Botswana: Risk Assessment
Country Risk Rating
Business Climate Rating
- Abundant natural resources (notably diamonds, but also copper, silver, and nickel)
- Low public and external debt
- Large foreign exchange reserves
- Political stability and the level of governance place the country among the top performers in sub-Saharan Africa in international business environment rankings
- Member of the Southern African Customs Union (SACU)
- Dependence on the diamond sector (over 90% of exports)
- Inadequate infrastructure (water and electricity production and distribution)
- High inequality and unemployment, poverty maintained at a relatively high level
- Lack of skilled labor, small domestic market
Steady growth keeps the recovery on track
The diamond-rich economy should continue to benefit from improved terms of trade: demand and prices for diamonds are expected to increase, primarily because of trade sanctions against Russia, the world's largest producer of rough diamonds. Similarly, copper production is expected to grow with the anticipated exhibition launch at the Motheo mine, which is operated by Sandfire Resources, thereby supporting activity. As the COVID-19 restrictions become less severe, the tourism sector, which accounted for 15% of the GDP before the crisis, will gain further momentum. Moreover, the year 2023 will see the implementation of the "Reset Agenda" led by President Masisi, which aims to diversify the economy by developing financial services, manufacturing, and tourism. More generally, this agenda seeks to prioritize civil service reform, digitalization, and the development of value chains (notably by working on diamonds to increase their value added). This should increase the resilience of the economy and enable job creation. However, growth could be constrained by the tightening of monetary policies in advanced economies, impacting aggregate demand and promoting volatility in global markets and capital and investment flows. Domestic inflation is expected to remain high due to the impact of the war in Ukraine on energy and food prices: it will continue to weigh on the purchasing power of the most vulnerable households and is likely to lead to monetary policy tightening, which has already begun with the 100 basis point increase in the Monetary Policy Rate between April and June 2022. Such measures will contribute to maintaining the pula's peg to the rand and the SDR. This could also weigh on domestic private investment. Finally, a fiscal consolidation plan is planned, which could reduce social transfers and public subsidies.
Public and external accounts strengthen
While the health response to the COVID-19 crisis, as well as the expenditures related to the associated "Economic Recovery and Transformation" plan, led to a deterioration of the public accounts, the available balance should improve and turn slightly positive in the 2022-2023 fiscal year, thanks to the fiscal consolidation plan aimed at controlling public spending, better allocating it to development objectives, and restoring budgetary margins to pre-COVID-19 levels. Medium-term government reserves are expected to be rebuilt and depleted in recent years due to a greater reliance on accounts than on public debt. Despite possible further subsidies to mitigate the impact of inflation on households, expenditure will be contained by controlling the wage bill, notably through savings on vacant posts and the freezing of civil service salaries, and better targeting of social spending. Increased tax administration efficiency and the mining industry's super-profits are expected to boost revenues. Although public debt has increased during the crisis, it remains well below the average for emerging and African countries as a percentage of GDP. It is expected to stay at around 23% of GDP, of which about 35% is domestic debt.
Despite their decline, foreign exchange reserves remain comfortable, covering over six months of imports. In 2023, the current account should be in surplus. Increased revenues from diamonds (about 90% of exports), linked to their high price and the shift in demand from Russia, as well as from copper sales and tourism revenues, will offset the still high import bill for food, electricity, and fuel, as well as payments for mining services and repatriation of profits by foreign operators.
Political stability, but inequalities are a challenge
The Botswana Democratic Party (BDP), which has been in power since the country's independence in 1966, won 67% of the vote and 38 of the 57 seats in the October 2019 parliamentary elections. The incumbent president, Mokgweetsi Masisi, who hails from the BDP, was therefore confirmed in office by a vote of the National Assembly. Despite some loss of popularity for his handling of the pandemic, and a growing rivalry with his predecessor, Ian Khama, Masisi is expected to remain in power until the 2024 elections. Having been governed through several decades of growth and development, the BDP enjoys significant political capital. However, high levels of unemployment (26% in early 2022) and inequality (the 10th highest Gini coefficient in the world) could challenge social stability. As the economy is food and oil importing, the volatility and high prices of these products due to the war in Ukraine could further increase inequality and poverty. The country has been an example of good governance in Africa, with peaceful and transparent elections. However, specific trends favored by the continuity of power granted to the BDP since 1966 seem to indicate an institutional decline, such as the excessive influence of the executive on the judiciary (WEO Global Competitiveness Report), questionable budgetary transparency (Ibrahim Index of African Governance) or media under the power of the government (via the Media Practitioners Act of 2008). However, the judicial environment remains business-friendly, with substantial property rights and investor protection, special economic zones, and relatively light administrative formalities.