The birthday boom
Minister of Finance and Economic
Planning, Baledzi Gaolathe, pictured
here with fellow African finance
ministers at an IMF meeting in
Washington earlier this year.
otswana’s minister of finance and eco- healthy output from copper-nickel mines as dropped to 1.3% from 3.2%, soda ash to
nomic planning, Baledzi Gaolathe, the international price booms in response to 1.4% from 1.5% but textiles – Botswana’s only
declared recently in Gaborone: “We demand from China. (See Mining overview). manufacturing diversification success – in-
must look to the future and keep to Botswana’s current exports are dominated creased to 4.7% from 1.4%. Vehicle assembly
our determination to have a better Botswana by diamonds which over 2005 accounted for export earnings also rose from 2.2% to 2.4%.
in the years to come. Things have been a bit 72% of the total P23.6bn revenue. Five years Between 2004 and 2005, the pula, which
tough but the signs of better times are there! previously, diamond exports had formed a through a newly imposed exchange rate re-
We continue to have high international finan- larger proportion of total exports (83%) but gime is in a controlled slide against inter-
cial and development ratings. There is a lot to had yielded less revenue to total exports of national currencies, has boosted diamond
celebrate!” P13.5bn. revenues dramatically, up by 30% to P17bn,
Botswana’s 40th birthday on 30 September In response to increased world demand, double the 15% gain over the previous five
marked the beginning of a new economic copper-nickel exports grew by 9.8% in 2005, years.
era. Whilst revenues from the four Debswana up from 4.4% growth in 2004. In its first year Botswana’s free trade agreement with South
mines remain the major ingredient of the as an export commodity, gold contributed Africa gives its manufacturers access to this
country’s economy, the icing on top is a gold 0.8% to the country’s earnings in 2005. major regional market. The pula also man-
mine which came on stream in 2004 and the Over 2001-2005, beef export earnings aged to support an export-led diversification
20 African Business | October 2006
drive as its lower value against the rand makes for the last 10 years. However, it is now only
imports from Botswana attractive to South limping along in the shadows of the min-
Africans. The steady growth in exports, led by ing boom. “We would like to have achieved
diamonds, has over the years enabled Botswa- more,” Baledzi avers, adding “there has been
na to enjoy a continuous surplus on its current some diversification, as measured by the con-
account – at around P2bn from 1996 to 2004 tributions to gross domestic product, but it
before soaring dramatically to P7bn in 2005. has not been as good as we would have liked
Botswana has also built up substantial for- it to be. We are determined that during the
eign exchange reserves – standing at $7bn in remainder of National Development Plan
April 2006. Nine (to 2008/09) and beyond to scale up
By avoiding extensive foreign borrowing, to- our efforts”.
tal debt at the end of 2004/05 financial year was Over the five years prior to 2001/02, the
P2.2bn – 11.2% of exports and 5% of GDP. contribution to GDP by the non-mining
Interest rates in Botswana (16.5% prime and sector of the economy was in steady decline.
15% bank rate) suffer from a stubbornly high South African visitors are the bedrock of Botswana’s Tourism and manufacturing are major pillars
tourism sector, but increasing numbers of international
inflation. Monetary policy focuses on keep- tourists are enjoying the country’s many attractions. of the diversification policy and the revival
ing inflation within a target range set by the of a flagging agricultural sector is a political
Bank of Botswana of 4%-7% for 2006, with a Exchange rates are ‘managed’ to minimise and economic priority; yet the contributions
medium term objective of 3%-6%, compara- currency appreciation as a result of grow- provided by agriculture and manufacturing
ble with the inflation target of neighbouring ing mineral exports, which tends to under- slid, as did that of the banking and business
South Africa. mine the competitiveness of non-mineral sector.
Year-on-year inflation as at July 2006 was economic activities, thus deepening depend- There was a 30% increase in the non-min-
11.9%, but is expected to fall within to its ence on minerals. The ‘crawling peg’ ensures ing sector over 2001/02 to 2003/04, but this
target range by mid-2007. If this does happen, the exchange rate is adjusted on a gradual was largely fuelled by growth in general gov-
there will be a strong case for an interest rate basis in order to prevent further competitive- ernment; to a lesser extent by gains in bank-
reduction by late 2006 or early 2007. There are ness problems. This should remove the need ing and general business and tourism-related
no exchange controls in Botswana. Profits can for any substantial devaluation and provide air transport. These gains were partly reversed
be freely remitted and capital moved in and greater certainty in investment planning. The over 2004/05 by losses in the tourism-related
out of the country without restriction. rate of crawl is related to the difference be- industries and manufacturing.
The pula has a ‘crawling peg’ exchange rate tween Botswana inflation and the average The now-booming mineral sector has,
and is tied to a basket of currencies compris- inflation rate of trading partners. At present it however, had mixed fortunes over previous
ing approximately two thirds the South Afri- is implemented on a daily basis and amounts years. Its gains during 1995/96 to 2000/01
can rand and one-third the Special Drawing to some 5% per year. which took it to a 47% share of GDP from
Right (SDR – itself a currency basket com- 34% share of GDP, more than offset the losses
prised of the US dollar, euro, British pound Mining overshadows diversification of the non-mining economy; but to 2003/04
and Japanese yen). The longer-term trend is The policy to diversify the economy away its contribution had slid back to the 1995/96
of pula depreciation against the major inter- from an overwhelming reliance on mineral level which was not altogether compensated
national currencies. revenues has been aggressively implemented for by the gains in non-mining. Boosted by
the increase in mineral revenues it has started
to climb and over 2004/05 reached 38% of
Accommodation “More recently the mineral sector has done
Mondior Summit Hotel’s easy elegance very well. We have sold more diamonds, cop-
Having stayed there, African Business can highly recommend per-nickel prices have improved – the sector
staying at the Mondior Summit Hotel which is in the heart of the
city of Gaborone. The décor and styling is thoroughly modern has gained ground,” Gaolathe says. But it has
but the ambience is of easy African elegance. It is ideal for both lost ground in terms of the proportion it con-
tourists and the increasing number of international business
travellers. The hotel is near government offices and the business
tributes to the GDP.
district and within easy reach of shops and restaurants. There is more cash – budgeted mineral
The Mondior is equipped with a swimming pool, an art gallery revenue of P11.5bn in 2006/07 against P7bn
and a museum and the restaurant attached to it offers some of
the best cuisine in the city. five years ago – but its percentage share of
Accommodation comprises a choice of studio, one bedroom overall revenue will have dropped to 45%
and two bedroom suites with a lounge area, TV, kitchenette, fridge
and microwave. from 55%. The extra P4.4bn earned is ear-
Conference and meeting facilities are available and the hotel marked to fund more development over the
provides a free airport shuttle.
As African Business can attest, the hospitality provided by the next 40 years, create jobs and to continue to
management and staff was first rate. fight HIV/Aids.
Interior, Mondior Summit: Easy African elegance. By 2006/07 overall government spending
will have jumped over five years from P14bn
22 African Business | September/August 2006
to P23bn – the 2006/07 budget figure. Over TraNsPOrT
the short term there will be annual develop-
ment spending of at least P6bn.
“We have budgeted P6bn for this year and Air Botswana set for privatisation
we do not expect this figure to go down in the Botswana’s national airline is set to be the privatised airline is expected to play a key role
coming few years. The government is invest- the first government owned entity to be in developing tourism in Botswana, tourism CEO
ing more in the country,” Gaolathe says. privatised. “The privatisation process Myra Sekgororoane told African Business.
“The revenue from mining is expected to is on track and I am confident it will be Although tourism is an engine of sustainable
completed by the end of the year,” chief growth in Botswana, its own development
grow more slowly than in previous years but
executive Lance Brogden told African planning is still in its infancy. The new minister
revenues from other sectors is coming up and Business. There have been three bids for is planning extensively – see African Business
there have been increases of up to 50%.” the airline. December 2005 – and a tourism board has
Major amongst these sources of increased “Government is open to receiving been established. However, no development
revenue are the tariffs derived from the five- proposals concerning ownership, announcements are expected until early in 2007.
franchising, concessions, partnerships “The board will essentially be a marketing
nation (Botswana, South Africa, Namibia, Le- or any other proposed business model,” organisation and work to establish joint business
sotho, Swaziland) Southern African Customs Brogden said. A liberalised approach had ventures between citizens and foreign investors,”
Union (SACU), but this is not sustainable in been taken – no preset limits on equity, no Sekgororoane said. Government is keen that
the longer-term. fixed ideas on management – so as not to citizens benefit more from tourism, an industry
inhibit or constrain potential interest. controlled almost exclusively by foreigners. There
Regularly improved payments from SACU
A meeting on 11 August gave bidders will be emphasis on private sector involvement in
over the past five years have resulted in record the opportunity to ask questions about the the industry.
receipts of almost P5bn expected in 2006/07, airline and the bidding process. The bidders “The government’s decision to establish
up from around an average of P1.5m a year had until 23 August to complete their the Botswana Tourism Board
since 2000. But as tariffs are reduced to en- due diligence exercises on Air Botswana. as a separate institution was
Final bids had to be in by 30 August and in recognition of the fact that
courage trade, there will be less revenue from the three received were from: SA Airlink functions such as marketing are
this source. of South Africa, African World Airways, a best done outside of government,”
“At the end of the day, the SACU members, privately owned air transport operator, and Sekgororoane added.
like other countries in the World Trade Or- Lobair, a consortium of local businessmen.
“The bids are now being evaluated.
ganisation, are under pressure to reduce tar-
Negotiations will then take place between
iffs which means that money in the customs the government and the winning bidder,”
pool will be reduced,” Gaolathe explains. Brogden said “Privatisation is essential
Also, the 14-member Southern African De- to ensure an efficient, effective and
velopment Community (SADC), of which sustainable aviation service for Botswana.
A modern, commercially operated
Botswana is a leading member, will be operat- enterprise will be able to move quickly
ing a free trade area by 2012. within the complex and challenging aviation
Caution over spending Also to have considerable private-sector Above: Air Botswana: Ready for privatisation take-off.
input is a new tourism industry, in which Inset: Air Bots’ CEO Lance Brogden.
Although with the increased revenue – Bot-
swana’s ‘birthday boom’ – finance minister
Gaolathe will be able to loosen the purse 1.5% of the workforce. However, it clearly has rated Botswana’s foreign currency risks A
strings and help the nation celebrate the 40th stimulates other activities: directly, the indus- and local currency as A plus – but comment:
anniversary in style, he does not want to try contributes a third of GDP, indirectly there “The ratings are constrained by the narrow
change his cautious management of Botswa- would be little produced without it. De Beers economic base. This is of particular concern
na’s finances. says that approximately 25% of jobs in Bot- because of uncertainty over how the authori-
“We will not allow any revenue or expendi- swana are linked to the diamond industry. ties will cope with limited potential for ad-
ture that might disrupt our planning. We plan “Mining does lead to the import of capital ditional diamond output.”
for expenditure of about 40% of GDP. We con- equipment and the associated customs rev- Botswana does not borrow from the In-
tinue to live within our means, we do not over- enues; revenues from mining stimulate other ternational Monetary Fund (IMF), nor have
load the country with debt,” he says. Over the diversification, but the unemployment in our there been any suggestions that it will un-
last 10 years the debt burden has not exceeded country is a worrisome thing,” Gaolathe in- dertake any IMF structural adjustment or
27% of exports; it is now close to 10%. sists. stabilisation programmes. However, while
Gaolathe continues to be worried about While lauding Botswana’s diamond-spar- commending Botswana’s record of economic
what he considers Botswana’s stubbornly high kling economic performance, rating agen- management, the IMF points out potential
unemployment. “We know that in the region cies Moody’s and Standard & Poor’s (S&P) problems, which largely reflect the concerns
they talk of much bigger figures – up to 40% are concerned over the lack of long-term of the ratings agencies. “Economic growth
unemployed – but figures above 20% are not sustainable development. Both maintain the rates in the medium term are likely to be
comfortable for us,” he says. country’s investment grade credit ratings somewhat slower than in the past, due to the
Mining, particularly diamond mining, is – Moody’s is A2 for foreign and A1 for do- slowdown in diamond export growth,” it said
capital intensive and employs no more than mestic currency government debt issues, S&P in February 2006. g
African Business | September/August 2006 23