Botswana is a country with a big land size of about 581,730 sq km (almost the size of Texas which is 695,660 sq km) yet with a very small population of 2.59 million people (World Bank 2022). The country is sparsely populated with some villages and settlements having fewer than 1,000 people making it a challenge and costly for government to reach with infrastructural developments. The capital city, Gaborone, is the largest urban area in Botswana with a population of roughly 300,000 people. Botswana’s strategic position, centrally located, with a stable economic outlook and very low risk of political instability, positions it as a desirable place to do business, and a gateway to the Southern African Customs Union (SACU) and the Southern Africa Development Community (SADC) markets. The SACU, to which Botswana is a member, has a population that has been growing steadily over the past five years from 65.6 million in 2018 to 68.9 million in 2022, while the SADC regional population totals about 390 million people. SACU includes Lesotho, Namibia, Eswatini, and South Africa.
SACU’s main objective is to facilitate the cross-border movement of goods between the territories of its member states. As a member of SACU, Botswana receives revenue from SACU which pools customs and excise duties and distributes them to member states using a revenue sharing formula. South Africa contributes the most revenue to the pool and has reportedly grown frustrated with its role, which some observers see as subsidizing the smaller SACU economies. If member states were to revise the revenue sharing formula, this source of revenue could decline.
Botswana also participates in the African Continental Free Trade Agreement (AfCTA), which went into force in January 2021. AfCTA gives Botswana greater access to markets across the continent, widening Botswana’s potential market to nearly 1.3 billion people.
SADC is a regional intergovernmental organization of 16 African states. The SADC Trade Protocol provides each member state most favored nation treatment on import and export duties. SADC members have not yet implemented a Free Trade Agreement (FTA) to eliminate regional tariffs, although one is in place. FTA negotiations between the United States and the region were suspended in 2006.
Botswana continues to negotiate and secure global markets for locally produced goods and services. The Economic Partnership Agreement (EPA) between the United Kingdom, SACU, and Mozambique (UK-SACUM EPA) entered into force in January 2021, and the EPA between the EU and SADC took effect in March 2022.
Botswana’s trade balance is tied largely to the global demand for diamonds, which represents over 80 percent of the country’s export revenues. Customs revenue from SACU and diamond revenues from exports to foreign markets each contribute about one-third of total Government of Botswana (GoB) revenue. As a result, two-thirds of the GoB’s income is largely outside of the GoB’s control, placing pressure on policy makers to plan conservatively.
Botswana’s economy recovered from the peak of the COVID-19 pandemic with growth of almost 12 percent in 2021, according to the International Monetary Fund (IMF). The recovery was attributable to the increased mining production and recovery in manufacturing and construction. The economy continued with a growth rate of 5.8 percent in 2022, surpassing the projected 4.7 percent. Projections for 2023 also show a lower growth of 3.8 percent due to a projected decline in diamond production and the weaker global environment.
Botswana experienced its highest-ever recorded inflation in 2022, reaching 12.4 percent in December and up from 8.7 percent recorded in December 2021. Food price inflation reached 16.9 percent in December 2022, up from 7.2 percent in December 2021. Inflation has since dropped significantly to 1.2 percent in August 2023 (14.6 percent in August 2022) and falling within the Bank of Botswana (BoB) medium term objective range of 3-6 percent. Botswana still maintains its World Bank designation of an Upper-Middle-Income Country and its GDP per capita for 2022 was recorded at $7,737.70 (an increase from $7,238.80 recorded in 2021) showing improved overall economic activity. The World Bank assessed Botswana’s 2022 GDP at approximately $20.35 billion, a significant growth from $18.74 billion recorded in 2021.
Botswana maintains a good credit profile that is supported by robust fiscal measures which maintain the debt level at no more than 40 percent of GDP. Moody’s Investor Service maintained Botswana’s rating at A3 with a stable outlook. S&P maintained Botswana’s credit rating for long and short term foreign and local currency sovereign credit at BBB+/A-2 with a stable outlook. Inflation in Botswana is affected by fuel prices, which the government subsidizes with assets from its National Petroleum Fund.
For its currency the Botswana Pula (BWP), the Government of Botswana (GoB) applies a set of weights composed of 45 percent South African Rand (ZAR) and 55 percent IMF’s Special Drawing Rights (SDR), a basket of currencies made up of the U.S. Dollar (USD), British Pound, Euro, Japanese Yen, and Chinese Renminbi. The central bank implemented a downward rate of crawl (range within which the Pula exchange rate can fluctuate) in January 2018 for the nominal exchange rate, resulting in a 0.3 percent depreciation for the year. The downward rate of crawl has however been increased from -1.5 percent to -2.87 percent to assist businesses during the COVID-19 pandemic, meaning any changes between the USD and the ZAR will have a slower effect on the BWP-to-ZAR exchange rate, thus favoring imports. The 2.87 percent rate was maintained for 2022. However, the downward rate of crawl turned out to be lower than the inflation differential between Botswana and the trading partner countries, resulting in a 2.1 percent appreciation of the real effective exchange rate (REER) for the year. This meant a minimal loss of competitiveness for domestic firms in international markets by this measure. The central bank increased the monetary policy rate by a cumulative 1.51 percentage points to 2.65 percent in 2022 to maintain price stability. Consequently, the prime lending rate of commercial banks increased from 5.25 percent to 6.76 percent.
Despite Botswana’s upper-middle-income country status, it has one of the highest rates of income inequality in the world and suffers high rates of poverty and unemployment. World Bank statistics place Botswana as #9 in the world in Gini coefficient indicating wealth inequality. The unemployment rate in Botswana as reported in the 2022 Bank of Botswana (BoB) annual report is still very high, though fallen slightly from a 26 percent recorded in the fourth quarter of 2021 to 25.4 percent in the fourth quarter of 2022. Of this, youth unemployment was recorded at 33.5 percent.
The major U.S. export opportunities for Botswana continue to be mining equipment; hospital and medical equipment and supplies; aircraft equipment; pharmaceuticals; telecommunications equipment and services; computer hardware and software; energy equipment; financial and consulting services; and defense-related equipment. According to a Statista report, Botswana had a military spending of about $232.10 per capita in 2021.
Other future opportunities could be in manufacturing and supply of agricultural equipment, with recent revised guidelines for the Citizen Entrepreneurial Development Agency (CEDA) and a government-imposed importation ban for a variety of vegetables and grains to encourage local production and reduce the food import bill.
The Botswana Democratic Party (BDP) has ruled the country since independence in 1966. With its democratic institutions, Botswana is one of the best functioning democracies in Africa. The last national elections were held successfully in October 2019. Vice President Mokgweetsi Masisi assumed the presidency from Ian Khama in April 2018. The Botswana electorate later reaffirmed Masisi’s leadership position when his party won general elections in October 2019. The next elections will be held in 2024, anticipated for October 2024. Botswana and the United States enjoy strong bilateral relations.
Political Environment
Visit State Department’s website https://www.state.gov/countries-areas/Botswana/ for background on Botswana’s political and economic environment.