intent. However, the intention of the Act is to identify specific sectors or industries that could be prioritised to stimulate local production, skills transfer, capacity building and create employment opportunities.
The Open Domestic Bidding Method is the default method as prescribed in the Act. This method is meant to promote healthy competition and ensure a level playing field for businesses. The introduction of preference margins as stipulated under Sections 78 to 81 is intended to factor in joint ventures as well as any other associations between citizens, local or international contractors.
The Act came into effect on the 14th April 2022 and the Authority is currently engaging all stakeholders, particularly procuring entities, to ensure understanding, compliance and effective implementation of the new law.
The Government is required to ensure that reservation and preferential schemes for citizens or citizen contractors are consistent with its external obligations and its stable market oriented, macro-economic framework.
By enforcing compliance with the PP Act. Section 7 (2) (c) of the Act mandates the Authority to ensure the application of fair, equitable, competitive, transparent, accountable, efficient, non-discriminatory, honest, value for money and public confidence in procurement standards and practices. The law provides opportunities for joint ventures with non-citizens, Keikotlhae said.
In 2020, FDI inflows reached approximately $233 million, contributing to the country's economic development. The stock of FDI in Botswana stood at $9.1 billion, reflecting sustained interest from international investors. However, the COVID-19 pandemic had a significant impact on Botswana's economy, causing a contraction of 10.5 percent in GDP in 2020.
In terms of the ease of doing business, Botswana ranked 87th out of 190 countries in the World Bank's Ease of Doing Business Index 2020. Unemployment in Botswana has been a pressing issue, with the country facing a rate of 23.6 percent in 2022. The economy heavily relies on the diamond mining industry, which, despite its economic contributions, cannot absorb a significant portion of the workforce due to its labour-intensive nature. Moreover, Botswana's dependence on imported goods further restricts job creation within the domestic economy.
To address these challenges, it becomes crucial for Botswana to attract multinational corporations (MNCs) to establish a presence in the country. MNCs can bring diversification, technological advancements, and expertise, leading to the creation of employment opportunities beyond the diamond sector.
Encouraging MNCs to invest in Botswana's industries can help alleviate unemployment, foster local job creation, and enhance the resilience and diversification of the economy. In addition to the unemployment issue, Botswana has experienced a significant decline in foreign direct investment (FDI) net inflows as a percentage of GDP over the past decade.
According to World Bank data, FDI net inflows dropped from 3.3 percent of GDP in 2014 to 0.3 percent in 2021. The decline has been stark, with FDI net inflows falling from $515 million USD in 2014 to $286 million USD in 2018, and further plummeting to $55 million USD in 2020. Reviving FDI inflows is crucial for Botswana's economic growth and development, as it can bring in capital, technology, and expertise that can spur innovation, create jobs, and boost productivity across various sectors of the economy.
At the time of going to press Botswana Investment and Trade Centre (BITC) had not responded to a questionnaire sent a fortnight ago.