Overview
At independence in 1966 Botswana was one of Africa’s poorest countries. Today it is classified as an upper-middle-income country with a per capita income not much lower than South Africa’s. Thanks largely to abundant revenue from diamonds, it has been the fastest growing economy in the world over the past 25 years. Responsible political leadership and conservative economic policies ensured that this wealth was not squandered but used to strengthen the country’s human and physical infrastructure. In recent years, however, drought and declining demand for diamonds have slowed down the growth in government revenue, while expenditure has continued to rise. The HIV/AIDS pandemic, widespread floods in 2000 and the implementation of priority projects were seen by the government to be responsible for Botswana recording its second budget deficit in 18 years in the 2001 fiscal year.
Until 1971, when diamond mining began, the economy was overwhelmingly dependent on cattle raising. Although it has expanded considerably, it remains relatively undiversified, with mining and agriculture continuing to predominate. The manufacturing sector has developed rapidly from a very small base and has begun to make a useful contribution to exports, though not much to employment.
Four-fifths or more of the population remain dependent on livestock activities, largely outside the cash economy, although rural incomes have improved. Botswana is basically an arid country, but irrigated crop farming has proved difficult to promote, while cattle ranching has tended to skew the distribution of agricultural incomes in favour of the large commercial farmers.
Mining
The diamond sector continues to be the mainstay of the economy - it accounts for about one-third of GDP, more than 45% of government revenue, and about 75% of export earnings. Botswana is now the world's leading diamond producer, producing 29% of the world's value in 1998. Sales in 2000 hit record figures of US$5.67bn. The expansion in diamond output, which is now at capacity, combined with the exploitation of copper-nickel deposits, has enabled Botswana to amass foreign exchange reserves equal to more than two years’ imports.
Manufacturing
The manufacturing sector, while still underdeveloped, has grown rapidly from a very small base and has begun to make a useful contribution to exports. It has maintained a fairly stable position, but the closure in early 2000 of the main vehicle-assembly plant will cause its contribution to fall in 2000/1, as well as striking a severe blow to the country's diversification plans.
Agriculture, fishing & forestry
The agricultural sector has declined significantly from about 40% at independence to 30% in the mid-1970's, and to less than 3% in 1999. Botswana is an arid country in which less than 5% of the land area is cultivable. Livestock remains the focus of the traditional and modern agricultural sector, with four-fifths or more of the population remaining dependent on these activities, largely outside the cash economy. Beef processing accounts for around 80% of agricultural output, and more than 95% of beef output is exported. Food -crop production covers less than one-third of consumption, even in drought free years. Aims for self-sufficiency in basic foodstuffs are far from being realised, despite land development and irrigation programmes.
Tourism
This sector contributes around 3% to GDP. Environmentally sensitive, low-volume, high-price tourism has been identified by the government as a potential source of growth to reduce dependence on diamonds. The main attraction is the unique wetland environment of the Okavango Delta.
Government finance and fiscal policy
The last few years of depressed diamond prices have revealed the vulnerability of Botswana to its over-dependence on this commodity, particularly in circumstances in which other diamond producers may be able to disturb the control of the De Beers cartel. This had led to a realization in government that more has to be done to diversify Botswana’s narrowly based economy, and that part of this strategy will involve the privatization of some state assets, reducing the role of government in what is essentially a mixed economy. The thrust of recent development plans has therefore been to manage a successful transition from the rapid, but diamond-dependent, growth of the recent past to a more sustainable and diversified pattern of development, whose benefits are more widely shared. Whereas the government’s diversification programme seeks to increase manufacturing and tourism in the short and intermediate term, its longer-term objective is to turn Botswana into the financial services sector of the region for foreign investors and companies doing business in Southern Africa.
Botswana’s government is committed to the promotion of free enterprise and offers generous investment incentives, which are regularly re-evaluated to ensure its continued competitiveness. However, many Batswana feel that their private economy is already firmly in foreign hands and fear that privatization will exacerbate a situation that will promote the already wide economic and social gulf within society.
Foreign Aid and Donors
Largely stable during the early 1980's, aid receipts rose substantially from 1986, mainly in response to drought conditions. Since 1997, aid has started to rise again, reflecting the donors response to the perceived threat of HIV/AIDS.
Regional and International economic grouping/alliance
- African Union
- South African Development Community (SADC)
- South African Customs Union (SACU)
- EU-ACP Convention
