Country Brief

Last updated: September 2009

Key Facts

Map of Botswana

Botswana is one of the world’s great development success stories. A small landlocked country of 1.9 million people, Botswana was one of the poorest countries in Africa with a gross domestic product (GDP) per capita of about US$70 at independence from Britain in 1966. In four decades following independence, Botswana has transformed itself, moving into the ranks of middle-income status to become one of the fastest growing economies in the world, even outpacing the Asian Tiger economies with its average annual growth rate of about 9 %.

Botswana takes pride in being a mature democracy. Free and fair elections are held regularly and the constitution provides for fundamental rights and freedoms. The political scene is remarkably stable. The Botswana Democratic Party (BDP) has been in power since the first elections were held on the eve of independence in 1965. Former Vice President and the son of Botswana’s first President Seretse Khama, Lt. General Seretse Khama Ian Khama, was inaugurated Botswana’s fourth President in April 2008. The next general election is due to be held in October 2009.

Particularly in the years following independence, Botswana’s leadership adopted successful strategies to shape the future of the nation and established a multiracial and democratic society. Barely 10 years into independence diamond income had begun to accrue.  The government invested the mineral revenues well in improving social and economic conditions, including building infrastructure, and developing health and education systems. Soon, the diamond industry established itself as the main engine of growth and the state-led development strategy continued to propel the country’s rapid development.

Botswana’s impressive track record of good governance and economic growth, supported by prudent macroeconomic and fiscal management, stands in contrast to the country’s still high levels of poverty and inequality and generally low human development indicators. While Botswana’s economic progress over the past 40 years has significantly raised living standards for about two-thirds of the population, a third or more of its people have been left behind.

While education expenditure is high at 10 % of GDP and significant educational achievements have been attained, including the provision of nearly universal and free education, overall outcomes have not created the skills and workforce Botswana needs. Unemployment has been persistently high at near 20 %, household incomes are much lower in rural than in urban areas (HIES 2002/03), and, while rural poverty rates have fallen, they remain significantly higher than in urban areas.  As a consequence, Botswana’s income inequality is one of the worst in the world.

The HIV/AIDS pandemic has further exacerbated the situation: the country now suffers from the second highest HIV/AIDS adult prevalence rate in the world, and education and health outcomes are below those of countries in the same income group.  There are already 131,000 AIDS orphans in Botswana. Life expectancy has quickly fallen from 60 to 56 years (2007). Infant mortality is up from 45 (per 1,000 births) in 1990 to 90 in 2007. Tuberculosis is up from 236.2 (per 100,000) in 1990 to 556 in 2005, mainly due to HIV/AIDS. Botswana's Human Development Index (HDI) rankings have declined from number 72 (of 130 countries) in 1990 to 126 (of 179 countries) in 2008, largely explained by the decline in life expectancy due to the HIV/AIDS epidemic. While Botswana still has prospects of achieving some of the Millennium Development Goals (MDGs), it is unlikely to achieve the MDG goal of halving poverty by 2015.

Botswana’s economy rests on a narrow foundation -- diamond production -- which in large part sustains economic expansion and social spending. However, over the past 20 years, Botswana has begun to reduce dependence upon diamonds: mineral revenues accounted for well over 55 % of total government revenues in the late 1990s; today the figure is under 40 %. The balance of payments is less dependent on diamond exports than it was in the early 1990s, with non-diamond exports before the global economic crisis covering nearly 60 % of Botswana’s imports.  Botswana’s history of sound management, good governance, and an emerging focus on enhancing regional competitiveness should also serve it well as it continues efforts to diversify.

In the near term, however, a challenge facing Botswana is how to weather the current economic crisis.  Growth estimates for 2009/10 are for a contraction of 10.2 %, following estimated growth of 2.9 % in 2008/09.  Quarterly figures are even grimmer, with 2009 Q1 GDP recording a 22 % contraction from the previous quarter. Mining contributed most to the decline with a 68.6 % drop relative to a year earlier, attributable to the closure of diamond mines between January and April. With the fall in diamond exports, the 2008 current account surplus is estimated to have stood at 7.9 % of GDP, down from 19 % in 2007. For 2009, the current account balance is projected to end the year at about -7 % of GDP.  Lower mineral revenues are compounded by slower growth in other revenue sources, including Southern African Customs Union (SACU) revenues, earnings from foreign exchange reserves, and domestic tax revenues.  Nevertheless, there has been a marked improvement in diamond sales in April and May of this year. Diamond exports in May totaled P1.8bn (US$250 million), their highest level since September 2008, though still well below peak levels of P3.3bn in August 2008. Also, the non-mining private sector has proved to be remarkably resilient, growing by 9.4 % during the first quarter of the year compared to a year earlier, despite the global crisis.

Botswana is in a stronger position than many other mineral producing economies in the continent as a result of its prudent fiscal policies. International reserves provide nearly two years’ worth of import cover, and a year’s worth of expenditures has been saved from previous years’ fiscal surpluses. Another point in Botswana’s favor is its very low level of public external debt, estimated at about 3 % of GDP. Botswana’s savings will provide a cushion that should enable a gradual, rather than abrupt, adjustment to adverse circumstances. But trade and fiscal deficit financing will become an increasing challenge if the fall in exports stretches into the medium term.

The current crisis provides, in some ways, a window on a future when diamond revenues will no longer form the mainstay of Botswana’s economy.  The need to diversify the economy away from mineral wealth could hardly be made more starkly.  Botswana’s critical medium priority therefore is to diversify its economy in order to create the employment opportunities needed to lift citizens out of poverty and reduce inequality. To do this, the country must increase competitiveness and reverse trends in human development indicators (especially in education and health).  But, as Botswana tackles these longer term goals, it faces more immediate and pressing challenges such as overcoming the electricity and global economic crises that must be met if the economy is to sustain its past growth record and prepare for global recovery.

World Bank Group Program

Program to date

The World Bank has financed a total of 28 operations since the first operation was approved in 1964. Activities focused on education, transport, water, and rural development. As Botswana’s economy grew, the country turned increasingly to its own resources for development financing, and stopped using foreign aid. With lending phasing out, the Bank’s engagement in Botswana shrank, and its focus shifted to limited analytical and advisory work mainly in the form of fiduciary and comparative analytic services such as an Investment Climate Assessment (FY07), a Financial System Stability Assessment (FY07), a Report on the Observance of Standards and Codes on Accounting and Auditing (FY07), and an Anti-money Laundering and Combating Financing of Terrorists (AML/CFT) procurement assessment (FY07). At the government’s request, the World Bank’s knowledge program also included an Export Diversification Study (FY05), prepared jointly with a local think tank, Poverty and Social Impact Analysis (FY06), and a Livestock Sector Development Strategy (FY06). This last study was largely funded by the government. A Public Expenditure Review (PER) is ongoing.

The International Finance Corporation (IFC) has had limited engagement in Botswana to date while the Multilateral Investment Guarantee Agency (MIGA) has not had any exposure in Botswana.

Botswana joined the IFC in 1979 and MIGA in 1990.  IFC will support the competitiveness agenda through selective strategic interventions. In addition to its possible engagement in the power sector, IFC Advisory Services has been appointed as transaction advisor to the government on a public-private partnership for the new Botswana University of Science and Technology (BIUST) and the privatization of the Botswana Telecommunications Corporation (BTC). The corporation is also exploring options for providing finance to mining beneficiation, and advisory services in the health sector.

MIGA will also support the country’s competitiveness agenda through the provision of political risk insurance, if and when needed by foreign investors active in the country.  To date few investors have sought such support from MIGA, primarily due to the market’s perception of low political risk. However, this may change with the impact of the financial crisis, especially as commercial lenders to projects review their risk appetite. Specifically, MIGA’s insurance can be used as a credit enhancement tool (to improve lending terms and conditions of private projects) in middle income countries like Botswana.  In this regard, MIGA will continue to work closely with the Bank and IFC, especially in respect of projects in the infrastructure and extractive sectors, given their significant impact on growth.  

A Renewed Engagement

A Country Partnership Strategy (CPS) for Botswana was presented to the Bank’s Board of Executive Directors in May 2009. The strategy presents the World Bank’s indicative program for Botswana for the period of FY09 to FY13. This first-ever Bank strategy for Botswana comes in response to increased interest from the government of Botswana for a scaled up World Bank Group program that has been limited in the past decade and a half. The strategy has been developed in consultation with the government of Botswana and is linked to the national development priorities as set forth in Botswana’s long term development strategy “Vision 2016”, and the National Development Plans (NDPs). 

 The Bank Group’s Botswana program will focus on four elements of the government’s short - and long-term development agendas, as reflected below.

• Enhancing Public Sector Effectiveness
• Fighting HIV/AIDS and Improving Education Outcomes
• Increased Competitiveness – Infrastructure and the Climate for Investment and Growth
• The Environment

The Bank will need to fill a number of analytical gaps, in order to better understand the apparent contradiction between the strong track record in governance, macro-fiscal management and growth vis-a-vis high levels of poverty, inequality and human development indicators, and to continue identifying key bottlenecks to economic diversification.

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