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FY 1999: Botswana |
CHAPTER II. ECONOMIC TRENDS AND OUTLOOK Economic developments in Botswana during the past year have mostly been favorable, and this trend is expected to continue into 1999. Domestic output, as measured by Gross Domestic Product (GDP) recorded an impressive real growth of 6.9% ($4,935 million) during 1996/97, which is in line with the nation's National Development Plan 8 forecast and close to the real growth of 7.0% recorded in 1995/96. The 1998 Budget Speech indicates that if government maintains its policy direction and implementation schedules, the growth rate of total GDP will be maintained at about 6.0% in 1997/98. The Asian financial crisis and related downturn in the international diamond market, however, could result in a less vibrant financial picture for Botswana in 1999. Growth continued to be broad based, as in the previous year, although the pattern of sectoral expansion changed considerably. The mining sector, which accounts for nearly one-third of the GDP, experienced slower growth from 9.9% to 5.8% during 1996/97, largely due to the slower performance of the salt, coal and copper-nickel mate industries. The reasonably strong growth of the diamond industry, resulting from the continuous operations systems introduced in the diamond mines at the beginning of 1997, was however, able to sustain the expansion of the mineral sector. This year, little growth in GDP from the mining sector is expected as growth from the continuous operations of the diamond mines has already been realized. Growth from the expansion project of the Orapa mine (one of Botswana's three diamond mines) will materialize only after this year. The overall growth of the economy was led by the non-mining sectors, which combined, performed exceptionally well by recording real GDP growth of 7.5% for the 1996/97 period after growing steadily at 5.6% the previous year. Significant growth was realized in several sectors including transport and communications (13.6%), trade (10.6%), government (7.5%) and banks, insurance and business services (7.1%). The manufacturing sector is the only non-mining sector which showed slower growth in 1996/97 than in the previous year, partly due to the decline in output for meat and meat products. The non-mining sectors of the economy are again expected to record high growth rates in the 1997/98 period as the construction sector and other services sectors including transport and finance are expected to grow significantly. Real per capita GDP, an indicator of the average standard of living, maintained its rate of expansion at 4.3%, assuming a population growth rate of around 2.5%. Inflation was subdued in 1997 while consumer spending was relatively strong, providing a boost to local suppliers. The annual inflation rate continued its downward trend from 9.6% in December 1996 to 7.8% in December 1997. The inflation rate reached an all time low of 6.9% in March 1998. A significant 25 - 34% wage increase for government workers coupled with higher prices driven by both the Rand and Pula devaluation against the dollar could, however, preclude further declining in the inflation rate. The local currency unit, the Pula, remained relatively stable against the currencies of Botswana's major trading partners in 1997. In nominal terms, the Pula appreciated by 10.2% and 7.0% against the Deutsche Mark and Yen respectively, and depreciated by 4.3% and 2.5% against the US dollar and British Pound respectively. Against currencies of Botswana's regional trading partners, the Pula appreciated by 62.9% against the Zimbabwe dollar while it depreciated marginally by 0.5% against the South African Rand. By mid-1998, the Pula experienced substantial volatility against the US dollar due to its link with the South African Rand which experienced fluctuations, bringing down its value. The balance of payments increased significantly in 1997 with a reported surplus of about $700 million, representing an increase of almost 50% during the year. As a percentage of GDP, the overall surplus in the balance of payments increased from 11.8% in 1996 to 14.4% in 1997, influenced mostly by the merchandise trade account. The country's imports of goods and services rose sharply by 48% from 1996 to 1997 mainly due to increased demand for imports resulting from the economic expansion underway in addition to the lagged effect of the 1996 Pula depreciation against major trading currencies. Meanwhile, a vibrant diamond, vehicles and soda ash market boosted export earnings by 40% during the same period. Because of the balance of payments surpluses recorded over the years, Botswana has accumulated sizable foreign exchange reserves. At the end of December 1997, foreign exchange reserves topped $5.7 billion from $5.0 billion the previous year, sufficient to finance about 30 months of import cover. The slow growth rate of employment together with the continued high growth rate of the population poses a major challenge to policy makers. Formal sector employment continued to be sluggish, recording a marginal growth of 1.5% from 234,100 in March 1996 to 237,500 a year later. Nearly a quarter of females actively seeking work remained unemployed, while 17% of male work seekers could not find jobs. The most recent labor force survey shows unemployment holding steady around 21% at the first quarter of the 1996/97 national accounts year. While Botswana can boast of high literacy rates and virtual universal access to primary education, employment growth is limited by a lack of technical and managerial skills among its workforce. The Government of Botswana has used the country's mineral wealth to develop its people and infrastructure, producing a literate workforce as well as good roads, communications and utilities. Private sector participation in the country's growth is increasing, spurred on by government policies to liberalize the economy and privatize some government agencies. Towards the end of 1997, a high-level task force was established to prepare a draft white paper on a privatization policy, which will be presented to the government in the course of 1998. An Industrial Development Policy,' released by the government of Botswana early this year, indicates that an appropriate institutional structure to support a privatization initiative in Botswana will be developed to improve the developmental scope of entrepreneurship in Botswana and to improve the efficiency of government. Corporate tax rates of 25%, including a 15% rate for manufacturers, have placed Botswana's tax rates amongst the lowest in the region. The 1996/97 budget outturn showed a significant improvement in the fiscal position, resulting in an overall budget surplus of about $356.7 million. The revised 1997/98 budget on the other hand, show an expected overall budget surplus of about $347.6 million with revised total revenues and grants increasing by 10% and total expenditures and net lending increasing by 4.8%. The 1998/99 budget proposal lists some of the major projects planned for the year to include the construction of housing for the Botswana Defense Force, secondary schools, water and sewerage, roads, and primary health care facilities. Diamonds remain the story behind Botswana's impressive financial sheet, although the government has introduced fiscal policies aimed at fostering economic diversification over the six-year period (1997-2003) encompassed by the National Development Plan 8. By targeting the international marketing of Botswana's exports, tourism and investment opportunities, the Government of Botswana expects to lessen the dependence on mineral revenues, generate more jobs and contribute to poverty alleviation. The Government of Botswana has been a leading advocate of economic integration among the 14 members of the Southern African Development Community (SADC). As a landlocked nation with a small population, Botswana's economic fate is closely entwined with that of its larger neighbors, particularly South Africa through which most of its imports and exports transit. The limitations of Botswana's small domestic market make access to SADC's large, liberalized market of 130 million people essential in attracting a high level of direct foreign investment. SADC member states are currently negotiating the details of a trade protocol, which was signed in August 1996 and ratified by two of its members. In early 1998, Botswana ratified the SADC trade protocol, which will contribute to lowering trade barriers and extending dependable and secure market access for producers. Once implemented, the protocol will have a significant impact on the economic and commercial prospects for the region.[end of document]Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.