The environment of small scale business and the informal sector in Botswana: Constraints, problems and prospects

In a bid to fight unemployment and poverty, and to build a truly indigenous private sector, a number of countries in Sub-Saharan Africa have made the development of small scale enterprises and the informal sector a policy priority. Policy-makers see a strong need that the informal sector should play a seed-bed role in helping Botswana enter business, and in creating employment. In pursuit of these twin goals, the Botswana government has tried a number of widely advocated strategies of developing the informal sector such as provision of training and extension services. In addition, the government has also recently embarked upon the process of deregulation as more and more scholarly works, and donors, have suggested a linkage between excessive regulation, and failure of these enterprises. Too much regulation, particularly in the area of licensing requirements, are said to limit the formation of new businesses. Some consensus seems to have emerged that in many developing countries, the regulatory environment is not conducive to business growth. Using data from a randomly picked sample of 237 entrepreneurs from Botswana, this study argues that too much regulation is not really a problem in Botswana. Actually, for some of the enterprises such as those into manufacturing, the regulatory framework is quite favorable. The registration process for much of the informal sector is fairly simple, with no major costs involved. However, this is far from suggesting that there is a favorable environment for business to grow in Botswana. A number of issues arising from the land tenure system and its corresponding property right are identified as some of the most important barriers to business growth. First, the administration of land has resulted in a very expensive land market in which it is very hard for a small entrepreneur to acquire a plot for business development, not just because of the artificial scarcity of land (particularly in urban areas), but the excessively high prices of such land. In addition, the property rights under which many of these entrepreneurs hold their property limit possibilities that such properties could be mortgaged, which is important in having access to formal financial markets. This is also happening in an environment where other avenues of saving have been diminished by the negative interest rates in the banking sector. This study therefore argues that any future efforts to develop the small scale sector and the informal sector must address these constraints. The study acknowledges the fact that the Botswana government has shown awareness to these problems. However, they still remain peripheral in discussions of business sector development