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Botswana - Economy

Botswana is widely regarded as the most important rough gem diamond producing country in the world. Africa is widely believed to be the richest continent for diamond mining. The best place to look for diamonds is where diamonds have been found before. In 2013, Botswana was the world’s leading producer of diamond by value, accounting for 26% of the value of global mined diamond production. In 2013, the mining and quarrying sector accounted for 22.4% of the gross domestic product. In 2013, national exports were valued at $7.69 billion, of which diamond accounted for about 82%.

Botswana is a middle-income African country widely known for its wise stewardship of diamond resources that has allowed it to build critical infrastructure, educate its populace and prosper. Yet Botswana also has one of the highest rates of income inequality in the world. This poorer segment of the population tends to be more rural and has struggled with increasingly unreliable rain-fed agriculture.

Dr.E.F.Schumacher, the originator of the concept of intermediate technology and author of the phrase, "Small is beautiful", did pioneering work in the construction of small, easily constructed rainwater tanks in Botswana. The Intermediate Technology Development Group, founded by the late Dr E.F.Schumacher in 196d, has a special interest in rural areas. The African Development Trust, set up in London by Michael Scott and Peter Kuenstler to support the work with which Clutton-Brock was involved in Rhodesia, Nyasaland and Botswana, led in turn to the founding of the Intermediate Technology Development Group by E.F. Schumacher and Julia Canning-Cooke.

Most of Botswana's 1980 population of 800,000 people lived in the eastern part of the country, where the combination of fertile land and sufficient rainfall made the area suitable for cultivation and livestock. The economy was based primarily on livestock raising, in which about 98 percent of the population were engaged. 0nly 5 percent of the arable land was cultivated. Sorghum was the major crop. The country's small industrial sector consisted of the production of asbestos, manganese, gold, and silver. The gross national product per capita was estimated to be under US$l00 per year.

Botswana remains heavily dependent on diamond production, which accounts for about three quarters of exports, one third of GDP, half of government revenue and 3 percent of total formal sector employment, while agriculture (driven by the livestock subsector and beef exports) accounts for only 2 percent of GDP but contributes a substantial proportion of rural income and some 20 percent of total employment.

Botswana’s economy has recovered from the global economic crisis. Real GDP registered robust growth in 2013, underpinned by buoyant activity in the mining sector, particularly diamond production, in spite of bottlenecks in the power and water sectors. According to our estimates, the economy, however, slowed down in 2014, reflecting modest overall growth in nonmining activities, mainly the water and electricity sector which contracted sharply.

Botswana’s growth prospects look broadly favorable. Real GDP growth is projected to moderate slightly during 2015-16. Growth will primarily be driven by the non-mining sectors including trade and tourism, as well as financial and government services. Medium-term growth prospects also depend crucially on the expansion in diamond cutting and polishing activities and the commissioning of a steel manufacturing plant and a horticultural processing plant in 2015.

However, the uncertain external environment, particularly the potential slowdown in emerging markets, exposes Botswana’s narrow export base to significant downside risks. After a fiscal deficit in the aftermath of the global economic crisis, a budget surplus is projected in the 2015/16 financial year, for the fourth consecutive year. This positive fiscal outturn is the result of higher mineral revenue and efforts by the government to rebalance some spending priorities, including reigning in unproductive elements of current expenditure

In accordance to the World Bank's rating scale, Botswana’s per capita income of USD 7,730 makes it higher than most other sub-Sahara countries. As of December 2014, Moody’s and S&P rate Botswana’s sovereign debt as A2 and A-, respectively.

Botswana is rich in natural resources. Minerals, energy, protected environmental areas, agriculture, pastureland and non-timber forest products give Botswana natural capital that amounts to one-third of its total wealth. Botswana’s economic progress since independence is one of the few success stories of the African continent. In 1966 Botswana was one of the 20 poorest countries in the world with a per capita income equivalent to US$80. The country now has a per capita income of approximately US$3,200. There were only 3 secondary schools in 1966. Today there are over 300 secondary schools. All children born in Botswana are guaranteed 10 years of free education. No citizen of Botswana is more than 18 miles from a health care facility.

Botswana is a land-connected country located in Southern Africa. Botswana has historically enjoyed among the highest economic growth rates in the world and its export-driven economy is highly correlated with global economic trends. Development has been driven mainly by revenue from the diamond industry, which has enabled Botswana to provide infrastructure such as transportation and social services. During the 12 months prior to September 2014, Botswana’s economy grew by 4.2 percent and inflation remained at the bottom end of the central bank’s 3 percent to 6 percent spectrum. According to Government of Botswana (GOB), investments within Botswana totaled USD 4 billion in 2012.

According to Trade Stats Botswana, total exports were valued at P6,199.6 million in March 2013, with 85.4 per cent (P5,292.3 million) attributed to diamond exports. Copper/Nickel exports and Machinery & Electrical Equipment (mainly re-exports) contributed 7.1 per cent (P438.4 million) and 2.1 per cent (P130.2 million) respectively, while Meat & Meat Products contributed 1.1 per cent (P66.4 million) to total exports during the month under review. The view that Botswana could add value to copper/nickel by investing in a refinery is supported by the scoping study for BCL’s project to establish and operate a metal refinery in Botswana. The study investigated the possibility of establishing a copper/nickel metals refinery at Selebi Phikwe.

Composition of imports by principal commodities for March 2013 shows that Diamonds contributed 32.1 per cent (P1,664.6 million) to total imports (P5,188.0 million) during the month, followed by Fuel with 18.4 per cent (P956.8 million). Machinery & Electrical Equipment contributed 10.4 per cent (P540.8 million) followed by Food, Beverages & Tobacco and Chemicals & Rubber Products, with 9.3 per cent (P484.6 million) and 8.2 per cent (P427.7 million) respectively. Vehicles & Transport Equipment contributed 6.6 per cent (P339.9 million). GDP Estimated GDP at current prices for the first quarter of 2013 was P28,453.7 million compared to a revised level of P28,673.6 million registered in the fourth quarter of 2012, recording a decrease of 0.8 percent.

The estimated GDP at constant prices for the first quarter of 2013 was P18,689.4 million compared to P19,114.7 million recorded in the fourth quarter of 2012, amounting to a decrease of 2.2 per cent. Real GDP increased by 3.2 per cent in the first quarter of 2013 compared to 5.8 per cent realized in the same quarter of 2012.

The slow growth is attributed to Mining, Water & Electricity, Agriculture and Manufacturing, which recorded negative growths of 3.6, 154.6, 5.0 and 9.5 per cent respectively; all other sectors recorded a positive growth of more than 2.0 per cent over the period. A decrease in real value added of the mining sector was due to a 4.9 per cent decline in diamond production. The decrease in Manufacturing was largely due to the Meat & Meat Products, Beverages and Textiles sub-sectors. The value added of Water and Electricity continues to decline. The fall is attributed to Electricity, which has been contributing negatively to the economy due to a substantial increase in intermediate consumption.

Botswana is a net food-importing developing country (NFIDC) with existing opportunities to boost production of basic commodities, particularly cereals (grain sorghum and maize) and pulses. Cereal national demand stands at 200,000 tonnes per year, of which only 17 per cent is met by local production. Investments in arable agriculture will stimulate private sector development, create employment, create value-addition opportunities, and enhance both food security and, ultimately, exports.

Prior to the emergence of the diamond industry the country’s economy was dominated by agriculture, particularly cattle ranching. At industry level, mining was the major contributor to GDP (35 %) followed by trade, hotels and restaurants (10.9 %) and banks, insurance and business came third at 10.8 %. Within trade, hotels and restaurant industry, trade accounted for 8.7 % and hotels and restaurants accounted for 2.2 %. The lowest contributor to GDP was agriculture, water and electricity, both at 2.4 %.

Between the late 1960's and the early 1990's Botswana recorded the highest sustained real Gross Domestic Product (GDP) growth rates in the world, averaging 6.1% between 1966 and 1991. Following a recession in 1992/93 growth resumed and has continued since. Generally strong growth in diamond revenue has ensured large government reserves and budget surpluses. GDP in current prices increased from P36.7 billion in 2002/03 to P39.9 billion in 2003/04, an increase of 8.6 per cent compared to 15% in the previous year.

GDP per capita grew from P10 297 thousand during 2002/2003 to P10, 629 thousand in 2003/04, an increase of 3.2 % in real terms. During 2003/04 most the sectors except for manufacturing which contracted by 0.5 % recorded positive growth rates. The social and personal services registered 6.2 % growth rate, banks and insurance grew at 5 %, construction at 4.9 %, while General Government increased by 4.6 %. On the other hand, Water and Electricity, Trade, Hotels and Restaurant recorded lower than 4 %. The lowest contributor was Agriculture with 1.1 %.

Total formal employment increased from 285 382 in September 2003 to 296 387 in September 2004 resulting in additional 11 005 jobs. This was a growth rate of 4 %. Some of the major sectors which contributed to the employment growth include, agriculture at 16 %, manufacturing at 8 %, while the construction contracted by 15%. According to the 2003/04 House hold Income and Expenditure Survey (HIES), 462 367 people (76 % of the labour force of 606 827) were employed. Unemployment stood at 23.8 % in 2002/03.

Income inequality is high especially in comparison with other SADC countries in the region although since 1985/6 it marginally declined. The poorest 20% of the population has only 12 % of income share compared with the middle 40% having 29% and the wealthiest 20 % having 59 % of the national income. There is also disparity between income levels of male and female-headed households. This is more pronounced in urban areas where both mean and median incomes of female-headed households is less than half of their male counterparts. Similarly, disposable income (cash income plus income in kind) shows great disparities between urban and rural areas.

The 1993/94 and 2002/03 Household Income and Expenditure Surveys (HIES) show high incidences of income inequality that has been increasing between the two periods. The 2002/03 HIES indicate that the poorest 40 percent of the population had only 5.8 percent of the total income share, compared with 11.6 percent in 1993/94. The income share of the middle 40 percent of the population was 23.3 percent in 2002/03 compared to 29.1 percent in 93/94, while the richest 20 percent of the population got 70.9 percent of total income, compared to 59.3 percent in 1993/94. At household level the income share has not changed much between the two surveys. In 93/94 the poorest 40 percent households had an income share of 9.4 percent compared with 9.2 percent in 2002/03. The middle 40 percent households get the income share of 29.9 percent compared to 29.4 percent in 1993/94. The richest 20 percent households get an income share of 60.9 percent in 2002/03, compared to 61.1 percent in 1993/94.

The median income was P809 (approximately $175) in towns compared to an average of P1 710 (approximately $350) while in rural areas the median was P417 (approximately $85) compared to an average of P641 (approximately $125). (Household Income and Expenditure Survey 1993/1994). Most of the increase was realized in the fourth and first quarters (10.3 and 8.3 respectively). While the second and third quarter experienced a slight decline of 0.2 and 1.0 respectively.

At independence Bechuanaland depended almost entirely on its cattle for its existence. Bechuanaland was a country of 225,000 square miles with a population of 350,000 and with 1,500,000 cattle. The Bechuana regarded cattle in terms of numbers rather than of quality. This is true of many parts of Africa where the number of cattle is an evidence of social prestige. De-stocking was thus prevented in valuable areas which are overstocked. Communal grazing prevents individual initiative in sound pasturation. Whole areas were left to large communities without any individual being allowed his own initiative. The habits of unenclosed fields of families living independently in kraals scattered far and wide also prevented planning and the proper dissemination of instruction in agriculture by experts.