Economy

Since independence, Botswana has had one of the fastest growth rates in per capita income in the world, with economic growth averaging over 9% per year from 1966 to 1999. The government has maintained a sound fiscal policy, despite consecutive budget deficits in 2002 and 2003, and a negligible level of foreign debt. It earned the highest sovereign credit rating in Africa and has stockpiled foreign exchange reserves (over $5.1 billion in 2003/2004) amounting to almost two and a half years of current imports.

Botswana's impressive economic record has been built on the foundation of wisely using revenue generated from diamond mining to fuel economic development through prudent fiscal policies and a cautious foreign policy. Debswana, the only diamond mining company operating in Botswana, is 50% owned by the government and generates about half of all government revenues. Botswana has transformed itself from one of the poorest countries in the world to a middle-income country with a per capita GDP of a little over $10,000 in 2005.

However, economic development spending was cut by 10% in 2002-2003 as a result of recurring budget deficits and rising expenditure on healthcare services. Botswana has been hit very hard by the AIDS epidemic; the average life expectancy in Botswana at birth, 1990: 64 years, 2004: 35 years. This is the lowest figure in the world (based on World Bank figures for 208 countries and territories) and barely half the 59-year average for low-income countries. Approximately one in three Botswanans has HIV, giving Botswana the second highest HIV infection rate in the world after Swaziland. The government recognises that HIV/AIDS will affect the economy and is trying to combat the epidemic, including free Antiretroviral drug treatment and a nation-wide Prevention of Mother-to-Child Transmission program.

Some of Botswana's budget deficits can be traced to relatively high military expenditures (about 4% of GDP in 2004), which some critics contend is unnecessary given the low likelihood of international conflict (though the Botswana government also makes use of these troops for multilateral operations and assistance efforts).

Most (70%) of Botswana's electricity is imported from South Africa's Eskom. 80% of domestic production is concentrated in one plant, Morupule Power Station near Palapye.

Tourism

Tourism plays a role in Botswana. A number of national parks and game reserves, with their abundant wildlife, are a top draw for tourists, with wildlife such as lions, brown hyenas, cheetahs, leopards, wild dogs and antelope.

Trade

The main export of Botswana is diamonds, with Jwaneng being the world's largest and richest diamond mine. The diamond mine in Jwaneng provides many jobs for the unemployed in Botswana, to extract the diamonds and to build the roads needed for their transport. A source of foreign exchange is also introduced to the economy and it offers a potential basis for industrial development, and thus stimulates improvements within Botswana's infrastructure.

Southern African Customs Union

Botswana is part of the Southern African Customs Union (SACU) with South Africa, Lesotho, Swaziland and Namibia. Under this arrangement, South Africa has collected levies from customs, sales and excise duties for all five members, sharing out proceeds based on each country's portion of imports. The exact formula for sharing revenues and the decision-making authority over duties (held exclusively by the Government of South Africa) became increasingly controversial, and the members renegotiated the arrangement in 2001. The new structure has now been formally ratified and a SACU Secretariat has been established in Windhoek, Namibia. Following South Africa's accession to the World Trade Organisation (WTO), Botswana also joined; many of the SACU duties are thus declining, making products from outside the area more competitive in Botswana. Currently the SACU countries and the US are negotiating a free trade agreement.

Southern African Development Community

Gaborone is host to the headquarters of the 14 nation Southern African Development Community (SADC), a successor to the Southern African Development Coordination Conference (SADCC-launched in 1980), which focused its efforts on freeing regional economic development from dependence on apartheid South Africa. SADC embraced the newly democratic South Africa as a member in 1994 and has a broad mandate to encourage growth, development and economic integration in Southern Africa. SADC's Trade Protocol, which was launched on September 1, 2000, calls for the elimination of all tariff and non-tariff barriers to trade by 2008 among the 11 signatory countries. If successful, it will give Botswana companies free access to the far larger regional market. SADC's failure to distance itself from the Mugabe government in Zimbabwe has diminished the number of opportunities for cooperation between the US and SADC.

Foreign Investment

Botswana seeks to diversify its economy away from minerals, which account for a third of GDP, down from nearly half of GDP in the early 1990s, and foreign investment and management are welcomed. Botswana abolished foreign exchange controls in 1999, has a low corporate tax rate (15%), no prohibitions on foreign ownership of companies, and a moderate inflation rate (7.6% November 2004). The Government of Botswana is currently considering additional policies to enhance competitiveness, including a new Foreign Direct Investment Strategy, Competition Policy, Privatisation Master Plan and National Export Development Strategy.

With its proven record of good economic governance, Botswana was ranked as Africa's least corrupt country by Transparency International in 2004, ahead of many European and Asian countries. The World Economic Forum rates Botswana as one of the two most economically competitive nations in Africa. In 2004 Botswana was once again assigned "A" grade credit ratings by Moody's and Standard & Poor's. This ranks Botswana as by far the best credit risk in Africa and puts it on par with or above many countries in central Europe, East Asia and Latin America.