Botswana: Economy

Botswana has enjoyed one of the fastest growth rates in per capita income in the world since independence, although it slowed considerably due to the global economic downturn. The economic growth rate averaged 9% per year from 1967-2006, but slowed during 2007 and 2008 to only 3% before dropping to minus 3.7% in 2009. In 2010, real GDP grew by approximately 7.5%, and it is expected to post an average growth of 6% in 2011 and 2012. The government reported that the average consumer price inflation rate dropped to 7.0% for 2010 as compared to 8.1% for 2009.

The government has maintained a sound fiscal policy and a negligible level of foreign debt. Foreign exchange reserves were estimated to be $8.4 billion in September 2010, representing approximately 19 months' cover of imports of goods and services. 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. 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. Diamond mining accounts for approximately one-third of Botswana's GDP and 70% of export earnings. However, the industry is capital intensive and accounts for less than 5% of private sector employment. The global economic crisis greatly reduced worldwide demand for diamonds, and the government reports that Botswana's diamond sales volume for 2009 was 37% lower than that of 2007. Demand has somewhat recovered, and Debswana plans to increase diamond production by 20% in 2011.

Diamond mining will continue to be the mainstay of Botswana’s economy, with known current reserves sufficient for at least the next 20 years. Exploration for additional kimberlite pipes continues. As part of Botswana's drive to diversify and increase production of value-added goods within the mining sector, De Beers opened the Diamond Trading Center Botswana (DTCB) in 2008 to localize some sorting, cutting, polishing, and marketing. Through DTCB, 16 diamond cutting and polishing firms obtain diamonds (about 20% of the total). Known as “sightholders”, these firms have opened cutting and polishing factories in Botswana, creating roughly 3,000 jobs. In 2011, DeBeers and the Government of Botswana announced that they had agreed to shift DeBeers’ aggregation and sorting operation from London to Gaborone by 2013, effectively making Gaborone the major sales point for the company’s diamonds. This will bring additional jobs to Botswana and may entail additional opportunities for diamond cutters, polishers, and jewelers.

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 215,000 tons of soda ash in 2009.

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 11% of GDP, and has grown at an annual rate of 14% in the past 8 years. 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 makes up only 2.3% of 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 accounts for more than one-third 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 has no prohibitions on foreign ownership of companies. 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.

With its proven record of good economic governance, Botswana was ranked as Africa's least corrupt country by Transparency International in 2010 (33rd out of 178 countries, ahead of many European and Asian countries). Botswana is consistently ranked by international organizations as among the freest economies in sub-Saharan Africa. The Heritage Foundation's 2010 Index of Economic Freedom ranked Botswana at 28th in the world with a score of 70.3, the best of any country in sub-Saharan Africa. In 2011, Moody’s preserved Botswana’s A2 credit rating due to the government’s refusal to give in to striking public sector workers, and Botswana is viewed as one of the best credit risks in Africa, on par with many countries in central Europe, East Asia, and Latin America.

U.S. investment in Botswana remains at relatively low levels. Major U.S. corporations, such as Hewlett-Packard, H.J. Heinz, and AON Corporation, are present through direct investments, while others, such as Kentucky Fried Chicken and Remaxx, are present via franchise.

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.

Botswana is a member of the 15-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, calls for the elimination of all tariff and non-tariff barriers to trade among the 12 signatory countries. However, implementation of the protocol has been slow and is not yet complete.

Transportation and Communications
A sparsely populated, semi-arid country about the size of Texas, Botswana has nonetheless managed to incorporate many rural areas 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.
 

Sources:

CIA World Factbook (November 2011)
U.S. Dept. of State Country Background Notes ( November 2011)

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