Investors keen on tapping some of Africa’s commodity driven and still surging markets could do far worse than Botswana, which is ranked 2nd (out of 40) in the latest “Economic Freedom” rankings, and 1st in terms of least amount of corruption by Transparency International

In 2007 three of the seven African equity exchanges followed by Bloomberg were at all-time highs, including Botswana’s, whose Domestic Company Index had then risen from 1752 back in 2001 to 8462 (today it stands around 6917).  Overall, the Botswana Stock Exchange has 35 listings spread across three indices.  Nonetheless, many investors remain (perhaps rightfully) weary.  After all, The World Bank estimated in 2005 that real income per head in the 48 countries of sub-Saharan Africa since 1960 rose on average by only 25%. Compare that to East Asia, where real income rose 34 times faster.  But the typical basket of reasons to steer clear of Africa as a whole (political upheaval, corruption, poor infrastructure, etc.), argues Nicholas Vardy, Managing Director of Hayek Capital Management, “mean that the firms that do succeed are some of the savviest around.”  Moreover, Vardy says, “thanks to the ‘Africa discount,’ indiginous African companies trade at half the levels of the Western counterparts.”  Kathryn Cooper, Money editor of the Times UK, writes that one reason for Botswana surging markets has been the increase in the BRICs’ wealth. “Indian companies such as Sitel India seeking cheaper sites for their call centres, just as Western companies outsourced to India,” she states, citing Lars Kalbreier at Credit Suisse.

Vis a vis Botswana, the mineral sector in particular has seen fabulous increases in investment during the past two years.  Botswana’s economy expanded by 6,2% in the fiscal year to June 2007, while average inflation slowed to 7.1%, with growth being widely attributed to both the mining and the nonmining sectors.   According to Loni Prinsloo of Mining Weekly, “Botswana has experienced a serious resurgence of mining activity in the country over the last couple of years, with more discoveries announced almost every month.”  And earlier this year, Frinsloo writes, “the Botswana Minister of Finance and Development Planning,  Baledzi Gaolathe, stated that the minerals sector of the country was flourishing, while adding that ‘exploration for a wide variety of minerals is active and several new minerals projects were launched during last year.’”  Tourism is also  an increasingly important industry in Botswana, accounting for almost 12% of GDP.  To that extent, Botswana’s tourism industry received three prizes at INDABA 2008, Africa’s largest trade and travel show.  A good play on this industry is the exchange listed Chobe Holdings Limited (CHOBE), which recently further increased its footprint in the tourism sector by acquiring Ker and Downey Botswana and The Bookings Company.

Dale Baker, a private client portfolio manager and a former U.S. diplomat with extensive experience in both Europe and Africa, also provided some testament to Botswana’s potential in an article for Motley Fool in early 2007:

“My trip to Africa last year included a stop in Gaborone, Botswana–my first assignment as a diplomat in 1988.  Back then, Gaborone was a sleepy desert capital city with one decrepit movie theater, a couple of bars and restaurants, a few grocery stores, and one decent hotel. But Botswana is one of the world’s largest diamond producers, and the politicians are, mercifully, not corrupt. Botswana obviously had a lot of potential; famous international investor Jim Rogers invested heavily in the tiny Botswana stock market in the 1990s and made out like a bandit as the economy took off.

I had not been to Gaborone in 16 years. While the basic road layout is the same, the city is now jammed with shopping malls, hotels, banks, and much of the same commercial infrastructure you find in big South African cities. A city that used to have one four-way- stop intersection, which really confused the rural drivers, now had rush-hour traffic jams. I barely recognized the place. Imagine living in a quaint cottage, selling it to a new owner, and coming back to find it knocked down and a McMansion in its place.

Many South African companies mentioned above operate in Botswana now. To invest in Botswana’s diamond trade, Anglo-American’s (AAUK) De Beers subsidiary partners with local interests in a 50-50 joint venture, Debswana.”

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