Since diamond mining began in 1971, Botswana has posted uninterrupted growth and soaring per capita incomes in most years. The diamond industry transformed Botswana from an agricultural based economy to one in which diamonds account for more than 80 percent of exports and 50 percent of government revenues.

Although the country has made significant progress since independence, economic diversification is currently the overriding objective of the government’s planning and policy formulation. The production of diamonds has reached a plateau, following the completion of the Orapa mine expansion in 2000, and no significant growth impetus is expected to originate from this sector in the near future. The international market for diamonds has also weakened, due mainly to the slowdown in economic growth worldwide. These poor prospects, coupled with the problems of unemployment, poverty and HIV/AIDS, underline the need for a continued thrust toward economic diversification as a strategy for development.

Revised economic forecasts, prepared as part of National Development Plan 9 (NDP9), indicate that during the NDP8 period, the economy will perform better than originally projected, with an average growth of 6.7 percent per year. This better performance is due to higher average output growth in the mining sector of 6.8 percent per year, compared to the 3.0 percent forecast, as well as the better average non-mining sectors’ performance, which is expected to be around 6.6 percent per year. Improved non-mining sector growth indicates progress is being achieved towards sustainable economic diversification. The government believes the need to accelerate the pace of economic diversification has become more critical now, in view of the country’s national Vision 2016 which sets out a course to ensure "prosperity for all by the year 2016".

The government recognises that the public sector has to perform to the level conducive to private sector growth, consistent with international norms, to realise economic diversification. This was reflected in the 2002 Budget Speech theme 'Implementing Public Sector Reform: a Way Forward for Sustainable Economic Diversification'.

A number of reforms, aimed at enhancing efficiency in the delivery of services by the public sector have recently been introduced. These include decentralisation and computerisation of the personnel management system and adoption of the Performance Management System (PMS). These measures are considered crucial to the creation of an environment that will produce high rates of investment and sustained development.

The government has undertaken further initiatives and policy reforms for the liberalisation of the economy in order to broaden and strengthen the foundation for economic diversification. During the past year the Public Enterprise Evaluation and Privatisation Agency (PEEPA) has been established to oversee the implementation of the Privatisation Policy. A master plan is presently being prepared to provide the basis for implementation of the policy.

The process of obtaining a sovereign credit rating was completed in 2001 when Botswana was assigned “A” grades by Moody’s rating agency in March 2001, and by Standard and Poors rating agency in April of the same year. These ratings are, by far, the most favourable awarded to any country in Africa. These high investment grade ratings should be of assistance in attracting both portfolio and direct foreign investment. Following the publication of these ratings, a strong positive sentiment about Botswana has been generated in financial markets in the region and abroad. In response, the government decided to take advantage of the ratings and proceeded to establish a marker in financial markets by implementing bond issues during 2002. These bond issues, in particular the issue of a Pula-denominated bond, will alleviate the shortage of long term domestic financial assets and will help to further develop the local capital market.

During 2000/2001, real gross domestic product (GDP) rose to 9.1 percent, compared to 8.1 percent in the previous year. The improved growth rate was primarily due to exceptionally strong performance in the mining sector, which grew by 19.6 percent. Similar performances were experienced during the 1970s and the first half of the 1980s when new diamond mines were being established. This time, the main reason was the expansion of Orapa diamond mine, which doubled its output.  

Non-mining activity grew at a much lower rate of 3.9 percent, the lowest in six years. Within non-mining activity, performance was mixed across the sector. Both the manufacturing and construction sectors fell to 1.6 percent from 3.5 percent and 2.4 percent in 1999/2000. Manufacturing output was adversely affected by poor performance of textiles, reflecting a slowdown in export orders and the impact of the closure of the Hyundai motor vehicle assembly plant in early 2000. The weakness of the construction sector also affected the demand for building materials. The slowdown in the implementation of the government’s development programme during 2000/2001 fiscal year was the main reason for the poor performance of the construction sector.  

Real GDP growth is expected to be around 5 percent during 2001/2002 and 2002/2003 due to the expected fall in the mining sector growth to around 2 percent. Growth in other sectors during these periods is expected to improve significantly. The country’s foreign exchange reserves rose by 21.5 percent to P41.2 billion at the end of December 2001, representing 39 months of import cover of goods and services.

Foreign Reserves (US$ m; year-end)

1997

1998

1999

2000

2001

Total reserves excl. gold

5,740.5

6,025.2

6,298.7

6,380.3

...

Exchange Rates (period averages)

1997

1998

1999

2000

2001

P: US$

3.651

4.226

4.624

5.102

5.841

Gross Domestic Product

1996/97

1997/98

1998/99

1999/00

2000/01

Total (P m)

At current prices

17,740

20,163

21,524

25,363

28,876

At constant (1993/94) prices

12,704

13,729

14,296

15,451

16,866

Real change (%)

5.6

8.1

4.1

8.1

9.1

Per head (P)

At current prices

11,615

12,879

13,413

15,420

17,113

At constant (1993/94) prices

8,318

8,769

8,908

9,394

9,992

Real change (%)

3.0

5.4

1.6

5.4

6.4

Gross Domestic Product by Sector (P m; constant 1993/94 prices)

1996/97

1997/98

1998/99

1999/00

2000/01

Agriculture

453.1

479.9

443.4

404.6

424.4

Mining

4,310.7

4,721.8

4,588.5

5,142.3

6,149.0

Manufacturing

593.7

625.8

661.4

684.3

695.3

Electricity and water

268.8

295.4

333.5

371.1

395.9

Construction

787.9

822.1

916.9

939.4

954.8

Trade, hotels, restaurants

1,359.0

1,422.7

1,501.9

1,595.6

1,706.8

Transport

456.4

497.8

578.7

594.0

623.7

Finance, business services

1,367.9

1,500.8

1,636.3

1,707.3

1,756.8

General government

2,009.4

2,195.7

2,333.3

2,474.2

2,636.7

Social, personal services

558.1

574.6

617.7

645.2

653.6

GDP

12,703.7

13,728.6

14,295.6

15,451.1

16,865.8

At independence in 1966, mining activity in Botswana was negligible comprising of small-scale quarrying only. Operations to extract asbestos and manganese had ceased just prior to independence while gold mining, once the cause of settlement in north east Botswana, was moribund. The economy was heavily dependent on agriculture and remittances of incomes of migrant workers employed in South African mines.

The ore body that was to form the basis of the copper-nickel mine had been discovered as early as 1963, and prospecting for diamonds that had been taking place since the mid-1950s, led to the discovery of the large kimberlite deposit at Orapa in April 1967.

The development of these discoveries into viable mining operations was an early preoccupation of the newly-independent Botswana government, given the limited range of alternative economic opportunities in the country. The commencement of operation was assisted by a pragmatic policy for attracting external finance and expertise. The successful negotiations with major international investors, including De Beers and Anglo American Corporation, was instrumental in establishing a good reputation for the young nation.

Diamonds
From the start the fortunes of the diamond subsector has gone from strength to strength. Due to the quantity and quality of the reserves of the three mines operated by Debswana (Orapa, Letlhakane and Jwaneng), Botswana has become firmly established as one of the most powerful diamond producers in the world.

The slowdown in the global economy during 2001, particularly the United States of America economy which accounts for more than half of the world diamond sales, had a significant impact on overall diamond sales. De Beers' Trading Company (DTC) total sales stood at US$5.7 billion in 2000. This figure was expected to decline to US$4.5 billion in 2001 and to US$4 billion in 2002. In contrast, the production of diamonds in Botswana was expected to increase from 24.635 million carats in 2000 to 25.945 million in 2001. Additional production was expected to start by October 2002 at Damtshaa near Orapa. Waste stripping to expose ore at the mine commenced in early 2001. However, output from this mine will not be significant. The trial mining of small Kimberlite pipes at Susulela near Lerala has been completed. The feasibility study has shown that it is not economic to mine the pipes, so it has been closed and the pits rehabilitated.

Efforts to develop an International Certification System that seeks to exclude “conflict diamonds” from the international market are continuing. A British-based lobby group Global Witness said it was optimistic that African countries would be ready to launch the certification scheme by November 2002. The certification scheme, known as the Kimberley Process, aims at preventing so-called “blood diamonds” from entering the legitimate market, while at the same time protecting the diamond industry. The certification scheme, chaired by South Africa, is an export and import control mechanism. Diamond-producing countries will control the production and transport of rough diamonds from the mine to the point of export. Shipments of rough diamonds would be sealed in tamper-resistant containers and a 'Kimberley Process' certificate will be issued for each shipment.

Copper-Nickel
From its inception, the BCL Copper-Nickel Mine in Selebi-Phikwe did not live up to expectations. Many technical problems were encountered, while in the mid-1970s, base metal prices slumped and have not since recovered sufficiently to enable the mine to generate enough profits to pay a return on the capital investment.

The BCL mine is a large employer, accounting for around 5,000 jobs in Selebi-Phikwe. During the 1990s, the mine was again affected by the worldwide decline in mineral prices and in 1998 and 1999 the operations had to be supported by subsidised government loans. However, by mid-1999 prospects began to improve. 

Copper and nickel exports registered a 29.3 percent drop in value terms during the first three quarters of 2001, from P450 million during the same period in 2000 to P318 million. The nickel price had declined to an average of US$2.19 per pound by October 2001. This drop in price coincided with a period of high capital expenditure to access some ore, leading to the deterioration in the financial position of BCL. This prompted emergency funding of the mine by government amounting to P145 million in May 2001, and a further P150 million in November 2001. In view of the deteriorating financial position of BCL, the government commissioned a comprehensive review of the mine’s operations in December 2001. The consultancy will investigate, analyse and assess the viability of BCL with specific reference to profitability, efficiency and competitiveness, the operational performance of the mine, development in the industry, and future plans regarding major business partners.  

The expansion at the Phoenix mine commenced during the first quarter of 2001. This will enable production to be increased from 1.7 million tonnes per year to some 3.2 million tonnes.  

Soda Ash and Coal
Other mineral resources that were identified at an early stage as potentially viable for exploitation were the soda ash and salt deposits at Sua Pan and the coal reserves in the Central District. Both have been developed.  

The soda ash project came to fruition in 1991 with the establishment of Soda Ash Botswana, a joint venture between the government, De Beers and Anglo American Corporation. The project faced severe financial problems and was put into liquidation in 1995. However, in order to avoid the closure of the mine, a restructuring of the company, now named Botash, took place.  

Botash sales volumes showed a healthy increase during 2001. This was due to a rise in demand from its main market, South Africa. Total exports of soda ash increased by 8.1 percent from P173 million during the first nine months of 2000 to P187 million during the same period in 2001. The salt exports also grew, from P37 million to P39 million over the same period. In 2002, soda ash exports were expected to rise further to P196.5 million, while salt exports are estimated to reach P52.9 million.

The Morupule coal mine, owned by Anglo American Corporation, began operations in 1973. The operation followed a strategic decision to develop a local capacity for electricity generation as part of the Shashe project. While generally successful, the scale of operations has remained modest, supplying only the limited needs of the domestic market.

The experience with both coal and copper-nickel mining illustrates the sensitivity of mineral projects to long term price trends which are difficult to predict. Whether future conditions will prove more favourable for coal mining is doubtful.

Other Minerals
Gold mining operations are all small and concentrate around the Francistown area in the north east of Botswana. The old Monarch mine has been re-opened with more advanced technology. Apart from gold, most recent prospecting activity has centred on diamond and platinum prospects.

The construction industry has placed a heavy demand on quarrying for sand, aggregate and building stone.

Semi-precious stones found in Botswana are mainly varieties of agate and carnelian. Local cutting and/or polishing has been made a condition for the granting of new licences.

An aeromagnetic survey identified three deep sedimentary basins in western Kalahari, and initial prospects for locating either oil or gas were considered good.  

Mineral Production

1997

1998

1999

2000

2001a

Volume (tonnes unless otherwise indicated)

Copper-nickel matte

42,112

36,976

39,343

45,516

9,508

Copper

20,711

19,805

19,779

20,977

4,286

Nickel

21,053

16,758

19,258

24,218

5,180

Coal

775,012

924,008

945,316

946,898

226,836

Diamonds ('000 carats)

20,151

19,693

21,063

24,554

5,816

Soda ash

199,990

189,700

228,693

190,489

57,306

Salt

184,533

139,805

167,610

184,755

44,760

Value (P '000)

Copper-nickel matte

758,896

456,400

562,571

869,455

160,227

Coal

24,716

29,804

25,994

29,827

7,145

Soda ash

131,690

136,511

101,082

141,153

42,464

Salt

37,297

29,645

18,436

38,059

9,220

When Botswana gained independence in 1966, the agriculture sector contributed about 40 percent to GDP and about 90 percent of total employment opportunities in the domestic economy. By the mid-1990s, the sector’s share of GDP and employment had fallen to around 4 percent and 16 percent respectively.

Agriculture has been negatively affected by the frequency of adverse weather conditions and a lack of fertile land. Lack of appropriate technology and skills have also been constraining factors. With the exception of the well-established cattle-farming industry, most agricultural activity has not prospered.

Government support for agriculture has been considerable, although results have not been encouraging. However, from a socio-economic perspective, there is a need for support to continue in some form since some of the poorest, most marginal and vulnerable in society continue to rely on agriculture as their main source of livelihood.

The main subsistence crops are sorghum (nearly 70 percent of total output) and maize. Other crops grown include millet, beans/pulses, sunflower seeds and groundnuts. Such crops are generally grown for immediate consumption. With an average farm size of 2.3 hectares, production does not meet subsistence needs and rural householders are compelled to supplement their food requirements.

A number of projects have been introduced to improve crop production. At Pandamatenga in the Chobe region, the Ministry of Agriculture has undertaken a commercial crop farming venture in cooperation with local farmers. The area has a higher annual rainfall than the rest of the country and there are adequate water supplies from the Chobe/Linyanti and Zambezi rivers. Starting in 1999, Debswana has supported an initiative aiming to show that properly targeted investment in both technology and appropriate crop varieties can lead to viable projects. This initiative covers both large-scale farming producing mainstream and diversified crops (such as cotton), together with support for small-scale subsistence farmers.

Areas with potential for irrigated agriculture include the Tuli Block, the Melapo in the Okavango and the Nokaneng Flats in the western Okavango. A horticultural research unit has been established. Citrus is grown under irrigation on freehold land in the Tuli Block. Vegetables and potatoes are also grown in this area. Farmer associations have pioneered vegetable production in the large villages in the east of the country.

The marketing of agricultural projects is handled by the Botswana Agricultural Marketing Board (BAMB), a parastatal body established under the Act of Parliament in 1974.

Since 1998, consultants commissioned by government have been preparing a National Masterplan for Agricultural Development (NAMPAD). The major findings of the report are that rain-fed crop production in Botswana beyond subsistence is economically feasible only under mechanisation, combined with improved farm management and adherence to appropriate crop production technologies. The report also recommends the use of waste water for irrigation. The Gaborone Waste Water Treatment Plant alone could irrigate 1,200 hectares of cotton, sunflower, fodder and fruit trees. With modern farm management techniques and increased dairy herd size, it should be possible for local production to substitute imports of milk over the next decade.

The Draft White Paper on NAMPAD was tabled in Parliament in November 2001. The adoption of NAMPAD will bring about a major transformation of the agricultural sector through the creation of investment opportunities and institutional reform. NAMPAD will provide several economically viable business opportunities for the private sector, while government will create the necessary enabling environment by ensuring, among other things, the availability and access to land for investors, the supply of agricultural inputs, post-harvesting services and facilities and professional services to farmers.

LIVESTOCK PRODUCTION
The livestock industry will continue to be the cornerstone of the agricultural sector for many years to come. It contributes, on average, 80 percent of agriculture’s share to GDP. Livestock productivity has been hampered by persistent drought, resulting in shortage of water and poor grazing conditions, while outbreaks of animal diseases of economic importance pose a serious threat to the beef industry.  

Botswana has remained stable for most serious transboundary animal diseases. The government is cooperating with Zimbabwe in an effort to bring the foot and mouth epidemic in that country under control.

   

The national herd is still estimated at 2.5 million cattle and the same number of small stock (mainly sheep and goats). Poor management practices have led to overstocking, overgrazing and range degradation, challenges which the government is now addressing. The Agricultural Development Policy of 1991 is aimed at improving rangeland management by allowing farmers to fence communal grazing areas where possible. Because of lack of water, stock can be grazed on only 20 percent of the land area. Beef processing accounts for about 80 percent of agricultural output, and over 95 percent of production is exported.

Botswana Meat Commission (BMC) was established in 1966 by an act of Parliament, to coordinate the production of beef from the national herd which grazed on chemically free ranch land covering much of the country's 582,000 sq. km. BMC is the sole exporter of lean beef that features prominently in markets throughout the world, particularly the European Union, and which has achieved an excellent reputation for quality.

The Commission owns three abattoirs, with one in Lobatse, which is the headquarters and has a capacity to slaughter 800 cattle and 500 small stock per day. The branch abattoirs are situated in the north west of the country at Maun, with a capacity of 115 cattle per day, and in the north east at Francistown, with a capacity of 400 cattle and 150 small stock per day.

The Lobatse abattoir produces a range of canned products: tongues, corned beef, beef extract and pet foods. Hides are processed to the wet blue stage. Other by-products are blood, bone, carcarse meal, tallow, tail hair, ox gall and gall stones, and offal (livers, hearts, kidneys and tails), which are mainly sold to South Africa and within Botswana.

BMC also owns marketing subsidiaries in the United Kingdom, Germany, Holland, Greece and South Africa; an insurance company in the Cayman Islands; cold storage facilities in the United Kingdom and South Africa; and transport and property companies in Botswana.

The implementation of the Livestock Identification and Traceback System (LITS) is still ongoing. The development and installation of a computer-based infrastructure and bolus insertion in cattle was completed in the pilot districts in August 2001.

The dairy industry is still in its infancy, with most fresh milk and dairy products being imported from South Africa. Local production is being encouraged by research from the Ministry of Agriculture, especially regarding urban milk supplies, and through the imposition of import controls.

Small livestock (mutton and goat) is high in demand but producers are constrained by access to markets because of lack of internal transport.

The upsurge in the growth of towns has considerably increased demand for pork, poultry, eggs and fish all which offer local production scope. Fishing is currently confined to the Chobe river and Okavango Delta, where it provides a small supplementary food source.

Poultry production is experiencing rapid growth, partly due to the support given to producers through the Financial Assistance Policy (FAP). The country is now self-sufficient in poultry production, despite problems of lack of local suppliers of inputs such as pullets and feed.

There has been considerable interest in ostrich farming in Botswana, spurred on by the country having the largest population of wild ostriches in the world. However, the industry has yet to be firmly established. Commercial ostrich farming is a complex operation requiring very high standards of animal care if the value of the product is to be realised. Some commercial farmers are becoming involved in game farming. This is an activity which overlaps into tourism, with farms being redeveloped to provide game viewing facilities.

Disease control in Botswana is stringent, and a free range cattle production system is followed. The Botswana Vaccine Institute (BVI), appointed in the late 1970s as a regional reference library for Southern African types of foot and mouth disease, is now at the forefront in the manufacture of animal vaccines, reporting diagnostic results and accounting for the availability of vaccines to neighbouring countries. The Institute produces vaccines for foot and mouth, rinderpest, anthrax, blackleg and contagious bovine pleuropneumonia diseases.

FORESTRY
There are large areas of deciduous forest in the north east, with mopane tree prevalent throughout the north. Six areas have been gazetted as reserves in the Chobe district - Chobe, Kasane, Kasane extension, Kazuma Pan, Maikaelelo and Sibuyu. Several private companies have been granted concessions to exploit indigenous timber, largely mukwa and mukusi in the Chobe, Pandamatenga and Marulamantsi areas. Resource inventories of forest reserves in the north are being made and, pending their outcome, no further timber concessions will be granted. Natural forest and bush continue to be over exploited as a source of fuel wood for domestic heating and cooking.

To address the management and conservation of Botswana’s valuable but ever-diminishing forests, forestry legislation is being reviewed and a research action plan implemented. Tree plantation programmes are helping to alleviate the problem of denuding trees, at the same time increasing public awareness of trees as protectors of the environment and providers of useful products.  

Crop Purchases by BAMB (tonnes)

1996/97

1997/98

1998/99

1999/00

2000/01

Sorghum

10,474.1

7,958.6

28.3

643.8

3,683.2

Maize

4,493.0

15,465.0

258.8

492.0

7,483.0

Pulses

279.4

2,483.7

6.6

4.4

2,295.0

Sunflower seeds

96.0

67.2

4.8

1.7

14.7

Groundnuts

49.2

41.9

-

0.9

7.1

Total

15,391.7

23,417.2

1,540.6

1,142.7

11,320.0

Cattle Slaughtering and Sales

1997

1998

1999

2000

2001a

Average cold dressed mass per head (kg)

196.21

143.86

188.08

196.65

202.71

Average value per animal (P)

941.58

1,003.97

1,479.26

1,103.33

1,156.50

Number Slaughtered

139,638

195,822

141,202

147,859

47,234

Sales value (P'000)

420,971

245,209

349,642

479,993

77,413

Sales of boneless beef (t)

16,374

17,676

16,387

17,953

4,182

BMC Sales by Product and Market 2000 (P'000; 1 October 1999 - 30 September 2000)

UK

Germany

Holland

Réunion

RSA

Total*

% Product Share

Boneless beef:

chilled

84,756

20,134

37

11,467

3,812

120,900

39

frozen

26,411

35,604

4,691

1,339

11,387

94,870

30

Corned beef (340 gms)

3,004

-

-

-

268

6,869

2

Canned tongues

3,782

-

-

-

-

3,854

1

Edible offals

-

-

-

-

1,055

4,072

1

Carcarse meal

-

-

-

-

9,166

24,077

8

Total*

144,178

55,738

4,728

12,806

45,121

312,558

100.0

Market share (%)

46.1

17.8

1.5

4.1

14.4

100.0

Manufacturing occupies a central place in Botswana’s strategy for development and is seen as the principal sector through which the twin goals of economic diversification and employment creation can be realised. Over the years industrial incentives have been provided to the sector to encourage development. The incentive schemes have included the Financial Assistance Policy, the Selebi-Phikwe Regional Development Programme (SRDP), the Local Preference Scheme (LPS) and its successor, the Local Procurement Programme (LPP). In 1996, government declared manufacturing eligible for a 15 percent rate of corporate income tax.

Guiding the government’s present approach to industrial development are the principles outlined in the Industrial Development Policy (IDP) of 1998. In recognition of increasing competitive pressures in global markets, the industrial policy has been re-oriented towards encouraging higher levels of productivity through employment of highly-skilled workers and modern technology, unlike the previous stance which emphasised employment of unskilled labour.

At independence in 1966, Botswana’s manufacturing output was almost wholly (95 percent) meat and meat products. By 1994, its share had fallen to 15 percent as the shares of beverages, textiles, agro-products, metal and metal products rose. The expansion of the sector was driven by rapid economic growth, a rise in export demand for manufacturers and the introduction of FAP. During the 1970s, manufacturing expanded at a rate of 17 percent. By the 1980s, it was growing at a rate of 8 percent. Around half the growth was driven by a rise in domestic demand, while import substitution contributed about 37 percent to the sector’s output.

During the 1990s, growth slowed, but remained satisfactory. Manufacturing output recovered during the second half of the 1990s supported by higher productivity, which has provided a strong basis for continued expansion.

Exports of manufactured products have consisted mainly of vehicles, textiles and beef. These averaged 14.9 percent of the value of total exports from 1996 to 1999. Manufactured exports have grown rapidly since 1993, led by a doubling in motor vehicle exports in both 1994 and 1995. However, the expansion in the motor vehicle industry was short-lived. It slowed in 1996 and fell sharply in 1998 and 1999. The closure of the Motor Company of Botswana, which assembled Hyundai cars, in early 2000 has further affected this sector.

The textile sector is expected to receive a boost following the introduction of the Africa Growth and Opportunity Act (AGOA) through which the United States of America government is fostering stronger commercial ties between Africa and the United States of America. Botswana has qualified as an AGOA beneficiary country and has put in place a Visa system, which is intended to prevent illegal transhipment and the use of counterfeit documents in textile and clothing trade.

The Botswana Export Development and Investment Authority (BEDIA) undertook outward investment missions to a number of countries during 2001. As a result of these efforts, 12 manufacturing companies have started operating in the country and a further 15 projects are at an advanced stage of implementation.

The office of Botswana Bureau of Standards was established to ensure that domestic manufacturers produce quality goods that can penetrate the international market. A Standards Council together with national committees to oversee the implementation of the Standards Act have been established.

During 2001, Rural Industries Promotion Company (RIPCO) made some major achievements. These included the completion of two plants to manufacture nails and palletised animal feeds. RIPCO also developed and transferred two technologies to the private sector for manufacturing: a maize sheller and a multipurpose thresher. A total of 18 companies participated in the manufacturing of RIPCO technologies valued at P3 million during the year.

The Botswana Development Corporation improved its profitability during the year under review with a profit of P25.09 million, compared to a profit of P19.5 million in the previous year. Major projects implemented with participation of the Corporation during 2001 included the construction of Riverwalk Shopping Centre in Gaborone, expansion of the Lobatse Clay Works factory, development of airport hangar facilities in Maun, and construction of residential property.  

Building Plans Approved by Value (P'000)

1997

1998

1999

2000

2001a

Gaborone

77,977

220,042

1,118,104

327,378

69,148

Francistown

30,046

61,548

219,972

244,284

22,771

Selebi-Phikwe

10,944

10,135

46,166

10,104

2,350

Lobatse

13,932

31,740

33,752

5,869

2,051

Total

132,899

323,465

1,427,479

660,158

94,693

Residential

88,915

163,798

1,115,094

393,016

63,815

Non-residential

43,984

159,667

312,385

267,142

30,878

In Botswana tourism has grown substantially in recent years. Between 1986 and 1998 the total number of recorded holiday arrivals in the country grew by 217 percent, or 10.1 percent per year. This rapid expansion pointed to considerable potential for the sector to contribute towards Botswana’s economic diversification.

Botswana’s wildlife habitat is dominated by the Okavango Delta, which covers some 16,800 sq. km and is a unique area of lagoons, reed-fringed waterways and islands. Other major attractions of Botswana’s pristine beauty can be found in the Kalahari Game Reserve, the Makgadikgadi Pans, the Chobe National Park and the Tuli Block. The Tsodilo Hills are the site of an amazing collection of pre-historic art.

In 1990, in order to develop the industry in a coordinated and consistent manner, the government formulated a Tourism Policy. The further aim of the Policy is to ensure that Batswana benefit from the development of the industry. In addition, various initiatives were introduced to support the development of the industry.

The Tourism Policy in Botswana emphasises the promotion of high cost, low volume tourism. This approach was adopted when it was estimated that only 20 percent of the tourists accounted for more than 80 percent of the total tourist expenditure. In order to raise the revenue performance of tourism, the Tourism Policy advocated pursuing a strategy which will shift the mix of tourists away from those who are casual campers in favour of those who occupy permanent accommodation. It is presumed low volume tourism is more consistent with the need to protect the environment.

The major challenges for Botswana in the area of wildlife and tourism includes the need to ensure that the growth of tourism does not destroy the natural, cultural and social environments. Government also aims to mobilise local communities to ensure their effective participation in the commercial exploitation of natural and tourism resources on a sustainable basis. A feasibility study on the Tourism Development Fund, which would provide technical assistance to community and citizen-owned projects in undertaking environmental impact assessment studies, assist in the preparation of district and urban tourism plans at the community level, as well as providing working capital for community and citizen-owned projects, was completed in January 2000 and is being considered by government.

Tourism is viewed as one of the areas with potential for driving economic diversification, creating employment opportunities and increasing contributions to government revenues. The recently completed Botswana Tourism Development Programme study indicates that cultural, archaeological and historical attractions can be important components of the country’s tourism product. As part of the government’s efforts to diversify the tourism product, an Eco-Tourism Strategy is currently being developed with a view to opening up new avenues for involving rural communities. It is expected that new tourism opportunities would create jobs and incomes, and facilitate the development of linkages with other sectors. The Eco-Tourism Strategy is scheduled for completion in March 2002.

Government is in the process of establishing a Botswana Tourism Board which will create, in collaboration with the private sector and other stakeholders, an autonomous organisation, which will be commercially oriented for the promotion and marketing of tourism in Botswana. Meanwhile, government is also developing a national tourism marketing and promotion strategy aimed at promoting both domestic and international tourism aggressively. Activities being pursued include the engagement of overseas tourism representatives in the United States of America, United Kingdom and Germany, and establishment of a new website together with other promotional campaigns.

Botswana also aims to cooperate with neighbouring countries in promoting the entire region as a tourist destination. Negotiations are continuing on the establishment of a new transfrontier park, the Limpopo/Shashe Transfrontier Conservation Area, transcending the borders of Botswana, South Africa and Zimbabwe. This follows the successful establishment of the Kgalagadi Transfrontier Park (KTP) between Botswana and South Africa.

Despite the steady diversification taking place in the economy during recent years, the overall growth and prosperity of the country are still crucially dependent on the fortunes of the mining sector which contributes around a third of the country’s GDP.

During 2001, there was a 1 percent fall in exports to P13,519 million. This was largely due to reduced diamond sales, particularly from the second quarter. Sales of diamonds were badly affected by the global economic slowdown, especially in the United States of America, which accounts for more than half of all jewellery sales. Exports were also affected by falls in some commodity prices. For copper and nickel, US dollar prices dropped by an average of 13 percent and 31 percent respectively. Beef was the star performer with exports increasing by 54 percent, due to high demand in Europe, following the outbreak of foot and mouth disease in Britain, and increased numbers of cattle slaughtered. Exports of soda ash to South Africa increased by 12 percent.

The framework of Botswana’s international trade agreements is undergoing significant change. Historically, the most important trade agreement has been the Southern African Customs Union (SACU) Agreement, which provided for duty-free trade with South Africa, Lesotho, Namibia and Swaziland, and a relatively high degree of protection against imports from the rest of the world. In recent years SACU tariffs have been progressively reduced, partly in response to membership of the World Trade Organisation (WTO). This has increased competition from global imports in the SACU countries.

The renegotiation of the SACU Agreement has finally been concluded, following eight years of negotiations. Botswana has approved the new agreement which provides for a more democratic decision-making process, an improved representative institutional structure for administration of the Agreement, and a dispute resolution mechanism in addition to an equitable revenue sharing formula.

The Lome Convention, under which many African, Caribbean and Pacific (ACP) States enjoyed privileged access to the European Union market, has been replaced with the Cotonou Agreement. The United States of America trade initiative for Sub-Sahara Africa, the Africa Growth and Opportunity Act (AGOA) became effective in October 2000.

Changes taking place under the auspices of the WTO and various rounds of international trade negotiations will have a major impact in the areas of trade in agricultural products and textiles, which have hitherto been subject to various protection agreements. These changes will also impact on trade in services, as well as in trade-related areas such as the protection of intellectual property rights and investment incentives.

Membership of International Organisations
Botswana is a member of the Southern African Customs Union (SACU), Southern African Development Community (SADC), African Union (AU), Commonwealth, United Nations and World Trade Organisation (WTO).

Foreign Trade by Value (P'000)

1997

1998

1999

2000

2001a

Exports fob

Meat and meat products

231,387

298,537

223,384

263,514

34,869

Live animals

2,257

2,966

1,949

1,211

210

Hides and skins

31,973

33,602

23,992

43,731

14,227

Diamonds

7,670,042

6,040,452

9,706,383

11,383,587

3,518,169

Copper-nickel matte

480,613

435,907

557,916

830,322

164,739

Textiles

248,392

302,638

248,475

243,683

69,591

Soda ash

109,767

98,481

106,963

98,129

31,200

Vehicles and parts

1,182,660

965,702

666,825

270,419

95,907

Other goods

433,609

518,638

691,960

700,087

134,562

Total

10,390,700

8,696,922

12,227,848

13,834,682

4,063,159

Imports cif (inclusive of duty)

Food, beverages, tobacco

1,083,009

1,247,354

1,411,716

1,494,170

340,431

Fuels

464,819

433,296

494,877

523,180

155,115

Chemicals, rubber products

749,417

843,036

940,613

1,033,435

256,619

Wood, paper products

511,793

653,161

819,427

817,090

195,263

Textiles, footwear

533,347

570,183

596,145

616,523

97,211

Metals, metal products

880,695

957,764

877,237

769,029

167,515

Machinery, electrical equip.

1,453,228

2,018,527

2,142,291

2,356,376

465,080

Vehicles, transport equip.

1,648,479

1,546,225

1,373,655

1,314,773

298,742

Other goods

930,967

1,243,579

1,508,422

1,688,494

358,729

Total

8,255,755

9,513,126

10,164,384

10,613,069

2,334,704

Main Trading Partners (P'000)

1997

1998

1999

2000

2001a

Exports to:

Common Customs Area

1,485,283

1,494,616

1,270,903

927,118

246,030

Zimbabwe

382,527

249,892

290,968

540,563

77,350

Other Africa

113,574

110,545

137,173

125,781

42,418

United Kingdom

5,839,918

4,830,026

8,130,083

9,644,333

3,524,989

Other Europe

2,444,151

1,873,539

2,220,925

2,417,126

123,013

United States of America

101,802

90,011

86,475

81,613

7,755

All other

23,445

48,292

91,320

98,149

41,605

Total

10,390,700

8,696,921

12,227,848

13,834,682

4,063,159

Imports from:

Common Customs Area

5,981,599

7,111,419

7,783,613

7,846,092

1,764,293

Zimbabwe

368,078

374,644

396,600

366,635

77,498

Other Africa

37,955

53,564

26,991

34,732

8,670

United Kingdom

162,625

320,512

272,481

442,262

123,938

Other Europe

580,035

643,748

664,268

1,306,670

185,651

South Korea

785,373

456,447

263,961

21,519

4,469

United States of America

89,138

134,522

187,955

174,142

66,274

All other

250,951

418,269

568,515

421,018

103,910

Total

8,255,755

9,513,126

10,164,384

10,613,069

2,334,704

Central Bank
Botswana’s central bank, the Bank of Botswana, was established on 1 July 1975. As prescribed by the Bank of Botswana Act, 1996, the primary responsibilities of the Bank include the conduct of monetary policy; provision of banking services to government, banks and selected public sector organisations; regulation and supervision of the banks and other financial institutions; issuance of currency; implementation of exchange rate policy; management of foreign exchange reserves; and provision of monetary and financial policy advice to government.

The primary objective of the Bank is to promote and maintain monetary stability. The Bank also ensures the efficiency of the payments system and soundness of banking institutions. In performing its functions, the Bank fosters broad national macro-economic objectives, including sustainable economic diversification.

Commercial Banks
There are five commercial banks licensed to operate in Botswana: Barclays Bank of Botswana, Standard Chartered Bank Botswana, First National Bank of Botswana, Stanbic Bank Botswana and a newcomer, the Bank of Baroda (Botswana), a wholly-owned subsidiary of the Bank of Baroda Group of India which was licensed during 2000. It began operations in March 2001.

Botswana’s banking sector is healthy, sound, safe and stable. Banking groups carry out normal retail and commercial banking activities, leasing, property finance and merchant banking. The banks provide a high branch coverage backed up by agencies and Automatic Teller Machines (ATMs). First National Bank Botswana also offers Visa Card services.

As a consumer protection measure, the Bank of Botswana has drawn up a policy on the Disclosure of Bank Charges, which applies to all banks licensed under the Banking Act (1995), as well as the Botswana Building Society, Botswana Savings Bank and the National Development Bank. Under the policy, all affected institutions are required to disclose service charges and other fees to the public, prior to their introduction. Key charges are to be displayed in banking halls. Banks are also required to establish and make available internal procedures for the proper handling of customer complaints. A Banking Adjudicator’s office has been opened to handle complaints that the banks themselves have not been able to deal with.

Government is in the process of drafting appropriate legislation to modernise the payments transmission process. The new legislation will render the writing of cheques against insufficient funds an offence punishable by law. The reforms aim to make Botswana’s payment system as risk-free as possible and compatible with best international practice, as well as enhancing confidence in the banking system.

Other Financial Institutions
These institutions supplement the role of commercial banks, offering specialised services targeted to certain economic sectors, as provided for under their respective legislation. They include the National Development Bank, Botswana Development Corporation, Botswana Savings Bank and Botswana Building Society. Efforts continue to rationalise their operations and re-orient them to market discipline. Botswana intends ultimately to bring most financial institutions under a central supervisory and regulatory framework through proposed new banking legislation, gradually reducing reliance of these institutions on government finance.

In 1998, Investec Bank (Botswana) Limited, a subsidiary of Investec Holdings Botswana, was licensed as an investment and merchant bank. It is a joint venture between Investec of South Africa and the Botswana Development Corporation offering a range of lending products, including home and motor vehicle loans and investment and advisory services. The initial capitalisation of the bank was P50 million.

Former credit institution ulc was granted permission to convert into a merchant bank during 2000. It is now known as African Banking Corporation of Botswana.  

The government is committed to implementing citizen empowerment programmes across all sectors. Some of the past financial assistance programmes include the Financial Assistance Policy (FAP) and the Policy on Small, Medium and Micro Enterprises (SMME). The most recent scheme is the Citizen Entrepreneurial Development Agency (CEDA), which provides capital to viable citizen business projects. By the end of December 2001, 1,045 CEDA applications had been received, of which 126 applications, valued at P74 million, were approved.  

Insurance policies are provided by Botswana Insurance Holdings Limited, Botswana Eagle Insurance Company Limited, Mutual and Federal Insurance Company and Metropolitan Life. An insurance premium financing company, the Premium Credit Botswana (Pty) Limited started operations in February 2000. In association with First National Bank Botswana, the insurance premium company provides commercial clients with a facility to finance short term insurance premiums.  

Money and Capital Markets
An informal stock market was established in 1989, managed and operated by a stockbroking firm Stockbrokers Botswana Limited.

During the first few years after its establishment, it performed remarkably well, in terms of the level of capitalisation, the value of shares and the returns to the shares. It was not until 1995 that a formal stock exchange was established under the Botswana Stock Exchange Act. The Exchange contributed to the promotion of Botswana as a destination for international investment.

The number of domestic listed companies on the Botswana Stock Exchange (BSE) rose to 16 with offshore bank, ABC Holdings, listing during the year 2000. The foreign companies index rose from 431 to 684 in 2001, during which De Beers was delisted after being taken private and replaced by Anglo American.

The BSE was buoyant during 2001 with a general increase in share prices and a significant rise in market capitalisation. The performance of the stock exchange reflected the generally good operating results of most of the larger listed companies. In addition, the disbursement of government funds to the new civil servants pension scheme stimulated market activity. Market capitalisation rose by 70 percent to P8,909 million at the end of December 2001 from P5,245 million at the same time the previous year. The new Venture Capital Board of the BSE was inaugurated with the listing of Gallery Gold, a company engaged in exploring gold deposits around Francistown.

Other than the activities of the stock exchange, three stockbrokers, Stockbrokers Botswana, Investec and Capital Securities, started operations during the past decade. There has also emerged a number of fund and unit trust managers including Investec and African Alliance.

The Bank of Botswana issues its own paper, BoBCs, introduced in 1991. While BoBCs are issued for liquidity management purposes, there is a growing secondary market for the instrument. In January 1999, the Bank took another step towards developing the local money market by introducing Re-purchase Agreements (Repos). The Bank also introduced National Savings Certificates in 1999 with the objective of encouraging savings by offering attractive interest rates. The certificates are only available to citizens.

In the bond market, a P30 million bond, with a floating coupon rate 125 basis points above the three-month Bank of Botswana Certificate rate, was issued by Stanbic Bank Botswana Limited in November 2001, and was fully subscribed. Barclays Bank of Botswana has also announced its intention to issue a bond.  

Exchange Controls
In view of the country’s stable macro-economic environment, healthy foreign exchange reserves and sound banking system, all remaining exchange control regulations were abolished by government in February 1999. However, relevant foreign exchange transaction forms will continue to be completed by buyers and sellers of foreign currencies for purposes of compiling balance of payments statistics and monitoring the developments in the foreign exchange markets.

Government has put in place institutional structures and complementary fiscal and monetary policies and instruments to manage an exchange control free environment. This will ensure that the economy withstands any turbulence in financial markets, as capital is allowed to move freely across international borders.

International Financial Services Centre (IFSC)
The business activities of Botswana’s International Financial Services Centre (IFSC) were launched in March 2000. The Centre has the objectives of generating employment, enhancing the skill base and stimulating economic growth. The country has the required attributes to host the Centre including a well-managed economy, a stable democratic political system and efficient telecommunications.

An IFSC Unit was set up within the Botswana Development Corporation (BDC) in 1998. The project is funded by government through BDC as the implementing agency. The Unit is assisted by ICC Consulting, the consulting division of ICC Bank, Ireland.

The IFSC made substantial progress during 2000 with five companies being approved to operate and issued tax certificates. The companies were ABC Bank Holdings (which has been granted two licences), African Alliance, NatGilt (managed by African Alliance) and Seed Co. of Zimbabwe. These companies have made their first tax contributions, after completion of their first year of operation.

Further progress has been made in expanding the Centre, with 10 projects now operational. Some of the new companies include Metcash Africa, Barclays Bank International and Cyberplex Holdings. The Centre’s marketing programme is now in full swing and enquiries and applications from South Africa, the United Kingdom, France, the United States of America, and Zimbabwe are being processed. Four new proposals, including two from major international banks, were expected to have been approved during 2002. In addition, a further 31 enquiries were being processed.

Criteria for Approval
In order to qualify for the incentives offered under IFSC, projects must meet a number of criteria. These are:
•    Projects must provide financial services, as set out in Part XVI of the Income Tax (Amendments) Act 1999. These are:
(a) banking and financing operations transacted in foreign currency;
(b) the broking and trading of securities denominated in foreign currency;
(c) investment advice;
(d) management and custodial functions in relation to collective investment schemes;
(e) insurance and related activities;
(f)  registrars and transfer agency services;
(g) exploitation of intellectual property;
(h) development and supply of computer software for use in the provision or services described in (a) to (f) above;
(i)  accounting and financial administration; and
(j)  other operations that the Minister may declare by order from time to time to be approved financial operations for the
purposes of this section.
•    The services must be provided to/for clients outside Botswana and in currencies other than the Pula.
•    Each project must make an employment commitment of a size related to the scale of its proposed activities.
•    The promoters of projects must be able to satisfy the regulatory requirements of the Botswana authorities.

Approval Process
The process for approval of projects for the IFSC tax incentives is set out in the Income Tax (Amendments) Act 1999, which provides for the establishment of a Certification Committee to consider applications and to recommend the issue of approvals to those proposals which meet the criteria. Upon arrival, a tax certificate will be issued by the Minister of Finance and Development Planning or his authorised representative and will be effective, unless it is revoked, until June 2020.

Government Finances (P m; fiscal years Apr-Mar)

1997/98

1998/99

1999/00

2000/01

2001/02a

Revenue

8,169.1

7,539.9

11,837.1

14,050.6

13,308.3

Grants

112.1

137.7

126.1

64.5

39.0

Total revenue

8,281.3

7,677.6

11,963.1

14,115.1

13,347.4

Recurrent expenditure

4,826.6

6,157.3

7,047.9

8,383.1

9,613.3

Development expenditure

2,695.8

2,934.5

3,451.0

3,134.6

3,761.7

Total expenditure

7,406.1

9,065.4

10,427.5

11,536.5

13,432.6

Overall balance

875.1

-1,387.8

1,535.6

2,578.6

-85.3