Botswana is a small country with a population of about 2.35 million (World Bank, 2020) and nestled between South Africa, Namibia, Zimbabwe and Zambia. Its central location in southern Africa enables it to serve as a gateway to the region. Botswana has historically enjoyed high economic growth rates and its export-driven economy is highly correlated with global economic trends. Development has been driven mainly by revenue from diamond mining, which has enabled Botswana to develop infrastructure and provide social welfare programs for vulnerable members of the population, and these programs will be maintained despite financial challenges in the current financial year, which runs from April 2022 to March 2023. The economic impact of the COVID-19 pandemic was significant as evidenced by an economic growth of negative 8.5 percent in 2020; economic growth was estimated to reach 9.7 percent in 2021. Unemployment also rose from 22.2 percent in the fourth quarter of 2019 (prior to the pandemic) to 26 percent in the fourth quarter of 2021. The fiscal impact of the pandemic has also been significant, resulting in large budget deficits of $1.4 billion in 2020 and $0.87 billion in 2021 compared to the $0.68 billion surplus that the government had forecasted for 2021 in its National Development Plan (NDP). In the first quarter of 2021, diamond revenues recovered, but international tourism revenues did not. In recent years, inflation has remained at the bottom end of the central bank’s three to six percent acceptable range; however, since the COVID-19 pandemic, inflation rose to a 13-year high of 10.6 percent in January 2022 and stayed at that level in February 2022. The World Bank classifies Botswana as an upper middle-income country based on its per capita income of $6,405 in 2020, although it declined from $7,203 in 2019.
Botswana is a stable, democratic country with an independent judiciary system. It maintains a sound macroeconomic environment, fiscal discipline, a well-capitalized banking system, and a crawling peg exchange rate system. In March 2021, Standard & Poor’s (S&P) maintained Botswana’s sovereign credit rating for long and short-term foreign and domestic currency bonds at “BBB+/A-2” with a negative outlook, which reflects the risks COVID-19 will continue to pose on Botswana’s economic and fiscal performance over the next 12 months. In November 2021, Moody’s revised its credit rating for Botswana from A2 to A3 with a stable outlook. These agencies’ ratings are highly influenced by Botswana’s continued dependence on diamonds, which contribute to at least a quarter of Botswana’s GDP and are susceptible to external shocks which places the country at a much higher risk. The diamond industry has however been experiencing a recovery, setting Botswana on a positive trajectory.
Botswana has minimal labor strife. The country has been cited in the 2020 Global Competitiveness Report as one of 30 countries out of 141 in which hiring of foreign labor has become significantly harder than it was in 2008. Botswana is a member state to both the International Centre for Settlement of Investment Disputes (ICSID) Convention and the 1958 New York Convention. Corruption in Botswana remains less pervasive than in other parts of Africa; nevertheless, foreign and national companies have noted increasing tender-related corruption. The Government of Botswana (GoB) created the Botswana Investment and Trade Centre (BITC) to assist foreign investors. Botswana offers low tax rates and has no foreign exchange controls. The BITC’s topline economic goals are to promote export-led growth, ensure efficient government spending and financing, build human capital, and to ensure the provision of appropriate infrastructure. GoB entities, including BITC, use these criteria to determine the level of support to give foreign investors. The GoB has committed to streamline business-related procedures, and remove bureaucratic impediments based on World Bank recommendations in a business reform roadmap. Under this framework, the GoB introduced electronic tax and customs processes in 2016 and 2017. The Companies and Intellectual Property Authority (CIPA) built and successfully integrated the Online Business Registration System (OBRS) with Botswana Unified Revenue Services (BURS) and the Immigration Office. OBRS is designed to reduce the business registration process by more than 10 days. On March 2022, Parliament passed the Intellectual Property Policy to leverage Botswana’s IP potential for inclusive and sustainable economic growth and development. The Public Procurement and Asset Disposal Board (PPADB) will from April 1, 2022, be transitioned to Public Procurement and Regulatory Authority (PPRA) and no longer adjudicate on government tenders. The GoB also established the Special Economic Zones Authority (SEZA) to streamline sector-targeted investment in Botswana’s different geographic areas. The Ministry of Investment, Trade & Industry (MITI) is developing a Trading Service Strategy to facilitate economic diversification and is also working on the African Continental Free Trade Area (AfCFTA) Implementation Strategy.
Due to COVID-19-related economic shortfalls, Botswana drew down heavily on its foreign exchange reserves and government savings. Sectors such as mining, tourism, trade, hotels and restaurants, construction, and manufacturing suffered significantly; however, rough diamond sales recovered somewhat in the second half of 2020. In April 2021, the government put in place several interventions to raise revenues including a Value Added Tax (VAT) increase from 12 percent to 14 percent, an increase on Withholding Tax on dividend income from 7.5 percent to 10 percent and increases in several fees and levies charged for government services (source: 2021, Budget Speech). The government moved swiftly to implement relevant statutory instruments to curb the likelihood of companies exploiting COVID-19 to collude to set exorbitant prices. The 2020 statutory instrument 61 regulated the prices of essential supplies and basic food commodities for the duration of the 18-month COVID-19 related state of emergency. Interventions like the Economic Recovery and Transformation Plan (ERTP) and the Reset Agenda augmented the short-term economic relief package that included wage subsidies, tax amnesties, waivers of certain levies due to government, loan guarantee schemes to support firms’ access to bank credit, and provision of food relief. The president’s Reset Agenda seeks to adjust some priorities in light of new and unexpected challenges and to find smarter ways to implement projects in a timely manner and within stipulated budgets. The ERTP aims to reinforce support already given to affected businesses and also to take advantage of opportunities that have emerged because of the pandemic such as digital services and e-commerce.
Botswana is committed to reducing greenhouse emissions to 15 percent by 2030 through renewable energy projects already underway and listed in the Integrated Resource Plan (IRP). Botswana also adopted a Climate Change Policy in 2021 which seeks to promote access to carbon markets, climate finance, and clean technologies.
|TI Corruption Perceptions Index||2021||45 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||57 of 173||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||21.0||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||6,640 USD||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|