Botswana: potrait of Africa's best economy.

Botwana celebrates 40 years of freedom this year (Independence date: 30 September, 1966). This has been a period of almost uninterrupted bounty with Botswana achieving a world-record breaking run of economic growth. While there is no doubt that the discovery of one of the globe's richest diamond sites under the parched lands of this vast country has brought the Batswana undreamt of wealth, it is equally true that its success lies in equal measure with the outstanding quality of the leaders it has produced. As it moves on to the next milestone in 10 years' time, Botwana is determined to build on its mineral revenues and create a viable non-mineral economy, an economy that will provide meaningful skills and employment to its citizens. This month's Cover Story, which was compiled by Barry Baxter, examines Botswana's achievements over the past 40 years and its current challenges.

[ILLUSTRATION OMITTED]

Portrait of Africa's best economy

Diversification drive to gather pace

Botswana is one of Africa's oldest continuously established democracies and by common consent easily the best performing economy on the continent. But, in contrast to the widely held opinion, success was not presented on a plate.

[ILLUSTRATION OMITTED]

Before independence, the country was a British colony called Bechuanaland. For many years, both as Bechuanaland and post-independence as Botswana, the country lived in the baleful shadow of apartheid South Africa and itself suffered as a result.

Raids by South African troops wrecked the Gaborone homes and took the lives of many political activists opposed to apartheid who had sought sanctuary in Botswana. The first president of democratic South Africa, Nelson Mandela, paid personal homage at the graves in the local cemetery of those men, women and children who died.

By comparison, Botswana's own social policies benefited the population as a whole. There was no systematic exclusion of any particular group of people. Ironically, but for South Africa's insistence on imposing apartheid in 1948, Bechuanaland might never have been granted its independence and become Botswana but would have been absorbed as a province of the Republic of South Africa.

The rise of the National Party in South Africa and its pursuit of apartheid turned British opinion against the incorporation of Bechuanaland into South Africa and Britain granted Bechuanaland internal self-government in 1965 and full independence on 30 September, 1966.

The country has remained politically stable since then, with regular multi-party democratic elections, all won by the Botswana Democratic Party (BDP), but internationally judged free and fair. Sir Seretse Khama, who led the country to independence, died in 1980 and was succeeded by Vice-President Ketumile Masire (later knighted).

Masire resigned in 1998 after his term of office expired and was succeeded by his vice-president, Festus Mogae. Under a constitutional amendment passed in 1997, the presidential term is limited to a maximum of 10 years and Mogae's term will end, at the latest, on 31 March 2008.

The same constitutional amendment provides that the vice-president shall automatically assume office when the president steps down; hence it is likely that the current vice-president, Ian Khama Seretse Khama, will assume the presidency by 1 April 2008.

Foreigners welcomed

Despite its total rejection of apartheid, there is now concern in Botswana about foreign domination of the economy, and this has led to calls for 'citizen empowerment'. Mogae has spoken out against xenophobia and assured foreigners they are always welcome, as tourists, visitors or investors.

Addressing parliament, Mogae said: "Let us strive to avoid utterances or behaviour that suggests hostility to outsiders. In an era of globalisation, xenophobia, like internally directed negativism, is ultimately self-destructive to the perpetrator. Both at home and abroad our modest nation of 1.7m should remain friendly disposed to all who are well disposed to us."

[ILLUSTRATION OMITTED]

The collective term for the country's people, Batswana, refers to national rather than ethnic origin.

About 70% of Batswana classify them-selves as Christian, 20% have no institutional religion and the remaining 10% adhere to traditional practices or other religions. Racial and tribal problems are uncommon, although there are tensions the country has struggled with to absorb large numbers of Zimbabwean immigrants in recent years.

The Botswana Ministry of Foreign Affairs has expressed concern at the large number of Zimbabweans crossing illegally into Botswana who, it claims, are the reason for a rise in crime in the country. "There is a clear correlation between the increase in crime in Botswana and the presence of illegal immigrants," says the Ministry, although it adds "there are Zimbabweans working and living legally in Botswana and they are welcome".

While 'citizen empowerment' has become a more high-profile issue in Botswana in recent years, it is not an overriding principle of business. There are no indications that the government is considering legislation to regulate expatriates owning shareholdings with local citizens in joint venture companies. It is generally believed in Botswana that such policies would lead to a slowing of foreign investment and associated development.

However, all companies are expected to run their operations for the benefit of the Botswana economy in general and for Botswana citizens in particular. For example, the Mines and Minerals Act specifies that the holder of a mineral concession shall give preference to the maximum extent possible consistent with safety, efficiency and economy, to materials and products made in Botswana; to service agencies located in Botswana and owned by Botswana citizens or companies; and to the employment of Botswana citizens.

House of Chiefs

Elections for a unicameral National Assembly take place every five years. The National Assembly has 57 elected members (increased from 40 members prior to the 2004 elections), and an additional four 'specially elected' members effectively appointed by the largest party.

Although going through a formal election by members of parliament, the president is the leader of the party that wins a majority in the National Assembly. The Cabinet is selected by the president from members of the assembly.

There is a 15-member House of Chiefs, which has advisory powers only. The role and composition of this institution has recently been reviewed, and its membership is to be expanded to allow a wider demographic and social representation, and in particular to accommodate representatives of smaller tribal groupings that have frequently complained of marginalisation.

The BDP's share of the popular vote has always been above 50% while the fragmentation of an increasingly vocal opposition has hindered its ability to win seats in Botswana's Westminster-style 'first past the post' system. There are ongoing talks about opposition unity but agreements are negotiated then regularly broken--usually as the result of squabbles over leadership issues.

The opposition parties tend to be stronger in urban areas, and have benefited from long-term demographic changes from rapid urbanisation trends.

Freedom House, a US-based NGO, publishes an annual comprehensive assessment of the state of political rights and civil liberties in 192 countries and 18 territories. Of these Botswana is one of 11 "free" countries among the 48 states of sub-Saharan Africa.

Botswana has a well-deserved reputation as one of the best-performing economies in Africa in the past few decades. Over the 30 years between independence in 1966 and the mid-1990s, Botswana was the fastest-growing economy in the world, with average annual growth rates of more than 10%, growing faster than the 'tiger' economies of Southeast Asia.

This prolonged growth took Botswana from being one of the poorest countries in the world in 1966 to middle-income status by the 1990s. Per capita income at June 2005 was $4,300, the highest in mainland sub-Saharan Africa.

It is now generally accepted that the period of rapid diamond-led growth is over. Diamond production and revenues have probably peaked and the industry is unlikely to contribute more significantly to future growth.

Dependence upon a single commodity increases vulnerability to volatile commodity prices. When that commodity is diamonds, economic planners must factor in the fickle fashion and luxury goods markets and the risks of a consumer boycott based on allegations of 'blood diamonds' being mined illegally and sold to fund conflict in Africa.

[GRAPHIC OMITTED]

[GRAPHIC OMITTED]

It was initially anticipated that export-led manufacturing would be the main driver of a diversified economy and the sector was supported with special incentives in the form of tax concessions and subsidies. This policy has not been particularly successful and the contribution of manufacturing to GDP has remained below 5%. Many of the enterprises set up as a result of the targeted incentives have not proved to be sustainable.

The broad idea of export-led diversification remains important; indeed Botswana has no choice but to diversify if income and employment growth are to be sustained. Any growing economy has to be increasingly integrated with the global economy and this is particularly important for those, like Botswana, with a small domestic market.

The growth of a range of economic activities that can take the economy beyond diamond dependency--rather than one sector that can alone take over from diamonds as the engine of growth--is now seen as the route that Botswana must follow. Sectors selected as potential candidates include financial and business services, tourism, as well as some manufacturing for niche markets.

The policy is that, in the shorter term, this development plan will be funded by the current mining boom.

Republic of Botswana

Surface Area: 600,370sq km (incl. water 15,000sq km); Botswana is roughly the size of France.

[GRAPHIC OMITTED]

Population: 1.83m (2005 est.); population growth rate: 3.5% per annum. 44% of the population is under 15 years of age. Over 50% live in urban areas.

Government system: Multi-party parliamentary republic with Executive President as Head of State holding office for a period of five years.

Head of State: President Festus G Mogae.

Capital: Gaborone.

Other main towns: Francistown, Lobatse, Selebi-Phikwe, Mahalapye, Maun and Kasane.

Currency: The pula (linked to a basket of currencies including the South African rand).

Climate: Subtropical with summer (October to March) temperatures reaching over 40 degrees in December/January; winter temperatures fall to five degrees in July. The rainy season is between November and April.

Main agricultural products: Livestock, sorghum, maize, millet, beans, sunflowers, groundnuts.

Main manufactured products: Diamonds, copper, nickel, salt, soda ash, potash, livestock processing, textiles.

GDP: $8.7bn

agriculture: 4%

industry: 44% (including 36% mining)

services: 52%

GNI per capita: $4,340

Real GDP growth: 4.6%

DEVELOPMENT

Development: agriculture could be economic driver, says Botswana's HC to the UK

A significant proportion of the sustainable development that Botswana seeks might well be found in the development of agriculture, says Botswana's high commissioner to the UK, Roy Blackbeard.

Agriculture in Botswana is traditionally cattle farming, which is in decline. Blackbeard not only wants to revive that, but to develop the growing of vegetables.

He says that to be sustainable, development must be proactive and in support of regional integration.

"There is agreement to build a bridge over the Zambezi to replace the ferry service in order to better link Botswana, Zimbabwe and Zambia. There is a proposal to build a railway from the central district of Botswana to Namibia, probably to the port of Walvis Bay," he says.

"We cannot remain an 'island'--in the future a lot of our projections are going to have to take account of regional issues. We are going to have to rely on our neighbours to some extent--and they to rely on us. We are not in the best of worlds, where we have sustainable income. We accept that we have to be proactive in our development."

A former farmer as well as a former minister of agriculture, Blackbeard says that the beef industry has a better future, but it is not as rosy as some would like. "There is a bumpy road ahead. One issue is foot-and-mouth disease--as long as our borders remain so porous it is going to be very difficult to control the importation of disease," he warns.

"We have a preferential export quota of an annual 19,000t of beef to the EU, which we have not been able to meet for some years because of the impacts of drought and foot-and-mouth and the low prices paid to farmers for their cattle by the state-controlled Botswana Meat Commission (BMC). A lot of our animals did not meet the cold dressed weights necessary for export to the EU."

[ILLUSTRATION OMITTED]

Beef had been one of Botswana's main sources of income at independence. It provided employment for the people of the rural areas, but not only contributed to subsistence farming. It also supported some commercial farmers.

"Over the years we have seen an industry that has not really kept up with the times. At one stage the national herd was three million head, it is half that now," Blackbeard says.

Throughput capacity

The cost of running the BMC abattoirs was based on throughput capacity, not the actual numbers of animals slaughtered. It could cost as much to send 100 animals through as 1,000. Costs included extensive overheads to maintain the standards required by the EU.

"It was getting to the stage where it was not economically viable for the farmers to sell their cattle to the BMC, but in the last two years, the government has tried to reach better agreements with farmers," Blackbeard says.

Land tenure had improved in favour of the commercial farmer. Land reserved for traditional 'cattle posts' and communal grazing could now be let out to commercial farmers, with community approval. That means livestock could be cared for in a more organised and secure fashion, and should have a positive impact on the industry.

Botswana is subject to regular and often severe droughts, but working with Israeli irrigation experts, the government is looking at the potential to substitute some of Botswana's imported agricultural imports with home grown produce.

"It might be possible to use groundwater that is not fit for human consumption. There have been some developments over the past five years," Blackbeard says.

"The focus is on vegetables. We will have to encourage small and medium-scale farmers to see how they can utilise the water we have. Israel has less water than we do, but it exports millions of dollars worth of produce into Europe. Some Israeli-led projects are being implemented. They should start bearing fruit within the next few years."

Economic Overview

The birthday boom

Botswana's minister of finance and economic planning, Baledzi Gaolathe, declared recently in Gaborone: "We must look to the future and keep to our determination to have a better Botswana in the years to come. Things have been a bit tough but the signs of better times are there! We continue to have high international financial and development ratings. There is a lot to celebrate!"

[ILLUSTRATION OMITTED]

Botswana's 40th birthday on 30 September marked the beginning of a new economic era. Whilst revenues from the four Debswana mines remain the major ingredient of the country's economy, the icing on top is a gold mine which came on stream in 2004 and the healthy output from copper-nickel mines as the international price booms in response to demand from China. (See Mining overview).

Botswana's current exports are dominated by diamonds which over 2005 accounted for 72% of the total P23.6bn revenue. Five years previously, diamond exports had formed a larger proportion of total exports (83%) but had yielded less revenue to total exports of P13.5bn.

In response to increased world demand, copper-nickel exports grew by 9.8% in 2005, up from 4.4% growth in 2004. In its first year as an export commodity, gold contributed 0.8% to the country's earnings in 2005.

Over 2001-2005, beef export earnings dropped to 1.3% from 3.2%, soda ash to 1.4% from 1.5% but textiles--Botswana's only manufacturing diversification success--increased to 4.7% from 1.4%. Vehicle assembly export earnings also rose from 2.2% to 2.4%.

Between 2004 and 2005, the pula, which through a newly imposed exchange rate regime is in a controlled slide against international currencies, has boosted diamond revenues dramatically, up by 30% to P17bn, double the 15% gain over the previous five years.

Botswana's free trade agreement with South Africa gives its manufacturers access to this major regional market. The pula also managed to support an export-led diversification drive as its lower value against the rand makes imports from Botswana attractive to South Africans. The steady growth in exports, led by diamonds, has over the years enabled Botswana to enjoy a continuous surplus on its current account--at around P2bn from 1996 to 2004 before soaring dramatically to P7bn in 2005.

Botswana has also built up substantial foreign exchange reserves--standing at $7bn in April 2006.

By avoiding extensive foreign borrowing, total debt at the end of 2004/05 financial year was P2.2bn--11.2% of exports and 5% of GDP.

Interest rates in Botswana (16.5% prime and 15% bank rate) suffer from a stubbornly high inflation. Monetary policy focuses on keeping inflation within a target range set by the Bank of Botswana of 4%-7% for 2006, with a medium term objective of 3%-6%, comparable with the inflation target of neighbouring South Africa.

Year-on-year inflation as at July 2006 was 11.9%, but is expected to fall within to its target range by mid-2007. If this does happen, there will be a strong case for an interest rate reduction by late 2006 or early 2007. There are no exchange controls in Botswana. Profits can be freely remitted and capital moved in and out of the country without restriction.

The pula has a 'crawling peg' exchange rate and is tied to a basket of currencies comprising approximately two thirds the South African rand and one-third the Special Drawing Right (SDR--itself a currency basket comprised of the US dollar, euro, British pound and Japanese yen). The longer-term trend is of pula depreciation against the major international currencies.

[ILLUSTRATION OMITTED]

Exchange rates are 'managed' to minimise currency appreciation as a result of growing mineral exports, which tends to undermine the competitiveness of non-mineral economic activities, thus deepening dependence on minerals. The 'crawling peg' ensures the exchange rate is adjusted on a gradual basis in order to prevent further competitiveness problems. This should remove the need for any substantial devaluation and provide greater certainty in investment planning. The rate of crawl is related to the difference between Botswana inflation and the average inflation rate of trading partners. At present it is implemented on a daily basis and amounts to some 5% per year.

Mining overshadows diversification

The policy to diversify the economy away from an overwhelming reliance on mineral revenues has been aggressively implemented for the last 10 years. However, it is now only limping along in the shadows of the mining boom. "We would like to have achieved more," Baledzi avers, adding "there has been some diversification, as measured by the contributions to gross domestic product, but it has not been as good as we would have liked it to be. We are determined that during the remainder of National Development Plan Nine (to 2008/09) and beyond to scale up our efforts".

Over the five years prior to 2001/02, the contribution to GDP by the non-mining sector of the economy was in steady decline. Tourism and manufacturing are major pillars of the diversification policy and the revival of a flagging agricultural sector is a political and economic priority; yet the contributions provided by agriculture and manufacturing slid, as did that of the banking and business sector.

There was a 30% increase in the non-mining sector over 2001/02 to 2003/04, but this was largely fuelled by growth in general government; to a lesser extent by gains in banking and general business and tourism-related air transport. These gains were partly reversed over 2004/05 by losses in the tourism-related industries and manufacturing.

The now-booming mineral sector has, however, had mixed fortunes over previous years. Its gains during 1995/96 to 2000/01 which took it to a 47% share of GDP from 34% share of GDP, more than offset the losses of the non-mining economy; but to 2003/04 its contribution had slid back to the 1995/96 level which was not altogether compensated for by the gains in non-mining. Boosted by the increase in mineral revenues it has started to climb and over 2004/05 reached 38% of GDP.

"More recently the mineral sector has done very well. We have sold more diamonds, copper-nickel prices have improved--the sector has gained ground," Gaolathe says. But it has lost ground in terms of the proportion it contributes to the GDP.

There is more cash--budgeted mineral revenue of P11.5bn in 2006/07 against P7bn five years ago--but its percentage share of overall revenue will have dropped to 45% from 55%. The extra P4.4bn earned is earmarked to fund more development over the next 40 years, create jobs and to continue to fight HIV/Aids.

By 2006/07 overall government spending will have jumped over five years from P14bn to P23bn--the 2006/07 budget figure. Over the short term there will be annual development spending of at least P6bn.

"We have budgeted P6bn for this year and we do not expect this figure to go down in the coming few years. The government is investing more in the country," Gaolathe says.

"The revenue from mining is expected to grow more slowly than in previous years but revenues from other sectors is coming up and there have been increases of up to 50%."

Major amongst these sources of increased revenue are the tariffs derived from the five-nation (Botswana, South Africa, Namibia, Lesotho, Swaziland) Southern African Customs Union (SACU), but this is not sustainable in the longer-term.

Regularly improved payments from SACU over the past five years have resulted in record receipts of almost P5bn expected in 2006/07, up from around an average of P1.5m a year since 2000. But as tariffs are reduced to encourage trade, there will be less revenue from this source.

"At the end of the day, the SACU members, like other countries in the World Trade Organisation, are under pressure to reduce tariffs which means that money in the customs pool will be reduced," Gaolathe explains.

Also, the 14-member Southern African Development Community (SADC), of which Botswana is a leading member, will be operating a free trade area by 2012.

Caution over spending

Although with the increased revenue--Botswana's 'birthday boom'--finance minister Gaolathe will be able to loosen the purse strings and help the nation celebrate the 40th anniversary in style, he does not want to change his cautious management of Botswana's finances.

"We will not allow any revenue or expenditure that might disrupt our planning. We plan for expenditure of about 40% of GDP. We continue to live within our means, we do not overload the country with debt," he says. Over the last 10 years the debt burden has not exceeded 27% of exports; it is now close to 10%.

Gaolathe continues to be worried about what he considers Botswana's stubbornly high unemployment. "We know that in the region they talk of much bigger figures--up to 40% unemployed--but figures above 20% are not comfortable for us," he says.

Mining, particularly diamond mining, is capital intensive and employs no more than 1.5% of the workforce. However, it clearly stimulates other activities: directly, the industry contributes a third of GDP, indirectly there would be little produced without it. De Beers says that approximately 25% of jobs in Botswana are linked to the diamond industry.

"Mining does lead to the import of capital equipment and the associated customs revenues; revenues from mining stimulate other diversification, but the unemployment in our country is a worrisome thing," Gaolathe insists.

While lauding Botswana's diamond-sparkling economic performance, rating agencies Moody's and Standard & Poor's (S & P) are concerned over the lack of long-term sustainable development. Both maintain the country's investment grade credit ratings--Moody's is A2 for foreign and A1 for domestic currency government debt issues, S & P has rated Botswana's foreign currency risks A and local currency as A plus--but comment: "The ratings are constrained by the narrow economic base. This is of particular concern because of uncertainty over how the authorities will cope with limited potential for additional diamond output."

Botswana does not borrow from the International Monetary Fund (IMF), nor have there been any suggestions that it will undertake any IMF structural adjustment or stabilisation programmes. However, while commending Botswana's record of economic management, the IMF points out potential problems, which largely reflect the concerns of the ratings agencies. "Economic growth rates in the medium term are likely to be somewhat slower than in the past, due to the slowdown in diamond export growth," it said in February 2006.

Accommodation

Mondior Summit Hotel's easy elegance

Having stayed there, African Business can highly recommend staying at the Mondior Summit Hotel which is in the heart of the city of Gaborone. The decor and styling is thoroughly modern but the ambience is of easy African elegance. It is ideal for both tourists and the increasing number of international business travellers. The hotel is near government offices and the business district and within easy reach of shops and restaurants.

The Mondior is equipped with a swimming pool, an art gallery and a museum and the restaurant attached to it offers some of the best cuisine in the city.

Accommodation comprises a choice of studio, one bedroom and two bedroom suites with a lounge area, TV, kitchenette, fridge and microwave.

Conference and meeting facilities are available and the hotel provides a free airport shuttle.

As African Business can attest, the hospitality provided by the management and staff was first rate.

Interior, Mondior Summit: Easy African elegance.

[ILLUSTRATION OMITTED]

TRANSPORT

Air Botswana set for privatisation

Botswana's national airline is set to be the first government owned entity to be privatised. "The privatisation process is on track and I am confident it will be completed by the end of the year," chief executive Lance Brogden told African Business. There have been three bids for the airline.

"Government is open to receiving proposals concerning ownership, franchising, concessions, partnerships or any other proposed business model," Brogden said. A liberalised approach had been taken--no preset limits on equity, no fixed ideas on management--so as not to inhibit or constrain potential interest.

A meeting on 11 August gave bidders the opportunity to ask questions about the airline and the bidding process. The bidders had until 23 August to complete their due diligence exercises on Air Botswana. Final bids had to be in by 30 August and the three received were from: SA Airlink of South Africa, African World Airways, a privately owned air transport operator, and Lobair, a consortium of local businessmen.

"The bids are now being evaluated. Negotiations will then take place between the government and the winning bidder," Brogden said "Privatisation is essential to ensure an efficient, effective and sustainable aviation service for Botswana. A modern, commercially operated enterprise will be able to move quickly within the complex and challenging aviation environment."

Also to have considerable private-sector input is a new tourism industry, in which the privatised airline is expected to play a key role in developing tourism in Botswana, tourism CEO Myra Sekgororoane told African Business.

Although tourism is an engine of sustainable growth in Botswana, its own development planning is still in its infancy. The new minister is planning extensively--see African Business December 2005--and a tourism board has been established. However, no development announcements are expected until early in 2007.

"The board will essentially be a marketing organisation and work to establish joint business ventures between citizens and foreign investors," Sekgororoane said. Government is keen that citizens benefit more from tourism, an industry controlled almost exclusively by foreigners. There will be emphasis on private sector involvement in the industry.

"The government's decision to establish the Botswana Tourism Board as a separate institution was in recognition of the fact that functions such as marketing are best done outside of government," Sekgororoane added.

[ILLUSTRATION OMITTED]

Mining overview

Minerals are still the bedrock

The story of mining in Botswana spans almost 2,000 years. Efforts to establish a modern mineral sector in the country predate Bechuanaland's independence from Britain in 1966 by 11 years. Prospecting for the one-in-a-hundred shot kimberlite (diamond bearing ore or 'pipes') began in 1955 following the discovery of a few stones in the bed of the Motloutse River, whilst a search for copper and nickel was started in 1959. Surveying during 1957-59 identified coal deposits near Palapye, and the brine deposits of the Makgadikgadi Pans had long been seen as a potential source of salt and soda ash.

[ILLUSTRATION OMITTED]

But the history of the sector that turned Botswana from one of the poorest countries in Africa to one of the most economically sound in this, its 40th anniversary year, is key to its continuing development and goes back much further.

Ancient hunter-gatherers are thought to have mined red hematite and blue-black specularite for use as cosmetics, dyes and paints in Botswana around AD400. The remains of many iron-ore smelting settlements in eastern Botswana have been identified by archaeological excavations and been dated AD800.

Around 1,000 years ago gold mining was particularly important in northeast Botswana, in the Tati area, close to the site of the newly opened Mupane gold mine extracting the same resources that was mined back then. More than 200 gold mines are thought to have been in operation between the 15th and 18th centuries. There are also remains of ancient copper mines in the region.

The more modern mining industry has had its good times--and bad ones. Many small scale mining operations that emerged during the pre-independence period--for manganese, chrysolite asbestos, talc and semi-precious stones--did not prove sustainable and had all ceased operations by 1971, Botswana's fifth birthday.

The copper mines were the first to be established. They came after the discovery of the Selebi copper-nickel deposit in 1963. The mine opened to a fanfare in 1974, but never lived up to the initial expectations. Technical and financial problems exacerbated by the collapse of the world copper price in 1973 led to huge debts. Although the company from time to time made an operating profit, it never made enough to get out of the red. The mine is soon expected to close, but the company is now owned by LionOre and the government.

LionOre also has interests in the Tati Nickel Mining Company that operates an under-ground mine at Selkirk, located about 40km east of Francistown, and has operated the now closed Phoenix open pit since 1995. Phoenix is likely to re-open soon to meet the renewed world demand for copper.

Current exploration has identified other significant copper and copper-nickel deposits in Botswana. African Copper intends to mine at Dukwe and Matsitama, northwest of Francistown. Other deposits are known to exist at Ngwako Pan south of Maun in northwest Botswana.

[ILLUSTRATION OMITTED]

Mining to go underground

Botswana is internationally known as the world's largest producer of gemstone diamonds. It exports 31m carats of mostly high quality gemstones each year--that equates to around 35% of the world's diamonds and 65% of the diamonds sold by De Beers' Diamond Trading Company. The prospecting that De Beers began in 1955 involved searching for the source of diamonds found in the Motloutse River. In July 1966, three months before Botswana's independence, a dense concentration of indicator minerals was found in the Orapa area near the village of Letlhakane. Drilling revealed the Orapa kimberlite, soon identified as one of the largest diamond pipes ever found in terms of surface area, and it has turned out to be one of the richest.

Debswana was created as a 50/50 partnership between the government and De Beers to mine and market Botswana's diamonds. Botswana's share of profits was negotiated under a new tax structure to be 70% to 75%. Mining began at Orapa during 1971, just over four years after independence.

De Beers continued prospecting and soon located the Jwaneng pipe further to the south. The Jwaneng mine opened in 1981 and with its very high proportion of gem diamonds soon became the richest diamond mine in the world. The Letlhakane and Damtshaa mines, exploiting satellite pipes of the Orapa kimberlite, opened in 2002.

Orapa and Jwaneng both have lifespans of 15-20 years as open pit operations at current rates of extraction, following which, subject to positive feasibility studies, they may be mined from underground.

There seems little doubt this is the way the industry will go. No official announcements have been made, yet the issue has been covered in many briefings over the last two to three years. Analysts now point to the new initiatives De Beers has announced for Botswana as further pointers that the mines will be staying in business for a long time.

De Beers agreed in May 2006 to locate many of its international marketing-related operations into Botswana through the establishment of the Botswana Diamond Trading Company (BDTC). Leases for all the Botswana diamond mines were renewed to 2029.

Jointly owned by De Beers and the Botswana government, the company will have a De Beers-funded $85m sorting facility in Gaborone to process 45m carats of diamonds a year from 2008, according to the outgoing De Beers managing director, Gary Ralfe, speaking at the presentation of the group's 2005 results. The aggregation of all De Beer's diamond production would be transferred to Botswana from London.

De Beers chairman Nicky Oppenheimer said the agreements would cement one of the most enduring and important partnerships in the global diamond industry for decades to come. BDTC will also become a supplier of stones to diamond cutting factories located in Botswana; licences for a total of 15 factories have now been granted.

Planning horizons for underground mining are usually a minimum of 25 years with a possibly longer initial period to amortise the significantly more expensive costs. Not only is it more expensive to mine underground, but recovery grades at depth are often lower. The net benefits to Botswana will be reduced, yet the deposits are considered to be sufficient to maintain Botswana's leading position as a diamond producer for decades to come.

[ILLUSTRATION OMITTED]

Incoming managing director Gareth Penny has said that the group would increase the value of production in Botswana. Chairman Nicky Oppenheimer and Penny outlined major projects in Botswana which would help the group meet its target of an annual return on capital by 2009 of 20%, against the current 14%, and doubling the size of the company to $12bn.

For Orapa mine, Ralfe announced 'Orapa III', a new treatment plant which would significantly enhance recovery grades and asset utilisation. "These are stretch targets but we think they are achievable," Penny commented.

De Beers is still prospecting for diamonds in Botswana, along with other major and junior companies. Many kimberlites have been discovered and almost certainly there are many still to be found, but the norm is that only one in 100 is economically viable. New exploration techniques make prospecting under the deep Kalahari sand cover more feasible. An airship has been deployed to aid De Beers' further airborne exploration. "It is currently over-flying Jwaneng in Botswana and has produced encouraging geological images," Oppenheimer said as he signed the new mine leases.

Chief executive of De Beers Botswana, Sheila Khama, told African Business that an area of 42,000sq km was being explored in Botswana, 75% of it by De Beers looking for more diamonds.

She said that to establish a viable cutting and polishing industry in Botswana would be no easy task. "We are not creating new companies, but asking existing ones to relocate," she said. "They will have to have sufficient incentive to leave their countries of origin--usually India--where working hours are longer and wages less than in Botswana."

There would also be problems of security and in observing the rules of the Kimberley Process which certifies the origin of diamonds and that they are not 'conflict diamonds'; and keeps them out of the hands of money launderers. All Botswana's diamonds are at the moment sealed and delivered to one address, the DTC. Eventually there would be an additional 15 destinations to deliver to.

"Our production processes are geared to the sealed containers of the 'aquarium' at Jwaneng (an automated sorting facility) and the one delivery. Nothing we have to do to promote local cutting and polishing will be allowed to interfere with the Kimberley Process," she said.

Few are more aware than Sheila Khama of the need for Botswana to achieve the sustainable diversification of its economy. "We inherited good fortune," she says of the diamond industry. "We had few roads, but suddenly, amazingly high growth came our way. We now have roads, health care, education. Everyone can put bread on the table. Maybe we had the misfortune to be that lucky, diamonds are a finite resource." It was proving a considerable challenge to find suitable and sustainable diversification.

Other minerals also contribute

Another major mining operation in Botswana is the soda ash mine at Sua Pan. The mine was established on the Makgadikgadi Pans 25 years after independence in 1991. It has the capacity to produce 300,000t of soda ash and 650,000t of salt each year.

However, soon after its establishment, it ran into financial problems due to the low prices offered by customers in its main market, South Africa, as well as operational problems. It was liquidated in 1995, but a new operating company was formed, Botswana Ash (Botash) with broadly the same shareholders--the government, Anglo American plc, AECI, De Beers. Botash has been operating successfully since then. While almost all salt and soda ash is exported, the potential for soda ash to provide the basis for a domestic glass industry is being explored. Gallery Gold discovered a lm ounce resource at Mupane in 1998. Production, begun in 2004, is now 100,000oz/year. Although Mupane is expected to last only 10 years, further prospecting is under way and Gallery Gold (recently taken over by IAMGOLD) has rights over promising tenements in the area.

[ILLUSTRATION OMITTED]

Extensive coal deposits in eastern Botswana were discovered before independence, but mining did not begin until the 1970s. The only operating mine is the lm ton/year Morupule Colliery, near Palapye, which has as its main customer the adjacent Botswana Power Corporation (BPC) thermal power station.

BPC is planning a major expansion of the Morupule power station to meet increased local demand for power and is negotiating to sell power to South Africa through the regional grid. This will require the expansion of mining capacity at Morupule.

The mine was established by Anglo American Corporation of South Africa, but sold to Debswana in 2000. The mining lease was extended for a further 25 years in 2001.

Botswana's other main coal deposits are at Mmamabula, south of Mahalapye and extending east to the border with South Africa. The Morupule and Mmamabula coal deposits together amount to 17bn/t, giving Botswana the second largest coal reserves in Africa after South Africa. Consideration is being given to a 'tied mine' power station on the Mmamabula coalfield to generate electricity for export into southern Africa via the regional grid, with the feasibility of the project currently being investigated by the CIC Energy Corporation.

It is believed that Botswana has substantial resources of coal-bed methane (CBM) within the known coal deposits. Three companies are interested in potential for CBM production.

In the western part of the country an aero-magnetic survey has identified deep sedimentary basins containing non-magnetic fill which are potential gas and oil bearing formations. However, substantial drill programmes have in the past been unable to find significant indicators of oil. There are no known oil exploration programmes underway in Botswana.

Semi-precious stones are mined on a small scale, with increasing demand for sand, crushed stone and gravel. Clay is mined near Lobatse for the domestic brick industry. Other minerals known to exist in Botswana include agates, fluorite, kyanite, silver, antimony, lead, graphite, limestone, talc, gypsum, uranium, chromite, iron, platinum, zinc, feldspar and kaolin.

ENVIRONMENT

Staying Green

The Environmental Performance Measurement Project's 2005 Environmental Sustainability Index (ESI) ranks Botswana 34 out of 146 countries--the fourth highest in Africa, just behind Namibia, and ahead of the US which is placed at 45 and the UK at 65.

The main environmental sustainability issues in Botswana are land degradation, the depletion of water resources, pollution, waste and sanitation.

Rangeland used by cattle, sheep, goats and wildlife makes up 60% of Botswana's land area and overstocking leads to extensive overgrazing. Although almost all of the population has access to safe drinking water, national water resources are under stress. Around two-thirds of water supplies are derived from boreholes but there are concerns that the water table is extracted faster than it is being replenished.

Rapid urbanisation has led to increased pollution of underground water supplies and waste disposal problems. There are also localised air pollution problems around the Selebi-Phikwe copper-nickel smelter and the coal-fired power station at Morupule.

[ILLUSTRATION OMITTED]

ICT 

Talking business

In recent years, telecom penetration has been extremely rapid largely as a result of the introduction of mobile phones. Two operator licences were awarded in 1998 and in the following five years, the number of subscribers grew to well over half a million--this in a country with a population of 1.8m. Botswana now has one of the highest cellphone user rates in Africa, with network coverage for almost the entire population.

Computer and internet use has also grown rapidly, but internet access of just 3.3% remains low. The government has introduced computerisation and computer learning in all secondary schools with the objective of ensuring that all school leavers are computer literate.

There are proposals to remove the remaining monopolies enjoyed by the state-owned Botswana Telecommunications Corporation--fixed line voice traffic and the international voice gateway. Low-cost new technologies such as Voice over Internet Protocols are to be permitted.

A broadly based international ICT comparison defined as 'the degree of preparation of an economy to participate in and benefit from ICT developments', prepared by the World Economic Forum, ranks Botswana at 56 out of 115 countries, the fourth best in Africa after Tunisia, South Africa and Mauritius.

[ILLUSTRATION OMITTED]

BEDIA 

Switzerland of Africa

Botswana is still a 'hard sell' in London, says Lameck Nthekela, the UK representative of the Botswana Export Development and Investment Authority (BEDIA).

[ILLUSTRATION OMITTED]

After 10 years of the policy of economic diversification through foreign direct investment into an export-led manufacturing sector, he finds some people do not know where Botswana is, while others do not agree when told the country is the world's largest producer of diamonds.

"It is a question of keeping up-to-date information available, maintaining the momentum with which we release information, seeing people, talking to them, injecting new ideas and arguments to bring them to Botswana," he says.

Although the 10-year graph shows a decline in manufacturing in Botswana, the last five years have recorded a reduced slide. Nthekela says some companies he has helped set up have not made the grade, but he knows there have been some successes.

"Textile exports have increased five-fold over recent years as a result of the US African Growth and Opportunity Act (Agoa)," he says. Happily, textile factories are labour intensive and Botswana needs all the employment it can attract. Other projects may be more capital intensive, but Nthekela says: "They [textile operations] grow. Those who employed dozens of people grow to employ a hundred, then a thousand."

His biggest hurdle is beating the stiff competition for the investor's dollars. "It's not just BEDIA out there, we are all trying to get investors from the UK, but so are the US, Japan, and many others," he says.

An important selling point for Botswana is its central location in southern Africa and ease of access to its 13 fellow member states of the Southern African Development Community (SADC). "From Botswana you can do business with all of them easily," Nthekela says.

He also pushes Botswana's reputation as a politically and economically stable country. "We tell potential investors it is a very stable base for doing business. From the apartheid era through to the present day, Botswana has been seen as the Switzerland of Africa. People believe they are safe in Botswana and can go about their business without fear," he says.