Refinery or Reinvention?

A pivotal moment in defining the future of transport energy Botswana stands at a fork in the road. One path commits $2 billion of scarce public capital to a stake in an Angolan oil refinery — a low-return, high-risk bet on the fossil-fuel infrastructure of the past. The other invests in eMobility and energy transformation, directly cutting the 7% of GDP that bleeds out of the economy every year in fuel imports.

What kind of car do you envisage driving in 2035 — petrol or electric? It sounds like a casual question, but it is anything but. Embedded in that choice is the answer to one of the most consequential economic decisions Botswana now faces: whether to invest $2 billion in a 30% stake in the Lobito Oil Refinery, or to invest in eliminating the need for fuel altogether.

This is not simply an energy decision. It is a macroeconomic, fiscal, and strategic turning point that will shape Botswana’s growth path and sovereign credit standing for decades to come. The case for the refinery is, at first glance, compelling.

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Botswana imports all of its fuel, and this dependence represents an economic leakage equivalent to roughly 7% of GDP. Every year, vast sums of foreign exchange leave the country to pay for energy. Against this backdrop, the refinery proposal appears strategic — shifting Botswana from being a pure price taker to a partial price maker.

But this logic does not withstand scrutiny. Ownership does not eliminate exposure; it merely repackages it in a more capital-intensive form. Botswana would still be subject to global crude oil price movements, USD-denominated input costs, and external logistics risks.

It is not energy independence. It is equity exposure to the same risks the country already faces — but now with $2 billion at stake. “The refinery does not create energy independence.

It creates equity exposure to the same risks the country already faces — but now with $2 billion at stake.” The numbers are sobering. A capital investment of approximately $2 billion is expected to generate annual returns in the range of $80 to $140 million, based on a normal refining net margin of $5 per barrel. This translates into an internal rate of return of around 3 to 5%, with a negative net present value under any realistic discount rate.

If the internal rate of return on a project is less than the opportunity cost of capital — typically 8 to 10% — then it should not be done. For a sovereign whose cost of capital exceeds this threshold, the implication is unavoidable: Botswana would be borrowing at higher rates to invest in a project yielding less. That is not investment.

It is value erosion. The timing compounds the weakness. Capital would be deployed between 2027 and 2032, while revenue flows would only begin around 2033 to 2035 — a near-decade gap between expenditure and income.

In energy markets, a decade is transformative. Botswana risks committing capital to infrastructure that is already approaching structural decline. There is also a supply mismatch: the refinery’s 200,000-barrel-per-day output means Botswana’s 30% share would yield 60,000 barrels per day, more than double the country’s domestic requirement of 25,000 barrels.

The question must be asked: why invest far more than we need? Botswana currently holds a BBB– credit rating — the lowest rung of investment grade. This is not a comfortable position; it is a threshold.

The refinery investment introduces precisely the types of risks that can push a country beyond that threshold: large-scale external exposure in US dollars, weak and delayed financial returns, and increased reliance on borrowing or reserves, thereby reducing fiscal flexibility. To a ratings agency, this signals deterioration in debt sustainability and increased vulnerability to shocks. The consequence is predictable: a downgrade to junk status.

Once that happens, borrowing costs rise, investor confidence weakens, the currency comes under pressure, and capital inflows slow. There is also a dangerous currency trap. The stability of the pula depends on strong export earnings, controlled import demand, and adequate foreign exchange reserves.

The refinery weakens all three. It requires significant USD outflows upfront, does not materially reduce dependence on imported crude, and may necessitate additional external borrowing. The profound irony is this: a weaker pula makes fuel more expensive domestically, even if Botswana owns part of a refinery abroad.

In attempting to secure fuel, the country may inadvertently increase its domestic cost. This is not energy security. It is exposure layered upon exposure.

“A weaker pula makes fuel more expensive domestically, even if Botswana owns part of a refinery abroad. In attempting to secure fuel, the country may inadvertently increase its domestic cost.” Equally concerning is what the refinery does not deliver. Located in Angola, highly capital-intensive, and operating with significant automation, it creates minimal employment for Batswana.

It does not build domestic industrial capability, stimulate small and medium enterprises, or foster new sectors. At a time when youth unemployment is one of Botswana’s most pressing challenges, this absence of domestic impact is critical. The investment represents capital leaving the country rather than circulating within it.

In short, it achieves none of our NDP or BETP objectives. The true cost of the refinery is not the $2 billion itself — it is what Botswana forgoes by allocating capital this way. Because there is an alternative, and it is not theoretical.

It is immediate, practical, and economically superior: eMobility. This is often framed as an environmental policy, and decision-makers in Botswana probably still see the issue in those terms. That is a profound misunderstanding. eMobility is, in reality, one of the most powerful macroeconomic tools available to the country.

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