BCS Part 2: A Brief Look into a Botswana's Diamond Economy and Trade

Through fiscal discipline and comprehensive financial management, since gaining its independence in 1966, Botswana has consistently be able to maintain overall economic success. This has allowed Botswana to build one of Africa’s strongest modern day economies and transform itself from one of world’s poorest countries to a middle – income country with a GDP per capita of US$16,400 in 2015 (Central Intelligence Agency (CIA), 2016).  According to S&P Global, one of the world’s three largest credit – rating agencies, Botswana has a stable A- credit rating which is the best in Africa (S&P Global , 2011). Botswana has a strong economic platform and despite experiencing fluctuations in economic activity, they have been able to maintain stable and consistent values across various economic measures.

Botswana has been able to maintain one of the world’s highest economic growth rates since independence and in 2015 Botswana’s GDP was valued at US$14.41 billion which reflected a 1% increase in GDP from the previous year. Over the past decade Botswana has maintained an average GDP growth rate of approximately 5%, which has been one of the fastest in the world, and therefore ensuring economic stability and a quick recovery from the 2008 Global Financial Crisis (The World Bank, 2014).

 As a result of an aggressive response by the Botswanan Government to the GFC, Botswana was able to achieve a GDP growth rate of 8.56%, its second highest level of GDP growth since 1999. To counter the adverse effects of the 2008 recession, Botswana’s government implemented a few strategies aimed at keeping aggregate demand and employment high.

This included financial support to some private companies to keep jobs and investments, which came in various forms, including subsidies granted to 35 companies in the textiles industry. Others were also given loan guarantees for capital costs and plant upgrades, while the government also launched budgeted infrastructure projects as part of the stimulus. The government also specifically targeted corruption to prevent the waste of resources and cut expenses relating to travel, vehicles, office furniture, training and workshops. The table above shows all the major projects which the government planned as part of their response and although some were suspended most were fully implemented and contributed to the overall economic recovery of Botswana’s economy (Ntsosa, 2011). 

The funding for this stimulus came from a US$1.5 billion granted by the African Development Bank (AFDB). The loan’s goals are “to support the implementation of the Government’s 2009/10 budget aimed at alleviating the negative impact of the global financial and economic crisis on Botswana’s economy. It will fill part of the budget deficit (13.5% of GDP). Its goal is to create competitive conditions for accelerated private sector growth, economic diversification, and poverty reduction. The program focuses on the following key areas of reforms (i) promotion of privatization and Public-Private-Partnership (PPP) initiatives, (ii) Improvement of competitiveness and trade, and (iii) improvement of financial sector governance and strengthening of the regulation of nonbank financial institutions” (Page v, AFDB, 2009).

In addition to Botswana’s government response the Bank of Botswana, in aim of encouraging exports, swiftly lowered interest rates in response to lower global inflation rates allowing for the depreciation of the Pula against currencies of major countries (Ntsosa, 2011).

In transitioning to a focus on Botswana’s exports, imports and overall trade balance, the government of Botswana has maintained a stable and healthy current account balance. This is reflected by Botswana’s strong trade balance in 2006, three years before the Global financial crisis and the positive, stable trade balance which they have upheld since 2013, after recovering from the GFC.

(Honde & Fitsum, 2015)

In 2015 Botswana’s GDP growth rate fell -0.25% which was the first time since 2008 that it had reached a negative value. Economists believe it was due to the drop in global luxury goods market which had a heavy impact on the Botswanan economy as diamond exports account for 20.8% of total GDP. In October 2015, president Ian Khama revealed a stimulus plan which would boost the country through agricultural production, construction, manufacturing and tourism development (Central Intelligence Agency (CIA), 2016). In 2016 Botswana entered its fourth consecutive year of drought and export diversification is an aspect of Botswanan trade which still needs to be addressed. According to 2012 statistics provided by the OECD Botswana’s export composition is as shown in the graph below (OECD, 2013). 

Botswana’s export composition shows that the government’s ambition of growing their tourism industry to a sector of high GDP and export value, has yet to become a reality.

Most of Botswana is covered by the Kalahari desert and therefore has an extremely dry and arid climate making access to water one the country’s biggest challenges. This limited opportunity for farming explains why Botswana’s agricultural sector only accounts for approximately 3% of the country’s GDP. Despite this, Botswana has taken measures to ensure further growth in their Diamond industry by signing a ten – year deal with major international diamond company, Da Beers, in 2012. Da Beers agreed to move its rough stone sorting and trading division from London to Botswana’s capital Gaborone in 2013 with the aim of move geared towards supporting the development of Botswana’s already large and fast – growing diamond industry (Central Intelligence Agency (CIA), 2016). 

Sources

Central Intelligence Agency (CIA). (2016, November 03). Library: The World Factbook. Retrieved from https://www.cia.gov/Library/publications/the-world-factbook/geos/bc.html

Honde, G. J., & Fitsum, A. G. (2015). UNDP in Botswana. Retrieved from United Nations Development Programme (UNDP): http://www.bw.undp.org/content/dam/botswana/docs/Publications/Botswana%60s%20GDP%202015.pdf

Ntsosa, M. (2011). The Impact of the Global Financial Crisis on Botswana Economy. Asian-African Journal of Economics and Econometrics Volume 11 , 45-63.

OECD. (2013). OECD Investment Policy Reviews: Botswana. Retrieved from https://www.oecd.org/daf/inv/investment-policy/IPR_Botswana_Oct2013-Summary.pdf

S&P Global . (2011, November 23). S&P Global Ratings. Retrieved from S&P Global : https://www.standardandpoors.com/en_US/web/guest/ratings/entity/-/org-details/sectorCode/SOV/entityId/350287

The World Bank. (2014). GDP Growth Rate. Retrieved from http://data.worldbank.org/country/botswana