Botswana

Country Summary

Macroeconomic performance

Real GDP growth was an estimated 4.2% in 2018, up from 2.4% in 2017, boosted largely by the recovery in mining and broad-based expansion of nonmining activities. The growth in mineral production was driven mainly by favorable global trading conditions and the commencement of operations at the Damtshaa Mine in January 2018. The non-mining expansion was driven largely by continuing accommodative fiscal and monetary policies, as well as recovery in downstream diamond industries. Though subdued, agricultural growth was sustained in 2018, buoyed by good weather conditions. Manufacturing also picked up slightly, benefiting from stable water and electricity supply.

The fiscal deficit in 2018 was an estimated 1.0% of GDP, due to higher spending and a decline in revenues from the volatile Southern African Customs Union. The government is financing the deficit by issuing additional securities under the existing government note program. Public debt fell to 20.4% of GDP (12.7% external and 7.7% domestic) in 2018 from 21.1% in 2017. The overall debt remains sustainable and well below the country’s statutory ceiling of 40% of GDP.

Monetary policy aims mainly at price stability and remains accommodative, taking advantage of low inflation. Inflation was an estimated 3.4% in 2018, up marginally from 3.3% in 2017 but within the Bank of Botswana’s medium-term target of 3%–6%. The real effective exchange rate has remained stable and competitive because of the crawling peg exchange rate regime. In September 2018, gross reserves amounted to about $7.1 billion, or 17 months of imports.

Tailwinds and headwinds

Growth prospects for the medium term are favorable, with real GDP growth projected at 3.8% in 2019 and 4.1% in 2020. The outlook for the mining sector is positive due to an anticipated increase in demand for Botswana’s rough diamonds (diamonds account for three-fourths of Botswana’s total exports). The non-mining sectors are expected to pick up further, driven by structural reforms, including an amended immigration law that ensures expeditious processing of work and residence permits and a move that provides utilities at reasonable prices to encourage domestic manufacturers. Construction is expected to continue benefiting from the ongoing fiscal stimulus.

But growth prospects are clouded by high unemployment (particularly youth unemployment) and income inequality. Downside risks associated with weak global demand for diamond exports remain elevated in light of the threat to global growth from escalating trade tensions. Other notable risks include persistent drought affecting livestock and agricultural production and lower Southern African Customs Union revenues if South Africa’s economic conditions remain unfavorable.

The risks underscore the need to accelerate structural reforms to promote economic diversification and higher productivity and thus reduce vulnerability to external shock. With promising medium-term growth prospects and ample fiscal space, policies could prioritize the economic transformation needed to deliver more inclusive, resilient, and job-creating growth. Overcoming the skills shortage, infrastructure bottlenecks, and high cost of doing business could expedite integration into regional and global value chains and thus economic diversification.

Source: African Economic Outlook 2019

Fixed Income

Summary

The government securities yield curve extended to 25 years with five benchmark points along the curve (2-5-10-15- and 25 years). 

Botswana is 2nd in the ABMDI 2017 Ranking Report.

Issuance strategy 

The government issues debt primarily for capital market development and not to fund the budget. The issuance program is capped at 40% of GDP apportioned as follows: 20% for domestic debt and 20% for external debt. Bonds and Treasury bills are issued through quarterly auctions.   

Benchmark issues 

Constructing a government yields curve is one of the considerations in the government issuance strategy in terms of both new and reopening of existing benchmarks. This helps with repricing and price discovery. There are currently 5 benchmarks with large issue amounts: 2-5-10-15-20 and 25 years. 

Yield curve 

Yield curve calculation models 

Primary dealers quote rates from the markets. Bloomberg also provides yields in real time for individual bonds.   

Interpolation methods 

To fill the gap between two benchmark points, the linear interpolation method is used for reporting purposes. 

Yield curve managed by

The Bank of Botswana (Central Bank) is in charge of calculating the yield curves on a daily basis. 

Display platform 

The yield curve can be accessed from Bloomberg and Reuters. 

Challenges in building an efficient yield curve 

  • Narrow investor base: there are few investors (mainly institutional investors) who buy and hold. 
  • Limited and illiquid secondary market: bonds are illiquid, because of the limited stock investors buy and hold. 
  • Limited competition: the only primary dealers are local commercial banks (5).

Guide to Buying Bonds

Procedures for market participation

Individuals can participate in the auction process (if they have access to timely information).  Alternatively, they can contact one of the Primary Dealers (PDS) appointed by the Central Bank to invest in government securities.

The minimum investment amount in any government securities is P 10,000.

Settlement cycle

The settlement cycle is T+3 days.

Taxation

In accordance with the 7th schedule to the Income Tax, non-residents are subject to a 15% withholding tax; residents, except those exempted from tax, on the other hand must pay 10%

There is no capital gains tax.

Botswana has double tax agreements with the following countries:

  • Barbados
  • France
  • India
  • Mauritius
  • Swaziland
  • Luxembourg
  • Mozambique
  • Namibia
  • Seychelles
  • South Africa
  • Sweden
  • UK
  • Zimbabwe
  • Belgium
  • Lesotho

Market restrictions

Openness to international investors 

Botswana has been lauded for creating an investor friendly environment. In 2014, the country was rated 52th out of 189 countries in the World Bank Ease of Doing Business. The government is engaged in promoting its private sector; a number of measures have already been taken such as the enactment of the Companies Act regulation and the passing of the new Industrial Development Bill.

The Botswana Export and Development Investment Authority (BEDIA) is the institution that is in charge of promoting the local and international competitiveness of the country. The Ministry of Finance is finalizing a new Foreign Direct Investment Strategy.

Foreign investors are given equal access to investment incentive schemes (grants and loans) for medium and large projects provided they partner with a citizen of Botswana. Grants and loans designed for small and medium enterprises (involving less than P 75,000) are however reserved for citizens of Botswana. Foreigners are allowed to engage in any kind of financial investment (bonds or equities); however, they can only trade and issue debentures of over one year.

Capital Controls

Since 2005, the Bank of Botswana (BoB) embraced a strict exchange rate policy. The value of the national currency, the Pula, is maintained within a narrow range from a basket of currencies.

Restrictions on foreign exchange and profit repatriation

Foreign exchange controls were abolished in February 1999. Consequently, any capital or interest can be remitted without limitations or restrictions (subject to availability of foreign currency reserves).

Credit rating

In February 2015, S&P confirmed Botswana foreign long and short-term foreign currency sovereign ratings, with a stable outlook

List of Primary Dealers

The Primary Dealers authorized to operate in Botswana are:

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