In 2012, Botswana’s economy was adversely affected by the global slowdown, which led to a decline in the country’s major export commodity, diamonds; real GDP registered lower growth at 5.8%; and short-term prospects indicated a further slowdown with growth expected to decelerate to 5.6% in 2013 and to 5.5% in 2014.
On the political front, the focus in 2013 is on the 2014 elections, which are expected to be free and fair, reflecting Botswana’s mature democracy and entrenched political stability.
While Botswana has made remarkable progress in social and human development, as reflected by impressive education and health indicators, the level of poverty remains a major concern for an upper-middle-income country, with 20.7% of the population classified as extremely poor.
Botswana’s economy grew by 8% in 2011, continuing the recovery that had begun in 2010 after the global economic downturn of 2009 and had been aided by improved global demand for diamonds, the country’s major export commodity. Estimates for 2012, however, indicate that the recovery has been difficult to sustain, with the growth rate declining to 5.8%. Deceleration in real gross domestic product (GDP) was due mainly to the mining sector, which declined by 8.0% while the non-mining sectors grew by 9.7%. Projections in the medium term indicate moderate economic growth of around 6% per annum through to 2014, predicated on gloomy global prospects and the associated slow recovery of the mining sector.
In addition to these slack prospects, the country continues to face challenges related to its overdependence on the mining sector. Amongst other major challenges confronting the government are the national unemployment rate of 17.5% and a poverty rate higher than 20%, combined with high income inequality. As part of the country’s National Development Plan (NDP-10), the government is addressing these challenges through a number of initiatives including the adoption of a new National Economic Diversification Strategy, which focuses on private-sector-led economic diversification.
Botswana’s prudent management of its vast diamond resources stands out in Africa as an exemplary case of harnessing natural resources effectively and efficiently for human development, a case that can be emulated in other countries. At independence, Botswana was one of the poorest countries in the continent, ranking amongst the least developed countries of the world, with a per capita GDP of about USD 70. Within about four decades, the country transformed itself into an upper-middle-income country, thanks in part to its mineral (diamond) discoveries and an effective use of the revenues from them. It has avoided the “resource curse” that tends to characterise other countries endowed with natural resources and has had one of the fastest growing economies in the world, with, in the first three decades of independence from 1966 to 1999, an average annual growth rate of about 9%. More importantly, it is commendable that the government has recognised that its diamond resources cannot last forever, and has thus, since 1968, endeavoured to put in place appropriate policies to prepare for the depletion of its mineral base. To this end, main actions have involved accumulating funds for the future, building infrastructure, and investing in health and education. These policies have left the government in a relatively strong position to facilitate a soft landing once the diamond reserves are depleted, possibly by 2029.
Figure 1: Real GDP growth 2013 (South)
Table 1: Macroeconomic indicators 2013
|Real GDP growth||8||5.8||5.6||5.5|
|Real GDP per capita growth||6.8||4.7||4.6||4.5|
|Budget balance % GDP||-8.4||-1.2||-5.5||-4.6|
|Current account % GDP||2.4||6.5||7.4||6.3|
Recent Developments & Prospects
Table 2: GDP by Sector 2013 (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||2.5||2.7|
|Electricity, gas and water||1.2||0.6|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||12.7||13.7|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||14.7||18.7|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||4.5||5.2|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||13.7||15.6|
|Wholesale, retail trade and real estate ownership||-||-|
Due to the difficult global economic conditions, economic growth in Botswana was somewhat restrained in 2012. Real GDP growth is estimated to have declined to 5.8% from 8.0% in 2011. The mining sector, the country’s predominant activity, contracted by about 8% during the year and countered the buoyant performance of the non-mining sector, which registered 9.7% growth. Although new mines have recently commenced operations, the prospects for production of diamonds and diamond exports are uncertain due to slower global demand for rough diamonds, liquidity shortages in the main cutting centres and technical constraints. Nonetheless, prospects for new discoveries of diamonds are high. Several firms are prospecting, including Gem Diamonds, which was awarded a 25-year mining license for its Gope diamond project in central Botswana, while Lucara Diamond Corporation commenced operations at its AK06 diamond mine in the second quarter of 2012, with prospects of producing 400 000 carats of rough diamonds in its first year of operations. With these developments, diamond exports could increase to more than USD 4.0 billion by 2015. In addition, the non-mining sectors have consistently maintained stable and commendable growth rates driven mostly by service-oriented sectors, notably trade, transport and communication, and public and financial services.
On the fiscal front, the global financial crisis interrupted the government’s record of budget surpluses. In 2009, diamond production declined by 46%, leading to a drastic fall in government revenues. As a result, the budget outturn registered a deficit of 11.3% of GDP, from an average surplus of about 4.7% over the previous five years. To ensure fiscal sustainability, the government undertook consolidation measures focusing on both expenditure prioritisation and revenue collection. The budget outturn for 2011/12 realised significant improvement, and the deficit narrowed to 2.2%. A deficit of 5.5% of GDP is estimated for 2012/13. While total revenue is expected to stagnate at 29.6% of GDP in 2012/13, total expenditure is projected to increase to 35.1% of GDP. This improvement in 2012 is largely on account of restrained expenditure on development projects and the public-sector wage bill. Priority is placed on completion of the on-going infrastructure projects, refurbishment and maintenance of existing infrastructure systems, and investment in selected new projects with high returns.
With regard to monetary policy, the Bank of Botswana’s policy objective remained focused on achieving price stability, defined as restricting inflation within a 3-6% range, in line with its comparators in the region. Nonetheless, the economy continued to confront inflationary pressures that have been prevalent since 2007. The inflation rate averaged 8.5% in 2011, but has since experienced a declining trend to 7.2% in 2012. The inflation outlook is expected to be moderate, at slightly above the Bank of Botswana’s target range, due to the restraint in demand underpinned by reining in the public-sector wage bill. A further slight reduction in inflation is expected in the short term as fuel and food prices stabilise. Despite the rather high inflation rate, the Bank of Botswana lending rate has been maintained at 9.5% in anticipation of continued low domestic-demand pressure in the medium term. The prime lending rate of commercial banks remained unchanged at 11% in 2011 and 2012. Growth in the money supply has been modest, reflecting, in part, low growth in credit to the government and the household sector.
Going forward, economic growth is expected to remain robust at around 5.5% per annum through to 2014, especially as the country attracts a range of services (hotels, air services, business-support and financial services) and downstream manufacturing following the relocation of De Beers’ diamond-sorting and sales activity from London to Botswana by end-2013. The major risk to the bullish economic outlook is falling global demand for diamonds.
Botswana's fiscal policy in 2011/12 continued to be geared towards achieving and sustaining macroeconomic stability. The economy weathered the effects of the global financial crisis that had exerted downward pressure on revenues, and the government’s operations thus resulted in an improvement with the deficit narrowing from 13,4% in 2010 to 1.2% of GDP in 2012. This reflected the prioritisation of expenditures and improved revenue collection. Notably, the focus has now shifted to funding high-return projects, completion of on-going projects, privatisation and rationalisation of public institutions through merger of institutions of related functions in order to ensure enhanced service delivery and cost saving. These measures are aimed at attaining a balanced budget but, according to our projections, this will be difficult to achieve.
The country’s tax system remains robust and non-distortionary. The Value Added Tax (VAT) is currently set at 12% and is lower than that of its comparators in the Southern African Customs Union (SACU) region. Income-tax rates are applied progressively in relation to income levels, ranging from 5% to 25% for the high-earning bracket. Thanks to vigorous tax administration by the Botswana Unified Revenue Services (BURS), both tax and non-tax revenue targets have always been surpassed. The structure of revenue is such that tax revenue accounts for around 70% of total revenue, with VAT accounting for about 20%. In spite of the favourable revenue sources, however, Botswana needs to improve its tax-administration system even further. One of the problems that need to be addressed is that due to the granting of various exemptions and incentives, the current effective VAT rate is around 7% against the statutory rate of 12%, and the corporate rate stands at around 18% against the statutory 25%.
With regard to tax administration, the BURS has performed reasonably well in putting in place an efficient tax system. The BURS ensures that taxpayer obligations and liabilities are clear, provides tax-awareness and educational programmes, and implements timely tax audits. Taxpayers are registered in a complete database system, with direct links to other relevant government registration systems such as vehicle registration. As revealed by the 2009 Public Expenditure and Financial Accountability (PEFA) Report, penalties for all areas of non-compliance are set sufficiently high to be effective and are administered consistently.
Table 3: Public Finances 2013 (percentage of GDP)
|Total revenue and grants||37.1||37.3||31.8||29.6||29.6||29.5|
|Total expenditure and net lending (a)||46.9||50.7||40.2||30.7||35.1||34.1|
|Wages and salaries||11.6||11.9||12.1||9.7||10||9.7|
Botswana’s monetary policy objective is to achieve price stability, targeting an inflation rate within the range of 3% to 6%. For most of 2012, however, inflation has fluctuated above the range objective. It has nonetheless remained within single digits, and more importantly, there has been a declining trend from 8.8% in January 2012 to 7.5% in December 2012, driven largely by low domestic-demand pressure as the government reined in public-sector wages. To support the monetary-policy stance, excess banking-system liquidity continued to be absorbed through open-market operations using Bank of Botswana certificates, as well as through increasing the primary-reserve requirement for local-currency-denominated deposits in commercial banks. In an effort to spur domestic investment, the Bank of Botswana rate has remained unchanged at 9.5% since December 2010, as the medium-term inflation outlook is projected to decline. Growth in broad money supply is modest, though projected to rise by 6.8% in 2012, compared to 4.3% in 2011. This modest growth in money supply is associated with the modest credit expansion of 6.8% to the private sector.
With regard to the exchange rate, the real value of the Botswana currency, the Botswana pula, against major foreign currencies has remained stable and competitive, in line with the crawling-peg regime as well as persistent high inflation rates and low demand for the country’s exports into its major markets in Europe, Asia and America. The crawling-band exchange-rate regime is implemented through continuous adjustment of the trade-weighted Nominal Effective Exchange Rate of the Botswana pula at a rate of crawl based on the differential between the Bank of Botswana’s inflation objective and the projected inflation of trading partner countries. The rate of crawl is thus determined by using a forward-looking approach and is revised on a regular basis. There were significant depreciations of the Botswana pula with respect to the Japanese yen at 19.9%, the US dollar at 18.4% and the British pound at 15.0%.
Economic Cooperation, Regional Integration & Trade
In an effort to foster regional integration to spur economic growth, the government continues to be an active member of a number of regional economic groupings. The country has been a member of the SACU since its early years of independence. Its exports to South Africa, Namibia, Lesotho and Swaziland are therefore exempt from customs duties and quantitative restrictions. As a member of the SACU, Botswana signed a Trade, Investment and Development Cooperation Agreement with the United States in July 2008. Moreover, the country still benefits from quota-free and duty-free entry of certain goods into the United States under the African Growth and Opportunity Act. Botswana is also a member of the 15-country Southern African Development Community (SADC). Under the 2008 SADC Trade Protocol, member states accorded each other most-favoured-nation treatment on goods traded amongst them. This covers import and export duties and non-tariff barriers, as well as quantitative import and export restrictions. The country also belongs to the seven-country SADC Economic Partnership Agreement (EPA) group, and was one of the four members that signed an interim EPA with the European Union (EU) in June 2009. Going forward, Botswana and the EU will work towards a full EPA, covering services and investment.
In addition to being a SACU member, Botswana signed a trade agreement in May 2008 with the European Free Trade Association (EFTA) countries comprising Iceland, Liechtenstein, Norway and Switzerland. Under the agreement, qualifying goods originating from Botswana and destined to the EFTA market are granted reduced tariff rates and the same applies to goods imported into the country from the EFTA countries.
Botswana’s external trade is dominated by exports of mineral products, with diamonds accounting for more than 70% of total export earnings. In 2011, exports grew by 28% in Botswana pula value compared to a 16% increase in imports, but available data suggest that this situation may not hold in 2012. By November 2012, imports had increased by almost 14% while exports had grown by 9%, thereby leading to a trade deficit. However, the current account balance is projected to remain in surplus at around 6.5% of GDP in 2012, compared to a surplus of 2.4% of GDP recorded in 2011, mainly grounded on improved receipts from current transfers.
Table 4: Current Account 2013 (percentage of GDP)
|Exports of goods (f.o.b.)||41.3||34||33.3||40.3||44||44.8||45.5|
|Imports of goods (f.o.b.)||32||41.5||34.9||39.1||40.9||42.2||43|
|Current account balance||3.7||-3||1.1||2.4||6.5||7.4||6.3|
Botswana’s public debt has always been minimal and sustainable, reflecting the country’s perennial budget surpluses and prudent external-debt policies. Public-sector borrowing for both domestic and foreign debt is limited to 20% of GDP. It is laudable that the authorities have adhered to this limit, even in the face of adverse external shocks. During the recent global financial crisis, the public debt rose to 16.1% of GDP from 6.7% of GDP in 2008/09. Moreover, the composition of public debt was balanced between external and internal sources until 2010, when external debt accounted for about 70% owing to the global financial crisis. A noteworthy trend is that although public external debt rose sharply from 2.6% of GDP in 2008/09 to around 10.7% in 2009/10, a downward trend has set in, as the financing of budget deficit is largely met through domestic borrowing. Domestic debt is maintained low at around 3% of GDP, in line with prospects of improved revenue collection and expenditure restraint.
Botswana’s gross external debt (public and private) rose sharply from 8.4% of GDP in 2008 to 23.3% in 2009. It is estimated to have declined to 20.4% in 2011 and is expected to gradually decline to 12.3% by 2015. Consequently, the external-debt-to-export ratio is estimated to have declined from 70.5% in 2010 to 60.9% in 2011 and is projected to fall further to 40% by 2015.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
According to the World Bank report Doing Business 2013, which assesses and ranks the business environment in 183 economies around the world, Botswana’s business environment emerges amongst the best in Africa. Overall, the country was ranked 59th in 2013, having slipped by one place from 58th in 2012. The country’s position declined in the categories of starting a business, dealing with construction permits, getting credit, protecting investors, paying taxes and enforcing contracts, despite the government's efforts to streamline procedures as demonstrated by a number of reforms underway, which include setting up a National Doing Business Committee to spearhead reforms. The Committee’s achievements include introducing a licensing system and merging procedures for registration of business and company names. A number of bills were also presented to parliament for discussion in November 2012, targeting various aspects including electronic filing of tax returns and e-payment, on-line registration of companies and on-line application of visas. The Botswana Investment and Trade Centre is also expected to become a one-stop shop for issuance of foreign investors’ permits and license-related applications. Once completed, these reforms could raise Botswana's global ranking substantially.
Botswana has robust microfinance institutions (MFIs) in place in support of the development of small- and medium-sized enterprises (SMEs). The Citizen Entrepreneurial Development Agency (CEDA) and Local Enterprise Authority (LEA) are the leading MFIs. These institutions provide funds for capital expenditure, stock or working capital in new and existing business ventures, and business advisory support services. In addition, CEDA provides a Credit Guarantee Scheme for citizen-owned enterprises wishing to borrow from commercial banks but falling short of the collateral requirements imposed by banks.
Botswana has a small but vibrant financial sector comprising three broad categories: depository corporations (commercial banks and other deposit-taking institutions), other financial corporations, and the offshore banking sector, with commercial banks and pension funds being the two most important segments by asset size. The sector has contributed significantly to economic growth and the diversification drive, and it exhibited remarkable resilience during the global economic and financial crisis of 2009. The robustness of the financial sector is demonstrated by a number of prudential indicators pertaining to asset composition and portfolio quality. Although the number of commercial banks remained the same in 2010 and 2011, the number of exchange bureaus increased to 68 from 58 in 2010, and new products have also been introduced.
With regard to asset quality, banks continued to have a well-diversified loan portfolio. The household sector remained the major beneficiary of total advances with its share increasing from 53% in 2011 to 56% in October 2012. The share to private enterprises declined from 43% to 38%, while that to the public sector increased from 4% to 6% during the same period. The banking sector is on average profitable, although the rate is still low. Return on average assets was just 0.5% in October 2012 compared with an average of 2.8% over 2007-09, reflecting the slow recovery from the effects of the global financial crisis of 2008-09. Foreign-exchange risks remain limited. The ratio of foreign-currency-denominated loans to total loans was 8.5% in October 2012, while foreign-denominated-deposits were 15.7% of total deposits.
Access to credit by the private sector, including household borrowing, is supported by a well-established borrower-information system. According to the Getting Credit category of the World Bank report Doing Business 2013, private bureau coverage stands at 58.9% of adults, while data from the Bank of Botswana indicate that by November 2012, private-sector credit accounted for about 70% of the total money supply and for around 24% of GDP. Interest-rate spreads are reasonable and regulated through open-market operations by the Bank of Botswana to ensure absence of excess liquidity and encourage bank lending for viable projects. To this end, the interest-rate spread between prime lending and deposit rates (12-month fixed deposit) has maintained a declining trend from 7.8% in 2008 to 5.5% in November 2012, encouraging savings and lending for private investments. In fact, the prime lending rate has remained unchanged at 11% since 2010.
Capital-market operations are largely conducted through the Botswana Stock Exchange, which plays the role of operating and regulating equities and the fixed-interest securities market. In this regard, the country boasts one of Africa’s best performing stock exchanges, with aggregate return averaging 24% in the past decade. It is thus the third largest stock exchange in terms of market capitalisation in Southern Africa, a feat that reflects upholding of high standards of professionalism and integrity.
Public Sector Management, Institutions & Reform
The government is a major employer in Botswana. In June 2011, central and local government accounted for 26.3% and 20.8% of formal employment, respectively, with parastatals accounting for an additional 4.4%. The private sector employed the remaining 48.5%.
In terms of the legal and political environment for the security and protection of physical and intellectual property rights, the 2012 International Property Rights Index ranked Botswana 2nd after South Africa amongst all African countries, and globally 39th out of 130 countries. The country’s major strengths include political stability, judicial independence, control of corruption, access to loans and registering property, for which the respective global rankings were 20th, 24th, 29th, 32nd and 36th out of 130 countries.
Another outstanding characteristic of Botswana relates to its pride of place in Africa in terms of financial-management accountability mechanisms. Accordingly, Botswana ranks at the top of African countries in governance and transparency indices. The country was ranked 30th out of 176 countries in the 2012 Transparency International Corruption Perception Index, ahead of all African countries and up by two positions from 32nd in 2011. This is not surprising, given that the government has put in place an accountability mechanism for decisions taken by civil servants in the course of executing their responsibilities. At the highest level, the Constitution of Botswana provides for a number of internal accountability mechanisms in the operations of the three branches of government. To this end, key oversight institutions are effectively in place. They include the Office of the Ombudsman established in 1995, the Directorate on Corruption and Economic Crime established in 1994 and the Public Enterprises Evaluation and Privatisation Agency established in 2001.
Public-sector governance is enforced by the observance and enforcement of ethics for all public servants. Top government officials are required to disclose income and assets, and are not immune from prosecution under the law for malfeasance. To ensure value for money in the utilisation of public resources, a programme for strengthening public- and private-sector governance is underway. It is designed to provide feedback to the public on the utilisation of public resources. It is also aimed to address complaints of maladministration and to hold office bearers accountable for their decisions. The programme is aiming to attain, by 2016, a government-effectiveness and customer-satisfaction rate of 80% and 75%, respectively, from the baseline of 25% in 2009.
Natural Resource Management & Environment
Botswana’s national environmental policy framework covers all the relevant sectors. Guided by its Vision 2016 strategy, the conservation and sustainable management of natural resources are fully integrated into the development-planning process. Within the context of the NDP-10, specific goals have been set across sectors to ensure that Millennium Development Goal (MDG) 7 on environmental sustainability will be reached by 2015. The sectors contributing directly to this goal are Agriculture, Environment, Mining, Energy, Safe and Secure Nation, Education and Skills Development, Trade and Industry, and Local Government. Over one-third of the country’s total land area is under some form of conservation: 17% are national parks and game reserves, 20% are wildlife-management areas and 1% is forest reserves. Community participation in natural-resource conservation is ensured through the Community-Based Natural Resource Management programme.
Emphasis on environmental protection is also demonstrated by Botswana’s active participation in a number of international environmental agreements. These include the Convention on Wetlands of International Importance (1971); the Convention on Biological Diversity (1992); the Convention on Climate Change (1992); the Kyoto Protocol to United Nations Framework Convention on Climate Change; the United Nations Convention to Combat Desertification (1994); the Permanent Okavango River Basin Water Commission Agreement (1994); the SADC Protocol on Wildlife Conservation and Law Enforcement (1999). In compliance with these agreements, Botswana has put in place a number of sector-specific policy measures on sustainable-resource use such as the National Policy on Natural Resources Conservation and Development (1990), the Tourism Policy (1990), the Agriculture Policy (1991), the National Water Master Plan (1992) and the National Settlement Policy (1998).
Botswana boasts a mature democracy and the political scene is remarkably stable. Free and fair elections are held regularly and the constitution provides for fundamental rights and freedoms. The Botswana Democratic Party (BDP) has been in power since the first elections were held in 1965. In the last general elections held in October 2009, the BDP emerged victorious, winning 45 of the 57 parliamentary seats. The focus of politics is currently centred on elections that are due to be held in 2014. To this end, three opposition parties comprising the Botswana People's Party, the Botswana National Front and the Botswana Movement for Democracy launched a new coalition opposition party, the Umbrella for Democratic Change in November 2012.
In spite of the government’s exemplary performance, a few recent developments should be watched closely. For instance, in November 2012, the government rejected almost all the electoral reforms recommended by the Independent Electoral Commission and other stakeholders, thereby eliciting concerns about the slow pace at which the authorities are making preparations for the upcoming 2014 elections.
Thematic analysis: Structural transformation and natural resources
Botswana today claims its place of pride as the world’s leading diamond producer. The diamond sector continues to be the mainstay of the economy. It accounts for about one-third of GDP, more than 45% of government revenue, and about 70% of export earnings. In 2011, Botswana produced 28% of the global value in diamonds, with sales at USD 3.9 billion. The expansion in diamond output, currently at capacity, combined with the exploitation of copper-nickel deposits, has enabled Botswana to amass foreign-exchange reserves equal to more than two years of import cover.
There is vast literature on the exemplary performance of Botswana’s diamond sector, in which there is a consensus that various factors have been at play to explain its resounding success. Many analysts agree that in the case of Botswana, the discovery of diamonds turned out to be a lucky phenomenon, and that the country avoided the “resource curse” mainly because other key ingredients in the recipe for success were already present, including good governance and sound economic management. It is pointed out that on the social front, Botswana has a relatively homogeneous population making ethnic polarisation virtually absent. The reality of good governance cannot be ignored, however, and the country’s leadership deserves credit for designing and fostering conditions of governance that have ensured stability, and social and economic progress. The government established respect for property rights and the rule of law. It maintained a high degree of transparency, which was reinforced by perpetuating the Tswana tribal tradition of consultation. These consultative institutions, known as “kgotla”, inculcated and created a degree of trust in the government by the population such that the authorities were seen as serving the people and promoting development and not as the instruments of one group or individuals for the purpose of amassing wealth. The Tswana tradition also respected private property, and it has been argued that the fact that many of the tribal leaders who helped usher in modern government were also large cattle owners may have reinforced this aspect.
Another outstanding feature that explains the country’s success emanates from prudent economic management that has made it possible to avoid the “Dutch disease”, which describes a situation where the exploitation of natural resources is associated with a decline in the manufacturing sector. Revenues from diamonds were invested in public goods and infrastructure, and the government also took measures to help boost productivity by limiting parastatals and avoiding import-substitution policies. The government also pursued policies that avoided the “volatility curse” by disassociating public expenditure from revenue. Instead, the government established savings funds, thus avoiding typical pro-cyclical behaviour and real exchange-rate volatility.
It is also laudable that the government understands the finite nature of the diamond resources and over the years has put in place appropriate policies to prepare for the depletion of its mineral base. Main actions to this end involve accumulating funds for the future, building infrastructure, and investing in health and education. Such policies have left the government in a relatively strong position to facilitate a soft landing once the diamond reserves are depleted, possibly by 2029. In line with this approach, for most years, domestic saving has been above 40% and investment about 35% of GDP. In addition, the government has been undertaking efforts to promote economic diversification dating back to 1968, with the enactment the Industrial Development Act. Since then, the authorities have put in place diverse policies, strategies and incentive schemes to promote economic diversification over the years. The most recent strategy, which stands out as the most comprehensive, is the Economic Diversification Drive (EDD) initiative. The short-term strategy of the EDD initiative is to use administrative interventions to use local procurement and government-preference margins to promote the development of local companies, while the long-term strategy is to develop a vibrant and globally competitive private sector, independent of government support and protection. The master action plan has six notable thematic areas: i) Sectoral Development and Linkages; ii) Investment and Finance; iii) Research, Innovation, Technology Development and Transfer; iv) Export Development and Promotion; v) Entrepreneurship Development; and v) Quality Control, Standards and Production. While it may be too early to assess the success of the EDD, it is praiseworthy that the government takes this as a very critical initiative, as evidenced by the establishment of a National Strategy Office under the Office of the President to co-ordinate its implementation.
At independence, Botswana was one of the poorest countries in Africa, ranking amongst the least developed countries of the world, with a per capita GDP of about USD 70. Thirty years later, Botswana had transformed itself into an upper-middle-income country thanks to mineral (diamond) discoveries and effective use of its revenues, and into one of the fastest growing economies in the world, with an average annual growth rate of about 9% between 1966 and 1999.
Per capita GDP at current prices more than doubled at current prices from USD 3 204 in 2000 to USD 6 877 in 2008, before the recession-induced decline to USD 5 822 in 2009 as demand for diamonds and other minerals slumped. In 2010 and 2011, per capita GDP at current prices was USD 7 427 and USD 8 680, respectively. Per capita income grew at an average annual rate of 7% during the 1980s, decelerating to around 3% in the 1990s, still higher than its comparators in Africa. That this could be achieved without incurring the “resource curse” often associated with mineral-led economic growth emphasises that the critical factors to harness natural resources for sustainable human development are political stability, good governance, prudent macroeconomic policies, government expenditure geared towards promoting investment in infrastructure, education and health, and avoidance of an overvalued and excessively volatile exchange rate. The major policy lessons are: i) the importance of social policies to translate mineral wealth into broad-based development results; ii) the need to strengthen institutions and state capacity early on as a key objective of development strategies; iii) developing fiscal regimes for rent capture and fiscal expenditure based on a transparent and fair system, preferably managed at a central level in order to minimise distributional conflicts and regional disparities; iv) maintaining flexibility for negotiating mutually advantageous contracts with multinational corporations; and v) putting in place savings and stabilisation funds to manage large and volatile resource flows, while minimising the Dutch-disease effects and pro-cyclical fiscal policies.