Botswana is located at the center of Southern Africa, positioned between South Africa, Namibia, Zambia, and Zimbabwe. One of the world’s poorest countries at independence in 1966, it rapidly became one of the world’s development success. Significant mineral (diamond) wealth, good governance, prudent economic management and a relatively small population of slightly more than two million, have made it an upper middle-income country with a transformation agenda of becoming a high-income country by 2036.
Botswana’s stable political environment includes a multi-party democratic tradition, with general elections held every five years. The ruling Botswana Democratic Party has been in power since 1966. In October 23, 2019 Botswana held its 11th general elections, with His Excellency President Dr. Mokgweetsi Eric Masisi assuming the presidency.
Botswana has historically enjoyed strong and stable growth since independence, with sizable fiscal buffers and prudent policies playing a key role in shielding the economy. More recently, however, the limitations of Botswana’s diamond-led development model have become more apparent: growth is slower, inequality remains high and job creation is limited. At the same time, increased diamond market volatility—including growing competition from synthetic diamonds, reduced Southern African Customs Union transfers and fiscal expansion have resulted in eroded fiscal buffers.
COVID-19 (coronavirus) has exacerbated existing growth challenges, leading to an estimated real gross domestic product (GDP) contraction of 7.9% in 2020 (the largest on record). The contraction reflects the impact that reduced global demand, travel restrictions and social distancing measures have had on output in key production and export sectors, including the diamond industry and tourism. Botswana’s fiscal deficit is set to widen to 11.3% of GDP in FY2020/21, from 5.6% in FY2019/20, reflecting a sharp decline in mineral revenues, a sticky public sector wage-bill, and the impact of the COVID-19 spending. Similarly, the current account deficit is estimated to have widened to 8 percent of GDP in 2020 following the sharp decline in diamond exports.
Developments in the global diamond industry will have a telling impact on the short-term recovery, given Botswana’s dependence on the commodity. While a recovery is expected in 2021 due to a favorable outlook for the diamond industry, the economic impact of COVID-19 is likely to be deep and long-lasting.
Living conditions have improved for the Botswana people, and poverty has fallen significantly. The share of the population living on less than $1.90 a day at the 2011 Purchasing Power Parity declined steadily from 29.8% to 18.2% between 2002–03 and 2009–10, and to 16.1% in 2015-16. This rapid poverty reduction can be attributed mainly to a combination of increasing agricultural incomes, including subsidies, and demographic changes.
Progress in reducing poverty has been accompanied by improvements in shared prosperity. The growth rate of consumption per capita between 2009–10 and 2015-16 for the bottom 40 percentile of the population was 0.42% annually, higher than the growth rate of the top 60 percentile. However, Botswana's performance was only in the middle of the worldwide shared-prosperity distribution.
Inequality has fallen as well, albeit still being high. Between 2010 and 2015, inequality, measured by the Gini index, fell from 60.5% to 53.3%. Among factors associated with Botswana's declining income inequality, the key one is regional convergence due to fast growth in rural areas and demographic changes.
The recent Botswana Multi-Topic Survey: Labour Force Module Report indicates that the unemployment rate has gone up to 24.5% with youth unemployment (32.4%) posing a critical challenge. Addressing these challenges will require improving the quality of infrastructure (water and electricity), essential basic services (education, health, and social safety nets), as well as accelerating reforms to the business environment and effective support for entrepreneurship.
Last Updated: Apr 01, 2021