Botswana: Mining a New Growth Model

IMF News, September 5, 2018

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Botswana transformed from a severely impoverished nation to a high-middle-income country over the half century since independence, with substantial reductions in poverty and rapid improvements in living standards.
Diamonds and sound economic policies have helped build infrastructure and keep the economy stable, but the diamond- and public sector-led development model is showing its limits.

Prudent and transparent management of diamond revenues, contributing to sizable savings for stabilization, investment, and future generations.
Significant government spending allocated to health, education, social assistance, and public infrastructure.
A tradition of democratic values supporting political and social stability.

Unemployment rate of nearly 18 percent.
Export concentration: diamonds account for 90 percent of export receipts.
Diamond production may only extend for another 30 years.
Small domestic market and limited job creation from mining and public sector expansion necessitate a new development model focused on private sector development and export diversification.

Improve the business environment:
- Remove bureaucratic regulations and impediments.
- Adopt policies that promote competition.
- Privatize inefficient state-owned companies (parastatals), including mergers of inefficient government-funded enterprises to improve efficiency.
Strengthen the labor force and attract skilled workers:
- Improve policies to build skills and work ethic.
- Remove restrictions on visas and permits for skilled workers.
Leverage non-mining sectors:
- Tourism (e.g., Okavango delta).
- High-quality, free-range beef production with quota and duty-free access to the EU market.
Public sector role in enabling private sector growth:
- Prioritize public projects with economy-wide benefits (examples: air transportation and internet connectivity).
- Encourage financial development through reforms that increase bank lending and access to credit.

Fiscal policy contributed to lower poverty and inequality, mostly through social spending.
High spending in primary and secondary education had an equalizing effect on income distribution.
Further measures to reduce inequality:
- Better targeting of social programs and education bursaries.
- Increasing the rate and coverage of property taxes.
- Streamlining VAT exemptions to generate resources for social spending and public investment, while compensating the most vulnerable with cash transfers.

Successful medium-term prospects depend on implementing key reforms, some long-standing.
Recent government announcements by President Masisi to remove burdensome regulations, proceed with privatizations, and relax restrictions on permits and visas for foreign workers are encouraging.
For reforms to succeed they need:
- Clear assignment of implementation responsibility.
- Timetables for action.
- Accountability through high-level monitoring.

International Monetary Fund (IMF) — Botswana country assessment (News article, September 5, 2018).