Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Despite Botswana’s small population of 2.36 million people, the country has vast potential to leverage its uniquely stable economic and political conditions to position itself as a gateway to the 277 million people in the southern African market. Botswana is a member of the Southern African Customs Union (SACU), which includes Lesotho, Namibia, Eswatini, and South Africa. SACU’s main objective is to facilitate the cross-border movement of goods between the territories of its member states. More significantly, Botswana participates in the African Continental Free Trade Agreement (AfCTA), which went into force in January 2021. AfCTA will give Botswana greater access to markets across the continent, widening Botswana’s potential market to nearly 1.3 billion people.
Botswana offers a stable political, fiscal, and macroeconomic environment. Botswana’s per capita Gross Domestic Product (GDP) reached a five-year low of $6,710.99 in 2019 and fell further to $6,404.90 in 2020. Botswana still maintains its World Bank designation of an Upper-Middle-Income Country, nonetheless, and its GDP per capita rebounded in 2021 to reach $7,347.60, showing improved economic activity. The World Bank assessed Botswana’s 2021 GDP at approximately $17.61 billion, and the Bank of Botswana reported a 2021 GDP of $15.29 billion.
Botswana has historically enjoyed one of the highest economic growth rates in the world, but that rate has slowed in recent years. Like many other countries, Botswana’s economy has been affected adversely by the COVID-19 pandemic. The government’s pandemic containment measures included movement restrictions and social distancing, which led to constrained output levels for local businesses. However, the economy began to recover in 2021, although this recovery is threatened by the current Russian war in Ukraine. The global economy is estimated to have grown by 5.9 percent in 2021 compared to a contraction of 3.1 percent in 2020. In comparison, Botswana’s real GDP grew by 11.4 percent in 2021, compared to a contraction of 8.7 percent in 2020, and it is projected to grow by 4.7 percent in 2022. The 11.4 percent growth is attributed to real value added of diamond trades which increased by 78 percent, mining and quarrying, which increased by 29 percent, and wholesale and retail activities, which increased by 14.6 percent. The effects of Russia’s war in Ukraine are already being felt in Botswana, which is a net importer of fuel and most food commodities. Fuel prices have increased significantly, causing ripple effects in almost every sector of the economy and driving inflation to as high as 11.9 percent in May 2022, surpassing the Bank of Botswana medium term objective range of 3-6 percent. The sectors that contributed most to this rate were transport, housing, water, electricity, gas and other fuels, food and non-alcoholic beverages, and miscellaneous goods and services. The central bank projects that the rate of inflation will remain above the objective range in the short term, and will begin to fall in the fourth quarter of 2022, landing within the medium-term objective range by the third quarter of 2023. Botswana has always maintained a conservative fiscal policy and low levels of foreign debt. COVID-19 eroded the country’s fiscal buffers, making Botswana’s economy susceptible to future shocks. However, Botswana maintains a good credit profile that is supported by robust fiscal measures which maintain the debt level at no more than 40 percent of GDP. Moody’s Investor Service maintained Botswana’s rating at A3 with a stable outlook. S&P maintained Botswana’s rating at BBB+ but with a stable outlook. Inflation in Botswana is affected by fuel prices, which the government subsidizes with a National Petroleum Fund fuel tax.
For its currency, the Botswana Pula (BWP), the Government of Botswana (GoB) maintains a basket of weights of 45 percent South African Rand (ZAR) and 55 percent IMF’s Special Drawing Rights (SDR) – a basket of currencies made up of the U.S. Dollar (USD), British Pound, Euro, the Japanese Yen, and the Chinese Renminbi. The central bank implemented a downward rate of crawl (range within which the Pula exchange rate can fluctuate) in January 2018 for the nominal exchange rate, resulting in a 0.3 percent depreciation for the year. The downward rate of crawl has however been increased from -1.5 percent to -2.87 percent to assist businesses during the COVID-19 pandemic, meaning any changes between the USD and the ZAR will have a slower effect on the BWP-to-ZAR exchange rate, thus favoring imports. The 2.87 percent rate was maintained for 2021. However, the BWP deprecated against the SDR and ZAR. Botswana’s central bank increased the monetary policy rate by 50 basis points from 1.65 percent to 2.15 percent.
Botswana’s trade balance is tied largely to the global demand for diamonds, which represents over 80 percent of the country’s export revenues. Customs revenue from the Southern African Customs Union (SACU) and diamond revenue each contribute about one-third of total GoB revenue. As a result, two-thirds of the GoB’s income is largely outside of the GoB’s control, placing pressure on policy makers to plan conservatively.
Despite Botswana’s upper-middle-income country status, it has one of the highest rates of income inequality in the world and suffers high rates of poverty and unemployment. Statistics Botswana’s quarterly economic survey indicates an increase in the unemployment rate by 1.5 percent from 24.5 percent in the fourth quarter of 2020 to 26 percent in the fourth quarter of 2021.
Government spending has traditionally played a large role in Botswana’s economy. GoB expenditures account for one-third of GDP. However, the government reduced some public expenditure in the 2022-23 financial year to enable the government to finance development projects. These measures include reducing and effectively managing the government wage bill (which may include restructuring), reducing subventions to commercial State-Owned Enterprises (SOEs), reducing revenue support grants to Local Authorities, improved preparation and prioritization of development projects, and the adoption of cost containment measures in various government services.
The GoB has invested revenues into a historically solid infrastructure, including roads, telecommunication systems, hospitals, hotels, and schools. However, poor planning and workmanship have caused several infrastructure problems, particularly in the power, water, and telecommunications sectors. The GoB is working to improve the power and water sectors by drilling additional boreholes (Masama wells), building new pipelines, and soliciting solar power projects. The state-owned Botswana Fiber Network is expanding the national telecommunications fiber optics network, albeit at a pace that has not kept up with the COVID-19-driven demand.
The main contributing sectors to GDP in 2021 were public administration and defense at 18.8 percent, followed by construction at 11.6 percent, wholesale and retail activities at 11.5 percent, mining and quarrying at 11.4 percent. The manufacturing sector is small, accounting for about 5.6 percent of GDP according to the GoB. Agriculture accounted for approximately 1.7 percent of GDP in 2021. Finance, insurance, and pension funding represented approximately 5.9 percent of GDP, while accommodation and food services accounted for only 1.8 percent.
U.S. government trade statistics show total U.S. exports to Botswana of $52.9 million in 2021, a slight improvement from $48.7 million in 2020. Top U.S. exports for 2021 were mostly machinery and electrical equipment, chemicals and rubber products, aerospace and some diamonds. Imports into the U.S. from Botswana were dominated by diamonds.
The major U.S. export opportunities for Botswana continue to be mining equipment, hospital/medical equipment and supplies, aircraft equipment, pharmaceuticals, telecommunications equipment and services, computer hardware and software, energy equipment, and financial and consulting services. Other future opportunities could be in manufacturing and supply of agricultural equipment, with recent revised guidelines for the Citizen Entrepreneurial Development Agency (CEDA) and the import ban for about 14 vegetables, to encourage local production and reduce the food import bill
Botswana is a member of the Southern African Development Community (SADC), a regional intergovernmental organization of 16 African states. The SADC Trade Protocol provides each member state most favored nation treatment on import and export duties. SADC members have not yet implemented a Free Trade Agreement (FTA) to eliminate regional tariffs, although one is in place. FTA negotiations between the United States and the region were suspended in 2006.
Botswana continues to negotiate and secure global markets for locally produced goods and services. The Economic Partnership agreement (EPA) between the United Kingdom – Southern African Customs Union and Mozambique (UK – SACUM EPA) entered into force in January 2021, and the EPA between the EU and SADC kickstarted in March 2022.
As a member of SACU, Botswana receives revenue from SACU which pools customs and excise duties and distributes them to member states using a revenue sharing formula. South Africa contributes the most revenue to the pool and has grown frustrated with its role, which it sees as subsidizing the smaller SACU economies. Should member states revise the revenue sharing formula, this source of revenue could decline.
The Botswana Democratic Party (BDP) has ruled the country since independence in 1966. With its democratic institutions, Botswana is one of the best functioning democracies in Africa. The last national elections were held successfully in October 2019. Vice President Mokgweetsi Masisi assumed the presidency from Ian Khama in April 2018. The Botswana electorate later reaffirmed Masisi’s leadership position when his party won general elections in October 2019. The next elections will be held in 2024. Botswana and the United States enjoy strong bilateral relations.