Botswana - Economy

Economy

Since independence, Botswana has had one of the fastest growth rates in per capita income in the world. Botswana has transformed itself from one of the poorest countries in the world to a middle-income country. By one estimate, it has the fourth highest gross national income at purchasing power parity in Africa, giving it a standard of living around that of Mexico and Turkey.

According to the International Monetary Fund, economic growth averaged over 9% per year from 1966 to 1999. Botswana has a high level of economic freedom compared to other African countries. The government has maintained a sound fiscal policy, despite consecutive budget deficits in 2002 and 2003, and a negligible level of foreign debt. It earned the highest sovereign credit rating in Africa and has stockpiled foreign exchange reserves (over $7 billion in 2005/2006) amounting to almost two and a half years of current imports.

Debswana, the largest diamond mining company operating in Botswana, is 50% owned by the government. The mineral industry provides about 40% of all government revenues. In 2007, significant quantities of uranium were discovered, and mining was projected to begin by 2010. Several international mining corporations have established regional headquarters in Botswana, and prospected for diamonds, gold, uranium, copper, and even oil, many coming back with positive results. Government announced in early 2009 that they would try and shift their economic dependence on diamonds, over serious concern that diamonds are predicted to dry out in Botswana over the next twenty years.

An array of financial institutions populates the country’s financial system, with pension funds and commercial banks being the two most important segments by asset size. Banks remain profitable, well-capitalized, and liquid, as a result of growing national resources and high interest rates.

Botswana’s competitive banking system is one of Africa’s most advanced. Generally adhering to global standards in the transparency of financial policies and banking supervision, the financial sector provides ample access to credit for entrepreneurs. The opening of Capital Bank in 2008 brought the total number of licensed banks to eight. The government is involved in banking through state-owned financial institutions and a special financial incentives program that is aimed at increasing Botswana’s status as a financial centre. Credit is allocated on market terms, although the government provides subsidized loans. Reform of non-bank financial institutions has continued in recent years, notably through the establishment of a single financial regulatory agency that provides more effective supervision. The government has abolished exchange controls, and with the resulting creation of new portfolio investment options, the Botswana Stock Exchange is growing.

The constitution prohibits the nationalization of private property and provides for an independent judiciary, and the government respects this in practice. The legal system is sufficient to conduct secure commercial dealings, although a serious and growing backlog of cases prevents timely trials. The protection of intellectual property rights has improved significantly. Botswana is ranked second only to South Africa among sub-Saharan Africa countries in the 2009 International Property Rights Index.

While generally open to foreign participation in its economy, Botswana reserves a number of sectors for citizen participation. Increased foreign investment plays a significant role in the privatization of state-owned enterprises. Investment regulations are transparent, and bureaucratic procedures are streamlined and open, although somewhat slow. Investment returns such as profits and dividends, debt service, capital gains, returns on intellectual property, royalties, franchise's fees, and service fees can be repatriated without limits.