ECONOMY
Botswana has enjoyed one of the fastest growth rates in per capita income in the world since independence, although it has slowed considerably due to the global economic slowdown. Economic growth averaged 9% per year from 1967-2006. 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 estimated to be $9.2 billion in March 2009, equivalent to 28 months' cover of 2008 imports of goods and services. In the second quarter of 2009, imports remained in excess of exports, resulting in a trade deficit that was partially offset by the revenues from the Southern African Customs Union. Botswana's impressive economic record has been built on the foundation of wisely using revenue generated from diamond mining to fuel economic development through prudent fiscal policies and a cautious foreign policy. However, due to the global economic downturn and decline in demand for diamonds, the Government of Botswana is predicting a 50% decrease in state revenues in 2009. Government expenditures are predicted to remain close to 2008 levels, with the government using credit and foreign capital reserves to cover the difference. Real GDP remained flat in 2005-2006, but the growth rate recovered to 6.2% in 2006-2007. The government recognizes that HIV/AIDS will continue to affect the economy and is providing leadership and programs to combat the epidemic, including free anti-retroviral treatment and a nationwide Prevention of Mother-to-Child Transmission program.
Mining
Debswana (formed by the government and South Africa's DeBeers in equal partnership) is the largest mining operation in Botswana. Several other mining operations exist in the country, including the Bamangwato Concessions, Ltd. (BCL, also with substantial government equity participation) and Tati Nickel.
Since the early 1980s, the country has been the world's largest producer of gem-quality diamonds. Four large diamond mines have opened since independence. DeBeers prospectors discovered diamonds in northern Botswana in the late 1960s. The first mine began production at Orapa in 1972, followed by the smaller mines of Lethlakane and Damtshaa. What has become the single-richest diamond mine in the world opened in Jwaneng in 1982. The Orapa 2000 Expansion of the existing Orapa mine was opened in 2000. In December 2004, Debswana negotiated 25-year lease renewals for all four of its mines with the Government of Botswana. For the 12-month period ending June 30, 2007, diamonds accounted for 67% of total exports (down from a high of 84% in 2003-2004) and 28% of GDP. Diamond mining, however, is capital intensive and only accounts for approximately 5% of employment. In 2007, Debswana produced 33.8 million carats, down slightly from 34.3 million carats in 2006, but 2007 revenue was 18 billion pula (approximately U.S. $3 billion), a 3.5% increase from 2006. Diamond production for 2008 was 32.6 million carats. Total sales volume for 2008 was 17% lower than that of 2007.
Diamond mining will continue to be the mainstay of Botswana’s economy, with known current reserves sufficient for at least the next 20 years. However, the current economic slowdown greatly impacts Botswana’s diamond mining industry. As part of Botswana's drive to diversify and increase local value added within the mining sector, De Beers opened the Diamond Trading Center in 2008 to shift sorting, cutting, polishing, aggregating, and marketing to Gaborone from London. But the DeBeers group announced that the 2009 scheduled move of its diamond aggregation from London to Botswana would be postponed. The first half of 2009 proved to be a challenge for Debswana as they went through two business shutdowns. Exploration for other kimberlite pipes continues.
BCL, which operates a copper-nickel mine at Selebi-Phikwe, has had a troubled financial history but remains an important employer, although the life of the mine is expected to end in the next 5 to 10 years. Other copper-nickel mines include Tati Nickel near Francistown. Botash, the sole producer of soda ash in the region and supported by substantial government investment, produced 265,000 tons of soda ash in 2005.
Coal-bed methane gas has been discovered in the northeastern part of the country, estimated by the developers at a commercially viable quantity of 12 trillion cubic feet. Development of the gas fields has been slow, however.
Tourism
Tourism is an increasingly important industry in Botswana, accounting for approximately 12% of GDP in 2008. One of the world's unique ecosystems, the Okavango Delta, is located in Botswana. The country offers excellent game viewing and birding both in the Delta and in the Chobe Game Reserve--home to one of the largest herds of free-ranging elephants in the world. Botswana's Central Kalahari Game Reserve also offers good game viewing and some of the most remote and unspoiled wilderness in southern Africa.
Agriculture
More than one-half of the population lives in rural areas and is largely dependent on subsistence crop and livestock farming. Agriculture meets only a small portion of food needs and contributes a very small amount to GDP--primarily through beef exports--but it remains a social and cultural touchstone. Cattle raising in particular dominated Botswana's social and economic life before independence. The national herd is estimated between 2 and 3 million head, but the cattle industry is experiencing a protracted decline.
Private
Sector Development and Foreign Investment
Botswana seeks to further diversify its economy away from minerals, which
account for over 40% of GDP. Foreign investment and management are welcomed in
Botswana. Botswana abolished foreign exchange controls in 1999, has a low
corporate tax rate (15%), and no prohibitions on foreign ownership of companies.
The country's inflation rate had remained stable and comparatively low over the
10 years preceding 2005. However, rising fuel and utility prices along with the
government's 12.5% devaluation of the Pula in May 2005 resulted in a spike in
inflation to 11.4% as of December 2005, which fell well outside the Bank of
Botswana's target rate of between 4%-7%. Inflation as of November 2007 was 7.7%.
The Government of Botswana was considering additional policies to enhance
competitiveness, including a new Foreign Direct Investment Strategy and National
Export Development Strategy. Botswana's parliament adopted both a Privatization
Master Plan and a new Competition Policy that were aimed at fostering economic
diversification.
With its proven record of good economic governance, Botswana was ranked as Africa's least corrupt country by Transparency International in 2009 (37th out of 180 countries, ahead of many European and Asian countries). Botswana is consistently ranked by international organizations as among the freest economies in sub-Saharan Africa. In the 2009 Economic Freedom of the World report, Botswana was ranked 60th overall and third-highest in Africa, while the Heritage Foundation's 2008 Index of Economic Freedom ranked Botswana at 69.7, making it second in sub-Saharan Africa. In 2009, both Moodys’ Investors Service and Standard & Poor's once again assigned Botswana an "A" grade credit rating. This ranks Botswana as by far the best credit risk in Africa and puts it on par or above many countries in central Europe, East Asia, and Latin America. In February 2009, the outlook for Botswana was revised from “stable” to “negative”--a reflection of the pressure on the diamond industry and the predicted decline in revenues.
U.S. investment in Botswana remains at relatively low levels. Major U.S. corporations, such as H.J. Heinz and AON Corporation, are present through direct investments, while others, such as Kentucky Fried Chicken and Remax, are present via franchise. The sovereign credit ratings by Moody's and Standard & Poor's clearly indicate that, despite continued challenges such as small market size, landlocked location, and cumbersome bureaucratic processes, Botswana remains one of the best investment opportunities in the developing world. Botswana has a 90-member American Business Council that accepts membership from American-affiliated companies.
Because of history and geography, Botswana has long had deep ties to the economy of South Africa. The Southern Africa Customs Union (SACU), comprised of Botswana, Namibia, Lesotho, Swaziland, and South Africa, dates from 1910, and is the world's oldest customs union. Under this arrangement, South Africa has collected levies from customs, sales, and excise duties for all five members, sharing out proceeds based on each country's portion of imports. The exact formula for sharing revenues and the decision-making authority over duties--held exclusively by the Government of South Africa--became increasingly controversial, and the members renegotiated the arrangement in 2001. A new structure was formally ratified and a SACU Secretariat was established in Windhoek, Namibia. Following South Africa's accession to the World Trade Organization (WTO, of which Botswana also is a member), many of the SACU duties are declining, making American products more competitive in Botswana. Botswana signed an Economic Partnership Agreement with the European Union in December 2007, and, as a member of SACU, it signed a preferential trade agreement in 2004 with Mercosur. In July 2008, SACU signed its first Trade, Investment and Development Cooperation Agreement (TIDCA) with the United States. SACU also has plans to negotiate free trade agreements with China, India, Kenya, and Nigeria.
Botswana's currency--the Pula--is fully convertible and is valued against a basket of currencies heavily weighted toward the South African Rand. Profits and direct investment can be repatriated without restriction from Botswana. The Botswana Government eliminated all exchange controls in 1999. The Central Bank devalued the Pula by 12.5% in May 2005 in a bid to maintain export competitiveness against the real appreciation of the Pula and restructured the exchange rate mechanism to a crawling peg system to ensure against future large-scale devaluations.
Botswana is a member of the 14-nation Southern African Development Community (SADC), and Gaborone hosts the SADC Secretariat's headquarters. SADC has a broad mandate to encourage growth, development, and economic integration in Southern Africa. SADC's Trade Protocol, which was launched on September 1, 2000, called for the elimination of all tariff and non-tariff barriers to trade by 2008 among the 11 signatory countries. The SADC free trade agreement based on the agreed tariff phasedown was launched at the August 2008 summit in South Africa. Zimbabwe's membership has limited SADC's opportunities for cooperation with the United States.
Transportation
and Communications
A sparsely populated, semi-arid country about the size of Texas, Botswana has nonetheless managed to incorporate much of its interior into the national economy. An "inner circle" highway connecting all major towns and district capitals is completely paved, and the all-weather Trans-Kalahari Highway connects the country (and, through it, South Africa's commercially dominant Gauteng Province) to Walvis Bay in Namibia. A fiber-optic telecommunications network has been completed in Botswana connecting all major population centers. The Civil Aviation Authority of Botswana (CAAB) has been established as a regulator of the air transport services to further enhance the transport system.
In addition to the government-owned newspaper and national radio network, there is an active, independent press (one daily and seven weekly newspapers). Two privately owned radio stations began operations in 1999, and a third began operations in 2008. In 2000, the government-owned Botswana Television (BTV) was launched, which was Botswana's first national television station. GBC is a commercially owned television station that broadcast programs to the Gaborone area only. Foreign publications are sold without restriction in Botswana, and there are 22 commercial Internet service providers. Three cellular phone providers cover most of the country.
Nominal GDP (2008): $14.025 billion.
Real GDP growth rate: 3.5%.
Per capita nominal GDP (2008): $7,343.
Natural resources: Diamonds, copper, nickel, coal, soda ash, salt, gold, potash.
Agriculture (1.6% of real GDP, 2007/2008): Products--livestock, sorghum, white maize, millet, cowpeas, beans.
Industry: Types--mining (36% of real GDP, 2007/2008): diamonds, copper, nickel, coal; tourism, textiles, construction, tourism, beef processing, chemical products production, food and beverage production.
Trade (2008): Exports--$5.127 billion f.o.b.: diamonds, nickel, copper, meat products, textiles, hides, skins, and soda ash. Partners--EU, South Africa. Imports--$3.931 billion f.o.b.: machinery, transport equipment, manufactured goods, food, chemicals, fuels. Major suppliers--South Africa, EU, and U.S.
