| Summary: | Bibliography: leaves 45-49. === There is considerable controversy on the role and impact of foreign direct investment (FDI) on economic growth in developing countries. Empirical studies show inconclusive results. For countries that rely heavily on a single commodity for the bulk of their export revenue, foreign investment is seen as a means by which export diversification can be promoted. Botswana relies heavily on diamond exports and the government has long realised the need for economic diversification. Measures which have been put into place to diversify the economy include a range of policies aimed at promoting sectors such as manufacturing, agriculture, financial services, tourism and construction. An investigation of whether the government's initiatives to diversify the economy are bearing fruit is thus necessary. This study attempts such an analysis by focusing on developments in the manufacturing sector. It examines the role and impact of FDI in Botswana's economy by investigating the pattern of investment and export behaviour of the country's foreign-owned manufacturing firms. More specifically, the factors that hinder or encourage FDI in the country are also investigated. The study uses survey and secondary data to examine these research problems. The findings from the survey data reveal that there is hope for the manufacturing sector in Botswana. The sector can become more export-oriented if problems like low labour productivity, the shortage of skilled labour and high interest rates charged by financial institutions can be attended to. In addition, foreign investors interviewed also felt that government incentives, particularly financial ones, primarily benefit citizen or domestic firms. The major policy recommendations that emerge are that the government should continue to encourage foreign direct investment as foreign firms are employment generating. Also, government should continue to promote the manufacturing sector and other non-mining sectors to diversify the country's production base. Moreover, incentives geared towards foreign investors, particularly exporters should be introduced.
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