After almost fifty years since it became independent from the United Kingdom, Botswana enjoyed uninterrupted civilian leadership, progressive social policies, and significant capital investment creating one of the most stable economies in Africa. Botswana is a parliamentary republican system. The current President of Botswana is Ian Khama, who assumed the Presidency on 1 April 2008 representing Botswana Democratic Party. Botswana’s cabinet is headed by the President and is divided in sixteen Offices. Those main Ministries that have a direct influence on the economic activity are the following:
Minister of Finance and Development Planning: This Ministry is in charge of the development, proposal and execution of the economic policy of the government, especially of the State Budgets, the control of financial institutions and the taxes levying.
Minister of Infrastructure, Science and Technology: Responsible for preparation and implementation of policies and development plans on land and air transport infrastructure, as well as promoting research and technologies within the country.
Ministry of Foreign Affairs and International Cooperation: Besides foreign affairs issues, investment contracts and cooperation agreements with other countries should be approved by this Ministry.
Ministry of Trade and Industry: Its main responsibility is to regulate industrial and commercial activities coupled with the attempt to attract foreign direct investment.
Ministry of Agriculture: Its main objective is to improve the country’s agricultural productivity through R&D and technology spillovers, diversification and improving the commercialization process, always promoting Botswana’s food security.
Ministry of Minerals, Energy and Water Resources: It coordinates the development and regulation of the energy, minerals and water resources industry.
According to Mo Ibrahim Foundation and its sixth Ibrahim Index of African Governance (IIAG) recently released, Botswana achieves a third position out of 52 overall African countries. Moreover, Botswana is placed in 30th position out of 176 countries regarding Transparency International’s Corruption Perceptions Index 2012. Both indicators place Botswana in excellent positions, outdoing many European countries. Therefore, Botswana is considered to be, along with post-apartheid South Africa, the most democratic nation in Africa.
Over the last decade, Botswana achieved economic growth of more than 4% annually on average. This tendency mainly depended on mining development and political stability which allowed authorities to carry out reasonable economic policies based on a stable macroeconomic frame and fiscal discipline.
Nevertheless, the economic downturn, which had been hitting international trade since 2007, led to a new scenario in terms of growth. This crisis has worsened the economic conditions in general and, particularly, has severely deteriorated the growth rate in 2009 due to a sharp fall of diamond’s global demand. However, after this year, Botswana’s economy dramatically rocketed to a 7% growth rate.
Graph 1. GDP and growth rate
Source: World Bank Data.
Since the last quarter of 2009, the significant climb of the international demand of diamonds, coupled with soaring prices, helped Botswana to achieve positive and higher growth rates of its economy. Therefore, the World Bank forecasts a steady growth assuming diamond’s prices will keep growing.
Total consumption is the main contributor to GDP and reached a peak nearing the 70% in 2009 due to substantial government spending rise. From the industrial organization perspective, the proportion of the mining industry is significant, accounting nearly 40% of Botswana’s total output. Agriculture and manufacturing industry have a limited weight, whereas the service sector, particularly the public administration, is the most predominant sector within the economy.
Botswana greatly depends on foreign suppliers, especially from neighbouring South Africa that accounts nearly 75% of the total imports. Price trends depend, therefore, not only on monetary and fiscal policies but on South Africa’s economic situation as well.
Consequently, reflecting the evolution of South African inflation, since 2000 Botswana’s increase in prices fluctuated between 6 and 12 per cent, significantly above the fluctuation band of 3-6 per cent determinated as an objective by the National Bank, as it is shown on Graph 2. Nonetheless, inflation has dramatically dropped more than six percentage points over the last few years, after reaching a peak of almost 13% in 2008.
Graph 2. Botswana’s inflation evolution
Source: International Monetary Fund Economic Outlook
Several reasons are to blame for the high inflation, according to Bostwana National Bank. Among others, in 2008, prices rose due to the increase of indirect taxes and the price of imported petrol, coupled with the rise of public servants’ pay. Authorities consider that all reasons above were purely timely and proof of this is the consistent decrease since 2009. Last IMF Economic Outlook forecasts inflation in Botswana would plunge under the long-awaited 6 per cent. In line with this, the National Bank, who is in charge of the interest rates evolution, decided to leave interest rates unchanged near 10 per cent.
According to the World Bank data for the last decade, as seen on Graph 3, population in Botswana grew steadily reaching almost two million persons in 2011. In line with this, the labour force had the same trend as total population as it increased gradually since the start of the century. In 2011, labour force in Botswana numbers roughly one million persons.
Graph 3. Population, Labour Force and Unemployment
Source: International Monetary Fund Economic Outlook
Graph 3 also shows figures about unemployment expressed as percentage of total labour force. However, data about how many people do not have a job in Bostwana is sadly lacking for some years. Available data express a peak in 2003 reaching a rate of unemployment of 26 per cent, whereas people without a job dropped to the 17 per cent in 2006. On the other hand, Botswana’s Human Development Index value for 2012 is 0.634 positioning the country at 119 out of 187 countries; this means it is included in the medium human development category. Between 1980 and 2012, Botswana’s HDI value grew from 0.449 to 0.634, an increase of 41 percent proving all efforts made regarding education and health issues. According to United Nations data, roughly 85% of Botswana’s population older than 15 years old can both read and write. Additionally, Botswana’s HDI is above the average of countries in Sub-Saharan Africa.
Botswana undertook a range of prudential fiscal policies, accounting reputable surplus budgets until 2008. However, the global financial crisis started in 2007-2008 hit hard on Botswana’s main revenues: the mining sector. In those years, taxes and royalties dramatically plummeted as extraction and exports of diamonds decreased. In addition, the fall of revenues was coupled with the steep increase of government expenditure to thwart the possible effects of a deep recession. As a result, Botswana’s public sector deficit reached 5.51 per cent of the country’s gross domestic product in 2009 and kept climbing to 11.5 per cent in the following year.
In 2011, in an attempt to reduce its soaring budget deficit, Botswana’s authorities adopted policies to increase revenues, e.g. increasing both direct and indirect taxes and particularly income taxes. By mid-2011, revenues and royalties made a satisfactory recovery as diamond’s global demand rose again. However, in spite of all efforts, Botswana’s deficit slightly declines to a 10.1 per cent, since public expenditure kept unchanged. Nevertheless, as stated on the Minister of Finance and Development Planning’s Action Plan, for the period 2012/2013, public expending will stay the same ensuring national priorities, whilst revenues and grants are expected to grow significantly. Quarterly data prove those trends. Therefore, authorities estimate the net result for the fiscal period of 2012/2013 is a budget surplus of 1.15 billion BWP and would represent about 0.9 per cent of the current GDP.
Investing in Botswana
As seen before, Botswana has a limited population and the vast majority of its territory is unpopulated, coupled with a moderated industrialization and having no sea coast. These facts considerably limit the economic importance of the country, except for the fact that Botswana is the biggest producer of diamonds of the world and the available of own energy resources which makes the economy have a privileged position. In 2000, the Privatisation Policy Act, and in 2005, the Privatisation Master Plan were passed in order to stimulate the private sector through privatisation of public companies and attracting outsourcing companies. The Public Enterprises Evaluation and Privatisation Agency (PEEPA) was created to assess and monitor the application of these Acts. This is how, through public announcements at the local stock exchange, 49 per cent of Botswana Telecommunications Corporation was sold. Additionally, a set of cost-cutting measures were carried out recently. These aim to outsource non-essential functions in every Minister and public institution in order to gain efficiency and reduce public budget as well as stimulating the private sector. The most interesting segments for foreign investors are the mining sector and the tourism sector. The latter is a fast-growing activity that is attracting large amounts in foreign direct investment. Botswana’s hospitality sector is not a mass tourism destination and, thus, it is not a segmented market. A distinguishing feature of Botswana’s tourism is that it attracts high-spending visitors mainly coming from the European Union or the United States. Tourism supply is considered to be a very selective and environmentally sustainable. All in all, tourism revenues are high and increasing. Botswana was ranked 91st out of 139 countries at the Travel and Tourism Competitiveness Index published by the World Economic Forum. The country, known for its beautiful natural parks, is ranked 33rd out of all countries for its natural resources, with much nationally protected land area (ranked 6th), rich fauna, and a lack of environmental damage. Now this proves Botswana has many great investment venues for those investors with large ambitions.