Botswana
Botswana too reliant on diamonds

Misanet.com / IPS, 22 March - Diamonds may be a girl's best friend, as the song goes but, for the Botswana economy, total reliance on this profitable gem is considered unwise by government planners and economists. The emphasis now is to expand the country's industrial base, which if successful would mean less reliance on imports from neighbouring South Africa, the regional powerhouse.

- Even diamonds face commodities price fluctuations, says a Central Bank of Botswana statistician, who noted that of total diamond sales 80 percent of revenue is earned from Europe. 

This makes Botswana less dependant on bilateral trade with South Africa than other nations of the Southern African Development Community (SADC), such as Namibia, Mozambique, Zimbabwe and Swaziland. "Botswana does not wish to be a satellite economy of South Africa," says President Festus Mogae, who is pushing for economic diversification by seeking foreign direct investment in the manufacturing and information technology sectors.

Botswana's pro-growth policies include a relatively low corporate tax rate of 10 percent, the abolishment of exchange controls, and a programme to privatise state-owned companies. Such incentives will be necessary to attract the foreign direct investment required for economic diversity away from gemstones. 

The London-based Economic Intelligence Unit (EIU) reported in January that Botswana's economy suffered last year due to dependence on diamond sales. The EIU predicts that last year's gross domestic product (gdp) growth rate of 4.3 percent will fall to 4.1 percent this year. But as Botswana's other industries begin to export, the EIU foresees better growth next year, perhaps 5.4 percent.

Botswana's diamond sales are handled through Debswana, a joint venture with the South African diamond giant De Beers. Government retains 80 percent of sales revenues. 

But De Beers, which produces 44 percent of the world's supply of diamonds from its mines in Botswana, Namibia and South Africa, reported a drop in sales last year, to 4.2 billion U.S. dollars, down from 5.7 billion US dollars earned in 2000. Botswana's mined diamonds have been stockpiled. These will be sold when global demand returns.

Late last year, President Mogae hosted the Global Coalition for Africa, whose 150 participants included President Yoweri Museveni of Uganda, Prime Ministers Meles Zenawi of Ethiopia and Hage Geingob of Namibia. 

Clare Short, the British Secretary of State for International Development, former presidents Ketumile Masire of Botswana, Frederick Chiluba of Zambia and Nicephore Soglo of Benin, Maria Minna, Canada's Minister for International Cooperation (and coalition co-chair), and South Africa's Deputy President Jacob Zuma, also attended the meeting. 

It was one of the largest gatherings of high-level officials aimed at boosting Africa's business prospects that Gaborone has hosted, and Mogae told the delegates, "It is now generally accepted that the private sector plays an indispensable role in economic growth, job-creation, business innovation and technological advancement."

However, as far as government policymaking is concerned, he noted realistically, "It is one thing to make policy pronouncements about private sector development, and quite another to effectively implement the policies and institutional arrangements that provide a conducive environment for the private sector."

Just as a rising tide lifts all ships, Mogae believes that improvement of any nation economy of the 14 inter-linked member states of SADC will help the regional economy as a whole. 

- Similarly, macroeconomic policies including fiscal, monetary and exchange rate and interest rate policies pursued in countries with economic and trade relations with each other impact significantly on one another, he said. "While individual country action is necessary, it is also important to address constraints in close coordination with relevant neighbouring countries."

For the economy of the "Switzerland of Africa", as Botswana likes to call itself, a decade has passed since Botswana graduated from the category of "least developed countries" to the middle-income earners. 

At independence in 1966, Botswana had been one of the world's poorest countries, with most of its people subsisting on rural arable and pastoral farming activities. Most workers were migrant miners in South Africa and donors, principally the United Kingdom, financed a large part of the national budget. 

The discovery and commercial exploitation of diamonds, starting in 1969, saw real per capita income grow at an average annual rate of about seven percent for the next 30 years. "This growth would not have been possible without the active partnership between Government and the private sector, both domestic and foreign," Mogae says.

Some foreign investment is coming from companies that see the advantage of Botswana's centralised location in the African subcontinent. The information company MGX plans to use its Botswana subsidiary cdpAfrica to launch products and services throughout the region.

Another success can be found in the services sector. After three years of operations in the country, the South African insurance giant Metropolitan Life has gained a 22 percent market share in Botswana, and is training local entrepreneurs to expand service in the country and neighbouring Namibia.

Botswana is a large country (582 square kilometres) with a relatively small population (1.6 million) of which 46 percent reside in urban areas. 

Economic diversification means jobs for the majority of people unrelated to diamond production, and will ensure a broad-based economy not hostage to fluctuations in commodity prices. Investments currently made and in the pipeline testify to the accomplishment of this policy focus. 

By James Hall, IPS

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