Economy and Trade
Formerly the British protectorate of Bechuanaland, Botswana became independent in 1966. Four decades of uninterrupted civilian leadership, progressive social policies, and significant capital investment have created one of the most dynamic economies in Africa. Mineral extraction, principally diamond mining, dominates economic activity, although tourism is a growing sector due to the country’s conservation practices and extensive nature preserves.
Botswana has maintained one of the world’s highest economic growth rates since independence, although growth slowed to about 5% annually in 2006–2008. Through fiscal discipline and sound management, Botswana has transformed itself from one of the poorest countries in the world to a middle-income country with a per capita GDP of nearly US$15,800 in 2008. Diamond mining has fueled much of the expansion and currently accounts for more than one-third of GDP and for 70–80% of export earnings. Tourism, financial services, subsistence farming, and cattle-raising are other key sectors. On the downside, the government must deal with high rates of unemployment and poverty. An expected leveling off in diamond mining production overshadows long-term prospects.
Economic Policy over 12 Months
Botswana has enjoyed one of the fastest growth rates in per capita income in the world since independence. Economic growth averaged 9% per year from 1967 to 2006. The government has maintained a sound fiscal policy, despite three consecutive budget deficits in 2002–2004, and a negligible level of foreign debt. Foreign exchange reserves were US$10.2 billion at the end of November 2007, equivalent to 28 months’ cover of 2007 imports of goods and services. Botswana’s impressive economic record has been built on the foundation of using revenue generated from diamond mining to fuel economic development through prudent fiscal policies and a cautious foreign policy. However, economic development spending was cut by 10% in 2004/05 as a result of recurring budget deficits and rising expenditure on healthcare services. Development spending began to increase again in 2006/07 and was budgeted to increase by 27% in the 2007/08 fiscal year.
The government is in the tenth year of a long-term development plan called Vision 2016, the full title of which is: “Long term vision for Botswana, towards prosperity for all.” The “Vision” is seen as complementary to the United Nations Millennium Development Goals, to which Botswana also subscribes, and the country’s 2008 budget took for its theme the need to accelerate the achievement of Vision 2016. In practice, this meant setting policies for the reduction of poverty and job creation, as well as stimulating economic diversification. A report by the IMF into the long-term sustainability of Botswana relying on diamond mining for its fiscal stability pointed out that, at present rates of mining, the country’s diamond resource could run out by 2029. This sets serious long-term challenges, to which the government is now responding.
Commenting on Botswana’s economy, the World Bank calls the country “an example of prudent economic policy and growth,” with the one exception being its record on HIV infection. It points out that the country’s record of three decades of rapid economic growth has few parallels in modern economic history. What makes the country’s example even rarer is that regimes blessed by great mineral wealth usually succumb to “the resource curse,” where corruption and stagnation follow ready access to mineral riches. “Although relative income inequality has not been reduced, it has not worsened either, and with real per capita GDP growth averaging nearly 8% over the three decades, the poor are better off than before as well,” the World Bank says.
Economic Performance over 12 Months
The government’s budget for 2009 laid out its 10th National Development Plan (NDP10), taking the country through to March 2016. For the eighth successive year, Botswana’s sovereign debt was rated by both Moody’s Investor Services and Standard and Poor’s at investment grade A, although both ratings organizations emphasized the need for diversification away from a reliance on diamond wealth to continue. The regional backdrop for the year ahead for Botswana was sketched out in a recent IMF report on Africa which estimates that African economies expanded by 5% on average in 2008, but which forecasts growth declining to 3.4% during 2009.
In fact, the Southern African Development Community (SADC) region had set a target growth rate for 2008 of 7.0% (excluding Zimbabwe). The actual growth rates for SADC in 2006 and 2007 were 6.4% and 6.8%, respectively. The average inflation rate for the region fell from 9.7% in 2006 to 8.3% in 2007. However, sharp rises in food prices and commodity costs in the first half of 2008 pushed inflation into double digits for these economies. Botswana joined the newly formed SADC Free Trade Area (launched in August 2008), and some 85% of tariffs were removed on imports from SADC member countries. This development is expected to have a beneficial impact on stimulating trade among all members of the SADC.
Botswana’s own economy saw GDP growth of 12.5% from BWP71.8 billion in 2006/2007 to BWP80.1 billion in 2008/2009. However, growth measured in terms of constant prices, with 1993/94 as the benchmark, amounted to just 3.3% in 2008/09, down from growth in constant price terms of 5.3% for the previous year.
This was largely caused, according to the Botswana Budget, delivered by the minister of finance and development planning, Baladzi Gaolathe, by poor performance in the mining sector. Real growth in the non-mining sector accelerated from 5.7% in 2006/07 to 8.0% in 2008/09. This was seen as a sign that the country’s drive towards a more diversified economy is gaining traction. The agricultural sector, however, contracted by 4.4% in 2007/08, by comparison with a growth rate of 11.8% in the previous year (2006/07).
Botswana’s services sector turned in a strong performance, with transport and communications growing in real terms by 12.7% in 2008/09.
Unemployment was officially 23.8% in 2004, but unofficial estimates place it closer to 40%. HIV/AIDS infection rates are the second-highest in the world and threaten Botswana’s impressive economic gains.
Support for Inward Investment and Imports
The Botswana Development Corporation (BDC) is the state-owned investment agency, charged with encouraging investor participation by providing loans and equity capital. The Botswana Export Development and Investment Agency (BEDIA) offers a one-stop shop for foreign investors.
Tax Exemptions
Botswana runs a low-taxation environment, with corporate income tax at 25% and a special 15% tax rate is available for certain categories of manufacturing. Further information from the BEDIA.
Statistics
GDP growth: 5.2% (2008)
GDP per capita: US$15,800
CPI: 12.5%
Key interest rate: 16.22%
Exchange rate versus dollar: pulas (BWP) per US dollar—6.7907 (2008)
Unemployment: 7.5%
FDI: N/A
Current account deficit/surplus: US$1.611 billion (2008)
Population: 1,842,323
Source: CIA World Factbook except where stated
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