The Economy of Botswana
Author: Lamberto Dini, BRIAN QUINN, and Lennart Wohlgemuth
Publication Date:
01 Jan 1970
eISBN:
9781451956276
Language:
English
Keywords:
SP; CMEA country; export; price; market; revaluation; export price; export unit value; price change; export volume; revaluation effect; Exports; Commercial credit; Credit; Export credits; Imports; Western Europe; Africa; Eastern Europe; Global; Europe; Asia and Pacific; U.K. government; customs authorities; financial situation; investment program; government administration; Loans; Capital spending; Current spending; West Africa
Download PDF (2.8 MB)

Although recent mineral discoveries have aroused business interest in Botswana, little published material is available on the structure of the country’s economy and on its development prospects. This article presents a survey of the economy with particular emphasis on recent developments in the areas of production, investment, government finance, and monetary and trade arrangements.1

Abstract

Although recent mineral discoveries have aroused business interest in Botswana, little published material is available on the structure of the country’s economy and on its development prospects. This article presents a survey of the economy with particular emphasis on recent developments in the areas of production, investment, government finance, and monetary and trade arrangements.1

Although recent mineral discoveries have aroused business interest in Botswana, little published material is available on the structure of the country’s economy and on its development prospects. This article presents a survey of the economy with particular emphasis on recent developments in the areas of production, investment, government finance, and monetary and trade arrangements.1

The Republic of Botswana, the former British Protectorate of Bechuanaland, is a vast arid land of some 220,000 square miles, situated in southern Africa (see map on p. 128). It is entirely landlocked, bordering the Republic of South Africa on the east and south, South-West Africa on the west and north, and Zambia and Rhodesia on the northeast. The eastern area of Botswana is mainly a high plateau and comprises the lands between the central watershed and the Limpopo River, which forms the eastern boundary with South Africa. This is the most fertile part of the country and with about 20 inches of average annual rainfall is suitable for the growing of food crops and for cattle raising. Nearly 80 per cent of the population lives in this area, which is also traversed by the railroad running north and south between Rhodesia and South Africa. Most of the western portion of the country, about three fourths of the total area, forms part of the Kalahari Desert, a scrubgrass area of somewhat erratic rainfall. In the north the Kalahari gives way to belts of forest and dense bushland. In the northwest the Okavango River forms a swampy area covering 6,500 square miles. The climate of the country is generally subtropical but varies considerably according to altitude and latitude; summers (October-April) are hot and coincide with the rainy season, and winters are dry with wide diurnal temperature variations.

A census taken in 1964 revealed a population of 543,000, comprising 535,000 Africans, 4,000 Europeans, and 4,000 others. With an estimated annual rate of increase of between 2 per cent and 3 per cent, the population is believed to have reached 600,000 in 1969, giving an average density of about 2.7 persons a square mile. The African population, apart from some 25,000 Bushmen, is essentially made up of eight principal and closely related Bantu tribes known collectively as Batswana. By far the largest of these tribes is the Bamangwato, which comprises over 200,000 people, living in the eastern region of Serowe. The principal business centers are the new capital of Gaborone (estimated population 15,000), Lobatsi (about 10,000), and Francis-town (about 14,000), all situated in the eastern part along the railroad line. A large part of the population is Christian, the remainder follows traditional beliefs. English is the official language of Botswana, and Tswana is the main African language.

Upon independence on September 30, 1966, Botswana adopted a republican form of constitution. The President is both the head of state and leader of the Government. Legislative authority is vested in Parliament, consisting of the President and the National Assembly, which has 36 members. The Cabinet consists of the President, the Vice President, and eight ministers drawn from the National Assembly. The Constitution also provides for a 15-member House of Chiefs, to which must be referred bills and motions relating to tribal interests, as well as any proposal to alter the Constitution, before they are proceeded with in the National Assembly. Sir Seretse Khama, K.B.E., is President of Botswana.

Botswana’s economy is still at an early stage of development. Although only rough estimates exist on national income and output, gross domestic product appears to be of the order of $50–55 million, giving a per capita income of less than $100. A sizable cattle population provides the principal source of income and employment, with subsistence agriculture the other main economic activity. A chronic shortage of water, coupled with frequent and extended periods of drought, has seriously handicapped the growth of the economy. Botswana does not produce enough food to meet domestic requirements, and, in recent years of serious drought, widespread famine has been avoided only by the availability of emergency supplies of food from abroad.

The prospects for economic growth have improved with the recent discovery of important mineral deposits. At present, efforts are being concentrated on the development of diamond and copper-nickel deposits involving considerable private investment in production facilities and public investment in basic infrastructure. Production of diamonds is expected to commence in 1971, and, subject to early completion of negotiations for financing, production of copper-nickel could start in 1973. The development of other mineral deposits is planned at a later stage.

The limited capacity of the economy to generate income is imposing serious constraints on government finances. In recent years, current budgetary expenditure has increased rapidly, following the construction of primary infrastructure and the creation of a government administration. Domestic revenue has also been increasing, but at a less rapid rate. Consequently, the Government has relied heavily on grants-in-aid from the United Kingdom to finance its current budget. These grants increased to the equivalent of more than $8 million in 1967/68, when they financed almost 50 per cent of current expenditure. Development expenditure has been determined largely by the amount of resources made available from abroad. Grants and loans from the United Kingdom for both the current and capital budgets have been averaging some $12 million annually in recent years.

Although government revenue is expected to increase as a result of the new Customs Union Agreement with South Africa signed in December 1969, the Government’s financial situation is likely to remain tight in the immediate future. The development of mining is expected to bring about a sizable increase in government revenue after 1973; this increase, in addition to improving the budgetary situation, could assist in the development of agriculture and livestock, the major sources of income and employment in Botswana. It is this sequence that underlies the present development plan of the Government.

Botswana is a member of the South African monetary and customs area and uses the South African rand as its currency. Funds and goods can move freely within the area, and current payments may be made to other countries virtually without restriction.

The Structure of the Economy

Livestock production and exports

The Batswana are primarily a pastoral people, and raising cattle is their principal economic activity. Livestock and livestock products account for more than 90 per cent of total export value. As is also true in crop production, drought conditions and insufficient water supplies are important factors that limit livestock production and yields. However, the potential for improving and expanding the livestock sector is considered good, and efforts in this direction are continuing. The objective of the Government is to increase the cattle population from 1.4 million head in 1967/68 to 2.5 million by 1975.

Africans own more than 80 per cent of the total cattle population, which is raised on tribal land on a communal basis. The remainder is held on large-scale freehold ranches, owned mostly by non-Africans, in the Ghanzi and certain other regions. According to the first broad Agricultural Survey (conducted in 1967/68 by the Department of Agriculture with the assistance of an agricultural statistician from the Food and Agriculture Organization), which covered approximately 85 per cent of the country’s arable land and some 46,000 agricultural holdings, 73 per cent held livestock, and about one third of these held only cattle and did not grow crops. Most cattle owners had fewer than 50 head of cattle, and only a few hundred owners had more than 200 cattle. The serious drought of 1965–66 caused cattle losses estimated at more than 300,000 head, valued at over R 8 million.

Cattle are maintained at relatively high standards of health in Botswana, but methods of husbandry are not advanced. Generally, animals are kept by herdboys on unfenced fields called “cattle posts,” situated with reference to available grazing and watering facilities. Other than the pans of water that persist after the rains, water is obtained mainly from stock dams, wells, and boreholes. Boreholes are drilled and equipped all over the country, mainly by the Government but also by tribal authorities and syndicates of cattle owners.

Within the Ministry of Agriculture, two departments are in charge of initiating and implementing policies concerning animal husbandry. The Department of Agriculture is responsible for improving the breeds and stock husbandry; the Department of Veterinary Services is charged with all aspects of animal health, as well as with taking an active part in meat and livestock marketing.

To prevent the spread of cattle infections from disrupting livestock production, Botswana has established a broad system of disease control. Control fences divide the country into four main areas, and cattle are moved between these areas and along the normal routes to the Lobatsi abattoir through special quarantine areas under the strict control of the Government. In addition, there has been mass immunization of herds against foot-and-mouth disease and other contagious diseases in recent years. Finally, with aid from the World Health Organization, a campaign for controlling the spread of trypanosomiasis (sleeping sickness), which affects both men and animals, is under way in the Okavango Delta, where some areas have even been reclaimed for resettlement and restocking.

The Botswana Meat Commission (BMC), a statutory corporation that operates an abattoir and a meat cannery, handles all cattle to be slaughtered for export and a large number of those destined for the domestic market. In 1954 the Commonwealth Development Corporation established the abattoir, which is located close to the railway at Lobatsi. Its assets and liabilities, together with those of the canning company, were transferred in 1966 to the BMC, which is a government-controlled, nonprofit organization with the primary purpose of promoting the interests of the livestock-producing industry.

In accordance with its statutes, the BMC undertakes to buy at Lobatsi all cattle offered for sale by Botswana producers. At the beginning of each year the BMC establishes the price paid to producers, taking account of expected sales prices and the need to stimulate production in general. If the financial results of the BMC are better than forecast, a bonus is paid at the end of the year, based on the proportionate value of each producer’s sales to the BMC. The price that the BMC pays to producers varies with the quality of the stripped carcass, as determined by government graders; this system tries to discourage the sale to the BMC of cattle that are immature or in poor condition. In general, the prices paid to producers in Botswana compare favorably with prices paid in neighboring countries.

The offtake of livestock through slaughtering or export of live cattle has varied greatly from year to year (Table 1). The exceptionally heavy offtake in 1965 and 1966 was caused by the drought, when cattle owners were forced to sell cattle that would otherwise have died of starvation. In addition, in years of widespread crop failure farmers are forced to sell cattle to buy food. In the past, some cattle have been exported on the hoof to Zambia and Rhodesia. Since 1968 the export of live cattle has been prohibited, and all official exports of cattle have been channeled through the abattoir at Lobatsi. However, because of the relatively high transport costs for producers in the western and northern regions, and the losses of weight and grade that occur in moving the cattle to Lobatsi, there is still some smuggling of cattle across the border. The number of cattle slaughtered and consumed in the countryside is roughly estimated to be between 20,000 and 30,000 head per annum.

Table 1.

Botswana: Total Recorded Cattle Offtake, 1963–68

article image
Source: Republic of Botswana, Ministry of Development Planning, National Development Plan, 1968–73.

Crop production

Conditions are generally unfavorable to crop production in Botswana. Insufficient rainfall and sandy soil make agriculture difficult and hazardous in most regions. Of the approximately 11 million acres of potentially arable land, only a small proportion is under crop or recent fallow. Over 90 per cent of the working population is engaged in some form of agricultural pursuit. The principal food crops are sorghum, maize, millet, beans, and cowpeas and are produced for domestic consumption, essentially on a subsistence basis. Cotton and groundnuts are comparatively new crops and both are produced for export.

Comprehensive data on production and acreage planted were collected in 1967/68 under the Agricultural Survey, which estimated the planted area at some 303,000 acres, of which 53 per cent formed holdings of fewer than 20 acres. According to the Survey, sorghum is grown on roughly 47 per cent of the planted area, maize on 24 per cent, millet on 10 per cent, beans and cowpeas on 13 per cent, and cotton on 1 per cent. In the year the survey was conducted, approximately 57 per cent of the holdings covered had land under cultivation; no planting had taken place on the remaining holdings.

Productivity appears to be very low. The Survey estimated that the average yield per acre of maize was 226 pounds in 1967/68, which was only a small fraction of the yield obtained in irrigated, neighboring areas of South Africa. The methods of land allocation, the lack of an adequate water supply, the fact that the people live in villages at great distances from the farmlands, and the traditional methods of husbandry are some of the factors responsible for the low productivity. The tribal chiefs, who tend to favor traditional crops and production methods, exercise control over the allocation of land and over the production process. In addition, the present system of land tenure precludes individual land ownership and fencing.

The Government has recently passed legislation (the Tribal Lands Act, 1968) aimed at altering the system of land allocation. The rights to allocate land would be transferred from the local chiefs to Land Boards in which the local chiefs would be represented. Although ownership of land would remain collectively with the tribe, the right to use the land would be registered in the name of individuals. This change is regarded as a first important step toward a more modern system of land tenure.

In order to improve farming methods, the Government conducts agricultural research and provides extension services. The principal medium of agricultural extension work is the Pupil-Farmer Scheme. In return for applying improved farming methods, the pupil-farmer is supplied with free seed and fertilizers and is also entitled to borrow for further investments. By gradual stages he can become a “master farmer,” practicing high standards of crop husbandry. In 1969 there were about 4,000 farmers participating in the scheme, supervised by some 260 agricultural demonstrators (including animal husbandry pupils and demonstrators). Although results so far have been good, the scheme is costly because of the scarcity of skilled agriculturalists in Botswana. A new Agricultural College has been opened recently in Gaborone, and two Rural Training Centers have also been established with a view to relieving this shortage.

During the 1950’s imports of maize were balanced by exports of sorghum, and in this sense Botswana enjoyed virtual self-sufficiency in foodstuffs. In the five crop years 1961/62–1965/66 the situation was drastically changed by droughts. In 1965/66 an almost total lack of rain caused the failure of most crops and a threat of widespread famine. The Government undertook a program of emergency feeding; it received famine relief aid mainly from the UN World Food Program, with additional assistance from the U.K. Government and voluntary agencies such as the Oxford Committee for Famine Relief (Oxfam), the U.K. Freedom from Hunger Fund, the World Council of Churches, and the Red Cross.

Under the World Food Program, the United Nations has been providing food to school children, preschool children, and expectant mothers as part of a five-year program (1966–71) involving a total cost of $6.54 million, and to workers and their families as part of a Food for Work Program, which has averaged some $1.5 million a year since 1965/66. Under the UN programs the food is provided free of charge; only the distribution and storage costs in Botswana are covered by the Government.

Planting remained below normal in 1966/67, but an abundant rainfall brought a good crop and, for the first time in several years, a small surplus of sorghum for export. In 1967/68 and 1968/69 insufficient rainfall led to small crops, thus necessitating the continuation of food relief aid.

Mining production and prospects

Mining activity in Botswana has been carried on intermittently on a small scale; gold, asbestos, kyanite, copper, and manganese have all been produced at different times. In 1965 only asbestos and manganese were produced in any great quantity, and the asbestos workings have since been closed. In 1968 manganese production totaled 11,000 short tons, valued at R 215,000.

The prospects for developing large-scale mining operations in Botswana have improved radically in recent years with the discovery of important deposits of diamonds, copper-nickel, copper, coal, and brine, all thought to be suitable for commercial exploitation. The immediate prospects for development center on the large kimberlitic pipe, containing mainly industrial diamonds, that has been discovered at Orapa by a subsidiary of De Beers Consolidated Mines Limited; the copper-nickel deposits discovered at Selibe-Pikwe by Bamangwato Concession Ltd., a company whose main shareholders are Botswana Roan Selection Trust (RST) Ltd. and Mineral Separation Ltd., the main shareholders of Botswana RST being Roan Selection Trust and American Metal Climax, Inc.;2 and the coal field at Morupule, the output of which will be used to produce the electric power required for the development of the Selibe-Pikwe deposits. This last operation will be undertaken by the Anglo-American Corporation.

The diamond pipe at Orapa, west of Francistown, is considered to be one of the largest in the world, and the prospects of discovering other smaller pipes in the surrounding areas appear to be good. An agreement has been concluded recently between the Government of Botswana and the De Beers company regulating the exploitation of these diamond resources. The company will construct and finance most of the infrastructure required, and government investment in this project will be limited to R 2.5 million for the construction of a road. The company’s total investment is estimated at R 25 million. Diamond production is expected to start in 1971 and to reach 3.2 million carats by 1975.

The exploration of the Selibe-Pikwe fields, located close to the Rhodesian border to the southeast of Francistown, has revealed deposits containing some 29 million tons of proven and probable copper-nickel material. Preparatory work for the exploitation of these deposits is advancing, and mining operations could start as early as 1973, with annual production valued conservatively at R 36 million. Direct investment by the company amounts to about R 80 million and, in addition, investment in basic infrastructure to be made by the Government is estimated at R 30 million. This infrastructure involves the establishment of water, power, and transportation facilities, together with a township and medical services, and forms the so-called Shashi Complex (see Development Planning, pp. 141–44).

Other mineral resources already ascertained include copper deposits at Matsitama, copper-nickel deposits in the Tati area, and brine deposits (suitable for salt, soda ash, and sodium sulphate) in the Makarikari salt pan. These deposits, however, are not likely to be developed in the immediate future.

Mineral exploration is increasing and 12 mining companies are now prospecting in Botswana. The Government is encouraging mineral exploration and offers assistance to prospecting companies. The Geological Survey Department is conducting a detailed geological mapping of the country and is providing companies with geological information and expert assistance. Furthermore, under legislation enacted in 1967 (the Mineral Rights and Tribal Territories Act, and the Mines and Mineral Act), all ownership rights to minerals in tribal lands have been transferred to the State, and previous legislation concerning prospecting and mining rights has been consolidated and amended. In particular, the new legislation provides that holders of prospecting and mining rights must keep full and accurate records of their prospecting activities, and must keep the Government informed regularly of these activities. It also gives the Government power to cancel these rights, after a period of notice, if the holder is not proceeding with the utilization of these rights in an adequate manner.

Manufacturing and commerce

The manufacturing sector is still small. Apart from the abattoir and meat cannery in Lobatsi, other industries include a growing game skins industry with small factories for the curing and tanning of skins in Francistown, Gaborone, and Maun; a brewery and a furniture factory in Gaborone; a maize-meal and malt mill and two small clothing concerns in Lobatsi; and a bone meal factory in Francistown.

The abattoir has the capacity to process 200,000 head of cattle a year and employs between 700 and 1,000 workers, depending on production levels. The combined capital investment in the abattoir and the cannery exceeds R 3.5 million, making it one of the largest beef-processing establishments in Africa. Since 1967 the cannery has not been operating and the abattoir has been working at approximately 50 per cent capacity.

The Government intends to promote industrial development by providing incentives and by taking direct participation in new industries. Fiscal incentives include liberal depreciation allowances and an initial investment allowance of 25 per cent on machinery. Tariff protection for infant industries may be granted under the terms of the new Customs Union Agreement. Under the Industrial Development Act of 1968, licensing of manufacturing industry has become a legal requirement by means of which the Government can exercise general control over the nature and location of industry. The Act makes provision for the granting of protection when this is considered to be in the public interest and in the interests of the efficient development of the industry concerned. The Government is also engaged in reaching Investment Guarantee Agreements with foreign governments.

To interest investors in specific projects and to assist in their implementation, the Government intends to establish a National Development Corporation. The Corporation would manage government investments and interests in industry and commerce, promote indigenous industrial and commercial entrepreneurships, issue loans to private enterprises, and appraise projects that the Government wishes to establish either on its own or in partnership with private enterprise on an equity basis.

Commercial activity has been expanding in recent years. In 1968 there were about 1,000 licensed commercial establishments, many of which were licensed “general dealers.” According to the labor census of 1967/68, the wholesale and retail trade and hotels employed about 5,200 people. With the increased pace of development, it is expected that there will be a significant expansion in service industries, particularly in Gaborone, Francistown, and Lobatsi. Most trading, including the export and import trade, is in the hands of non-Africans, mainly South Africans. As a result of the limited participation by Batswana in commercial activities, there is a great lack of accounting skills, knowledge of business management, and of the techniques associated with successful entrepreneurship.

Twenty-three registered cooperative societies participate in the marketing of livestock and agricultural produce; in 1968 these societies had a turnover of some R 300,000. Eleven consumer societies have been formed to serve consumer needs in places where retail trading stores are inadequate and where competition is lacking. These societies are supported by the Botswana Cooperative Union, which acts as a wholesale supply organization for member societies. Total turnover for the consumer societies that issued data for 1968 was R 430,000. Although the cooperative movement is still at an early stage of development, it is gaining momentum. The immediate goal of the Department of Cooperative Development, which has responsibility for cooperatives under the Minister of Agriculture, is to consolidate the progress achieved so far, and at the same time to establish as many new societies as can be supported by the available manpower and facilities for cooperative education. Financial resources for the development of cooperative societies are provided through the Cooperative Development Trust, established in 1965 to administer grants obtained from the United Kingdom (Oxfam), the United States, and certain voluntary agencies for specific cooperative projects.

Infrastructure

The transport system is centered on the single-track railway line that crosses the eastern region of Botswana from north to south and links Bulawayo in Rhodesia with South Africa. The Rhodesian Railways owns and operates the 394 miles of railroad in Botswana.

The road network includes more than 5,000 miles of public roads, of which some 2,500 miles are classified as trunk or main roads maintained by the Central Government. The remainder is the responsibility of the district councils. The present condition of the road network is rather poor. Road surfaces are for the most part local gravel, clay, and sand, although there are some bituminous stretches in the Gaborone, Lobatsi, and Francistown areas. The two main trunk roads, the North-South road and the Francistown-Maun road, have been greatly improved over the past four years with finance provided mainly by the International Development Association (IDA), which extended a $3.6 million long-term loan. The main purpose of this financing was to aid further development of the livestock industry by enabling the movement of cattle by road transport instead of by prolonged trekking on the hoof, which leads to considerable weight losses. Investment in the transport sector is receiving rather low priority under the National Development Plan, 1968–73. The investments that are expected to take place in the near future are concentrated in the more populous eastern region and in the mining development area. In the more remote areas, supplies can be provided more economically by air than by the costly construction of infrequently used roads. Thus, the Botswana Airways operates regularly scheduled passenger and cargo services to all the main internal centers in Botswana, with links also to South Africa, Rhodesia, and Zambia.

Shortage of water is a major limiting factor in the economic development of Botswana. Certain water resources do exist both on the surface and underground, but so far they have not been sufficiently developed. The largest unexploited source of surface water is the Okavango Delta, which receives large amounts of water from the Okavango River, flowing into Botswana from Angola through the Caprivi strip in South-West Africa. However, the Limpopo watershed system in eastern Botswana is of greater immediate significance, since it is in this area that the bulk of the population lives, and since the prospects for further development are more favorable. Hydrological surveys in selected areas now being conducted under a project financed by the United Nations Development Program (UNDP) are expected to lay the foundation for the future exploitation of surface water resources. This project was started in 1967 and is to be completed by 1971. In many areas of the country, outside the central Kalahari, small sources of underground water can be found by drilling. As part of its activities, the Geological Survey Department undertakes exploration of underground water resources and operates a unit for the drilling of boreholes. In accordance with the legislation governing surface and underground water rights enacted in 1967, a Water Apportionment Board has been established for the purpose of allocating rights to different users. The Government has furthermore set forth the principle that users of water should meet its cost.

The three thermoelectric power stations of some size, in Gaborone, Francistown, and Lobatsi, are operated at virtually full capacity. Aside from the extension of electricity to smaller towns in the interior through small-scale stations, the future development of power is closely related to the development of the country’s mineral resources. In this connection, the construction of a thermal power station, which would use the coal to be mined at Morupule, has been proposed. This station would be capable of supplying the electricity required by the mining activities and the mining townships and centers around Francistown and Tonota.

Education is not widespread but is expanding rapidly. High priority is given to the development of schools providing vocational training to meet the needs of the economy. In 1968 there were 257 primary schools with a total enrollment of some 79,000 pupils (representing approximately 70 per cent of the population of school age) and 10 secondary schools with an enrollment of about 2,300 pupils. The facilities for education, in terms of teachers and classrooms, have been increased substantially in recent years but are still scarce and often of low quality. Teacher training is provided in three Teachers Training Colleges. One of these has been established recently in Francistown with aid from the Government of Sweden and has substantially increased total training capacity. No institution provides education beyond the secondary-school level. However, Botswana operates jointly with Lesotho and Swaziland The University of Botswana, Lesotho, and Swaziland, which is located in Lesotho.

Although Botswana has possibilities for developing tourism, facilities are still limited. The Chobe National Park, the Okavango Swamps, and the Kalahari Desert are the three principal areas of interest. At present, an estimated 8,000 tourists visit Botswana each year, and this total is expected to increase. The Government is taking steps to develop tourism and to protect and conserve the wildlife in the country. Already nearly 30,000 square miles have been set aside for wildlife sanctuaries, and the 4,500-square-mile Chobe Game Reserve has received national park status.

Employment, wages, and prices

The great majority of the working population, which totals some 240,000 persons, is employed or self-employed in the subsistence agricultural sector. Recent data on employment in the monetary sector provided by the Labor Census for 1967/68 indicate that about 28,000 persons were working for wages in 1967/68; some 27 per cent were in the agricultural sector, 18 per cent in commerce, and 21 per cent in Government. Manufacturing and mining provided employment for only some 6 per cent and 3 per cent, respectively, of the salaried labor force (Table 2). In 1967 the total wage bill was estimated to be approximately R 11 million.

Table 2.

Botswana: Estimated Number of Wage Earners, 1967/68

article image
Source: Republic of Botswana, Labour Census of Botswana, 1967/68.

The Republic of South Africa is an important outlet for Botswana’s labor force, providing employment for Botswana workers, mainly in the mining sector but also a limited number in agriculture. In recent years between 22,000 and 26,000 Botswana workers have been recruited yearly to work in South African mines on nine-month contracts. Remittances from these workers, together with deferred pay received on their return to Botswana, are estimated to exceed R 1 million annually. The fact that Batswana have worked in South African mines for many years, providing Botswana with a reservoir of semiskilled labor essential to mining, may facilitate the future development of Botswana’s mineral resources.

The Employment Law of 1963 governs basic employment conditions; it lays down regulations governing contracts of service, the protection of wages, the employment of women and children, recruiting, and workers’ health. Administrative regulations specify the conditions of service of government workers and workers on public contracts. The Trade Unions and Trade Disputes Proclamation, which makes registration of unions compulsory, governs the operation of labor associations. Of the five registered trade unions at the end of 1965, none had a large membership or any international affiliation.

Botswana has no comprehensive minimum-wage legislation. It is the Government’s policy, however, that no employee, either in the urban sector or the rural sector, should be required to work for less than a recognized minimum wage. In this respect, the minimum wages paid by the Government are intended as a guide to the private sector. Government’s wage rates for tradesmen, classified, and unclassified employees in the “Industrial Class” vary from R 0.63–0.87 a day for low-skilled jobs, such as gardener or herdsman, to a maximum of R 5.50–7.90 a day for high-skilled jobs, such as a plant operator.

Reliable statistics on price developments in Botswana are not available, but prices generally appear to follow price movements in South Africa. Some data on retail prices in Gaborone and other areas have been collected in the past, but these are not sufficiently accurate to provide a realistic guide to actual price developments. Recently, the Central Statistical Office has initiated an income-expenditure survey, which is being conducted on a sample of 50 households in the principal urban and rural centers. The pattern of consumption expenditure identified by this survey will provide the basis for establishing the weights to be used in compiling price indices. For Gaborone and Serowe the survey has been completed and the results are being analyzed. A new index of retail prices for Gaborone is likely to be produced in the near future.

Development Planning

Development planning in Botswana began in 1963, when the Bechu-analand Protectorate issued a five-year public expenditure program (1963–68) calling for a total investment of R 20.4 million, which was the amount of development finance thought likely to be made available by the United Kingdom. The main objects of the program were the transfer of the executive quarters of the Government from Mafeking (South Africa) to a new capital at Gaborone, the expansion of education, and the development of the economic infrastructure.

When Botswana became independent in 1966, the Government published a Transitional Plan for Social and Economic Development, outlining national policies and development objectives to be adopted in the initial period of independence and listing the projects to be undertaken by the Government in the three financial years 1966/67–1968/69. The Plan envisaged a total public capital expenditure of R 25.6 million to be financed largely from external sources. The Plan was transitional in two respects: it bridged the period from internal self-rule to full independence, and it was intended to cover the period of change from rudimentary public expenditure programs to full resource planning.

Work on development planning continued after 1966. In September 1967 the Ministry of Development Planning was established under the Vice President and was made responsible for the formulation and the implementation of development plans, as well as the administration of the annual Development (capital) Budget in close consultation with the Ministry of Finance. The first task of the new Ministry was to review the immediate policy objectives of the Government and hence to revise and to update the Transitional Plan. This led to the publication in August 1968 of a new five-year National Development Plan, 1968–73, which established the general investment targets for the plan period and specified the projects to be implemented during the first three years. In general, the sources of investment financing were not indicated in the Plan, but the authorities expect that most of the required financing would be provided from abroad.

Full realization of the Plan’s investment aims, together with the anticipated private sector investment, would result in an annual rate of growth of the economy of about 6 per cent. Total public investment called for under the Plan amounts to R 69 million, of which R 46.2 million is for projects programed for the first three years. By far the largest part of the latter amount is to be spent on physical infrastructural projects in the so-called Shashi Complex, required for the development of mining (Table 3).

Table 3.

Botswana: Projections of Public Capital Expenditure, 1968/69–1970/71

article image
Source: Republic of Botswana, Ministry of Development Planning, National Development Plan, 1968–73.

The Plan document also includes projections of government revenue and expenditure, based upon the estimated impact of the planned investment projects on the current budget. During the Plan period both current domestic revenue and expenditure of the Government are expected to increase by an average of 10 per cent a year and to leave an average deficit in the current budget of some R 7 million a year, about 50 per cent of current expenditure. It is anticipated that this deficit will be financed by grants and loans from the United Kingdom. By 1973, however, development of the mining sector is expected to bring about a substantial increase in government revenue and to lead to the elimination of the deficit in the current budget by 1975.

In the execution of the Plan, considerable emphasis has so far been given to the preparation of mining development, and in particular to the projects associated with the Shashi Complex. A preinvestment survey of the technical and economic feasibility of providing and operating the infrastructure to service the mining areas of Selibe-Pikwe has been completed recently. The International Bank for Reconstruction and Development (IBRD) has acted as executing agency for this survey, which has been financed by the UNDP. The capital requirements for building the proposed infrastructure are estimated to be some R 30 million. The Government of Botswana is discussing the financing with the IDA and the IBRD and also with a number of countries on a bilateral basis.3

Under the Plan, investment not related to mining development has been designed to remove certain basic limitations on the development of the economy arising from institutional and traditional factors, such as the system of land allocation, the structure of local governments, the low level of education, and the lack of trained manpower. In the first two years of the Plan, attention has thus been given to investment in education and to social and government reforms. The realization of these projects has given rise to capital expenditure that may not be regarded as directly productive but which is considered necessary to change rural attitudes and to prepare the way for productive activity. The Government continues to look to the United Kingdom as a major source of finance for the nonmining investment.

The Plan’s investment targets and programs are kept under continuous review by the authorities, and the Plan is revised at frequent intervals. The next of these revisions is to be published in 1970. The authorities are aware of the limited impact that the development of mining might have on the broader objectives of their development effort. Hence, a primary consideration lying beyond the current revision is how to employ the resources that will be derived from mining to stimulate the development of the agricultural and livestock sectors on which the economic progress of a large majority of the population will continue to depend.

Government Finance

The budgetary system

The government budget in Botswana, covering the period April 1-March 31, is divided into a current budget and a capital budget. Current receipts collected in Botswana are paid into the Government’s current account with a commercial bank operating in Botswana. The Government also maintains a Joint Consolidated Fund (JCF) with the Crown Agents in London into which are paid the budgetary grants-in-aid received from the United Kingdom. Current expenditures are paid both from the JCF and the Government’s local current bank account. The Government also has an overdraft facility at the same bank, which is used to offset seasonal shortfalls in domestic receipts. Capital expenditure is financed from a Development Fund into which all internal and external receipts for development purposes are paid.

From 1946 to 1955, Botswana balanced its budget only by forgoing expansion of the services provided. The United Kingdom made available development funds, but these were not sufficient to substantially improve Botswana’s capacity to generate additional revenue. From 1956/57 onward, large-scale budgetary aid from the United Kingdom significantly altered the character of the budget and enabled Botswana to improve and to expand the government services. Over the past six years, revenue arising from domestic sources has financed roughly 55 per cent of current expenditure and budgetary grants-in-aid from the United Kingdom have financed the remainder.

The budget of the Central Government accounts for all but a small part of total public financial operations in Botswana. In 1966 a major reform of local government institutions established nine district councils and three town councils, with responsibility for district roads, maintenance of local water supplies, and other local amenities. These councils also took over from the Central Government full responsibility for primary education. Although detailed information on local authority finances is not available, total annual expenditure of the new district councils is estimated at between R 1 million and R 2 million, of which a large part represents payment of primary-school teachers’ salaries. To cover this expenditure, the local authorities levy and collect a graduated local government tax, introduced on January 1, 1966; this tax was intended to provide these authorities with the major part of their revenue. In fact, receipts from this tax have covered only about 65 per cent of current expenditure, and receipts from a number of other sources, mainly licenses and fees (including school fees), a further 15 per cent. The remainder of the local council expenditure is covered by a subvention from the Central Government, estimated to amount to more than R 300,000 in 1969/70.

Budgetary developments, 1963/64–1969/70

As current expenditure has expanded with the increased range of services provided by the Government in recent years, the current budget deficit has tended to grow. In the period 1963/64–1967/68, domestic revenue rose by almost 70 per cent. Over the same period, however, current expenditure almost doubled, and the deficit on the current budget grew from just under R 3 million in 1963/64 to R 6.8 million in 1967/68. Preliminary budget returns for 1968/69 (not shown in the tables) indicate a reduction in this deficit, as current expenditure grew by less than 1 per cent and domestic revenue increased by some 22 per cent. In the estimates for 1969/70 the current deficit is budgeted to increase to a level slightly higher than in 1967/68; however, the estimates of domestic revenue appear to be conservative, and actual collections may cover close to 55 per cent of current expenditure, as indicated in the revised estimates for 1968/69. This percentage compares with only 46 per cent of current expenditure financed from domestic revenue in 1967/68 (Table 4).

Table 4.

Botswana: Government Budget, 1963/64-1969/70

(In millions of rand)

article image
Sources: Republic of Botswana, Annual Statements of Accounts and Estimates of Revenue and Expenditure.

Including R 2.78 million for capital expenditure in 1967/68, R 2.11 million in 1968/69 (estimate), R 2.34 million in 1968/69 (revised estimate), and R 2.07 million in 1969/70 (estimate).

Residual (increase —).

Capital expenditure rose rapidly from 1963/64 to 1966/67, reflecting principally the construction Gaborone, and the over-all budget deficit expanded accordingly, reaching R 11.6 million in 1966/67. Since that year, however, government expenditure on development projects has declined, and the over-all budget deficit is likely to have been of the order of R 8.7 million in 1968/69. Although the budget estimates for 1969/70 indicate an increase in the over-all deficit to R 14.4 million, the actual deficit is likely to be considerably smaller, not only because of a smaller current deficit than estimated but also because the estimate of development expenditure probably overstates the actual volume of capital expenditure during the year. Financing has come from a number of sources but by far the largest has been the United Kingdom, as shown in Table 4 and explained in the section on Financing operations (pp. 156–58).

Domestic revenue

Taken together, receipts from import and excise duties form the largest single source of domestic revenue in Botswana. Receipts from these duties have been governed by a Customs Union Agreement concluded in 1910 between South Africa and the three High Commission Territories of Bechuanaland (now Botswana), Basutoland (now Lesotho), and Swaziland. The Agreement provided for a common external customs tariff and for a free interchange of goods of the Union and the Territories. Under the Agreement, South Africa collected all import and excise duties, with the exception of the excise tax on beer, wines, and spirits, which was collected separately by each country. From the pool of duties collected by South Africa, the three smaller countries received 1.31097 per cent of the total. Until 1965 each country’s share of this amount was based upon actual customs revenue collections during the period 1907–1909, i.e., before the three territories became part of the South African customs area. Botswana’s share amounted to 0.27622 per cent of the pool. In 1965 the United Kingdom decided to alter the distribution among the three territories of the resources of the pool accruing to them under the Agreement. This redistribution was intended to take account of differences in the growth of their external trade in the period since the Agreement was signed. From 1965/66 Botswana’s share of the pool was increased to 0.30971 per cent. Swaziland’s share was also increased, whereas that of Lesotho was reduced.

The Customs Agreement of 1910 has been renegotiated at the common request of Botswana, Lesotho, and Swaziland. The new Customs Union Agreement, signed on December 11, 1969, is designed to ensure that the arrangements encourage the development of the less advanced members of the Union and the diversification of their economies. The new Agreement, which came into operation on March 1, 1970, maintains a common external tariff for goods imported into the customs area. It stipulates that, in general, no quantitative restrictions or duties may be imposed by the members of the Union on the importation of goods produced in the Common Customs Area. However, in order to facilitate the establishment of new industries in Botswana, Lesotho, and Swaziland, these countries may, after consultation with the other members, levy additional duties for a period not exceeding eight years on competing goods imported into their area. All revenue resulting from the common external tariff as well as from the excise and sales duties leviable and collected on goods imported into or produced in the common customs area is paid quarterly into a common pool. The shares of Botswana, Lesotho, and Swaziland in the resources of the pool are determined by a new formula based on the value of actual imports and of the production and consumption of goods subject to excise and sales duties. The application of this formula will have the effect of increasing the share of the resources accruing to the three less advanced members of the Union.4

Receipts from import and excise duties accounted for 23 per cent of total domestic receipts in the period 1963/64–1967/68 (Table 5). They rose more or less steadily in this period; the apparent decline in 1966/67 reflects a delay in the receipt of accounts from the customs authorities causing amounts collected in that year to be attributed to the following year. Some decline was expected in these receipts in 1968/69, and preliminary returns confirm a reduction in receipts to R 1.4 million, compared with R 1.7 million in 1967/68. This category of receipts is, however, expected to resume its growth in 1969/70, as trading conditions both in South Africa and Botswana improve.

Direct taxes on income earned in Botswana are levied in respect of both individuals and companies. Prior to 1965/66 the Government collected an African tax, which was a flat-rate tax; one half of this tax was retained by the Central Government and the other half was transferred to the local authorities. The Government also collected an income tax from Africans, calculated on the basis of cattle owned. The total proceeds of this tax were handed over to the local authorities. A graduated personal income tax was collected from non-Africans, who also paid a personal tax; receipts from these taxes were retained by the Central Government. In 1965/66 the African tax and personal tax were abolished and all personal incomes were made subject to the graduated income tax, which is collected and retained in full by the Central Government. Tax rates applied to personal income vary from 6 per cent on taxable income of less than R 600 per annum to an effective rate of about 30 per cent on taxable income of R 18,000. For all income in excess of this amount, the rate is 50 per cent. Since 1967 a 30 per cent surcharge has been in effect for all individuals paying personal income tax. In 1968 the payment of income tax on a pay-as-you-earn basis was introduced and is now operating satisfactorily.

Table 5.

Botswana: Domestic Revenue, 1963/64–1969/70

(In millions of rand)

article image
Sources: Republic of Botswana, Annual Statements of Accounts and Estimates of Revenue and Expenditure.

Mainly from sales of government lands and reimbursements from local authorities.

Company income tax is levied at the uniform rate of 30 per cent of taxable income, except for indigenous companies, which pay at a rate of 20 per cent on the first R 5,000 of taxable income. Since 1961 foreign and local dividends have been included in the taxable income of individuals whose taxable income (including dividends) exceeds R 2,600 per annum. However, dividends earned by companies are not subject to income tax.

Receipts from direct taxes (comprised of income tax and African tax) almost doubled between 1963/64 and 1966/67, but fell in 1967/68. The large increase in 1966/67, amounting to over 17 per cent, was due to the high payments made by the Botswana Meat Commission (BMC) in that year. The high rate of slaughter caused by the drought created an exceptional rise in the income of the BMC. Receipts from this source fell to a relatively low level in 1967/68, as the offtake of livestock was reduced substantially. In the preliminary returns for 1968/69 and the estimates for 1969/70, receipts from direct taxes again show an increase, reflecting mainly improvements in methods of tax collection.

Export taxes are levied mainly on livestock and livestock products. Live cattle and carcasses are taxed at a rate of R 2.25 a head, bone meal at R 2 a ton, and blood meal at R 3 a ton; hides and skins are also subject to export duty. The effects of the drought can be seen in 1965/66 and 1966/67 when receipts from export duties rose to R 0.4 million and again in 1967/68 when, in the aftermath of the drought, these receipts declined by more than 40 per cent. Export duties have resumed an upward trend since 1968/69.

Revenue from government property, coming mainly from rents received from government quarters and wayleave from the railway, has grown steadily in recent years. The postal and telegraph services also yielded increasing amounts until 1966/67, principally from the sale of special commemorative issues of postage stamps. Current budget receipts from the sale of government land, and from reimbursements by local authorities of payments made by the Government on their behalf, have declined since 1966/67. Proceeds from sales of land are now a major source of funds for the National Development Bank. Following the change in local authority responsibilities, reimbursements from local authorities since 1967/68 no longer appear in the central government budget. There has, however, been a corresponding increase in receipts from a wide variety of other small sources.

Current expenditure

From 1963/64 until 1966/67 current expenditure accelerated fairly rapidly, growing by 22 per cent in 1966/67, the year of independence. This expenditure continued to grow in subsequent years, but at a declining rate (Table 6). In 1967/68 expenditure rose by 14 per cent, but according to the preliminary results it grew by less than 1 per cent in 1968/69. The estimates for 1969/70 show an increase in expenditure of some 9 per cent over the preliminary results for 1968/69.

Table 6.

Botswana: Current Expenditure, 1963/64–1969/70

(In millions of rand)

article image
Sources: Republic of Botswana, Annual Statements of Accounts and Estimates of Revenue and Expenditure.

Includes surveys, underground water maintenance, information and broadcasting, subventions to local authorities, famine relief, community development, and cooperatives.

Most categories of expenditure shared in the growth of current expenditure during this period. Expenditure on administration, including internal security, rose from R 2.3 million in 1964/65 to R 4.3 million in 1968/69. In the latter year expenditure on administrative services accounted for one third of total current expenditure, which is somewhat more than in 1964/65. Outlays on education recorded in the budget more than doubled between 1963/64 and 1966/67. The transfer of responsibility for primary education to local authorities caused a reduction in budget expenditure on education, which is reflected in the figures for 1967/68. However, if these figures are adjusted to include subventions made by the Central Government to local authorities to assist in meeting these expenses after 1966/67, current outlays on education continued to grow and in 1969/70 accounted for more than 10 per cent of total current expenditure of the Central Government.

Expenditure on public works has also increased but less rapidly. However, the growth in the number of public buildings and other public projects is bound to result in a continuing steady expansion in this item, which represented 11.5 per cent of total expenditure on the estimates for 1969/70. The expansion of the posts and telecommunications system in Botswana has resulted in almost tripling the current expenditure in this department since 1963/64. Government expenditure on agricultural services accounted for only 3 per cent of the total in 1963/64 and for 2.5 per cent in 1966/67. However, with the Government’s decision to encourage the expansion of farming in Botswana and the cultivation of more land, expenditure on agricultural services is estimated at almost R 1 million in 1969/70 (between three and four times the amount spent in 1966/67), with 7 per cent of the total. Expenditure on pensions and gratuities has also expanded rapidly, reflecting increased retirements among expatriate government employees. Subventions to local authorities increased threefold in 1967/68 following the reform of local governments.

Public debt service

Expenditure on public debt has also been growing steadily in recent years and in the estimates for 1969/70 formed over 6 per cent of the total, compared with under 5 per cent in 1964/65. As a proportion of domestic revenue, outlays on this item have increased from 8 per cent in 1964/65 to almost 13 per cent in the estimates for 1969/70. This increase reflects principally the repayment and servicing of loans raised by the Government to finance infrastructural projects, particularly in connection with the development of Gaborone.

Total outstanding public debt of the Botswana Government on March 31, 1968 was some R 10.5 million (Table 7), compared with R 5.8 million three years earlier. Of the total outstanding, R 8.1 million was external debt. Apart from the loan of $3.6 million from the IDA, to finance a road project, all external loans are repayable in sterling. Loans of about R 2.2 million have been raised on the London market as Intercolonial loans, and the proceeds have been used mainly to construct staff quarters and facilities for railway workers. Loans from the United Kingdom, principally Exchequer loans to finance infrastructural projects, have totaled R 4.4 million, of which R 3.5 million is still outstanding. Outstanding internal debt amounts to R 2.4 million, of which all but R 0.3 million relates to loans made by local commercial banks or their associated development corporations. These bank loans have assisted materially in financing the construction of Gaborone and certain power and telecommunications projects.

Table 7.

Botswana: Medium-Term and Long-Term Public Debt on March 31, 1968

(In millions of rand)

article image
Source: Republic of Botswana, Annual Statements of Accounts, 1967–68.

Except where indicated, amount disbursed is identical with full amount of loan.

Total loan agreement for R 0.982 million.

Total loan agreement for R 0.784 million.

Total loan agreement for R 2.570 million, including a service charge of R 0.135 million.

Three of the loans from the U.K. Government are free of interest, and the rates of interest on the Intercolonial and Exchequer loans vary from 5⅜ per cent to 6¾ per cent. The rates of interest applying to the loans from local commercial banks go up to 8 per cent, and in some instances are related to the discount rate of the South African Reserve Bank.

On the basis of debt contracted up to March 31, 1968, payments for interest and amortization will continue to increase in the next five years, together reaching just under R 900,000 in 1971/72. Thereafter, debt service payments are scheduled to fall gradually, dropping below R 800,000 in 1976/77. However, since the Government is likely to contract further loans in connection with its proposed development program, the prospect is that the annual level of debt service payments will reach R 1 million about 1971/72 and will grow to about R 1.5 million by 1975/76. If the Government’s investment program produces the expected improvement in current revenue, this level of debt service would not impose an important strain on current budgetary resources.

Capital expenditure

During the period 1963/64–1966/67, when Botswana was preparing for independence, government capital expenditure rose from R 1.8 million to R 6.8 million. In 1967/68, however, this expenditure fell by 44 per cent, to R 3.8 million, and a further decline to R 2.7 million is estimated to have taken place in 1968/69. Capital expenditure for 1969/70 is budgeted at R 7.4 million. (See Table 8.)

Table 8.

Botswana: Capital Expenditure, 1963/64–1969/70

(Amounts in millions of rand)

article image
Sources: Republic of Botswana, Annual Statements of Accounts and Estimates of Revenue and Expenditure.

Includes expenditure for drought and famine relief.

Of the totals, expenditures attributable to the construction of Gaborone have been approximately as follows: 1963/64—R 0.7 million; 1964/65—R 2.6 million; 1965/66—R 2.1 million; 1966/67—R 1.5 million; 1967/68—R 1.3 million; 1968/69—R 0.4 million.

During the period of rapid growth in capital expenditure, 1963/64–1966/67, increases were recorded in almost all sectors of the capital budget. Spending on agriculture and livestock rose from R 0.2 million in 1963/64 to R 1.5 million in 1966/67, and outlays on water development almost doubled over the same period. The development of Gaborone absorbed almost R 7 million, and the building of the road from Francistown to Maun, with the assistance of the IDA loan, produced a substantial jump in capital expenditure on roads, especially in 1965/66 and 1966/67. The building of primary and secondary schools also caused a rapid expansion in capital expenditure on education, particularly in 1966/67, when it more than doubled.

The decline in capital expenditure in 1967/68 and 1968/69 partly reflected the effective completion of the first stage of the construction of Gaborone as the national capital and the end of the construction of the IDA-financed roads. Over the period 1963/64–1968/69, capital outlays on Gaborone amounted to R 8.6 million, or approximately one third of total capital budget expenditure in this period. Nevertheless, in addition to the termination of these two major projects, spending on most other development activities declined, notably on education, which fell from over R 1 million in 1966/67 to an estimated R 0.3 million in 1968/69. In a sense, therefore, 1966/67 may mark the watershed of Botswana’s initial development effort, related to independence.

The budget estimates for 1969/70 reflect the Government’s effort to re-establish its capital expenditure at a higher level, within the context of the National Development Plan, 1968–73. Capital expenditure for 1969/70 is estimated at R 7.4 million, of which the principal item is the development of the country’s mineral resources. At the time the budget estimates were presented, however, financing for only R 3 million had been secured, and it seemed likely that while the total of capital expenditure would exceed the level of 1968/69 it would fall significantly short of the amount shown in the estimates.

Financing operations

As mentioned earlier, the combination of an expanding current budget deficit and the fairly rapid increase in capital expenditure resulted in a growth in the over-all budget deficit from R 4.8 million in 1963/64 to R 11.6 million in 1966/67. The reduction in capital expenditure in 1967/68 more than offset the increase in the current deficit, created partly by the drought, and the over-all deficit fell to R 10.6 million. It was further reduced in 1968/69 when the continuing decline in capital expenditure was accompanied by an increase of 21 per cent in domestic revenue, which reduced the current deficit to R 5.9 million.

The Botswana Government has relied heavily on various forms of assistance from the United Kingdom for budgetary financing. In addition, loans and grants have been raised from other external sources, reaching almost R 1.5 million in 1967/68. Financing from internal sources, principally in the form of loans from commercial banks, has varied from over R 1 million in 1965/66 to a negligible amount in 1967/68 (see Table 4).

Total official financial assistance from the United Kingdom rose from just over R 4 million in 1963/64 to R 9.7 million in 1966/67; in 1968/69 it is estimated at R 8.2 million, rising again to over R 9 million in the estimates for 1969/70. Until 1966/67 the bulk of financial assistance from the United Kingdom was divided into grants to finance the current budget, and Colonial Development and Welfare (CD & W) grants and Exchequer loans to finance development projects. Smaller amounts were also available to assist in meeting the costs of U.K. citizens working in the Botswana Government service. The current budget grant-in-aid covered 50 per cent of current expenditure in 1963/64, 59 per cent in 1965/66, and 42 per cent in 1966/67—the year of independence.

Since 1966/67 the character of assistance from the United Kingdom has been changed. A substantial budgetary grant-in-aid is still made but is now expanded to include amounts earmarked for agreed development projects. Upon Botswana’s independence, the U.K. Government agreed to a three-year commitment on financial assistance to Botswana for the period 1967/68–1969/70 totaling £.13 million. Following the devaluation of the pound sterling in November 1967, the U.K. authorities agreed to maintain the rand value of their aid to Botswana, and the total value of U.K. assistance over those three years is now expected to amount to £14.5 million. It is expected that the United Kingdom will continue to provide substantial assistance for both the current and capital budgets. Assistance for the current budget, however, is expected to decline after 1970/71, as Botswana’s current financial prospects improve with the development of the mining industry.

As an independent country, Botswana is no longer eligible for CD & W grants, nor has it received any fresh Exchequer loans since 1966/67. Under an agreement between the two countries, however, 50 per cent of the difference between the agreed estimated U.K. grant-in-aid for the current budget and the grant-in-aid actually drawn in any financial year is made available to the Botswana Government in the following year as an additional development grant. Finally, commencing in 1966/67, the United Kingdom has made special loans to Botswana to cover the additional costs arising from the retirement of U.K. citizens from the Botswana Government service. In total, as Table 4 shows, the amount of U.K. assistance since 1966/67 has tended to remain stable at about R 8–9 million and has covered some 50 per cent of total government expenditure.

Among other external financing, the IDA loan of $3.6 million was by far the largest item. Smaller amounts have come from the United Nations World Food Program, the United Kingdom Freedom from Hunger Campaign, Oxfam, and, in 1967/68 and 1968/69, the Governments of Denmark and Sweden.

Local commercial banks, or their external associates, lent more than R 2 million over the period 1964/65–1966/67, principally for the construction of buildings, water, power, and telecommunications facilities in various towns. These loans were fully drawn by the end of 1966/67, and no new ones have been arranged since that time. Other sources of internal finance have been limited, although the National Development Bank lent the Government R 0.3 million in 1965/66 to assist in relieving the effects of the drought in that year. Small amounts were contributed in the form of loans by the Post Office Savings Bank and the Bechuanaland Teachers’ Provident Fund in 1966/67 and 1967/68.

Money and Banking

The currency

Botswana is part of the South African monetary area and does not maintain a separate central bank or currency. The legal tender is the South African rand issued by the Reserve Bank of South Africa. The legislation that officially established the rand as legal tender is the Currency Proclamation of December 30,1960. There is no written agreement regarding relations between Botswana and South Africa with respect to currency or monetary matters in general. In August 1966, the only date for which a figure is available, the currency in circulation was estimated at R 2.5 million.

The commercial banks

There are two commercial banks operating in Botswana, the Standard Bank Ltd. and Barclays Bank Ltd., D.C.O., both of which are foreign owned. Although these banks are legally branches of two British banks, they are integrated in their day-to-day operations with the South African subsidiaries of the same banks, and for most matters they refer to the regional head offices in Johannesburg. There is no legislation in Botswana regulating the operations of commercial banks. Thus, the banks are not subject to any statutory rules for their lending in Botswana. In their operations the banks are guided by their regional South African offices, although they are not required to observe the South African banking regulations for their operations in Botswana. The Botswana Government has recently suggested to the banks that they voluntarily make some effort to re-examine their policies, having in mind the needs and interests of Botswana. The Government is also envisaging the introduction of legislation to regulate the activities of commercial banks in Botswana.

Both commercial banks operating in Botswana maintain permanent offices in Gaborone, Francistown, Lobatsi, and Mahalapye, and there are 26 agencies elsewhere in the country providing weekly service. The Standard Bank Ltd. acts as banker for the Government.

The available statistics on the activities of the commercial banks in Botswana are summarized in Table 9. They show that demand deposits as well as savings and time deposits (including government deposits) increased substantially in the two years ended September 1968, when they totaled R 13.6 million. The largest increase occurred in time deposits, which rose from R 1.8 million to R 5.6 million. Total deposits declined to R 13.0 million in March 1969, as time deposits were reduced.

Table 9.

Botswana: Selected Assets and Liabilities of the Commercial Banks, 1966–69

(In millions of rand)

article image
Source: Republic of Botswana, Central Statistics Office, Statistical Abstract.

Represents the difference between deposit liabilities and the known assets, namely, cash on hand and advances.

In March 1969 credit by the commercial banks totaled R 6.6 million, or about the same as in September 1966. Credit to the Central Government fell from R 3.9 million in September 1966 to R 2.1 million in March 1969, while credit to companies rose from R 1.4 million to R 2.4 million.

From the figures given above it appears that in recent years only about one half of the banks’ deposits has been used to finance credit operations in Botswana. The remainder is presumably transferred to the banks’ offices in South Africa for lending in that country. It should be noted, however, that figures of bank credit for Botswana do not include the lending operations made by commercial banks situated in South Africa to customers in Botswana, which reportedly are significant. These are included in the South African banking statistics, and they are not identified separately.

Other financial institutions

Other financial institutions include the Botswana National Development Bank, the Post Office Savings Bank, the Cooperative Development Trust, and the Cooperative Thrift and Loan Societies.

The National Development Bank (NDB) is a statutory body established on May 1, 1964 (Law No. 13 of 1963 and subsequent amendments), designed to operate on sound business lines with a view to promoting the economic development of Botswana. The operations of the Bank are largely in the form of long-term and medium-term loans, but the Bank, with the approval of the President, may also take up share and loan capital. Furthermore, the Bank may extend short-term credit for the production and marketing of crops, and may act as an agent for the administration of funds of such persons, organizations, or administrations as may be approved by the responsible Minister. Within the framework of general national policies and objectives, the Board of the Bank considers each individual loan application strictly in accordance with its merits.

At the end of 1968 the resources of the Bank, as measured by total liabilities in the Bank’s balance sheet, amounted to R 2.3 million; they consisted mainly of capital funds including receipts from the sale of government lands (R 1.2 million), special loans from the U.K. Exchequer (R 0.7 million), grants from the Oxfam Water Supply Development Scheme and the U.K. Freedom from Hunger Fund, and loans from the Post Office Savings Bank and the Botswana Government.

The lending policy of the NDB is designed to meet changes in Botswana’s economic needs and priorities, although economic viability remains the basic lending criterion. Emphasis is placed on loans to small farmers and, as far as possible, loans are issued in kind rather than cash. Since 1965 the interest rate on loans has been 8 per cent per annum. The NDB approved 436 loans for a total of R 556,000 in 1967 and 287 loans in an amount of R 440,000 in 1968. Although the majority of the loans approved has been for agricultural development, the loans to commerce and industry have so far been the largest in size. In 1968 loans for municipal housing became important for the first time (Table 10).

Table 10.

Botswana: Loans Approved by the National Development Bank, 1966–68

(Amounts in thousands of rand)

article image
Sources: Republic of Botswana, National Bank, Annual Reports.

The National Development Plan, 1968–73 calls for increased participation by the NDB in the financing of agriculture, commerce and industry, and housing. The additional financial requirements of the NDB are estimated at some R 5 million for the five years of the Plan. It is envisaged that the additional funds would be devoted to financing by the NDB in the following proportions: 58 per cent for housing, 22 per cent for commerce and industry, 12 per cent for agriculture, and 5 per cent for cooperatives; the remaining 3 per cent would finance seasonal agricultural credit.

The Post Office Savings Bank was established in 1963 for the purpose of providing a local depository for domestic savings. Previously, postal savings could be deposited only with the Post Office Savings Bank of South Africa. The Post Office operates 31 offices in Botswana, all of which provide savings bank facilities. Total deposits with the Savings Bank rose from R 226,000 on March 31, 1965 to R 382,000 on March 31, 1969. The increase reflected mainly transfers of accounts previously held by Botswana residents in South Africa. Prior to 1966 most of the Post Office Savings Bank’s funds were redeposited with the commercial banks. Since then, the Post Office Savings Bank has lent R 130,000 to the Government for an electricity project, R 50,00 to the city of Gaborone for water and electricity, and about R 158,000 to the NDB. On March 31, 1969 some R 63,000 was still held in the form of time deposits with the commercial banks.

Interest rates

The structure of interest rates in Botswana corresponds closely to the rates prevailing in South Africa. The minimum rates of interest charged by the commercial banks on loans to the private sector and overdrafts to the Government are 1.5 per cent above the discount rate of the Reserve Bank of South Africa. In March 1969 interest rates on loans and advances of the commercial banks ranged between 7.5 per cent and 10.5 per cent, and on government loans between 6 per cent and 8 per cent. The interest rates paid by commercial banks and the Post Office Savings Bank on savings deposits were 4.0 per cent and 4.5 per cent, respectively. The first R 50 paid as interest to each individual by the Post Office Savings Bank is free of income tax.

Foreign Trade and Payments

Botswana, forming part of the South African monetary and customs area, does not itself maintain comprehensive statistics for its international transactions. As a member of the South African customs union, Botswana has no separate customs frontier. Furthermore, under the terms of a customs agreement established between the Bechuanaland Protectorate and the Federation of Rhodesia and Nyasaland in 1956, which is still in effect, goods of domestic origin may also move freely between Botswana and Rhodesia, provided that they are not intended for re-export. Figures on merchandise trade are collected indirectly from traders. Although efforts are made to adjust the data for reporting errors, these figures provide, at best, a rough indication of the magnitude of exports and imports. Information on private capital transactions and on monetary movements is difficult to collect because of the free and unrecorded movement of funds within the South African monetary area. With such limitations on the information regarding external transactions, no reliable estimate can at present be made of Botswana’s balance of payments. However, work is proceeding both in South Africa and in Botswana to augment and to improve the available data with the object of producing a meaningful estimate in the near future.

Foreign trade

According to the available estimates, Botswana has a deficit on merchandise trade, the size of which has grown steadily in recent years. In 1964 imports exceeded exports by just over R 6 million, and the deficit rose substantially in 1966 and 1967. In the latter year, with exports of R 8.3 million, the trade deficit totaled R 11.7 million (Table 11). Preliminary information for 1968 indicates a further increase in this deficit by about R 1.5 million, as exports declined and imports continued to increase. During the period since 1964 imports have risen at an average annual rate of approximately 9 per cent, although the increase in 1968 was limited to 4 per cent. Exports, on the other hand, rose in 1965 and remained more or less stable in 1966; in 1967 they declined by 23 per cent, to about the same level as in 1964, and fell by a further 10 per cent in 1968.

Table 11.

Botswana: Estimates of Exports and Imports, 1964–68

(In millions of rand)

article image
Sources: Republic of Botswana, Central Statistics Office, Statistical Abstract, 1968; Ministry of Development Planning, National Development Plan, 1968–73.

The composition of Botswana’s exports reflects the heavy dependence of the economy on livestock. Over 90 per cent of exports in each year consists of carcass meat and other products deriving from the livestock sector. In recent years, some 50 per cent of total exports has been in the form of cattle carcasses, with exports of hides and skins and, in certain years, canned meat and meat extract the other important commodities. Exports of live cattle were prohibited in 1968, and these exports officially ceased in that year. The increase of 20 per cent in total exports in 1965 and the continuing high level in 1966 is attributable to the drought in those years, which caused the slaughter and export of an unusually large proportion of the national herd. In 1967, with the return of more normal climatic conditions, slaughterings were reduced to a level lower than usual in order to avoid unnecessarily heavy depletion of the national herd. Apart from livestock products, Botswana exports small quantities of groundnuts and cotton. Prior to 1965, exports of asbestos and manganese amounted together to some R 0.3 million but declined gradually until mining of these products ceased in 1967. During 1968, however, mining of manganese recommenced on a limited scale, and exports in that year amounted to R 215,000.

South Africa is the principal customer for Botswana’s exports, in 1967 and 1968 taking approximately one half of Botswana’s output of meat and meat products. However, South Africa emerged as Botswana’s most important customer only in 1967; before that the bulk of Botswana’s beef exports went to the United Kingdom. Botswana’s exports provide South Africa with about 10 per cent of its total requirements for these products. All exports to South Africa are in the form of carcasses; sales are organized on a weekly quota system, and the carcasses are sold by auction. A further 20 per cent of Botswana’s exports goes to Zambia and Swaziland, also in the form of carcasses; sales to these countries are made on the basis of one-year contracts. The remaining 30 per cent of Botswana’s exports goes to the United Kingdom. The existence of stringent entry requirements for carcass beef into the United Kingdom, designed to reduce the risk of foot-and-mouth disease, has resulted in all of Botswana’s exports to that country taking the form of prepackaged meat cuts. These exports enter the U.K. market under Commonwealth preference tax arrangements.

Food and nonalcoholic beverages are by far the largest single item among Botswana’s imports, comprising roughly 25 per cent of the total in 1965 and 32 per cent in 1966 and 1967, when the drought created a large need for emergency imports of food. Imports of clothing and textiles, building materials, and fuels, chemicals, and drugs comprise other important categories. Machinery and equipment, valued at R 3.4 million in 1965 (20 per cent of total imports), formed the second largest category in that year, when development activities preceding independence were at a high level. In 1966 and 1967, as these activities moderated somewhat, imports of machinery and equipment declined by some 20 per cent.

Other current transactions

Reliable information about other current external transactions of Botswana is scarce. Botswana appears to be a small net earner of foreign exchange from travel. External payments of interest, profits, and dividends, on the other hand, may be substantial, and on a net basis Botswana has probably incurred a steadily increasing net outflow on this item, as official debt service payments have increased in recent years.

A sizable but largely unrecorded volume of transactions occurs in remittances from foreigners resident in Botswana and Botswana citizens living and working in South Africa. Inward remittances consist in part of transfers out of current earnings by Botswana citizens working in the gold and diamond mines in South Africa; for the most part these take the form of deferred pay transfers, an arrangement under which a certain percentage of mineworkers’ earnings are withheld by the mining companies and released in a lump sum when the worker returns to Botswana at the end of his contract. Deferred pay is estimated to amount to about R 1 million a year.

Capital transactions

Information on the inflow of official foreign assistance to Botswana is available only on a financial-year basis. As explained in the section on Government Finance (pp. 144–58), the U.K. Government has been the principal source of foreign assistance. For the past ten years the total amount of assistance from this source is estimated at R 46 million (for details, see Table 4). This total excludes contributions from the Commonwealth Development Corporation and from the Oxfam and Freedom from Hunger Fund. In recent years, other official capital has been provided by the IDA in the form of a loan of $3.6 million, which has been disbursed over a three-year period. Small amounts have come from the UNDP and from the Swedish and Danish Governments, mainly to finance educational projects.

The restrictive system

Botswana’s currency is the South African rand, the par value of which is 1.24414 grams of fine gold per rand or R 1 = US$1.40. Exchange rates are based on South Africa’s fixed rates for sterling against rand and the London market rates for sterling against other currencies.

Botswana is regarded as being within the South African monetary area and the sterling area. The Ministry of Finance controls all external currency transactions of Botswana. Imports are usually licensed along the lines of South Africa’s import regulations. Transfers of funds to sterling area countries are not referred to the South African exchange control authorities and are normally approved, subject to the conditions that the funds have been generated in Botswana and that the transfer is being made by a bona fide resident. Where the export of funds to a country outside the sterling area is concerned, approval is given in appropriate cases by the Minister of Finance in agreement with the South African Reserve Bank.

Under the Securities Control Regulations of South Africa (as distinct from Exchange Control), residents of Botswana who purchase, sell, or hold South African shares are regarded as nonresidents of South Africa and are thus formally subject to the limitations applicable to all other nonresidents. However, special consideration is given in the application of these limitations to residents of Botswana.

L’économie du Botswana

Résumé

Cet article décrit brièvement les principales caractéristiques de l’économie du Botswana, son évolution économique récente et ses perspectives d’avenir.

Ancien protectorat britannique du Betchouanaland, le Botswana a acquis son indépendance en septembre 1966. C’est un vaste pays aride de l’Afrique méridionale qui compte environ 600.000 habitants et dont l’économie est encore aux premiers stades de développement. Les principales activités économiques sont l’élevage de bétail, qui fournit la principale source de revenu et d’emploi, et l’agriculture de subsistance. Une pénurie chronique d’eau, aggravée par des périodes de sécheresse fréquentes et prolongées, a jusqu’à présent limité sérieusement les possibilités de développement de l’économie. La production alimentaire est insuffisante pour faire face aux besoins intérieurs et pendant la période de sécheresse intense qui a sévi ces dernières années, une grande partie de la population a été tributaire des approvisionnements de secours envoyés de l’extérieur. Les perspectives de développement se sont améliorées grâce à la récente découverte d’intéressantes ressources minières. A l’heure actuelle, on s’efforce surtout de mettre en exploitation les filons de diamants et les gisements de minerai de cuivre-nickel, ce qui demande un montant considérable d’investissements privés pour la mise en place des installations de production, et d’investissements publics pour l’infrastructure de base.

La capacité génératrice de recettes de l’économie, extrêmement limitée, est pour les finances publiques une source de difficultés. Au cours des dernières années, les dépenses du budget de fonctionnement ont augmenté rapidement par suite de la construction de certains ouvrages d’infrastructure et de la création de l’administration d’Etat. Les recettes intérieures ont également augmenté, mais à un taux moins rapide. En conséquence, l’Etat a eu recours aux subventions du Royaume-Uni pour financer son budget de fonctionnement; celles-ci ont atteint l’équivalent de plus de 8 millions de dollars en 1967/68, année où elles ont financé près de 50 pour cent des dépenses courantes. Les dépenses d’équipement ont été en grande partie fonction du montant de ressources fournies par l’étranger. Les dons et prêts consentis par le Royaume-Uni pour financer les budgets de fonctionnement et d’équipement ont représenté en moyenne ces dernières années quelque 12 millions de dollars par an.

Les recettes de l’Etat devraient augmenter avec l’entrée en vigueur de la nouvelle convention d’union douanière conclue avec l’Afrique du Sud en décembre 1969, mais la situation financière risque de rester difficile dans le futur immédiat. On s’attend à ce que le développement des industries extractives se traduise par un accroissement assez considérable des recettes publiques après 1973; outre l’amélioration de la situation budgétaire, ceci pourra permettre de développer le secteur agro-pastoral qui représente la principale source de revenu et d’emploi pour la plus grande partie de la population.

Le Botswana fait partie de la zone monétaire et douanière sud-africaine et utilise comme monnaie le rand sud-africain. Les capitaux et les marchandises circulent librement à l’intérieur de cette zone et en principe les paiements courants à destination d’autres pays ne sont pratiquement soumis à aucune restriction.

La economía de Botswana

Resumen

En este artículo se presenta una breve descripción de las características principales de la economía de Botswana, y se ofrecen indicaciones sobre la evolución económica reciente y sobre las perspectivas para el futuro cercano.

Botswana, que anteriormente era el Protectorado británico de Bechua-nalandia, adquirió la independencia en septiembre de 1966. Es un extenso país árido situado en el sur de Africa y cuenta con una población aproximada de 600.000; su economía se halla aún en las primeras etapas de desarrollo. La numerosa población ganadera proporciona la fuente principal de ingresos y empleo, siendo la agricultura de subsistencia la otra actividad económica principal. La escasez crónica de agua, junto con frecuentes y extensos períodos de sequía, ha representado hasta ahora una grave limitación a la capacidad de crecimiento de la economía. La producción de alimentos es insuficiente para satisfacer las necesidades internas, y durante las graves sequías de los últimos años, una parte considerable de la población ha tenido que depender de suministros de emergencia de alimentos procedentes de fuentes externas. Las perspectivas del crecimiento económico han mejorado con el descubrimiento reciente de depósitos minerales prometedores. En la actualidad, están concentrándose los esfuerzos en el aprovechamiento de los depósitos de diamantes y cupro-níquel, efectuándose considerables inversiones privadas en las instalaciones de producción e inversiones públicas en la infraestructura básica.

La limitada capacidad de la economía para generar ingresos está imponiendo serias limitaciones a la Hacienda pública. En los últimos años han aumentado con rapidez los gastos presupuestarios corrientes, después de la construcción de la infraestructura primaria y de la creación de la administración gubernamental. Las rentas públicas internas también han venido aumentando, aunque a menor ritmo. Por consiguiente, el Gobierno ha estado dependiendo de las subvenciones del Reino Unido para financiar el presupuesto ordinario; dichas subvenciones aumentaron al equivalente de más de US$8 millones en 1967/68, cuando financiaron casi el 50 por ciento del gasto ordinario. El gasto para el desarrollo ha venido determinado en su mayor parte por la cifra de recursos disponibles del exterior. En los últimos años, las subvenciones y préstamos del Reino Unido para el presupuesto ordinario y para el de capital han venido representando en promedio unos US$12 millones anuales.

Aunque se espera que las rentas públicas aumenten como resultado del nuevo Acuerdo de Unión Aduanera con Sudáfrica, firmado en diciembre de 1969, lo probable es que la situación financiera del Gobierno siga siendo difícil en el futuro inmediato. Se espera que el aprovechamiento de la minería resulte en un aumento cuantioso de las rentas públicas a partir de 1973; esto, además de mejorar la situación presupuestaria, podría ayudar a desarrollar el sector agropecuario, que constituye la fuente principal de ingresos y de empleo para la gran mayoría de la población.

Botswana es miembro del área monetaria y aduanera de Sudáfrica y utiliza como moneda el rand sudafricano. Es libre el movimiento de fondos y de bienes dentro del área monetaria de Sudáfrica, y no se aplica prácticamente ninguna restricción a los pagos corrientes hacia otros países.

*

Mr. Dini, Senior Advisor in the African Department, was educated at the University of Florence, Italy, and did graduate studies at the Universities of Minnesota and Michigan. He was formerly Assistant Professor at the University of Rome and a member of the Research Department of the Banca del Lavoro in Rome. He is the author of several articles in matters relating to taxation and fiscal policy.

Mr. Quinn, economist in the African Department, received his graduate and postgraduate degrees from the Universities of Glasgow and Manchester and from Cornell University.

Mr. Wohlgemuth, economist in the African Department, is a graduate of the Stockholm School of Economics, where he also did postgraduate work. He was formerly an economist in the Swedish International Development Authority.

1

The article is based on information collected in the summer of 1969; it surveys therefore essentially developments in the economy up to that time.

2

Bamangwato Concession Ltd. is to be reorganized into a mining company in which the Government of Botswana will have a 15 per cent interest.

3

On December 17, 1969, the IDA approved a credit of $2.5 million to finance the costs of engineering design and preliminary works for infrastructure (electric power, water, transport, and a township) required for the development of the copper-nickel deposits at Selibe-Pikwe.

4

The shares of Botswana, Lesotho, and Swaziland of the resources of the pool for any financial year are calculated by expressing the c.i.f. value of their imports plus the value of excisable and sales duty goods that they produce and consume during the year plus the excise and sales duties paid on these goods as a percentage of the c.i.f. value of the total imports of the Common Customs Area during the financial year plus the customs and sales duties realized from these goods during the year plus the value of excisable and sales duty goods produced and consumed during the year in the Common Customs Area plus the excise and sales duties collected from these goods during the year. The percentage so derived, multiplied by a factor of 1.42, will represent each country’s share of the common revenue pool for any given financial year.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Papers
IMF Staff papers: Volume 17 No. 1
Author: International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1970: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781451956276
ISSN:
1020-7635
Pages:
230
DOI:
https://doi.org/10.5089/9781451956276.024