Botswana

Economic growth

Botswana’s economic performance improved in 2013, continuing the recovery that set in after the 2008/09 global economic crisis. Real GDP growth increased to 5.4 per cent in 2013 from 4.2 per cent in 2012, mainly driven by service-oriented sectors, notably trade, transport and communication, public and financial services.

The sound performance of the non-mining sectors is laudable as it suggests nascent steps towards economic diversification. On the expenditure side, growth in 2013 was mainly driven by public investment which grew by 12.8 per cent from 8.1 per cent in 2012, reflecting the implementation of major government infrastructure projects.

The country’s predominant mining sector registered a rebound in spite of the impact of the sluggish global prospects and the water shortages and electricity outages arising from a severe drought, registering a growth rate of 6.9 per cent in 2013 from a decline of 7.0 per cent the previous year. Performance was supported by higher diamond prices, which were about 3 per cent higher in September 2013 compared to the same period in 2012, combined with the recent relocation of De Beers’ diamond-sorting and sales activity from London to Gaborone.

Mining has been the mainstay of the economy since the 1970s. In 2012, it accounted for 19.6 per cent of GDP (see appendix table A5.2), 30 per cent of government revenue and around 84.7 per cent of foreign exchange earnings. Botswana’s ATI of 30 per cent in 2010 reflects low economic transformation²⁹⁹.

The diamond industry also received a boost in October 2013 when the Okavango Diamond Company conducted its first full-scale sale, in which 76 companies from the world’s major diamond centres participated and over 220 000 carats were sold. The diamond cutting and polishing sector has continued to grow, with the licensing of 11 additional companies, bringing the total number to 27. Sales to the local polishing industry were estimated to have grown from US$ 618 million in 2012 to $770 million in 2013.

Despite its middle-income status, Botswana has to contend with challenges emanating from its narrow economic structure and the attendant over-dependence on the mining sector, in particular diamonds. As earlier noted in chapter III, the current situation whereby services and industry contribution to GDP are higher than that of agriculture reflects a desirable economic structure.

External trade continues to be dominated by exports of mineral products, with diamonds accounting for more than 70 per cent of total export earnings in 2013. For the period up to September 2013 export receipts grew substantially by 52 per cent while the value of imports increased by 13 per cent, leading to a trade surplus.

Preliminary estimates of the current account balance for 2013 indicated a surplus to 1.8 per cent of GDP, reflecting an improvement from a 0.2 per cent surplus in 2012, mainly due to an increase in current transfers, comprising receipts from SACU.

In terms of the direction of trade, South Africa emerges as Botswana’s dominant source of imports, accounting for 63 per cent of the total in 2012, followed by the United Kingdom, accounting for 17 per cent. The shares from the European Union and the United States were relatively small, at 3 per cent and 2 per cent respectively.

The United Kingdom was the most important destination for exports, accounting for 60 per cent of the total in 2012, followed by South Africa with 13 per cent. The European Union and United States accounted for 5 per cent and 1 per cent respectively.

The World Bank report, Doing Business 2014 ranks Botswana’s business environment among the best in Africa.

Overall, the country’s ranking improved to 56 out of 189 economies in 2013, from 65 in 2012, reflecting the impact of significant reforms initiated by the National Doing Business Committee established in 2011. On the Global Competitiveness Index (GCI), Botswana ranked 74 out of 148 countries in 2013/14. Among the

299 African Centre for Economic Transformation (ACET), African Transformation Report: Growth with Depth, 2014, Accra, Ghana.

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country’s strengths are its sound macroeconomic environment, relatively reliable and transparent institutions, with efficient government spending, strong public trust in politicians and low levels of corruption. See figure V.21.

Botswana’s primary weaknesses continue to be related to its human resources base. However, it is clear that by far the biggest obstacle faced in its efforts to improve competitiveness remains its health situation, characterized by high rates of disease and poor health outcomes despite improvements in recent years.

Figure V.21 Botswana GCI Pillars by Rank, 2013-2014

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Source: World Economic Forum, Global Competitiveness Report, 2013-2014.

The sectors most engaged in GVCs are mining (diamonds, copper nickel, soda ash and gold), vehicles, textiles, beef and tourism, with the diamond sub-sector playing the most visible role. The earlier highlighted relocation of the Diamond Training Company from London to Botswana in 2013 and the Government’s decision to reserve a proportion of Botswana’s diamonds for local processing are expected to consolidate the country’s role as a major player in the diamond GVC. The structure of Botswana’s financial sector reveals a small but thriving industry, with commercial banks and pension funds being the most dominant institutions by asset size. With regard to asset quality, robust supervisory standards have ensured the resilience of the financial sector even in the face of shocks such as the 2008 GEFC.

Poverty, inequality and human development

On the social front, the distribution of resources and level of development remain major concerns. With an income Gini coefficient of 0.57³⁰⁰ in 2003, Botswana has a relatively unequal distribution of wealth. The incidence of poverty is also high, with 18.4 per cent of the population living below the poverty line. Other challenges include a high unemployment rate of 17.8 per cent, and a relatively low HDI score of 0.683 in 2013³⁰¹, falling in the medium human development category. This is mainly due to the high HIV and AIDS prevalence of 23.4 per cent that drags down life expectancy. Botswana had an HDI rank of 109 out of 187 countries in 2013. In the same period, it had a GDI of 0.964, and a GII of 0.486. The proportion of the population living below the national poverty line declined from 30.6 per cent in 2002/03 to 19.3 per cent in 2009/10.³⁰²

Educational enrolment rates at all levels remain relatively low by international standards and the quality of the educational system is a challenge. About 90 per cent of the primary school age population (7-13 years) were

300 SADC Statistics Yearbook, 2011

301 UNDP, Human Development Report, 2014.

302 The decline was even more significant in the level of extreme poverty, defined using the one dollar a day poverty line, since in the same period, extreme poverty declined from 23.4 per cent to 6.5 per cent. In addition, poverty has a strong rural dimension, with 8.4 per cent of the rural population living in extreme poverty compared to 2.7 per cent in urban areas.

in school in 2011 and there is almost universal access to primary and junior secondary education. Notably, between 1996 and 2010, the total literacy rate increased from 34 per cent to 83 per cent and gender parity in primary and secondary education has been virtually achieved. Even though the country has made commendable progress in the fight against HIV and AIDS, the prevalence rate of 23.4 per cent in 2013 remains high. As of December 2012, Botswana had attained universal access to anti-retroviral therapy with 96 per cent of those eligible receiving it. The maternal mortality ratio declined from 326 per 100 000 births in 1991 to 198 per 100 000 births in 2008.

On social protection, 98 per cent of eligible orphans are covered, in addition to cash and food baskets for the vulnerable, a primary school-feeding programme, shelter for destitute persons, among others. However, the country suffers from a persistent high unemployment rate of 17.8 per cent, reaching 34 per cent among youth (20-24 years of age), mainly reflecting a mismatch between the quality of education and the labour market demand.

Government efforts, policies and actions

There are several strategies aimed at enhancing private sector competitiveness and growth, such as the Excellence Strategy, 2008; the Economic Diversification Drive, 2011; the National Export Strategy, 2010-2016; the Private Sector Development Strategy, 2009-2013; investment in broadband width; and modernization of the payment system, among others.

Botswana’s prudent fiscal policy remains one of the hallmarks of its macroeconomic framework. Prior to the 2008 GEFC, the Government ran budget surpluses and accumulated substantial savings. The budget outturn for 2012/13 recorded a small budget surplus of 0.7 per cent of GDP, largely on account of improved revenue from SACU. In order to lower the Government’s wage bill, efforts have been made to rationalize state-owned enterprises and outsource programmes to the private sector. The broad structure of revenue is such that tax revenue accounts for around 70 per cent of total revenue, with VAT accounting for about 14 per cent. Botswana’s monetary policy objective is to achieve price stability, targeting inflation rates within a range of 3 per cent to 6 per cent, and recording 4.1 per cent in December 2013.

Credit to the private sector grew by 21.9 per cent in 2012 while there was a decline of 7.8 per cent in government credit. The estimates for 2013 revealed a further slowdown in government credit to about -1.4 per cent and a deceleration of private sector credit growth to 16.4 per cent, which could impact overall growth adversely.

The Government consistently implements a prudent debt policy, limiting public domestic and foreign debt (including government-guaranteed debt) each at a cap of 20 per cent of GDP and they have adhered to this limit even in the face of adverse external shocks. Public external debt was sustainable at 12.6 per cent in 2012/13³⁰³, while domestic debt was 6.1 per cent of GDP in 2012/13.

The most remarkable improvement was recorded in dealing with construction permits, with the rank improving to 69 in 2013 from 164 in 2012. However, procedures for starting a business remain cumbersome, and trading across borders remained the country’s poorest aspect, at rank 145 in 2013/14. To address the shortcomings in the financial sector, the Government launched a Financial Sector Development Strategy (2012-16). The organizational structures in the civil service show clear functional lines with very little duplication of efforts and business processes.

A Customer Satisfaction Survey of Public Services that is expected to guide interventions in areas requiring further attention, as well as the Privatization Master Plan II, 2013-18 were launched. However, it has been announced that the number of civil servants will be cut by 5 000 per year, to help achieve the intended reduction in the public sector wage bill.

303 The bulk of external debt is from multilateral institutions which accounted for 94.8 per cent of the debt in 2012/13, with the African Development Bank being the major creditor accounting for 80 per cent of the total.

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The key policies that have contributed to favourable education outcomes include the provision of free basic education, adoption of an Inclusive Education Policy in 2011, and an ongoing literacy programme that has mainly benefited women. Specific reform measures envisaged include reform of the education system, especially secondary and tertiary institutions, to diversify academic programmes that will equip learners with the needed skills. Cognizant of the fact that education and skills development are critical in enhancing the quality of life, spending on education constitutes about 25 per cent of total budget expenditure. In the health sector, the 2010 Master Health Facility List Report shows that the country had an extensive network of health facilities comprising hospitals, clinics, health posts, and mobile stops, such that over 95 per cent of the total population (and 89 per cent of the rural population) live within a radius of 15 km to a health centre.

On the labour market, key reforms introduced include enactment of e-legislation and the review of immigration procedures and labour laws to attract skilled expatriate labour to Botswana, especially in the context of relocation of the Diamond Trading Centre from London to Gaborone. To address high unemployment, a notable initiative entailed the introduction of the Ipelegeng programme in 2008. This was designed to create temporary employment for those people who needed jobs most and about 66 800 people were employed under the scheme. Although the number declined to 43 651 in March 2011, the Ipelegeng programme has revealed that there is potential for creating temporary jobs during times of need.

Conclusion

While the Government has a reputation for prudent management of mining revenues and also boasts a good governance record and stable democracy, the need for diversification remains critical, including diversification in trading partners to include other emerging ones such as China and India. In spite of the favourable revenue outcomes, Botswana could improve its tax system even further to reduce or eliminate the granting of various exemptions and incentives. Overall, there is need to address unequal distribution of wealth, high levels of poverty, unemployment and the HIV and AIDS epidemic.