BOTSWANA 2016

George J. Honde / [email protected]

www.africaneconomicoutlook.org

Botswana

BOTSWANA • The pace of economic growth has slowed reflecting weak demand for mineral exports and a gloomy outlook for the global economy. • Growth prospects look promising, but the weak pickup in global growth, subdued commodity prices and persistent electricity supply problems pose substantial downside risks. • The country has experienced a rapid pace of urbanisation which has been associated with some environmental harm and is straining urban areas’ capacity to provide jobs, infrastructure and other essential amenities.

Overview The Botswana economy rebounded in the last five years after a significant setback following the 2008 global economic downturn. However, the country’s pace of economic activity moderated in 2014, reflecting modest growth in mining and persistent electricity and water supply problems. Real gross domestic product (GDP) growth is estimated to have weakened further in 2015 mainly due to subdued demand for mineral exports on account of the gloomy global economy. Despite this, Botswana’s growth prospects look promising, with real GDP growth projected to pick up slightly in 2016-17. The improvement in growth over the medium term is predicated on the government’s Economic Stimulus Programme (ESP), a gradual recovery in the global diamond market, and increased energy availability following the completion of remedial measures at Morupule B Power Station. The favourable outlook is also underpinned by expected growth in manufacturing following the commission, in 2015, of a steel manufacturing plant and a horticultural processing plant. Downside risks persist from the weak pickup in global economic growth and subdued commodity prices. In keeping with the government’s fiscal stance targeting a balanced budget, fiscal operations resulted in a budget surplus in FY 2014/15 for the third successive financial year. The government also projected a budget surplus for FY 2015/16. However, government operations during the first half of FY 2015/16 resulted in a fiscal deficit. The deteriorating fiscal situation is on account of a decline in mineral exports receipts. Therefore, Botswana is expected to record a fiscal deficit in FY 2015/16 for the first time in four years. Inflation continued to fall and breached the lower end of the Bank of Botswana’s mediumterm target range in February, March, September and November 2015. Annual average inflation ended the year in 2015 much lower than in 2014, reflecting lower fuel prices and the government’s commitment to prudent monetary policy. Botswana has experienced a high rate of urbanisation, with nearly two-thirds of the country’s total population now living in urban areas. Although rural-urban migration and natural population increase have played a role in urban population increase, the positive trend is mainly due to the reclassification of some villages to urban settlements.

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Figure 1. Real GDP growth Real GDP growth (%)

%

Southern Africa (%)

Africa (%)

12 10 8 6 4 2 0 -2 -4 -6 -8 -10

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015(e)

2016(p)

2017(p)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomic development 2014

2015(e)

2016(p)

2017(p)

Real GDP growth

4.4

2.5

3.2

3.5

Real GDP per capita growth

2.4

0.6

1.4

1.7

CPI inflation

4.4

3.1

4.5

4.3

Budget balance % GDP

5.6

3.6

-2.8

-2.3

Current account % GDP

15.7

16.0

5.6

5.2

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects Botswana is a resource-rich, middle-income country (MIC) praised for its prudent economic management. The country’s real GDP, supported by increased mining production, grew by nearly 10% annually from 1960 to 2008, thereby enabling Botswana to graduate from a least developed country to MIC status in 1992. Botswana’s GDP per capita income has risen from USD 80 at the time of its independence in 1966 to USD 7 750 in 2014. After a significant setback following the 2008 global economic downturn, the Botswana economy rebounded in the last five years. Real GDP grew strongly by 9.3% in 2013, underpinned by buoyant activity in the mining sector, particularly diamond production. However, the country’s economic growth slowed to 4.4% in 2014, and further to 2.5% in 2015. The slowdown reflects modest growth in mining activity and persistent electricity and water supply shortages. In particular, weak GDP growth in 2015 is mainly attributable to the fall in mining value added, which contracted sharply. The negative growth rate of the mining sector was mainly due to a decline in diamond and copper/nickel production by 33.4% and 75.6%, respectively, in the twelve months to September 2015, compared to an increase of 14.1% and a decrease of 17.3%, respectively, realised in the corresponding period in 2014. The poor performance is due to the slackening demand for mineral exports on account of the gloomy global environment. The mining sector is

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an important engine of growth in Botswana, contributing an average of 24% to the country’s GDP from 2005 to 2014. Botswana’s real GDP growth in 2015 was, therefore, driven by the non-mining sectors. With the exception of water and electricity sub-sectors and the agriculture sector, all the other non-mining sectors registered positive growth exceeding 2% in the twelve months to September 2015. The sectors posting robust growth were trade, hotels and restaurants; transport and communication; and central government. Growth in these sectors made up for the contraction of more than 100% in the water and electricity sub-sectors, which continued to be adversely affected by persistent problems in electricity and water supply due to power generation challenges and poor rainfall, respectively. The continued poor performance of the electricity sub-sector is of major concern to the government, given the importance of water and power in the economy. To address these challenges, the government allocated a substantial development budget in FY 2015/16 to the sector and is in the process of establishing a Project Management Office to oversee implementation of major energy and water projects. The government is also undertaking major reforms through the National Energy Policy, which is undergoing the legislative process to guide the energy sector. Agricultural output, which contributed 2.4% to GDP in 2014 (primarily through beef exports), registered negative growth during the period due to severe drought conditions during the year. Botswana’s crop production continues to be hampered by traditional farming methods, drought, soil erosion and diseases. Botswana’s growth prospects look promising. Real GDP growth is projected to pick up slightly, averaging about 3.5% in 2016-17. The recovery from 2.4% in 2015 is predicated on government’s Economic Stimulus Programme (ESP), a gradual recovery in the global diamond market and increased energy availability following the completion of remedial measures to improve the reliability of the newly constructed Morupule B Power Station and refurbishment of the Morupule A Power Station. The government unveiled the ESP in October 2015, which seeks to stimulate economic growth, promote economic diversification and address Botswana’s high rate of unemployment. The ESP is targeting key areas where there is a backlog of public projects, as well as labour-intensive activities to promote local enterprises. The favourable outlook is also underpinned by the expected growth in manufacturing activity following the commissioning of a steel manufacturing plant and a horticultural processing plant in 2015. Downside risks to the positive medium-term outlook persist from the weak pickup in global growth and subdued commodity prices. Other risks to medium-term growth prospects include lower revenues from the Southern African Customs Union (SACU), which are expected to fall in 2016 and remain subdued in the medium term and persistent drought and the lacklustre growth in South Africa (Botswana’s major trading partner). The risks underscore the need for Botswana to intensify efforts to diversify its economy in order to achieve sustainable high levels of economic growth. The country needs to promote industrialisation by accelerating economic transformation from the primary sector to advanced manufacturing and services in order to reduce its vulnerability to shocks in the diamond trade. This can be done by stimulating growth of private sector investments and increase productivity of the economy by investing in economic infrastructure, providing a sound regulatory environment that is friendly to business, and enhancing skills development.

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Agriculture, forestry, fishing and hunting of which fishing Mining and quarrying of which oil Manufacturing

2010

2014

2.8

2.4

…

…

21.5

26.5

…

…

7.1

6.0

Electricity, gas and water

0.5

-0.4

Construction

6.5

6.7

16.9

16.3

Wholesale and retail trade; Repair of vehicles household goods; Restaurants and hotels of which hotels and restaurants

…

…

5.8

6.0

Finance, real estate and business services

15.0

14.9

Public administration and defence

17.2

15.4

Transport, storage and communication

Other services Gross domestic product at basic prices / factor cost

Botswana

Table 2. GDP by sector (percentage of GDP at current prices)

6.8

6.3

100.0

100.0

Source: Data from domestic authorities.

Macroeconomic policy Fiscal policy The overarching objective of Botswana’s fiscal policy is to ensure macroeconomic stability. In keeping with the government’s fiscal stance targeting a balanced budget, fiscal operations resulted in a surplus of 2.5% of GDP in FY 2014/15, the third successive financial year without a deficit. The FY 2015/16 was projected to result in a surplus of 0.8%, according to the Budget Speech presented in February 2015. However, government operations during the first half of FY 2015/16 (April-September 2015) resulted in a fiscal deficit of BWP 3.32 billion (about 2.0% of GDP). Therefore, although the ratio of expenditure to GDP has been contained in line with the fiscal rules limiting government expenditure to 40% of GDP, Botswana is expected to record a fiscal deficit in FY 2015/16 for the first time in four years. The deteriorating fiscal situation is on account of a decline in mineral receipts. The ratio of expenditure to GDP has consistently declined to 34.2% of GDP in FY 2014/15, after reaching a peak of 45.3% in FY 2009/10, at the height of the global economic downturn. The positive expenditure outturn is the result of efforts by the government to rebalance spending priorities, including reigning in unproductive elements of current expenditure. In FY 2015/16, the ratio of expenditure to GDP is projected to increase to 38.8% of GDP reflecting the commencement of the implementation of the ESP, while that of total government revenue (including grants) is projected to fall by about 3 percentage points to 36.2% of GDP. The decline in government revenue is mainly due to a fall in tax revenue, especially mineral tax, on account of low commodity prices. The government remains committed to fiscal consolidation and is pursuing measures to achieve this. These include restraining the size of the wage bill (currently about 12% of GDP), broadening the revenue base, rationalising state-owned enterprises and hiving-off non-core activities to the private sector. 

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Table 3. Public finances (percentage of GDP at current prices) 2006/2007

2011/2012

2012/2013

2013/2014

Total revenue and grants

40.2

35.2

36.6

37.8

38.4

36.0

36.2

Tax revenue

37.0

32.8

33.6

34.4

35.6

32.9

33.2

Grants Total expenditure and net lending (a)

2014/2015(e) 2015/2016(p) 2016/2017(p)

0.7

0.5

0.4

0.3

0.3

0.2

0.2

28.9

35.4

35.8

32.2

34.8

38.8

38.5

Current expenditure

23.4

26.3

34.8

31.9

34.0

28.0

27.1

Excluding interest

23.0

25.8

34.2

31.3

33.4

27.4

26.6

Wages and salaries

8.5

11.7

13.0

11.1

10.8

10.0

10.0

Interest

0.3

0.5

0.6

0.5

0.6

0.6

0.5

Capital expenditure

5.9

9.2

0.7

0.6

0.8

10.8

11.4

Primary balance

11.6

0.3

1.4

6.1

4.2

-2.2

-1.8

Overall balance

11.2

-0.2

0.8

5.6

3.6

-2.8

-2.3

Note : a. Only major items are reported. Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Monetary policy The core objective of Botswana’s monetary policy is price stability, targeting inflation within the range of 3-6% and safeguarding financial stability. Annual inflation has consistently declined to within the monetary policy target, from a peak of 12.5% in 2008. It decelerated from 5.9% in 2013 to 4.4% in 2014. Annual average inflation breached the lower bound of the Bank of Botswana’s medium-term target range in 2015, ending the year at 3.1%, mainly on account of falling international oil prices. It is expected to remain within the target range of 3-6% in the medium term due to weak domestic demand and a moderation in external price developments. Botswana’s inflation tracks that of South Africa because of the strong trade ties between the two countries, the source of over 60% of Botswana’s imports. Taking advantage of the prevailing low inflation, monetary policy has been accommodating with a view to stimulate economic activity. Between December 2013 and February 2015, the Bank of Botswana (BoB) reduced its policy rate three times bringing it down from 8.5% to 6.0%. The easing of monetary policy was necessary to further shore up economic growth given that the spillovers from weakening global economic conditions remained unabatedly high. The annual growth in credit extended to the corporate sector, increasing from 4.6% in 2013 to 19.1% in 2014, mainly driven by the manufacturing and trade, tourism and hotels sectors. However, the annual expansion in credit to households decelerated from 24.2% in 2013 to 10.7% in 2014, reflecting the softening of mortgage credit in an environment of slow growth in incomes. The moderation of mortgage credit growth, reflecting weak growth in incomes, will help safeguard the stability of Botswana’s financial system. The real value of the Botswana pula (BWP) has remained stable and competitive against major currencies, consistent with the country’s crawling-peg exchange rate regime and prevailing low inflation. In line with the policy objective of maintaining a stable, inflation-adjusted exchange rate against a trade-weighted basket of currencies of trading partner countries, BoB implemented a zero annual rate of crawl of the pula exchange rate in 2015, changed from a modest downward crawl in the previous year. Trends in bilateral nominal exchange rates show that on an annual basis (twelve months to December 2015), the pula) depreciated against the US dollar (by 15.3%), British pound sterling (11.1%) and euro (5.9%). However, it appreciated by 13.6% against the South African rand. The real effective exchange rate is stable and broadly in line with economic fundamentals. The crawling peg exchange rate regime has served the economy well, balancing it between stability and flexibility.

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Botswana has much to gain from regional integration and economic co-operation as a landlocked country with a small domestic market. The country is a member of the Southern African Development Community (SADC), which provides the country with opportunities for expanding and diversifying its export markets. It also belongs to SACU, which has a common external tariff and guarantees free movement of goods among the member states (Botswana, Lesotho, Namibia, South Africa and Swaziland), and represents an important source of fiscal revenue for the country. Botswana has entered into several trade agreements and arrangements at the multilateral, regional and bilateral levels. In 2015, it became a signatory to the Tripartite Free Trade Area (TFTA) agreement, which was launched in June 2015, bringing together 26 member states of the East African Community (EAC), SADC, and the overlapping Common Market for Eastern and Southern Africa (COMESA). Botswana has taken initiatives to develop transport links necessary to promote regional integration. The country completed the construction of a dry port at the Port of Walvis Bay in 2014 to facilitate the country’s exports and imports through the Namibia seaport. It is also constructing the Kazungula Bridge project, in collaboration with Zambia, to develop a rail and road bridge linking the two countries.

Botswana

Economic co-operation, regional integration and trade

South Africa is the main source of Botswana imports, accounting for over 60% of its imports, and a major market for its manufactured goods. However, Botswana’s exports remain highly concentrated in diamonds, which account for about 75% of total annual exports and are mainly destined to Europe. After protracted negotiations with the SADC Economic Partnership Agreement (EPA) Group (comprising Lesotho, Mozambique, Namibia, South Africa and Swaziland), Botswana signed the EPA with the EU in July 2015. The EPA guarantees access to the EU market without any duties or quotas for the SADC EPA countries. The EPA is particularly important for Botswana’s beef industry even though about 94% of the country’s exports to the EU comprise diamonds and nickel, which already enter duty-free.

Table 4. Current account (percentage of GDP at current prices) 2007

2012

2013

2014

2015(e)

2016(p)

Trade balance

10.6

-13.5

-2.3

3.4

5.7

0.4

1.1

Exports of goods (f.o.b.)

47.2

41.1

53.5

53.8

53.3

52.6

55.2

Imports of goods (f.o.b.)

36.6

54.6

55.8

50.4

47.6

52.2

54.2

1.1

1.6

2.4

3.6

4.0

2.8

2.5

-6.7

0.3

-2.5

-2.2

-2.0

-2.2

-2.1

Current transfers

10.2

11.9

11.4

10.9

8.3

4.6

3.7

Current account balance

15.1

0.3

8.9

15.7

16.0

5.6

5.2

Services Factor income

2017(p)

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Debt policy Botswana implements a very prudent and measured debt policy. The country has consistently adhered to a fiscal benchmark which statutorily limits public debt (including government guaranteed debt) to 40% of GDP (split equally between domestic and external borrowing). The overall objective of the debt policy is to ensure that public debt, including borrowing by the central government and parastatals as well as on lending arrangements and government guarantees, remains affordable and at low risk to ensure fiscal sustainability. Total public debt has fallen substantially in recent years. After peaking at 26.3% of GDP in FY 2012/13, reflecting high borrowing to support countercyclical measures to sustain economic growth in the aftermath of the 2008 global economic crisis, total public debt (including government guaranteed debt) has fallen to 20.3% of GDP in FY 2014/15. Public external debt fell sharply from 19.6% of GDP to 14.4% while domestic debt fell from 6.7% of GDP to 5.9% during the same period.

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Bonds account for the bulk of domestic debt, reflecting the role played by the government in the domestic capital market. Total public debt, therefore, remains well below the statutory public debt-to-GDP ratio ceiling. The authorities are committed to reforms aimed at preserving mediumterm debt sustainability through prudent debt policies. In this regard, the government is currently finalising the Medium Term Debt Management Strategy to help sustain gains made and further strengthen the legal framework in order to ensure that public debt remains affordable and low risk.

Figure 2. Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services) Outstanding debt (public and private) /GDP

%

Debt service/Exports

35 30 25 20 15 10 5 0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source : IMF (WEO & Article IV).

Economic and political governance Private sector Botswana has stepped up efforts to enhance the country’s business environment, as reflected by recent improvements in the country’s non-price competitiveness indicators. The World Economic Forum’s Global Competitiveness Report (GCR) 2015-2016 ranks Botswana 71st out of 140 countries (a four-position improvement from the previous year), the fourth position in subSaharan Africa (SSA). The GCR rates Botswana highly in the macroeconomic environment, labour market efficiency, reliable and legitimate institutions, and developed financial market. Botswana continues to rank among SSA’s best performers in the World Bank Doing Business 2016 report. The country’s ranking improved two positions to 72nd, making it the third best performer in Africa. Botswana has efficient mechanisms for resolving insolvency (56), registering property (70), getting credit (70) and paying taxes (71). The country is now ranked 51st (a strong improvement from 157th in the previous year) according to the World Bank report, in terms of trading across borders. The recent improvements are largely attributed to the government’s commitment to reforms aimed at improving the business environment. Recent trends in non-price competitiveness indicators, however, suggest that Botswana has been moving steadily downwards in global rankings. Between 2008 and 2014, the country slipped 18 positions (from 56 to 74) in the Global Competitiveness Index and 36 positions (from 38 to 74)

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in the World Bank’s Doing Business ranking. The decline is explained largely by the absence of improvements rather than worsening policies. Key challenges Botswana is still facing include infrastructure bottlenecks, as evidenced by the recent electricity and water shortages. Sustained reform efforts aimed at further improving the business environment, therefore, remain important to foster private sector development as part of Botswana’s drive towards economic diversification. In this regard, the government is pursuing an active policy to promote private sector development. It has set up a National Doing Business Committee and, in April 2015, approved a Doing Business Reforms Roadmap and Action Plan to undertake additional reforms to address impediments to doing business. The Additional reforms being undertaken in this regard include measures aimed at improving turnaround times for visas and work and resident permits. The Building Control Act and its Regulations are also being reviewed, while the Regulatory Impact Assessment Strategy is being finalised to ensure that all new laws that will be enacted in future do not become a bottleneck to the ease of doing business initiatives.

Financial sector Botswana has a fairly developed financial market and is able to provide various financial products and services. The 2015/16 GCR ranks the country 63rd out of 140, the eighth position in subSaharan Africa, in financial market development. The commercial banks exhibited considerable resilience during the 2008 global financial crisis and remain well capitalised, profitable and highly liquid. Various prudential indicators pertaining to asset composition and portfolio quality demonstrate the robustness of the financial sector. The ratio of non-performing loans (NPLs) to total credit fell to 2.9% at the end of December 2014 from 3.6% in 2013, an indication of a generally stable financial system. Botswana’s financial sector supervisory regulations and practices have evolved in line with international norms. They are currently being updated to fully comply with Basel II/III principles, according to the Bank of Botswana 2014 Annual Report. While 41% of households in Botswana accessed the formal banking system in 2009, 33% had no access to any form of financial services. Although this performance is respectable relative to other sub-Saharan African countries, access to finance is still limited, reflecting weaknesses including low financial literacy, lack of collateral and limited demand for services due to high levels of rural poverty and unemployment. Most bank products are aimed at individuals who are employed and have incomes. Although the number and value of mobile money transactions have increased exponentially since the services were first introduced in 2010, the total amount of such transactions remains relatively small at only 1.4% of total consumer expenditure in 2013. As part of a series of measures aimed at promoting financial inclusion, further steps are being taken to strengthen the Non-Bank Financial Institutions Regulatory Authority, which include several pieces of legislation. In this regard, Parliament passed the Securities Act and the Retirement Funds Act in 2014, the Insurance Industry Act in 2015. The revised Non-Bank Financial Institutions Regulatory Authority Bill and the new Collective Investment Undertakings Bill will be tabled in Parliament in FY 2015/16.

Public sector management, institutions and reform Botswana is praised for its institutional transparency and low corruption. The Transparency International’s 2015 Corruption Perception Index ranks Botswana 28th out of 168 countries (a three position improvement from the previous year) and the highest in Africa, while the 2015 Mo Ibrahim Index of African Governance ranks the country third out of 54 African countries. The country’s civil service is well organised and civil servants are required to behave ethically. Those involved in contractual and management processes must abide by written codes of behaviour. In the absence of a robust and strong private sector, the government has been obliged to continue to provide some public services that ordinarily should be left in the hands of the private sector. As such, the government is the major employer in Botswana and the public wage bill accounted for nearly 12% of GDP in FY 2015/16. However, as elsewhere in Africa and globally, the role of the public sector

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in the economy is being re-examined by the government with a view to enhancing efficiency and competitiveness. The government has embarked on reforms, notably commercialisation, to promote efficiency in state-owned enterprises. It is developing a comprehensive Public Sector Reform Co-ordination Programme to be implemented during the country’s NDP11. Oversight institutions are in place and have undergone reforms aimed to enhance their capacities and efficiency. The Corruption and Economic Crime (Amendment) Act No. 6 of 2013 became effective in July 2013. It enhances the effectiveness of the Directorate on Corruption and Economic Crime through the inclusion of new sections covering abuse of office, expanded conflict of interest, and intimidation of informers. It is aimed at helping reduce the amount of government funds that are lost through corrupt practices. In order to promote accountability and provide the framework to support the implementation of the anti-corruption legislation, a National AntiCorruption Policy is currently being reviewed before it is presented to Cabinet and Parliament for approval and thereafter enactment.

Natural resource management and environment Environmental sustainability is central to many of Botswana’s key development issues, including the exploitation of mineral resources, the use of scarce water resources for industrial development, and the development of the cattle industry and arable agriculture. The future of tourism is also dependent upon the maintenance of wildlife and finely balanced ecological zones. Over a third of the country’s total land area is under some form of conservation, with 17% designated as national parks and game reserves, 20% as wildlife management areas and 1% as forest reserves. The government has, therefore, put in place a national environmental policy framework that covers all the relevant sectors, and conservation and sustainable management of natural resources are fully integrated into the development planning process. Participation of local communities in natural resource conservation is ensured through a CommunityBased Natural Resources Management Programme. Further policy initiatives, legislation and regulations are being reviewed or formulated, including the National Strategy for Sustainable Development and the National Climate Change Policy and Strategy. The latter will facilitate effective implementation of adaptation and mitigation actions in the country to help mainstream climate change considerations into national policies, planning and budgeting. As a semi-arid country, Botswana is vulnerable to the impacts of climate change and places high priority on adaptation to reducing vulnerability. The country is, therefore, developing a Climate Change Policy and Institutional Framework, which will be supported by a Strategy and Action Plan to operationalise the Policy. The policy will be tabled in Parliament in 2016. Meanwhile, the process of developing a National Adaptation Plan and Action Plan has already commenced. It will guide how the country responds to the development challenges that are attributed to global warming and climate change across all sectors. Botswana intends to achieve an overall emissions reduction of 15% by 2030 from 2010 levels.

Political context Botswana is a constitutional multiparty democracy and its political scene has remained remarkably stable. Political stability, mature democratic processes, good policies and strong institutions have underpinned effective economic management for over four decades. The Botswana Democratic Party (BDP) is the dominant political party and has been in power since independence in 1966. In the last parliamentary elections, held in October 2014, BDP’s President Seretse Khama Ian Khama was re-elected President for a second and last five-year term after his party maintained its majority in Parliament, winning 37 out of the 57 available seats. Khama’s administration has continued to pursue prudent macroeconomic management and upheld the fundamental rights and freedoms enshrined in the constitution. The next national elections are scheduled for 2019.

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Social context and human development Building human resources Botswana has made good progress towards achieving the MDG targets, signifying the strides the country has made in social and human development. Notable achievements include continued reduction in poverty levels, gender parity in primary and secondary education and success in combating HIV/AIDS. The country achieved gender parity in primary and secondary education in 2011. The key policies that contributed to these outcomes include allocation of significant budget to the sector, provision of free basic education, adoption of the Inclusive Education Policy in 2011, and an ongoing literacy programme that mainly benefits women. In spite of these positive achievements, education outcomes across all segments remains low; there is a mismatch between skills demand and supply. Secondary schools and vocational and technical education fail to produce students with the requisite skills for the job market. The country also needs to expand and improve comprehensive early childhood care and education, especially for the most vulnerable and disadvantaged children whose access was measured at only 15.8% in 2012. To address these shortcomings, the Cabinet approved the 2015-2020 Education and Technical Sector Strategic Plan (ETSSP) in May 2015. The strategy focuses on improving governance through enhanced educational administration to deliver better co-ordination and resource allocation, as well as the sector’s strategic planning. A draft Policy Framework for Technical and Vocational Education and Training is being finalised. In the health sector, Botswana has adequate policies for prevention and treatment of HIV/ AIDS, tuberculosis (TB) and malaria. Although the country still has a high HIV prevalence rate, the infection rate has fallen in recent years. Among the adult population, HIV prevalence has dropped from 17.6% in 2008 to 16.9% in 2013, with adjusted incidence falling from 1.5% in 2008 to 1.35% in 2013. There has also been a notable decline in HIV prevalence among adolescents aged 15-19 years and 20-24 year-old pregnant women. Botswana has mounted a broad multi-sectoral response to HIV/AIDS, encompassing interventions from both health and non-health sectors, largely funded through the government’s own resources. The country has attained universal access to anti-retroviral therapy (ART) and the percentage of eligible people receiving ART reached 96% by December 2012. The mother-to-child transmission rate has also fallen significantly and is currently at around 2%. In addition, the HIV/AIDS services have been integrated into family planning, maternal and child health services and testing is provided free of user fees in public hospitals. These achievements reflect the government’s commitment to HIV/AIDS preventative programmes as evidenced by significant domestic financing of about 77% of the programmes’ total expenditure. The government has made strides to contain and reverse the incidence of tuberculosis (TB). More than 90% of districts are participating in a government-funded programme, in which communities contribute patient management and care. So far, the TB notification rate has been reduced from 511 per 100 000 people in 2006, to 337 per 100 000 in 2013. However, TB remains a major health concern. The challenges include rising multi-drug resistant tuberculosis (2.5%) and high TB/HIV co-infection, which currently stands at 68%. The country has made remarkable progress towards eliminating malaria. Efforts in the implementation of the Malaria Strategic Plan have resulted in positive impacts, with the incidence declining from 13.52 cases per 1 000 people in 2006 to 0.11 cases per 100 000 in 2013. In view of these achievements, Botswana is being targeted for malaria elimination by 2018.

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Poverty reduction, social protection and labour Notwithstanding strong economic growth, Botswana’s levels of unemployment and inequality remain disturbingly high and stubborn pockets of poverty persist. The proportion of the population living below the poverty line declined from 30.6% in 2002/03 to 19.3% in 2009/10, partly due to the implementation of social safety nets. However, poverty in the country displays a geographical and gender dimension, with 8.4% of the rural population living in extreme poverty compared to 2.7% in urban areas and female-headed households more likely to be poor than their male-headed counterparts. The unemployment rate is estimated to have reached 20.0% in 2013. Slow growth in the non-mining private sector has meant that growth in employment has not been sufficient to absorb the rising labour force. Inequality remains among the highest in sub-Saharan Africa despite the sharp decline in poverty. This reflects the disparities in the quality of economic opportunities and services and underlines the need to ensure more inclusive development. The persistent high inequality mainly emanates from the limited economic diversification and the dominance of mineral (diamond) extraction in the country’s GDP and exports. To address these social challenges, the government has been implementing diverse programmes, including the Destitution Persons Programme (or Ipelegeng), which provides generous social safety nets for the country’s destitute persons who cannot afford basic necessities of life, including aged people, pensioners, people living with disabilities, home-based care patients, as well as orphans and vulnerable children. In FY 2015/16, the third largest share of the budget is allocated to the Ministry of Local Government and Rural Development 14.2% of the total budget for funding social protection programmes. Although the government’s efforts in implementation of such programmes is laudable, concerns have been expressed that their effectiveness is hampered by inadequate co-ordination, absence of a clear exit mechanism, and the lack of a comprehensive database of beneficiaries. The effectiveness of some of these social protection programmes is also constrained by the size relative to the target groups. For instance, less than 13% of the workforce is covered by contributory pension, given the structure of the economy and its formal sector, while the Destitute Persons Programme covers less than 3% of the population. In addition, safety nets programmes are fragmented as they are implemented by different ministries despite the limited capacity in government. In accordance with respective labour legislation acts such as the Employment Act, the Workers Compensation Act and the Trade Unions and Employers Organisation Act, etc., Botswana has designed and effectively enforced labour market regulations with a view to promoting industrial harmony . In order to further improve management of labor relations and dispute resolution, the Trade Disputes Amendment Bill is currently undergoing the legislative process.

Gender equality Botswana’s constitution prohibits any form of discrimination on the grounds of gender and has assented to international conventions relating to gender equality. In 2013, the country commenced the process of domesticating the provisions of the United Nations Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) in order to consolidate national efforts to fully meet the requirement of CEDAW. To reduce inequalities in opportunities and outcomes of social, economic, political, cultural and legal development for both women and men, Parliament adopted the National Policy on Gender and Development in August 2015, which replaces the Women in Development Policy of 1996. In 2014, Parliament passed the Married Persons Property (Amendment) Act, which introduced provisions to enable spouses after the solemnisation of their marriage to change the property regime they had opted for. The Legal Aid Act of 2013 became effective in January 2015, making Legal Aid Botswana (LAB) an independent public entity, in order to improve access to justice for those without financial resources indigent clients, including women.

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Botswana

Guided by some of the above legal provisions, Botswana has made significant progress in improving the status of women, including gender parity, in primary and secondary education, and the gender balance in the workforce. Botswana has a high ratio of female civil servants, with women occupying 42% of economic decision-making positions in public service. However, although there has been an increase in the proportion of economically active women, their earned income is much lower than that of men. In addition, women continue to have low access to property ownership and financial credit. Women’s representation in the political and business spheres also remains lower than that of men. For example, women only hold 9.5% (6 of 63) Parliamentary seats, well below the SADC threshold of 30%.

Thematic analysis: Sustainable cities and structural transformation In 2011, the total population for Botswana was estimated at 2.01 million, having registered an annual growth rate of 1.9% between 2001 and 2011. The country is one of the least populous and most sparsely populated in the world. Almost 90% of Botswana’s population lives along the water lines of the eastern regions and the north-south corridor, following the main road and rail routes linking South Africa and Zambia. This stretch of land hosts the country’s two cities of Gaborone (the national capital with the largest population) and Francistown (second largest), as well as other major human settlement areas. Botswana has experienced a high rate of urbanisation. In 2011, about 64% of the country’s total population lived in urban areas, compared with 54.1% in 2001 and 9.1% in 1971. Although rural-urban migration and natural population growth has played a role in the increase in urban population, the positive trend is mainly due to the reclassification of some villages to urban settlements. Between 2001 and 2011, the number of urban places rose by 18 while the population classified as living in urban villages increased by 9.1%. Urban settlements in Botswana comprise two cities, three townships, four towns and 47 urban villages. Urban villages are defined as settlements with populations of at least 5 000, with a minimum 75% of employees engaged in nonagricultural activities. With the exception of the townships, the cities and towns experienced moderate growth compared to overall urban population growth between 2001 and 2011. The cities of Gaborone and Francistown registered annual growth rates of 2.2% and 1.0%, respectively, while the performance of towns was also generally lacklustre. The rapid rate of urbanisation is, therefore, mainly attributed to the sharp growth of villages (peri-urban settlements) within the periphery of the two cities. As discussed previously, poverty in Botswana displays a geographical dimension. While the percentage of persons living below the poverty line in cities and towns has increased from 10.6% in 2002/03 to 14.0% in 2009/10, it has fallen from 20.4% to 18.8% and 44.8% to 25.5% in urban villages and rural areas, respectively. The main cause of poverty in Botswana is lack of employment opportunities. Poverty is higher in rural areas due to low resource endowments, isolation from the country’s main economic activities and the decline in the agricultural sector. On the other hand, slow growth in the non-mining formal sectors in urban areas, including manufacturing, has resulted in not enough employment opportunities for an increasing labour force due to rapid urbanisation. Moreover, in cases where employment opportunities are available, there are constraints due to a lack of relevant skills. Consequently, the number of people engaged in the informal sector, mainly street vending, has been rising due to the lack of formal employment opportunities. Although services (including government services) and construction are the fastest growing sectors, Botswana’s economic base remains narrow and the economy is still dominated by mining and government in urban areas. The mining sector’s contribution to GDP stood at 26.5% in 2014, down from 47% in 1986. The services sector and its overall contribution to GDP have increased from less than 50% in early 1986 to over 60.0% in 2014. However, within this sector, the fastest

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growing subsectors, such as government services (particularly education and health), banking, insurance and business services, and construction, are all linked to revenue from the mining sector. The government is also the largest formal employer, accounting for about 40% of total formal sector employment. Agriculture now plays a less significant role in the economy due to these developments. Botswana’s rapid pace of urbanisation has not been matched by the rate of provision of services and other essential amenities. However, with regard to housing, the majority of urban dwellers now live in modern structures which are made of durable construction materials. The proportion of housing units classified as of the traditional type fell sharply from 32% in 1991 to just around 3% in 2011. About 41% of people in urban areas lived in self-built homes, while 31% rented homes in 2011. As for water supply and sanitation, about 64% of the urban population had access to improved water in 2011 (through piped-water, either indoor, outdoor, or from neighbouring or communal standpipes). Furthermore, 72% had access to toilet facilities, far above the subSaharan Africa regional average of only 30%. The main source of energy for household lighting has evolved over time from paraffin to electricity in urban areas, with about 69% households using electricity in 2011, compared to 18% in 1991. The rapid growth of urbanisation has been associated with a number of environmental damages. Air pollution is becoming a health hazard. Botswana’s growing urban population is exerting more pressure on the country’s water resources. Due to drought and effects of climate change, ground water tables, which have averaged 22 to 50 metres, have been falling. This has led to drastic reduction in quantity of fresh water over the last few decades. For instance, the Gaborone dam, which is the main source of water to the capital, had only about 6% of the design capacity of water in storage as of October in 2015. Furthermore, groundwater is at risk of pollution by multi-source contamination. The existing inadequate waste collection and management system is becoming a serious environmental problem. While the government has made efforts to put in place a comprehensive environmental policy framework, the Waste Management Act needs updating. Urban settlements in Botswana do not have public transport services, such as city buses, trolleybuses, trams, passenger trains and rapid transit. While most urban dwellers have access to private cars, bicycles, motorbikes and mini-buses, there are a number of poor people who resort to walking on affordability grounds. The role of government as regards public transport is currently limited to issuing road permits and the provision of an environment conducive for private sector participation in transport service, including road infrastructure and regulatory framework. Urban development’s overall responsibility is vested with the Ministry of Lands and Housing at the central government level. On the other hand, the Ministry of Local Government is responsible for ensuring the linkage between central and local government levels. Three state owned enterprises are involved the provision of electrical, telecommunication and water infrastructure services in all urban areas. Although there are no specific provisions in the country’s Constitution relating to physical planning, urban development and environmental conservation, the Town and Country Planning Act and the Building Control Act are the two most important pieces of legislation for urban development. In 2010, Parliament also adopted the Revised National Population Policy to address the challenges and opportunities of rapid urbanisation and the implications of the changing population distribution on development planning objectives and improving welfare. In terms of financing, urban councils are generally expected to be self-financing. In general, they generate about two thirds of their revenues from rates and the remainder from various fees and levies. However, councils find it difficult to generate enough revenue to finance their recurrent and development budgets. For instance, almost 70% of the city of Gaborone’s recurrent budget and almost the entire the development budget are funded through central government subsidies.

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