Unit 4 Macro: Growth and Development in Botswana

This blog looks at some economic development issues in the African country of Botswana

1. Botswana is a natural resource-rich country that borders Namibia, South Africa and Zimbabwe
2. The population is around 2 million, the capital city is Gaborone
3. Joined the World Trade Organisation in 1995, 61% of exports go to the EU, 13% to South Africa
4. 73% of imports come from South Africa, 13% from the EU
5. It is world’s largest producer of diamonds and is Africa’s longest continuing multi-party democracy
6. Per capita incomes have grown strongly over last 20 years, it is now a upper-middle income country
7. GDP per capita in PPP terms = $12,154, this is 5 times the average for Sub-Saharan Africa
8. Urban population = 62% of total population (and rising)
9. Life expectancy = 53.2, Under 5 mortality rate = 57 per 1,000 live births
10. Huge disparity in living standards between west and east of the country – the east being much richer
11. The government’s main economic priorities are an emphasis on poverty eradication, reducing rates of HIV infection, promoting inclusive growth, tackling a high level of unemployment and diversifying the economy away from dependence on mining and diamonds in particular
12. Reliance on diamond exports has made the Botswana economy vulnerable to external shocks

A selection of development indicators (2011)

• HDI Ranking 118
• Global Competitiveness Index (World Economic Forum) 80 out of 142
• GDP per capita in PPP terms (constant 2005, $) $12,154
• GNI per capita in PPP terms (constant 2005, $) $13,049
• % of population below international poverty line of US$1.25 per day 31%
• Gender Inequality Index 0.51
• Greenhouse gases per capita (tonnes of CO2 equivalent) 4.1
• Adult literacy rate, both sexes (% aged 15 and above) 84.1
• Mean years of schooling (of adults over 25) (years) 8.9
• Estimated adult HIV prevalence (aged 15+, % of population) 24.8%
• Share of national income taken by the richest 20% of the population 65%

The Diversification Challenge

In 2010, less than 3% of Botswana’s GDP (measured by valued added) came from agriculture and 45% came from industry, but of this figure, only 3% was generated by manufacturing industries. The reliance on the diamond industry is clear to see. Of the total value of exports in 2010 of $4,593 million, $3,206 million (or 70 per cent) came from diamonds and 13% came from copper and nickel. The economy has a very high level of export concentration in just a small number of sectors. The economy is highly sensitive to fluctuations in global demand for and prices of these natural resources. When prices and production levels are high, the value of exports soars and tax revenues flow into the government. In contrast, as was seen in 2009 Botswana suffered from a steep fall in exports (-28%) which contributed to a deep recession (-5%).

For many countries having such a rich resource can end up being a curse but Botswana is highly regarded internationally for the way in which the country has managed to climb to middle income status although unemployment and income inequality remains persistently high. Crucially, the government estimates that the main diamond deposits will be exhausted between 2025 and 2030. Diversification and sustainability are two huge issues for Botswana.

Mining is a capital-intensive industry and has not managed to create sufficient new jobs to find work for Botswana’s growing labour force. Evidence for this is that the Botswana mining sector accounts for less than four percent of the paid employees. Also much of the mining equipment in imported.

Competitiveness

Botswana is ranked 80th out of 140 countries by the World Economic Forum on a range of competitiveness indicators. One of the key strengths of the economy is a high score on the quality of institutions. Botswana’s political stability and relatively low level of corruption is an undeniable asset in attracting foreign investment. So too is their reasonably strong fiscal position. Areas of weakness include health and education outcomes, a small domestic market size, severe and growing water shortages and some persistent infrastructure weaknesses including trade logistics and telecoms.