25 July, 2007
Broadening Botswana

At independence Botswana had fewer than 10km of tarred roads. Now it has 10,000km. Baledzi Gaolathe, Minister of Finance and Development Planning, on economic strategy

What is Botswana’s strategy for economic growth and in which sectors?
In 2016, Botswana will have been independent for 50 years. Our Vision 2016 includes ensuring the economy continues to grow at high levels, at about eight per cent; that we have full employment; healthcare for all, and that HIV/AIDS is no longer spreading. Over the last 40 years our economy has grown at an average of nine per cent or more but we are still very dependent on mining, particularly diamonds, so an important aspect of our strategy is to diversify the economy. We believe Botswana has tremendous tourism potential, and we have established a tourism board to give the sector undivided attention.

Tourism will be focused on wildlife – Botswana has an estimated 120,000 elephants, the largest elephant population in the world. We also believe Botswana has a comparative advantage in financial services. We have created an International Financial Services Centre and intend to attract financial institutions from across the world to set up in Botswana and operate in the region. We believe we have created the environment – no exchange controls, improved communications and lower taxes for companies that register in Botswana. The rate of company tax is 25%, but those companies that register at the IFSC will pay only 15%. We want to develop our manufacturing, as we have raw materials but we have been exporting them in the same form.

Now we want to add value to them in-country. We are the biggest producer of gem diamonds in the world but export them all in raw form to India or elsewhere. We are promoting the cutting and polishing industries, and have licensed 16 companies to do this. Copper nickel is another such raw material – we have been processing this up to a point, but then export it for refining in other countries. We are now building a refinery in Botswana so we can sell on an end product, and so that other businesses that use copper can also come to Botswana to operate.

Commodity prices are very volatile. What can Botswana do to protect against price downturns?
Diversification is designed to reduce that risk, so we are not just dependent on one or two basic commodities such as minerals or diamonds. These prices are cyclical, so it is part of our government strategy that in the years that diamonds and other commodities are selling well, we don’t use up all the revenue from them but put some aside. That is why our foreign currency reserves are high, despite being a small country. In the years when prices are depressed, we can then draw on some of those reserves to ensure there are no disruptions to government expenditure. We also avoid unsustainable borrowing or getting into debt.

Countries with great mineral riches are often far from wealthy. How can the ‘commodity curse’ be avoided?
Good economic management. We have worked hard to promote good governance, manage our resources and have maintained a vision of what we want to achieve. We have invested the wealth from diamonds in particular in social and physical infrastructure, and for example now have a literacy rate of more than 90%. At independence we had fewer than 10km of tarred roads – we now have something like 10,000km. I think a country must have a vision of what it wants to do, and avoid wastage. Wealth must be used to produce something more sustainable. It is not enough to have mineral resources. It is the way you manage them that makes a difference to how the economy grows and the welfare of the people improves.

Does Botswana have a privatisation strategy?
Yes. We have assessed about 30 large government parastatals and classified them in terms of those that can be privatised immediately or in the short term; those that can be privatised in the long term after some restructuring, and those that we believe should not be privatised. Air Botswana is one we have started on and are negotiating with another airline. We could have privatised it already, but when we started to consider it the airline industry was very depressed so we didn’t have credible partners. Another is the Botswana Telecommunications Corporation, where they have brought in a new Transactions Manager to oversee the process, and we are also privatising the National Development Bank. Others such as power and water will be privatised in the long term.

How will Botswana address its growing energy needs?
We generate only about 30% of our power needs. We are connected to the SADC region power grid but with South Africa and other economies in the region growing, capacity must be increased over the region. We want Botswana to be a contributor to the grid and a net exporter of energy, and we are constructing a major power station capable of producing 4800MW. This will cost more than US $5 billion, including the cost of building the coal mine to produce the fuel for the station. We will then become a major exporter of power, most of which we expect will go to South Africa. We are also expanding another coal power station at a cost of $1.2bn. We are also prospecting for methane but are still to learn the full extent of these reserves.

Africa Investor July - August issue