BotswanaBotswana has developed from Least Developed Country (LDC) status at the time of independence in 1966 to Middle Income Country (MIC) status within three decades, largely owing to the effective use of revenues from mineral resources following the discovery of large diamond reserves.  Gross domestic product (GDP) per capita more than doubled, at current prices, from 3 180 US dollars (USD) in 2000 to USD 6 760 in 2008 but slipped to USD 6 215 in 2009, reflecting the impact of the global slump on demand for diamonds and other minerals. Despite the impressive progress in per capita income, rates of poverty and inequality are still high.

Botswana’s reliance on diamond exports is a challenge for sustainable economic growth. The global economic and financial crisis of 2008 saw the economy shrink 3.7% in 2009, primarily because of a substantial fall in diamond demand, but it bounced back to growth of 6.4% in 2010. The economy should grow 6.9% in 2011 and 7.0% in 2012. The current account deteriorated sharply in 2009 and 2010 but should improve and return to surplus in 2011 and 2012. The budget came under pressure too, chalking up large deficits that will take longer to bring under control. Foreign exchange reserves have stabilised at around 17 months of imports.

Inflation fell to 7.0% in 2010 from 8.2% in 2009 but continued well above the central bank’s medium-term target of 3.0-6.0%. Inflation should ease into the target range by second quarter 2011 as a hike in value added tax (VAT) and higher controlled prices fall out of the comparison. Lower inflation in South Africa, Botswana’s major trade partner, should also help.

The government is promoting the diversification of the economy away from diamonds and Botswana’s private sector should provide a solid foundation. Botswana has robust macroeconomic policies, an efficient financial sector, good governance and fairly well developed infrastructure after sustained investment. The result is that the country ranks favourably with its peers. The World Bank’s 2011 Ease of Doing Business survey ranked Botswana 52 out of 183 countries. On the Corruption Perception Index compiled by Transparency International, Botswana was ranked 33 out of 178 countries in 2010, ahead of all its sub-Saharan African peers.

Botswana is progressing well with the implementation of reforms required to meet the Millennium Development Goals (MDGs) by 2015. Significant progress has been made in education and in health although HIV/AIDS remains a significant challenge despite proactive measures by the government. Botswana has one of the best Prevention of Mother to Child Transmission (PMCT) programmes in Africa where 96% of babies born under the programme are HIV negative.

Figure 1: Real GDP growth (S)

Source:IMF and local authorities’ data; estimates and projections based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 1: Macroeconomic indicators

  2009 2010 2011 2012
Real GDP growth -3.7 6.4 6.9 7
CPI inflation 8.2 7 6.1 5.3
Budget balance % GDP -5.2 -11.1 -6.9 -6
Current account % GDP -5.7 1.5 1.9 2.7

Source:National authorities’ data; estimates and projections based on authors’ calculations.

Figures for budget balance refer to fiscal year April (n)/ March (n+1).
Figures for 2010 are estimates; for 2011 and later are projections.

Recent Economic Developments and Prospects


Table 2: GDP by sector (in percentage)

  2005 2009
Agriculture, forestry, fishing & hunting 1.8 3
Agriculture, livestock, fishery, forestry and logging - -
of which agriculture - -
of which food crops - -
Mining and quarrying 38 25.9
Mining, manufacturing and utilities - -
of which oil - -
Manufacturing 3.5 4
of which hydrocarbon - -
Electricity, gas and water 2.4 2.9
Electricity, water and sewerage - -
Construction 4.4 5.2
Wholesale and retail trade, hotels and restaurants 10.3 13.6
of which hotels and restaurants 2.7 4.9
Transport, storage and communication 3.6 4.9
Transport and storage, information and communication - -
Finance, real estate and business services 10.5 12.4
Financial intermediation, real estate services, business and other service activities - -
General government services 17 18.5
Public administration & defence; social security, education, health & social work - -
Public administration, education, health - -
Public administration, education, health & other social & personal services - -
Public administration, education, health & social work, community, social & personal services - -
Public administration, education, health & social work, community, social services - -
Other community, social & personal service activities - -
Other services 8.5 9.7
Gross domestic product at basic prices / factor cost 100 100

Source:Authors’ estimates based on Botswana Financial Statistics data..

Figures for 2010 are estimates; for 2011 and later are projections.

Botswana’s economy is still dominated by the mining sector, followed by services and agriculture which, although marginal, produce some 40% of the country’s food.

Mining, mostly of diamonds, accounts for about one-third of GDP, more than 50% of total export earnings and around 50% of government revenues. The 2008-09 global economic crisis hit demand for diamonds, with production down by some 50% to 17.73 million carats in 2009. That year, the GDP share of mining dropped to 28.3% from 36.5% in 2008. However in 2010, diamond exports recovered and were worth USD 3.01 billion, compared with USD 3.14 billion in 2008. 

Outside mining, the economy proved resilient, growing 6.2% in 2009 and 5.0% in 2010 as the financial, trade, tourism and government service sectors took up the slack. For the period 2004-09, these sectors combined grew at an average rate of 8%.1

Inflation moved in a range of 6.0% to 8.0% in the year and was 7.4% in December to give an average annual rate of 7.0% in 2010. The rate of inflation is expected to be below 6% by second quarter 2011.

The overall performance of the economy in 2010 was encouraging, with estimated GDP growth of 6.4% after a fiscal fourth quarter gain of 10.7% in the three months to September compared with a year earlier. The economy is projected to grow 6.9% in 2011 and 7% in 2012 on continued improvement in global demand for Botswana’s major exports, as well as improved domestic demand for investment and consumption.

Table 3: Demand composition

  Percentage of GDP (current price) Percentage changes, volume Contribution to real GDP growth
2002 2009 2010 2011 2012 2010 2011 2012
Gross capital formation 27 24 5.8 16.9 13.9 1.6 4.7 4.2
Public 10.7 14.9 5 15 10 0.9 2.6 1.8
Private 16.3 9.1 7 20 20 0.7 2.1 2.4
Consumption 61.9 81.5 2.1 1.8 2.6 1.7 1.4 1.9
Public 20.7 24.2 6.1 1.2 1.2 1.5 0.3 0.3
Private 41.2 57.3 0.3 2.1 3.2 0.2 1.1 1.7
External sector 11.1 -5.5 - - - 3.1 0.8 0.9
Exports 46.6 37.7 12.3 8.5 8.6 5.3 3.9 4
Imports -35.4 -43.2 4.2 6 6 -2.2 -3.1 -3.1
Real GDP growth rate - - - - - 6.4 6.9 7

Source: Data from Ministry of Finance; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Macroeconomic Policy

Botswana fiscal and monetary policies during 2010 were geared towards economic recovery through creation of domestic demand and price stability.

Fiscal Policy

The global economic slump hit demand for Botswana’s main export, diamonds, and led to a severe decline in government revenue, threatening to stall the hard-earned progress towards achieving the aspirations of its Vision 20162 programme. Total government revenue declined by 8.8% in fiscal year 2009/10, with revenue from mineral taxes and royalties falling 32.9% in 2008/09. For fiscal 2010/11, total revenue including grants is estimated to fall to 34.9% of GDP from 35.2% in the previous year to September 2010, reflecting reduced customs revenue. Receipts from the Southern African Customs Union (SACU) revenue pool are expected to fall by 24% in fiscal 2010/11, resulting largely from overpayments from the pool in previous years. Despite the decline in revenue, the overall budget deficit is projected to narrow – from 11.1% of GDP in fiscal 2009/10 to 6.9% in fiscal 2010/11 and then to levels around 6% in fiscal 2011/12. Financing of the budget deficit and moving towards a balanced budget in 2012/13 will be achieved through the draw-down of savings, sales of government bonds and external borrowing.

Botswana’s public expenditure is geared towards provision of social services and infrastructure development in support of economic diversification. Spending on education accounts for around 25% of the budget and health 7%. Capital spending accounts for some 30% of the total budget, focusing on priority projects to promote the economic diversification drive. Major infrastructure projects commissioned prior to the global financial crisis were airport expansion, road construction, power generation and dams.3 Such capital spending will fall as the projects near completion. Public debt service is minimal given Botswana’s tradition of budget surpluses before the global economic slump. However, the recent sharp increase in public debt from 2.6% of GDP in 2008/09 to around 19% in 2010/11 will certainly see expenditure on external debt service increasing in the long run.

Table 4: Public finances (percentage of GDP)

  2002 2007 2008 2009 2010 2011 2012
Total revenue and grants 35 40.2 35.8 34 35.2 34.9 34.4
Tax revenue 29.2 37 32.3 30.4 31.4 31.4 31
Oil revenue - - - - - - -
Grants 0.2 0.7 0.7 0.7 0.9 0.4 0.3
Other revenues - - - - - - -
Total expenditure and net lending (a) 37.7 28.9 31.1 39.3 46.3 41.8 40.4
Current expenditure 27.4 22.6 23.2 26.7 30.2 27.8 26.1
Excluding interest 27.1 22.2 22.9 26.4 29.7 27.3 25.6
Wages and salaries 9.5 8.5 8.6 9.7 11.2 9.4 8.7
Goods and services 13 10.6 11.4 13.5 14.2 14.3 13.4
Interest 0.3 0.3 0.3 0.3 0.4 0.5 0.5
Capital expenditure 10.2 5.9 8.2 12.8 15.3 14 14.4
Primary balance -2.4 11.6 5.1 -4.9 -10.7 -6.5 -5.5
Overall balance -2.7 11.2 4.8 -5.2 -11.1 -6.9 -6

a. Only major items are reported.

Source:Data from Ministry of Finance; estimates (e) and projections (p) based on authors’ calculations.

Fiscal year July (n-1)/June (n).
Figures for 2010 are estimates; for 2011 and later are projections.

Monetary Policy

The Bank of Botswana’s monetary policy objective is to keep inflation within its 3-6% target range. Although the medium-term outlook for inflation is positive, the impact of a two percentage points increase in VAT may delay achievement of the inflation target. After declining to 5.8% in December 2009, inflation rose to 7.8% in May 2010 as the government hiked controlled prices, for example for electricity, and raised VAT. Although inflation averaged 7% in 2010, it is expected to ease back into the central bank’s target range in early 2011 – assuming there is no substantial increase in administered prices and government levies. The inflation rate should also be helped by continued moderate inflation in South Africa, the main source of Botswana’s imports. Recent sharp rises in global oil and food prices, however, make for some uncertainty on the forecasts.

The Bank of Botswana cut its prime lending rate from 15.5% in September 2008 to 9.5% in December 2010 to help boost the economy. Easier credit stimulated private sector investment, as reflected in the increase in loans and advances to public and private enterprises by 20% over the period 2008-10. The Bank of Botswana continues to maintain low interest rates, in line with other SACU members, to bolster domestic investment. Overall, the prevailing monetary policy stance seems to be consistent with achievement of the 3-6% inflation objective.

External Position

Botswana’s competitiveness improved slightly as the Pula depreciated 7.4% against the South African rand but appreciated by 3.6% against the US dollar in 2010. Given the decline in inflation and the economic recovery, the real effective exchange rate is expected to remain relatively stable, with only a marginal depreciation in 2011 and 2012.4

The current account balance showed substantial improvement following the recovery in mining exports in 2010 and the overall increase in non-mining exports. Consequently, foreign exchange reserves improved to around 17 months of imports of goods and services by December 2010, against 11 months towards the end of 2009. The recovery in exports driven by a rebound in demand for diamonds should improve foreign exchange earnings and consequently the current account balance.

Table 5: Current account (percentage of GDP)

  2002 2007 2008 2009 2010 2011 2012
Trade balance 11.6 13.9 3.3 -5.9 -1.9 -0.3 0.7
Exports of goods (f.o.b.) 38.5 41.7 35.8 28.8 30.7 32.3 32.7
Imports of goods (f.o.b.) 26.9 27.8 32.5 34.6 32.6 32.6 32
Services -0.5 -1.5 0.6 -5.4 0 0.3 0.3
Factor income -11.5 -6 -4.7 0.3 -0.6 -0.6 -0.6
Current transfers 3.5 8.9 7.7 5.2 3.9 2.6 2.3
Current account balance 3.2 15.4 6.9 -5.7 1.5 1.9 2.7

Source:Data from Bank of Botswana; estimates (e) and projections (p) based on authors’ calculations.
Fiscal year April (n)/ March (n+1).
Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Source:IMF and local authorities’ data; estimates and projections based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Structural Issues

Private Sector Development

Botswana compares favourably on a variety of competitiveness indicators, key for private sector investment. In the World Bank’s 2011 Ease of Doing Business report Botswana was ranked 52 out of 183 countries, the third highest in Africa after Mauritius at 17 and South Africa at 34. Botswana could rank much higher had it not been for the costs of being a land-locked country.5In terms of governance, Botswana leads in most aspects of combating corruption. The country was ranked 33 out of 178 countries in the Transparency International 2010 Corruption Perception index, ahead of all its sub-Saharan African peers. According to the Mo Ibrahim Foundation’s Index of African Governance, Botswana was ranked third out of 53 African countries in 2010 behind Mauritius and the Seychelles. Moreover, in the 2010 Global Peace Index, Botswana is among the world’s peaceful countries, ranking 33 out of 149, just behind Singapore, France and Great Britain.

The government has established special programmes to develop the productive capacity of the private sector. The Citizen Economic Empowerment (CEE) programme is among such initiatives that aim at creating and promoting an educated and healthy nation. It also aims to create economic opportunities for the private sector through large projects and building up capacity. The programme is implemented by two major non-governmental bodies – the Citizen Entrepreneurial Development Agency (CEDA) and Local Enterprise Authority (LEA), which offer funds, training and mentoring services to individuals wishing to venture into businesses. The government’s move to outsource most of its services from local groups is also aimed at stimulating local production and promotion of small and medium-sized enterprises.

Financial System Development

The financial sector is a key element for growth and diversification of Botswana’s economy. The financial sector proved resilient to the global financial crisis because of the robust supervisory standards set down by the Bank of Botswana. No bailouts were required.

The Botswana banking sector is well developed. By end 2010, there were eight commercial banks, with ABN Amro Bank establishing a presence in 2010 to service the diamond industry, building on its traditional role in the industry. Botswana non-banking financial institutions are also making headway, following the establishment of a regulator – The Non-Banking Financial Institutions Regulatory Authority (NBFIRA) in 2008.  By end-2009, there were 103 pension funds with total assets valued at 32.4 billion pula (BWP) or some 39% of GDP.6 Pension funds in Botswana are, however, constrained by limited domestic investment opportunities, leading to over 60% of its financial resources being invested offshore. The insurance industry is also significant, generating gross premiums of around 3.15% of GDP by end-2009.

The Botswana International Financial Service Centre (IFSC) established in 2003, promotes cross-border investments in the financial sector. The IFSC aims to make Botswana a world class hub for cross-border financial and business services. The IFSC attracted 45 companies by 2010 with cumulative capital of over BWP 6 billion and employing around 600 workers in specialised professions. Besides existing preferential treatment in processing of employment permits for its foreign employees, further changes in 2010 made it quicker to process residence permits for the IFSC’s accredited companies.7

The Botswana Stock Exchange (BSE), formally established in 1989, is an important part of the country’s financial services sector. The BSE is one of the best performing stock exchanges in southern Africa with average aggregate returns of 24% in the past 10 years and is the third largest in terms of market capitalisation.8  In 2010, the BSE introduced trading of an Exchange Trade Fund – a basket of shares that trade as a single security. It is hoped this initiative will boost liquidity on the BSE, which is currently very low. Market gains reflect the performance of the banking sector, which accounts for more than 60% of BSE listed shares.

Other Recent Developments

Botswana’s central policy objective, as identified by National Development Plan 10 (2009-16), is to diversify the economy away from mining, a move seen as even more important following the global financial crisis and economic slump. To this end, the government has identified six areas for special attention – diamonds, transport and logistics, innovation, agriculture, education and health. The financial services and tourism sectors, led by the International Financial Services Centre (IFSC) and Tourism Commission, aim to transform Botswana into a global financial centre and a South African tourist destination.

Tourism has significant potential for foreign earnings in Botswana as over 17% of the land is reserved as parks characterised by unique attractions. Among these are the Okavango Delta – the largest inland delta in the world – and Chobe National Park, home to a large elephant population. Although the contribution of the tourism sector to the overall economy is low, at around 4.2% of GDP, the sector generates about 11,000 jobs. Initiatives underway to promote tourism include building up air services into the capital Gaberone and the upgrading of other airports around the country. A major challenge facing the tourism sector is lack of local experts.9

To move up the value-added ladder in the diamond industry, cutting and polishing factories have been established, with 16 factories and some 3 000 jobs created by September 2010. In the regions, for example Selebi-Phikwe, diversification is another strategy that looks beyond the closure of copper and nickel mining operations there.10 The aim is to develop resources in the region, focusing on agriculture, manufacturing and tourism by using the infrastructure put in place.

Agriculture is important for both food security, meeting about 40% of domestic demand, and exports. Significant attention is paid to livestock production, Botswana’s main agricultural export. The establishment of a new Foot and Mouth Disease (FMD) laboratory by the Botswana Vaccine Institute is among measures taken to guarantee quality and competitiveness of its beef exports. The current construction of three large dams will significantly boost water supply for agricultural production.11


The economic diversification drive also rests on the good performance of public enterprises, among which counts the Botswana Development Corporation (BDC), the leading investor and lender with a portfolio covering diverse sectors of the economy. According to its 2009 Annual Report, the BDC seems to have performed well and is currently implementing a number of projects, including glass and steel manufacturing which were expected to have created over 500 direct new jobs by end-2010. Privatisation of public enterprises has been slow since its inception in 2005 but has recently gained momentum with the naming of Botswana Telecommunication Corporation and the National Development Bank as the next candidates for sale. In an effort to promote Public-Private Partnership (PPP) for infrastructure development, the government is establishing a PPP co-ordinating unit with the Ministry of Finance.

Emerging Economic Partnerships

The discovery of the largest diamond reserves in the world in the 1980s laid the basis for Botswana to graduate to the ranks of middle-income countries and consequently led to a significant reduction of donor support. The remaining few donors such as the European Union support specific areas – education, health – through soft loans and grants. As regards emerging country partners, China is most prominent in Botswana, although the government considers China to be a traditional partner in view of long-term bilateral relations going back to 1975. China supports the country in various areas, including key construction projects, provision of soft loans, technical assistance in education, agriculture and health sectors, and promotion of financial services and bilateral trade. In terms of external aid, China ranks second after Japan.

Chinese embassy figures show imports from China rose steeply from USD 11.5 million in 2000 to USD 360 million in 2008 while Chinese investment in Botswana came to USD 73.6 million by 2009. In terms of technical assistance, more than 120 Chinese personnel work on land survey and project planning, while 12 medical teams comprising around 300 personnel have been seconded to Botswana to make up for a shortage of medical staff in the country. To contribute further to capacity building, China has sponsored over 300 government officials in various seminars and training courses and is currently funding a multi-purpose youth centre in Gaborone at a cost of around USD 10 million. By November 2010, there were 27 Chinese enterprises in Botswana engaged in construction, communications, power generation, water conservation, transportation, mine prospecting, textile fabrication and trade.

Political Context

Botswana enjoys a stable political environment, organised on a representative parliamentary system. The president is head of both state and government.

Botswana is a multi-party constitutional democracy, where elections since independence in 1966 have been freely and fairly contested, and held on schedule. The country has an Independent Electoral Commission whose mission is to facilitate the formation of democratically elected governments by delivering transparent, free and fair elections in accordance with the established legal framework in Botswana and internationally accepted principles and standards. In the event, opposition parties have made no headway against the Botswana Democratic Party (BDP) which has ruled the country since independence. The other major political parties are the Botswana National Front (BNF), Botswana Congress Party (BCP) and Botswana Movement for Democracy (BMD).

The BDP under President Ian Khama was returned to power in the last elections held in October 2009. The BDP has a commanding majority parliament with more than double the number of seats than the 17 held by the opposition combined.

Social Context and Human Resource Development

Botswana faces several major social challenges – high poverty rates, inequality, unemployment and HIV/AIDS.  Levels of poverty, put at 23%, unemployment of 17% and a Gini inequality coefficient of 0.60 are relatively high for a middle-income country.  The high unemployment rate largely reflects the narrow base of an economy dominated by the mining sector which has only limited linkages with other activities. The government has adopted a number of employment creation initiatives, among them the implementation of labour intensive projects and establishment of a National Internship Programme to help new graduates. Through the internship programme, more than 3 000 interns have been placed, with the majority later reported to have found permanent employment in the formal sector.

The private sector accounts for some 56% of total employment, followed by the central government at 30%. Local government and semi-state bodies account for another 9% and 5%. Public and private sector employment recorded marginal growth of 3% and 1.8% in 2010 in the aftermath of the global slump.

MDG progress is encouraging.  According to Botswana’s second MDG progress report released in November 2010, significant progress has been made since 2004 following comprehensive public sector reform initiatives. Notable achievements include continued reduction in poverty levels, from 47% in 1993 to 30.6% in 2002 and around 23% by 2009. Botswana is likely to achieve the MDG universal primary education target by 2015, having recorded a high net enrolment rate of 85.8% and a low dropout rate of 6% in 2009. Gender parity has been achieved in primary and secondary education – in 2009, girls accounted for 48.8% and 51.9% of enrolment in primary and secondary education.12

Improved health care has impacted positively on the welfare of the Botswana population. Both infant mortality rates and the number of underweight children below the age of 5 dropped steadily between 1996 and 2008. The maternal mortality rate also declined substantially from 326 deaths per 100 000 live births in 1991 to 198 in 2008. Botswana has consistently improved its health service infrastructure and facilities, coupled with increased employment of qualified physicians and other medical personnel. The health infrastructure network comprises 31 hospitals, 243 clinics and 340 health centres. By 2009, more than 95% of the population had access to a health facility within a radius of eight kilometres. The proportion of the population with access to potable water and sanitation was 95.8% and 79.8% in 2007, with the prospect of further improvement following continued investment in social services.13

The HIV prevalence rate in Botswana is among the highest in the southern Africa region.  The Botswana AIDS Impact Survey III, conducted in 2008, found a national HIV prevalence rate of 17.6%, little changed from 17.1% in 2004. Female HIV prevalence is higher at 20.4% against 14.2% for males. The National AIDS Co-ordinating Agency and its partners are working on the second National Strategic Framework (NSF), which will cover the 2010-16 period. The first NSF programme was recognised internationally as a well co-ordinated, aggressive initiative to deal with the HIV/AIDS pandemic. Botswana faces higher spending to cope with increased demand for HIV testing, counselling and provision of anti-retroviral therapy services.