US embassy cable - 05GABORONE1113

UNCLAS  GABORONE 001113 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, EFIN, ELAB, BC, Economy 
SUBJECT: BOTSWANA'S ECONOMIC SLOWDOWN FUELS POVERTY 
 
REF: (A) GABORONE 264, REF (B) 838 
 
1.   Summary. Botswana's "middle income status" 
masks its rising poverty and unemployment that could 
impact future political stability.  The economy is 
declining, with real GDP growth expected to be a 
sluggish 2.3 percent in 2005.  While the central 
government's official statistics put the 
unemployment rate at 23.8 percent and the percentage 
of people living in poverty at 30 percent, 
discussions with government officials and visits to 
rural areas reveal rates of unemployment outside the 
major urban centers of Gaborone, Francistown and 
Maun that approach 70 or 80 percent.  An equal 
percentage of the population in these villages and 
towns still relies on pastoral cattle or goat 
farming for their prime source of income.  With most 
infrastructure and development projects frozen, 
basic services absent, and pervasive drought, the 
depth of poverty and unemployment is likely to 
worsen.  End Summary. 
 
National Poverty Reduction Strategy 
----------------------------------- 
 
2. The GOB adopted a National Strategy for Poverty 
Reduction in late 2003.  The United Nations 
Development Program, which is the implementing 
partner for Botswana's national strategy, has 
identified five target areas for a three-year pilot 
poverty program, which were established through an 
inclusive consultation period, and it has just begun 
the implementation stage. 
 
3.  First, the GOB called for strengthening capacity 
to measure and analyze poverty.  The lack of 
disaggregated poverty information presents a problem 
to policy makers.  This component would create a 
poverty profile and map, a database, and establish a 
system for updating poverty statistics with the 
Household Income and Expenditure Surveys.  Second, 
it aims to build capacity for the Multi-sectoral 
Committee on Poverty Reduction (MSCPR).  The MSCPR 
is to act as a quasi-board of directors for a 
Poverty Observatory, which will be a unit of the 
Ministry of Finance and Development Planning, 
charged with overseeing the poverty reduction 
strategy's implementation.  Third, there is a 
community renewal component to help people take 
control of their own development process. Fourth, 
the program prioritizes trade, investment and SMME 
development, to include advocacy for policy reform 
and implementation, such as support for the 
preparation of a Competition Law following the 
adoption of Botswana's competition policy on August 
 
4.  Finally, the program supports access to 
financial services for the poor through some limited 
technical support for Women's Finance House 
Botswana, a local micro-finance lender. 
 
5.  According to the director of the poverty program 
at UNDP, most of these initiatives have not yet 
really taken off.  For example, support for the 
MSCPR through the hiring of a director for the 
Poverty Observatory will not be in place until 
September, and the Community Renewal Program has not 
yet even identified the target pilot communities. 
In a disturbing comment, the Deputy Council 
Secretary for the western Kgalagadi District, Mr. 
 
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Mwualefe, told EconOff that the national strategy 
"doesn't address the real issues facing the poor." 
 
Infrastructure Development Frozen 
--------------------------------- 
 
6.  With the national strategy barely past its 
inception phase, the battle against poverty and 
unemployment relies on existing government 
structures and spending programs.  However, with the 
Ministry of Finance and Development Planning facing 
recurrent budget deficits (ref A), a slowing 
economy, and high HIV/AIDS expenditures, it has 
frozen most of its planned infrastructure 
development projects and left many projects 
unfinished. 
 
7.  In the northern village of Nata, the Community 
and Social Development Officer told EconOff that 
nearly all of the planned infrastructure projects 
have been frozen due to lack of funding.  Projects 
such as refurbishing the local health clinic, 
constructing a new senior secondary school, staff 
housing construction, electrification of government 
offices, and many more, have either been halted or 
have not begun. 
 
Lack of Access to Basic Services 
-------------------------------- 
 
8.  The freeze in government infrastructure and 
development projects highlights the lack of access 
to basic services for most rural villages.  Lack of 
access to transportation, electricity, healthcare, 
and even education (see septels on the impact of 
poverty on education and HIV/AIDS) contributes to a 
dearth of employment opportunities and undermines 
the ability of community based development programs 
to gain sustainability.  Local economic projects, 
particularly for those villages that are far removed 
from the main highways, have a difficult time 
bringing products to market. 
 
9.  Donkey-drawn carts are typically the only form 
of local transportation apart from the few 
government-owned vehicles that may be passing 
through towns and villages.  Schools and even 
government administration buildings lack access to 
communication and electricity, and the provision of 
medical care to the sick is hampered by the long 
distance from local clinics and hospitals of most 
villages.  These problems common in the rest of 
Africa are equally clear in Botswana despite its 
status as a middle-income country. 
 
Drought Relief Keeps Heads Above Water 
-------------------------------------- 
 
10.  On July 20, President Festus Mogae officially 
declared a drought and announced a series of 
programs to alleviate the impact of low rainfall, 
particularly on those communities that rely on 
livestock farming as their prime income source. 
Among the drought programs are bush clearing and 
construction of staff housing, classroom blocks and 
administration buildings.  Many of the projects are 
aimed at supplementing the regional development 
plans' priorities to jumpstart projects that were 
frozen due to a lack of resources as well as create 
short-term employment opportunities for many rural 
villages.  However, these short-term employment 
opportunities have become a yearly exercise as a 
result of drought declarations in each of the past 
five years, according to the District Council Deputy 
Secretary in Ghanzi.  Workers for these programs are 
 
SIPDIS 
paid a paltry 10 pula ($1.80) for six hours of work. 
 
Government Support Programs Lack Sustainability 
--------------------------------------------- -- 
 
11.  In addition to the drought relief programs 
announced by President Mogae, the district councils 
and central government have instituted a range of 
policies and programs.  The government provides food 
rations and a monthly stipend ($12/month) to those 
individuals that are classified by government social 
workers as destitute, which buys a good deal of 
political cover.  There is also a low income housing 
program and some small grant schemes for community 
development projects. 
 
12.  Yet the programs aimed at sustainable poverty 
reduction are having little success.  For example, 
as part of the GOB's efforts to support the ethnic 
minority San/Basarwa who are living in relocated 
settlements, three collective farms have been 
established to coordinate their livestock production 
and housing.  Each San/Basarwa family is given five 
head of cattle and encouraged to participate in the 
collective farm, whose profits are to be reinvested 
in their communities for development purposes.  Yet 
while these farms were set up nearly five years ago, 
when EconOff asked the district council staff in 
Ghanzi what projects had been implemented with the 
money earned from these collective farms, the answer 
was a reluctant zero. 
 
Agriculture Still Prime Income Source 
------------------------------------- 
 
13.  While agriculture as a percentage of GDP makes 
up only 2.4 percent of the economy, in the western 
districts of Kgalagadi, Ghanzi, and Northwest, 
roughly 70-80 percent of the population still relies 
on pastoral cattle and goat farming for their 
principal source of income.  While discussions are 
ongoing within the Ministry of Agriculture to 
institute export-parity pricing for beef exports at 
the government monopoly Botswana Meat Commission 
(BMC), a study commissioned by USAID states that the 
livestock sector has been experiencing a steady 
decline over the course of the past 20 years (ref 
B).  Without adequate access to transportation 
services to bring livestock to market, many cattle 
farmers sell their herds for significantly reduced 
prices to the larger commercial farming businesses. 
According to the Chairman of BMC, poor animal 
husbandry management techniques exacerbate the poor 
economic returns generated for rural cattle farmers. 
 
Unemployment Likely to Rise 
--------------------------- 
 
14.  With the economy slowing down and government 
spending on hold, unemployment is likely to rise. 
The Botswana Institute for Development Policy 
Analysis (BIDPA) is estimating that the national 
unemployment rate will rise by nearly two percent in 
the next two years to 25.2 percent.  Compounding the 
problem is a current freeze on government hiring. 
According to the Assistant Council Secretary for the 
Okavango Sub-District, the central government has 
frozen all new hiring for both professional and 
industrial class workers at the district level. 
With government employment currently making up 40 
percent of total formal employment in Botswana, this 
hiring freeze will negatively impact the employment 
trend. 
 
15.  The Botswana Confederation of Commerce, 
Industry, and Manpower, the nation's principal 
private sector association, has released a study 
that blames the government for the nation's lack of 
economic diversification and for the "unacceptably 
high" level of unemployment.  This is a result of 
its implementing distributive economic policies 
instead of building incentives for business 
creation, concludes the report. 
 
16.  As an example of the difficulties facing 
Batswana, the Deputy Council Secretary for the 
Kgalagadi District, Mr. Mwualefe, told Econoff, when 
he graduated from the University of Botswana in 
1993, he had a government job lined up before he 
took his final exams.  Today, he said, many 
university graduates are returning to their home 
villages dismayed about their lack of employment 
options. 
 
17.  In essence, with government jobs drying up, so 
are the majority of employment opportunities, 
particularly outside the principal economic centers 
of Gaborone and Francistown where the majority of 
the population relies on government employment or 
livestock farming for their income.  The Council 
Secretary for the Northwest District told EconOff, 
 
SIPDIS 
"Today is not like in the past for university 
graduates," and the Community and Social Development 
Officer in the northwestern town of Gumare said, 
"There is no prospect for employment for students 
upon graduation" from secondary school.  A gas 
station attendant in the western town of Kang told 
Econoff that roughly 80 percent of the city was 
unemployed, and when asked if he thought conditions 
were likely to improve, he simply laughed and said, 
"no." 
 
Economy Slows Down 
------------------ 
 
18.  The state of unemployment will be exacerbated 
by an economy that is slowing down significantly in 
2005.  The Ministry of Finance predicted in February 
that real GDP growth in 2005 would slow to between 4 
and 5 percent from its 2004 level of 5.7 percent 
(ref A).  But most analysts now agree that that 
prediction was overly optimistic.  BIDPA is 
forecasting only 2.3 percent real GDP growth for 
2005.  BIDPA is also predicting that unemployment 
will rise nearly 1.5 percent to 25.2 percent by 
2006. 
 
19.  The Managing Director of Elliott Movers, which 
does relocations for expatriates, told EconOff that 
he is currently moving twice as many people out of 
the country as he is into the country as a result of 
a drying up of government contracts, a principal 
source of income for private sector firms.  Ashoke 
Kachroo, the Director of Engineers International and 
the Chairman of the American Business Council, says 
that the construction industry, which is a principal 
driver of the economy, "has come to a nearly 
complete stop.  The problem is not just that they're 
not building, but they are no longer contracting 
engineers to develop plans for future projects." 
This last point could mean that lagging 
infrastructure development is not merely a short- 
term problem but a protracted reality. 
 
Comment 
------- 
 
20.  With the national poverty program just now 
getting off the ground, persistent drought, 
government revenue stretched thin, and the economy 
facing a significant slowdown, it is easy to 
conclude that both unemployment and poverty will 
worsen.  The more troubling prospect is that this 
downward trend may not be short-lived.  Botswana's 
efforts to diversify its economy have not yet moved 
the country away from its over-reliance on diamonds. 
Diamond wealth still makes up 35 percent of national 
GDP and 50 percent of government revenue.  Many 
private businesses in Botswana rely heavily on 
government contracts for the bulk of their business. 
 
21.  As competition for increasingly scarce 
government resources heightens, the specter of 
corruption could also rise.  This type of 
speculation is difficult for a country that has been 
recognized by Transparency International as the 
least corrupt country in Africa and by the World 
Economic Forum as one of the two most open economies 
in Africa.  But without immediate success in 
diversifying the economy, Botswana could be faced 
with prolonged declines in real per capita income. 
The CEO of Motswedi Securities, a brokerage house in 
Gaborone, put it succinctly when discussing the 
short to medium term prospects for Botswana's 
economy when he said plainly, "I'm very worried." 
AROIAN 
 
 
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