About Botswana

At the time of independence, Botswana was largely rural and heavily dependent on the agricultural sector, with a per capita income estimated at less than US$100 per annum. Shortly thereafter, following the discovery of minerals (especially diamonds) it quickly became the fastest growing economy in the world, with growth rates averaging 13 percent during the 1970s and 1980s. Diamonds soon began to dominate in terms of contribution to Gross Domestic Product (GDP), government revenue and export revenue. Significantly, high levels of sustained growth did not translate into substantial imbalances in either the fiscal or external arena.

Today, Botswana enjoys an admirable reputation worldwide for its prudent macroeconomic policies, good governance and sensible management of diamond export earnings. It has made considerable progress in economic and social development over the years due to a number of complementary economic, cultural and socio-political factors. These gains comprise: reduction in the number of people living in absolute poverty; increased access to education, health facilities and potable drinking water; provision of basic shelter; growth in jobs; considerable diversification of the economy; sustained economic growth as well as an improved investment climate; to name but a few.

Past successes notwithstanding, Botswana currently faces the challenge of the global economic downturn, which has resulted in a sharp decline in private demand – especially in major industrialised economies. Thus far, the effects have mainly been felt through lower mineral exports and hence reduced government revenues. This calls for government to exercise even greater financial restraint and discipline to smooth the adjustment process necessitated by the decline in mineral revenues.

Global performance indices
In 2008, for the eighth successive year, Botswana retained its favourable investment grade sovereign credit ratings by both Moody’s Investors Service and Standard and Poor’s at grade ‘A’. This is a worthy achievement in the context of the global credit crisis and economic downturn. The stable outlook notwithstanding, these rating agencies emphasise the need to maintain financial discipline and continue pursuing structural reforms aimed at nurturing diversification in order to reduce reliance on diamond mining.

In the Heritage Foundation’s 2009 Index of Economic Freedom, Botswana scores above the world average on eight out of ten economic freedoms, with an overall score of 69.7. This makes its economy the 34th freest in the world, an improvement of two places from 36th in 2008. In the Sub-Saharan Africa region, Botswana is ranked second out of 46 countries and its overall score is well above the regional average.

The country is in 39th place worldwide out of 183 countries in the World Bank's 2009 Ease of Doing Business Report. Furthermore, the World Economic Forum’s 2009/10 Global Competitiveness Index ranks Botswana 66th out of 133 countries. The same report rates Botswana third in Africa after Tunisia and South Africa.

Botswana is ranked 37th out of 180 countries in Transparency International's Corruption Perceptions Index for 2009 and is rated Africa's least corrupt country. It is ahead of many European and Asian countries and has a proven record of honest economic governance. In addition, Botswana is rated the most peaceful place in Africa in the 2009 Global Peace Index; it is ranked 34th globally.

Socioeconomic development
Driven by diamond mining, Botswana’s favourable economic performance has enabled it to make significant human and infrastructural investments. As a result, most communities now have access to schools, healthcare facilities (within 15 kilometres) and safe drinking water (81 percent). Literacy rates are quite high at 90 percent, and total enrolment stands at 100 percent with a guarantee of ten years of free education for every child.

Botswana is committed to the guiding principles of the United Nation’s Millennium Development Goals (MDGs), which are echoed in the country’s Vision 2016 document.

Botswana Excellence Strategy
‘Botswana Excellence – A Strategy for Economic Diversification and Sustainable Growth’ is aimed at addressing the primary challenge of Botswana, which is to diversify the economy to ensure that Batswana continue to enjoy the fruits of sustained economic growth post depletion of minerals, especially diamonds.

For some time government expenditure has been based on assessed economic and social benefit and covered by current revenue, grants and borrowing, mainly on concessional terms. Given the low expenditure relative to revenue, there has been an accumulation of substantial government savings and, in turn, foreign exchange reserves, which have provided the country with an important cushion against negative shocks while enabling the build-up of a strong base of financial assets to support future development.

Monetary and banking policies contribute to macroeconomic and financial sector stability, with the exchange rate policy used to support the emergence of non-traditional exports and import-competing production, and also to occasionally moderate inflation. Overall, the exchange rate policy has mitigated the dangers of an overvalued currency that often accompany abundant mineral revenues.

National development plans
Economic development and public expenditure programmes are guided by Botswana’s national development plans. As a result of reduced growth in 2007/08, average growth in the first five years of National Development Plan 9 (NDP 9) was 4.4 percent, compared to the 5.5 percent previously anticipated over the course of the plan period.

During NDP 9, six hubs were established in an effort to accelerate economic diversification and growth as well as create more employment opportunities. This new strategy was undertaken in order to leverage Botswana’s comparative advantage in areas such as diamond mining, innovation, education, health, tourism and transport, and enable the exploration of regional opportunities and markets to further diversify the economy.

National Development Plan 10 (NDP 10) covers the period from 2009 through to 2016. With the theme of ‘Accelerating Vision 2016 Through NDP 10’, it adopts a broad, multi-sectoral and long-term approach, which not only considers social and human development issues, but re-emphasises the importance of results and value for money. According to the Ministry of Finance and Development Planning, real GDP is anticipated to grow at an average compound rate of 3.1 percent per annum during NDP 10.

International and regional growth
The turmoil in the global financial sector has resulted in falling producer and consumer confidence, which consequently led to deteriorating global growth prospects. The latest estimates by the International Monetary Fund (IMF) published in October 2009 indicate that global output grew by a lower rate of 3.0 percent in 2008, compared to 5.2 percent in the previous year. World output growth is expected to contract by about 1.1 percent in 2009.

While there was some recovery in global economic outlook during 2009, it is anticipated that the current rebound will be sluggish, with growth projected to reach about 3.0 percent in 2010. During the 2010-14 period, global growth is forecast to average just above 4.0 percent.

Growth in the advanced economies slowed down significantly in 2008, but remained positive at 0.6 percent. In 2009, advanced economies are expected to register a negative growth rate of 3.4 percent. Average annual growth in 2010 is forecast to be only modestly positive, at about 1.3 percent. The recovery is being felt first by advanced economies in Asia.

Emerging and developing countries grew at a lower but still healthy growth rate of 6.0 percent in 2008, compared to 8.3 percent in 2007. According to the IMF’s October 2009 forecast, these economies are projected to decelerate substantially in 2009 to real GDP growth of 1.7 percent before rising to 5.1 percent in 2010. The rebound is driven by China, India and other emerging Asian economies.

Further, the IMF estimates that, following an average of 6 percent growth in the 2004 to 2008 period, activity in African economies will decline to 1.7 percent in 2009, before rising to 4.0 percent in 2010. Sub-Saharan Africa is estimated to have grown by 5.5 percent in 2008. This is forecast to slow to 1.3 percent in 2009 before picking up in 2010 to post growth of 4.1 percent. While disappointing when compared with the robust growth of the mid-2000s, performance is still encouraging given the severity of the external shocks.

Although the Southern African Development Community (SADC) region has shown improved economic output over the past five years, with most countries recording positive growth rates, these nevertheless fall short of the regional target of real GDP growth of 7.0 percent for 2008. In 2007, SADC’s (excluding Zimbabwe) real GDP growth rate averaged 6.8 percent. Slower economic growth is explained by insufficient investment and the undiversified nature of most member states’ economies, as well as the impact of the global recession.

The domestic economy
According to the IMF’s World Economic Outlook of October 2009, Botswana’s real GDP grew by 2.9 percent in 2008, following growth of 4.4 percent in 2007. The slower growth is mainly due to the contraction in mining output, which had begun even before the onset of global economic turmoil in the second half of 2008. Nevertheless, the domestic economy, which contracted in the last quarter of 2008 and the first quarter of 2009, is projected to have recovered to positive growth in the second quarter, largely reflecting developments in the world economy and the consequent beneficial impact on the diamond sector; this trend is expected to be sustained going forward.

According to the Formal Sector Employment Survey, total formal sector employment increased by 2.2 percent from 301 978 persons employed during March 2007 to 308 617 in March 2008. In absolute terms, 6 639 additional jobs were created during this period. The government is presently promoting the informal sector as an avenue to create additional jobs.

The number of informal businesses is estimated to have increased by 72 percent, from 28 726 to 40 421, between the 1999 and 2007 Informal Sector Surveys.

The Bank of Botswana’s monetary policy framework was updated in 2008 by abandoning the annual inflation objective, which has been replaced with a medium-term objective with a three-year time horizon. Monetary policy remained tight in 2008, mainly on account of high inflation, with the average year-on-year annual inflation at 12.6 percent in 2008 compared to 7.1 percent in 2007. However, in the context of weaker output growth and lower fuel prices, inflation decreased from 13.7 percent in December 2008 to 7 percent in June 2009.

During 2008, the pula appreciated against the South African rand by 10 percent. It depreciated by 18.2 percent against the SDR, while it lost ground by 20.1 percent against the US dollar. Overall, the pula has remained relatively stable in real terms, reflecting the usefulness of the crawling peg exchange rate mechanism. In the six-month period to June 2009 the pula appreciated by 9.9 percent against the SDR, mostly reflecting the 10.7 percent strengthening against the US dollar.

Information courtesy of B&T