Structure of the economy

The Botswana economy is still dependent mainly on mining, particularly diamonds for most of its exports and GDP. Attempts at diversification into manufacturing have not been entirely successful, but Botswana has sound finances and a strong currency. It is well positioned to take advantage of good transport and telecommunications infrastructure and its recent sovereign credit rating to launch into the new "knowledge economy" particularly financial and other services.

Botswana is a large country, with a small population and one major source of wealth, its diamonds. It has enjoyed uninterrupted growth and soaring per capita income since diamond mining began in 1971. The diamond industry has transformed Botswana from a poor agricultural economy to one in which diamonds account for 80% of exports, 50% of government revenues and 33% of the Gross Domestic Product.

Botswana has also enjoyed a stable, well managed economy since independence in 1966. Growth has been fast but smooth, with GDP increasing at over 9% in the first three independence decades. With a small population of only 1.7m and huge diamond exports, per capita income is now $3,300, higher than most African countries including its sophisticated neighbour South Africa.

The Presidential Task Group reporting on a long-term vision for Botswana set out government policies that would "ensure prosperity for all by the year 2016".

Sound finances
This growth not been achieved at the expense of inflation, current account deficits, or debt. Botswana has always had inflation under control and has enjoyed budgetary surpluses for two decades, and massive foreign exchange reserves, though spending on tackling AIDS and other social infrastructure is now rising. It has maintained political, economic and social stability that has eluded most of its neighbours.

Its currency has always been one of the strongest in Africa — much stronger than its regional partner South Africa. Sound economic management and lack of indebtedness was recognised internationally when Botswana was awarded a sovereign credit rating of A2 by Moody's and A by Standard and Poors, the highest rating in Africa.

Structure of the economy
The rapid growth of diamond mining in the economy has meant that mining and government expenditure account for about half of the GDP, while agriculture has fallen from 40% of the GDP and about 90% of total employment at the time of independence to less than 4% of the GDP and 16% of employment today.

But, in line with government policy, diversification is gradually taking hold. Tourism has become the country's second largest foreign exchange earner now earning $240m a year. It now accounts for 10% of the GDP and shows continuing potential despite the international decline in air travel following the disaster at the New York Trade Center in 11 September 2001.

The construction industry has thrived on the expanding economy and now accounts for 6% of GDP while manufacturing, though afflicted with several failures such as the closure of the Hyundai car assembly plant, accounts for 5% of the GDP. All this means that though mining's production and earnings are rising, its share of the GDP has shrunk from 53% in the early 1980s to 33% today. In the same period the total national GDP has grown threefold from P5bn to P15bn.

Botswana's traditional cattle industry is still by far the most important industry in the agricultural sector. Despite drought, poor grazing conditions, and an outbreak of cattle lung disease, the Botswana Meat Commission still exports most of its premium beef to Europe. It has a quota to supply 18,900 tonnes of beef a year to the EU.

Economic planning
The government is in the course of preparing the 9th National Development Plan following the mid-term review of the 8th plan, which terminates in 2003. It will set out policies to tackle the most critical issues facing the nation including the battle against HIV/AIDS, the continuing high level of unemployment, the need for sustainable economic diversification, reform of the public sector and citizen economic empowerment.

Economic diversification remains a key objective. This requires more foreign investment to bring in capital, skills and technology so that local firms become more competitive. Investment is needed in non-traditional agriculture, manufacturing, tourism, financial and business services as well as mining outside the diamond sector.

The government is planning to support economic diversification by its macro economic policies of monetary stability, low tax rates and competitive exchange rates.

Trade pattern
Botswana takes almost 80% of its imports and most of its electricity from South Africa. Almost all its imports of consumer goods, machinery, food and vehicles come across the South African border with prices necessarily inflated by transport costs. Most exports are diamonds, sold on the international diamond markets and meat and meat products going mainly to the European Union.

Botswana enjoys membership of the Southern African Customs Union, a free trade area that also shares revenue from customs duties with its neighbours — South Africa, Namibia, Lesotho and Swaziland. It is also an active member of the regional organisation; the Southern African Development Community (SADC) that creates a custom free zone for internally produced manufactures.

Botswana also enjoys privileged access to European markets through the Cotonou Convention and can take advantage of the Africa Growth and Opportunities Act, the trade initiative passed by the US in October 2000, which provides duty free access into the USA for various African exports, especially fabrics and garments.

International Financial Services Centre
With its newly acquired international credit rating and its reputation for sound financial management the government decided, from mid-1999, to attract financial institutions into an International Financial Services Centre. Several companies have already obtained licences to operate under the IFSC umbrella.

Freedom from exchange controls and tax incentives are already reaping their rewards. "We could become the offshore centre of the African continent," says Linah Mohohlo, the Central Bank governor. The Botswana Institute for Development Policy (BIDPA) is also optimistic: "Progress with the IFSC is promising," it says in a recent report. BIDPA expects the IFSC will kick start investment in the services sector.

Transport
Botswana is a landlocked country and most of its exports and imports come through South Africa. Even by air there are no direct long haul connections. Most international flights have to pass via Johannesburg or other neighbours. All this adds considerably to internal costs. But Botswana's road links to South Africa are good, and the Trans-Kalahari Highway opened in 1998 gives another outlet to Namibia. Internally Botswana has over 20,000 kms of roads and tracks. Many of the main arteries are tarred and provide excellent transport links.

Privatisation
In order to raise revenue and increase efficiency of the state owned sector, the government has adopted a policy of privatisation. According to the Ministry of Finance the objectives of privatisation are to improve the efficiency and delivery of services, to raise the country's growth potential by securing stronger flows of foreign direct investment and technology transfer and to create further opportunities for the growth of the citizen business sector.

The aim is to progressively diminish the role of government in providing marketable goods and services and gradually hand over to the private sector.

Other objectives are to:

• Increase direct citizenship participation
• Accelerate the rate of economic growth by stimulating entrepreneurship
• Reduce the size of the public sector
• Relieve the financial and administrative burden of government

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