Botswana History Pages, by Neil Parsons

5: Economy

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Notes and Comments

by Neil Parsons April 1999

Botswana has a free market economy with a strong tradition of central government planning to provide infrastructure for private investment. In 1996-97 it commenced its 8th post-colonial plan period. Click here for the Botswana government's 1999 Budget Speech.

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Economic Growth

The strategy of national development has been based on the opening up of mining by private multinational capital, with government equity participation to increase state revenues, and on the encouragement of local private enterprise through livestock exports and the licencing of smaller scale commerce and manufacturing.

The result has been an economy that grew thirty-fold between the 1960s and the 1980s, with a gross domestic product estimate to have grown from less than $80 per capita to more than $1,000 per capita in that period.

However, it is doubful that much more than half the population has significantly benefitted from increased income and standard of living - beyond the general and widespread provision of schools, clinics, clean water and improved roads.

Less than a quarter of the adult work force is in formal paid employment. Relatively few rural households benefit from cattle sales: almost half of them have no cattle, and less than 10 per cent of them own about half of the cattle (averaging 100 head each). Few households produce enough crops to even cover their own subsistence, let alone to sell on the market. Four out of five rural households survive on income of a family member in town or abroad. That still leaves a significant number of rural households, usually female-headed, with no source of income known to statisticians.

Political and economic stability led to high levels of foreign aid, particularly in the form of expatriate personnel, from Western countries in 1970s-80s. However, nearly all foreign aid has been withdrawn since Botswana achieved the status of a (lower) middle-income country in the early 1990s.

National development plans since 1970 have identified rural development and employment creation as the two major goals of public policy. State revenues reaped from mining development have been spent on basic rural infrastructure and welfare services, and on schemes to subsidise the development of cattle and crop production - which have in general benefitted the richer rural households.

Employment creation, to keep up with the increasing supply of secondary school graduates, has been largely left to private enterprise with government fiscal incentives. Some success has been achieved in expanding formal wage employment with a significant expansion of manufacturing industries in the 1990s.

Trade unionism, being restricted by industrial conciliation legislation, is as yet underdeveloped in Botswana.

See Ministry of Finance and Development Planning web-site, including "Manpower and labour issues".

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The Botswana economy is regulated by a central bank, The Bank of Botswana, and a strong ministry of finance and development planning.

There are four multinational commercial or street banks, with branch operations down to village level. Foreign merchant banks have also opened branches in Gaborone.

The windfall profits of diamond production, and sound national financial management since the later 1960s, have combined to make the Botswana 'Pula' the 'hardest' currency in Africa. Botswana has had the unusual problems of enormous foreign exchange reserves, a government budget surplus sometimes running into billions of dollars, and excess liquidity of capital lying unutilized in private banks. Partly this was a matter of expediency: capital held back for the rainy days of world diamond price slump or deliberate destabilization by the apartheid regime in South Africa. But it also reflected an ideological bias against direct state investment in productive enterprise, and state dependence on the initiative of private enterprise.

The budget surplus and bank liquidity were partially depleted by being diverted into a late 1980s and early 1990s construction boom, including infrastructure for new mines and military airports. A private stock exchange was set up to sop up bank liquidity, but local equity participation has been limited to a few fast-growing shares in large corporations. The economy, from diamonds to nickel-copper to soda ash and construction, remains dominated by South Africa's De Beers/Anglo-American Corporation conglomerate. Though Botswana has in turn become important enough to the conglomerate for the government to accept shares and a seat on the board. For latest GDP figures etc. see the "economic snapshot of the Ministry of Finance and Development Planning.

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Mining, Water And Power

Diamonds, the major economic resource of the country; have been exploited since 1970. They are mined from some of the world's largest diamond pipes at Orapa and Letlhakane south of the Makgadikgadi Pans, and at Jwaneng in the south-eastern sandveld. Other diamond pipes have been identified for future exploitation.

Nickel and copper have been mined at Selebi and Phikwe near the Motloutse River since 1973. There is also a copper mine on the Zimbabwe border in the Francistown area and unexploited deposites on the north-western border with Namibia.

Coal is mined for power generation at Morupule near Palapye. Plans to further exploit these coal reserves, among the most extensive in the world, were abandoned in the 1970s, because of low quality combined with low world price. Botswana's other major proven mineral resource is salt and soda ash, being fully exploited at Sua on the eastern Makgadikgadi Pans from 1991.

Further mineral potential includes manganese and platinum in Basement rocks which may intrude further west deep under the Kalahari, and natural gas potential in deep geological basins in the western sandveld.

Surface water resources are limited to the wetlands and perennial rivers in the north, and a few strategic dam lakes at Gaborone, Shashe, and elsewhere. Utilization of dams on the river courses of the eastern border are limited by prior tapping of water flow by South Africa and Zimbabwe. The plan to canalize water through the Okavango wetlands, via a holding dam at Maun towards Mopipi, appears to have been shelved. Using underground water resources, actively tapped near Palapye, as well as dams, a national water grid is being developed to cover the eastern hardveld.

The national electric power grid, serving mines and eastern towns, is based on a large coal-powered generating station at Palapye - supplemented by connections to the Zimbabwe and South African national grids. See Ministry of Minerals Energy and Water Affairs.

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Most of the population is partially engaged in agricultural production, but there is very little land suitable for productive cultivation. Agricultural output constitutes less than a tenth of gross national product, and most of that is in the form of livestock production for urban and export markets.

Grain production (mostly sorghum and maize) has fallen short of national consumption for most of the 20th century, and foodstuffs from South Africa and Zimbabwe are Botswana's major import commodities. Government had responded with price support for traditional grain producers, and capital support for citizen commercial agriculture on virgin land near Pandamatenga.

There is as yet no large scale irrigated cultivation along northern rivers, though plans for joint sugar production with Namibia have been mooted. Fishing and forestry production potentials are limited and largely confined to the extreme north.

Botswana, with terrain comparable to Texas or Australia, is traditionally seen as cattle country. Given sufficient water and pasture, and controls on the spread of foot-and-mouth from wetland buffalo, it is a very healthy environment for raising high bulk and quality indigenous beef cattle. Government has invested heavily in disease prevention, modern abattoirs, and support services to cattle producers. The national herd has fluctuated because of drought between one and three million head since the 1960's, with an export off-take of up to a quarter of a million per annum, and a growing internal market.

Until the 1980s, when urban property speculation took off, cattle were the best capital investment for the new urban classes who retained rural links. But two million head is saide to be about the limit of traditional range management, without serious ecological degradation. Various schemes - so far unsuccessful - have been attempted to improve range management. Meanwhile the main export market for beef, the European Community, has become increasingly unreliable. See also Ministry of Agriculture.

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Manufacturing Industries

Industrial development in Botswana has been limited by high power and water costs, lack of appropriate management and labour skills, and the small domestic market. There is no heavy industrial production byond mineral extraction. Even nickel-copper is exported in matte form.

Manufacturing industry up to the 1980s largely consisted of meat processing at Lobatse in the south. The early 1980s saw the transfer of capital and textile production from Zimbabwe to nearby Francistown in Botswana, and the growth of diamond sorting and service industries in the booming capital city, Gaborone. The later 1980s saw the peak of a construction boom, driven by increased urbanization and urban land price inflation, and expansion of the formal waged sector of the economy. Light manufacturing industry grew rapidly but still constituted less than 15 per cent of gross national product.

The 1990s, however, has seen the rapid growth of manufacturing of vehicles (Hyundai, Volvo) and other commodities (spaghetti etc.) for the South African market. Such exports have cut Botswana's trade deficit with South Africa by a quarter, but are always threatened by South African protectionist measures.

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Up to about 1990 Botswana used to send 90 per cent of its exports to the world market beyond Africa, mainly to Europe and America. It took 80 per cent of its imports from South Africa, its neighbour which around 1990 had a gross national product 77 times bigger than Botswana's. These consisted of food products and consumer goods, often manufactured or serviced by multinational companies based in South Africa. From its Zimbabwe neighbour, which had a GNP six times bigger in 1990, Botswana took a further 10 per cent of imports, mainly food products. Imports from the rest of the world largely consisted of high technology equipment.

Economic relations with neighbouring countries have been conditioned by their dependence on Botswana's capacity to pay for imports in hard currency. Botswana forms a customs union together with South Africa and Namibia, and is linked to Zimbabwe and Zambia as well as Namibia by SADC (Southern African Development Community). Exports to southern African countries are restrained by their production of similar export commodities, with the exception of soda ash and salt under production since 1991 for export to the region. Domestic trade patterns within Botswana are dominated by large, mostly foreign-owned wholesale operations, and large foreign retailers in urban areas, though there is also an increasing proliferation of small stores in citizen ownership. For latest figures see Ministry of Commerce and Industry.

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Transport & Tourism

The 600 km railway along the eastern side of the country was completed in 1897, linking South Africa and Zimbabwe, but had limited impact on the Botswana economy till the 1970s when the first branch lines were opened to serve mining areas.

At independence in 1966, there were only a few kilometres of metalled roads - all inside town boundaries. Since then, at an average of about 60 kilometres of metalled main highways have been constructed annually - completing a north-south network to link the eastern hardveld to South Africa, Zimbabwe and Zambia in the 1980s. The trans-Kalahari highway to Namibia was completed in 1998. Metalled roads have been an essential precondition for widespread development in a country with low, widely dispersed population.

Road traffic density has been higher than anticipated, because of heavy trucks crossing Botswana to supply Zambia and Malawi from South Africa, and because of the proliferation of private vehicles in the 1980s boom period. Most of the sandveld, however, remains accessible only to four-wheel drive vehicles. Public transport within urban areas has been allowed to develop on an ad hoc basis, using irregular taxi and mini-bus services.

Meanwhile, during the 1970s-80s, (until its temporary revival in 1998 because of reconstruction of the direct South Africa-Zimbabwe rail link), the railway progressively lost its main function as the goods conduit between Zimbabwe and South Africa. Botswana Railways, a parastatal corporation, adapted to the more limited role of minerals traffic and passenger traffic within Botswana.

Internal air traffic within Botswana, using light aircraft, is important in remote western and northern areas. International air traffic in Botswana, though dating back to 1919, was limited until the opening up of the Sir Seretse Khama Airport at Gaborone in 1984. Direct flights to London by British Airways were, however, terminated in March 1999 - making Gaborone dependent on the Johannesburg airline hub once more.

The national parastatal airline, Air Botswana, has been a relatively efficient operator with a small fleet of modern compact aircraft, which prior to 1990 served more southern African capitals than any other airline. It holds a monopoly of scheduled flights to Okavango and Chobe. "Open skies" and privatization await the outcomes of similar developments in South Africa and Namibia. See Ministry of Works Transport and Communications.

Tourists are attracted to Botswana by relatively unpopulated and remote wetland and thirstland environments, supporting numerous and diverse wildlife, and by proximity to other southern African attractions such as the Victoria Falls. Government policy is to limit the density and environmental impact of tourism through licensing of a limited numberof high-cost safari companies.

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Economy Links

The Botswana government's web-site has general pages on the country's Stability and Financial Strength, its Growing Infrastructure, and much more briefly on its Development Initiatives.

More specifically there is an Economic Snapshot page with facts and figures since 1985 of GDP by sector, imports and exports, and foreign exchange reserves, cost of living index, and current exchange rates. Another page called EconomicInformation is aimed at foreign investors, with links to "Tenders", "Taxationand Customs", Manpower and Labour Issues, and "Incentives".

Mbendi's economic Country Profile/Botswana is produced by a South African company aimed at "business opportunities and challenges", with a link to the Botswana Stock Exchange (including regulations, plans, management, industries, and country profile) which has a further link to Market Listing which included seventeen listed companies in April 1999 - all with links to yet more web pages.

The Microstate Network-Botswana page is at present a bare list of four business and politics links.


(5a) Christopher Colclough & Stephen McCarthy, The Political Economy of Botswana: A Study of Growth and Distribution (London: Oxford University Press, 1980)

(5b) Charles Harvey & Stephen R. Lewis, Jnr., Policy Choice and Development Performance in Botswana (London: Macmillan & Paris: OECD Development Centre, 1990). ISBN 0 333 52532 9 (Hardback) & 0 333 53533 7 (paperback)

(5c) Republic of Botswana, National Development Plan 1997/98- 2202/03 [NDP-VIII] (Gaborone: Government Printer/Ministry of Finance and Development Planning, 1997)

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Copyright © 1999 Neil Parsons

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Last updated 19 August 1999