Botswana Lesotho

COUNTRY REPORT

Botswana Lesotho

1st quarter 1998

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

Botswana 4 Political structure 5 Economic structure 6 Outlook for 1998-99 9 Review 9 The political scene 11 Economic policy 12 The economy 14 Finance 16 Education, health and social matters 17 Agriculture 18 Industry and Commerce 19 Power, transport and communications 21 Mining 22 Aid 23 Foreign trade and payments

Lesotho 25 Political structure 26 Economic structure 27 Outlook for 1998-99 29 Review 29 The political scene 31 The economy 34 Foreign trade and payments

35 Quarterly indicators and trade data

List of tables 8 Botswana: forecast summary 11 Botswana: defence expenditure 13 Botswana: share of outstanding loans and advances of commercial banks, by sector, at year-end 14 Botswana: consumer price inflation 35 Botswana: quarterly indicators of economic activity 35 Lesotho: quarterly indicators of economic activity 36 Botswana and Lesotho: UK trade

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List of figures 8 Botswana: gross domestic product 8 Botswana: pula real exchange rate 28 Lesotho: gross domestic product 28 Lesotho: loti real exchange rate

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January 16th 1998 Summary

1st quarter 1998

Botswana Outlook for 1998-99: The resignation of President Quett Ketumile Masire has opened up the race for the vice-presidency. The 1998/99 budget is in preparation, but is expected to contain few surprises. GDP growth will be robust and inflation will fall in the short term, but bounce back in 1999. Trade prospects are also promising, with total export earnings rising in 1998-99.

Review: Festus Mogae is set to succeed President Masire at the end of March 1998. Ian Khama, the commander of the Botswana Defence Force, has announced his resignation. The opposition Botswana National Front has gained some parliamentary chairmanships in line with its electoral success, but, like the ruling Botswana Democratic Party, is suffering from factional quarrels. The Hague received submissions from the parties in the Sedudu dispute. Vision 2016 was published and a privatisation task-force was established. Commercial bank lending remained stagnant in the first half of 1997, and inflation slowed further. The stock exchange has fallen slightly and obtained new dual-listed stocks. The Botswana Development Corp has successfully launched Botswana’s first bond issue. First National Bank of Botswana did well in 1997. Kgolo Ya Sechaba has nearly completed its voluntary winding-up. AIDS has started to have an impact on population projections. A conference is planned on the San question. Rains have not been abnormal so far, despite the anticipated effect of El Niño. The Botswana Housing Corp has started to evict defaulters. An anti- malarial paint factory is planned. A Botswana-based retailer has expanded its interests into Namibia. The first cellphone contract has been awarded and plans have been announced for a national television service. Diamond sales are up, but Bangwato Concessions Ltd has suffered from low nickel prices. Vehicle and diamond exports have done well, and foreign reserves remain high.

Lesotho Outlook for 1998-99: Lawyer Hae Phoofolo has been detained for alleged treason, which may further delay and complicate the trial of 33 police officers detained after the February 1997 mutiny. Delays in preparations for the March 1998 election have raised concerns that voting may have to be postponed. The ruling Lesotho Congress for Democracy party is poised to win at the polls. A drought is likely and this year’s harvest will be poor. Lesotho Flour Mills is next in line under the privatisation programme.

Review: Revised data put Lesotho’s GDP at over M3bn ($604m) in 1995/96. The growth rate in 1996 is estimated to have been around 10%. The composition of GDP in 1995/96 indicates a strong showing on gross domestic investment at the expense of private consumption. The 1996/97 budget surplus exceeded 3.7% of GDP, above the target of the structural adjustment programme. New overseas financing has been secured for Phase 1B of the Highland Water Scheme. Prospects for a drought are stronger with poor early-season rains.

Editors: Stephanie Wolters; Piers Haben All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Botswana

Political structure

Official name Republic of Botswana

Form of state Unitary republic

Legal system Roman-Dutch law; cases in rural areas are heard by customary courts

National legislature National Assembly; 34 members elected by universal suffrage and four nominated by the assembly; in addition, the president is an ex officio member and the attorney-general a non-voting member; all serve a five-year term; a 15-member House of Chiefs advises on tribal matters

National elections October 1994 (legislative); next election due by October 1999 (legislative)

Head of state President, chosen by the National Assembly for concurrent term of office

National government The president, his appointed vice-president and cabinet

Main political parties The Botswana Democratic Party (BDP), the ruling party; the Botswana National Front (BNF); the Botswana People’s Party (BPP); the United Action Party (UAP)

The government

President Sir Quett Ketumile Joni Masire Vice-president, minister of finance & development planning Festus Mogae

Key ministers Agriculture Ronald Sebago Commerce & industry George Kgoroba Education Gaositwe Chiepe External affairs Mompati Merafhe Health Chapson Butale Labour & home affairs Bahiti K Temane Local government, lands & housing Margaret Nasha Mineral resources, energy & water affairs David Magang Presidential affairs & public administration Ponatshego Kedikilwe Works, transport & communications Daniel Kwelagobe

Central bank governor Baledze Gaolathe

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996a 1997a GDP at market pricesb (P m) 9,126 11,115 12,530 14,631c 16,686 Real GDP growthb (%) –0.2 4.0 3.5 6.8 7.0 Consumer price inflation (%) 14.3 10.6 10.5 10.1d 9.0 Population (m) 1.39 1.42 1.45c 1.48 1.52 Exports fob ($ m) 1,722 1,878 2,164 2,304 2,695 Imports fob ($ m) –1,455 –1,350 –1,579 –1,293 –1,700 Current account ($ m) 503 243 342 701 777 Reserves excl gold ($ m) 4,153 4,462 4,764 5,028d 5,600 Total external debt ($ m) 660 676 699 678 670 External debt-service ratio (paid; %) 3.7 4.0 3.2 4.0 3.0 Diamond production (m carats) 14.7 15.6 16.8 17.7d 18.9 Cattle slaughteringse (’000) 181 158 166 140 130 Exchange rate (av; P:$) 2.419 2.683 2.772 3.320d 3.610

January 16th 1998 P3.839:$1

% of % of Origins of gross domestic product 1996bc total Components of gross domestic product 1996bc total Agriculture 3.8 Private consumption 28.4 Mining & quarrying 33.2 Public consumption 28.9 Manufacturing 4.7 Gross fixed capital formation 24.1 Construction 5.9 Change in stocks 0.0 Trade, hotels etc 17.0 Exports of goods & services 51.2 General government 17.4 Imports of goods & services –32.6 GDP at current market prices incl others 100.0 GDP at market prices 100.0

Principal exports 1996 $ m Principal imports cif 1996 $ m Diamonds 1,582 Food, beverages & tobacco 260 Vehicles 242 Vehicles & transport equipment 247 Copper-nickel 124 Machinery & electrical goods 216 Beef 84 Chemical & rubber products 157 Total incl others 2,304 Total incl others 1,540

Main destinations of exports 1996f % of total Main origins of imports 1996f % of total Europe 74 Southern African Customs Union 78 Southern African Customs Union 21 Europe 8 Zimbabwe 3 Zimbabwe 6 a EIU estimates. b Years ending June 30th. c Official estimates. d Actual. e Years ending September 30th. f January-June.

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Outlook for 1998-99

The race for the The resignation of President Quett Ketumile Masire has opened up the race for vice-presidency is on the vice-presidency. Vice-president Festus Mogae will succeed President Masire and is assured of his position as president until 1999, when the election for the leader of the Botswana Democratic Party (BDP)—and hence the presidential candidate for the general election—is scheduled to take place. It is highly likely that Mr Mogae will face stiff competition from the minister for presidential affairs and public administration, Ponatshego Kedikilwe, unless Mr Kedikilwe can be persuaded that a damaging contest would fatally weaken the BDP’s chances of winning the general election. However, he is unlikely to be dissuaded from entering the contest this time; should Mr Mogae become president in 1999 he will probably stay on for a second term and, by the time the contest is repeated in 2009, Mr Kedikilwe’s age would prohibit him from standing for election.

Mr Mogae’s choices in the coming months will be crucial in determining the outcome of the contest. The man he might well like to have as vice-president is the minister of works, transport and communications, Daniel Kwelagobe, as his support would consolidate Mr Mogae’s position within the party. However, some commentators have said that Mr Kwelagobe has already declined, not wishing to abandon Mr Kedikilwe, whom he championed for the party chairmanship. The president-elect can count on the support of the Merafhe faction, but needs to secure the support of rank-and-file BDP members which a vice- president aligned with the Kwelagobe faction could deliver. This reduces the chances that David Magang, who went to school with Festus Mogae and is aligned with the Merafhe faction, will become vice-president. At the same time, there is little point in appointing Mr Kedikilwe vice-president as he will undoubtedly challenge Mr Mogae in 1999. The president’s choice of vice- president must be ratified by parliament, which gives the Merafhe faction a veto provided that they can form an unholy alliance with the opposition Botswana National Front (BNF), which recently tabled a no-confidence motion in Mr Kedikilwe.

Existing confusion over who is to be the new vice-president may explain why the name of Ian Khama—who recently resigned as commander of the Botswana Defence Force—is being tossed around. However, it is unlikely that the country can remain without a vice-president long enough for Mr Khama to win a seat in parliament, a prerequisite for his becoming vice-president. In addition, such a choice would be a major gamble for Mr Mogae, as Mr Khama is a political novice and might alienate the party faithful, sinking Mr Mogae’s chances for a victory in 1999.

The forthcoming budget The 1998/99 budget is being prepared, and funds are expected to be allocated will bring few surprises according to the guidelines of the Eighth National Development Plan (4th quarter 1997, page 12). Major surprises are unlikely, though the fiscal situation is better than it was this time last year, thanks to an unexpected surge in diamond revenue. There will probably be some enlargement of the scope of sales tax but it is unlikely that the switch from sales to value-added tax will be made. It will be necessary to raise old-age pensions, which have remained at P100/month ($26/month) since they were introduced. President Masire

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appointed a salary review commission in December, but its findings are unlikely to precede budget announcements and it is anticipated that the budget will not announce an increase in salaries pending the recommendations of the commission. In due course, however, civil-service salaries are expected to increase more than in past years, to catch up with inflation and create goodwill in the run-up to the election in 1999. The budget is, however, projected to post a surplus again, thanks to healthy diamond revenue and rising profits of the Bank of Botswana (the central bank).

GDP growth will remain The EIU has not substantially adjusted its estimates of GDP growth since its last strong— report. Strong growth is forecast over the period on the back of diamond exports and a boom in the construction industry fuelled by the Orapa 2000 diamond mine, the north-south water pipeline and other infrastructure projects in the lead-up to the 1999 election. The opening in 1998 of the new factory of a South Korean car manufacturer, Hyundai, should give a boost to GDP and increase employment. Although there will be no growth in diamond production capacity in 1998 or 1999, some easing of the Central Selling Office (CSO) quota is expected to increase the level of exports and hence GDP growth in 1999. The South African diamond giant, De Beers, will be anxious to keep Botswana’s economy on a strong upward trend as it is known to support the present government and favour Mr Mogae for the presidency in 1999.

—and inflation will fall in The rise in the cost-of-living index has slowed dramatically in the last five the short term months of 1997 so that the average increase for the year was 9%. We have adjusted our forecast for inflation in 1998 to 10.5%. For the moment there are no signs to suggest that domestic pressure on prices is building, though it will only be a matter of time. Although prices for the domestic elements in the index will start to rise, the drop in imported inflation resulting from lower rates in South Africa will start to feed through to Botswana’s imports from South Africa, and will somewhat temper domestic price increases. Should the El Niño climatic phenomenon cause a drought in 1998, food prices will increase. Given the importance of food in the price index, fiscal expansion in the pre-election period and increased civil-service wages, we anticipate that higher inflation will therefore return in late 1998 and remain at the same level of 10.5% in 1999, when domestic inflationary pressures are likely to be quite strong as the government attempts to mop up unemployment to create a feelgood factor in the election year.

We have revised our figures for 1996 in light of new national source data. The current-account estimate for 1997 remains at a surplus of $777m following a year of strong diamond earnings. However, we have revised our forecast for the current- account surplus in 1998 downwards to $401m as diamond revenue growth slows and imports grow—to $2bn—fuelled by pre-election fiscal expansion. Imports will continue to increase in 1999, the election year, narrowing the current-account surplus to $249m.

The pula will continue to The pula depreciated more than expected against the dollar in 1997, to average follow the rand P3.61:$1. It is now forecast to stay in line with the South African rand and mirror the differential inflation rates between the rand and the dollar. As a result, the pula is forecast to continue to fall to average P3.86:$1 in 1998 and P4.13:$1 in 1999.

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Major exports will Diamond exports rose above expectations in 1997, partly as a result of an informal continue to grow easing of the CSO quota of De Beers. Given the turmoil in Asia, world diamond sales in 1998 may not be as strong as expected and we anticipate that the CSO will tighten quotas, leading to a decrease in diamond exports in 1998. We expect the quota to ease again slightly in 1999, increasing exports, while 2000 should see an increase in productive capacity with the opening of the Orapa 2000 mine, which will lead to a strong increase in exports independent of the quota. Exports of vehicles are expected to fare better. Recent data for the third quarter of 1997 for the vehicle industry indicate an upward surge in exports, suggesting that the pause in the upward trend in the first half of 1997 was only a temporary setback. We have therefore adjusted our estimate for vehicle exports upwards for that year. The new Hyundai factory is now expected to open in April 1998, which should lead to higher exports than previously forecast. No major changes in quantities are anticipated in copper-nickel exports and as copper-nickel prices are expected to be weak throughout 1998 and 1999 we have adjusted our forecast downwards for export revenue from that sector. Beef exports, which suffered from weak consumer demand following the British bovine spongiform encephalopathy (BSE) crisis in 1997, are forecast to recover in 1998 as farmers attempt to counter the drought- induced shortage of grazing by reducing herd sizes.

Botswana: forecast summary ($ m unless otherwise indicated) 1996a 1997a 1998b 1999b Real GDP growthc (%) 6.8 7.0 6.9 6.6 Consumer price inflation (%) 10.1d 9.0 10.5 10.5 Merchandise exports fob 2,304 2,695 2,651 2,747 of which: diamonds 1,625 2,050 1,900 1,950 vehicles 242 280 350 400 copper-nickel 126 90 85 80 beef 84 70 85 80 textiles 60 65 75 80 Imports fob –1,293 –1,700 –2,000 –2,198 Current-account balance 701 777 401 249 Average exchange rate (P:$) 3.32d 3.61 3.86 4.13

a EIU estimates. b EIU forecasts. c Years ending June 30th. d Actual.

Botswana: gross domestic product (a) Botswana: pula real exchange rate (d) % change, year on year 1990=100 120 7 Rand:US$ 6 110 5

4 100 P:US$ 3 90 2

1 Botswana 80 Africa n/a 0 Z$:US$ 1995 96(b) 97(b) 98(c) 99(c) 70 (a) Years ending June 30th. (b) EIU estimates. (c) EIU forecasts. (d) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic Outlook. 1990 91 92 93 94 95 9697(b) 97 98(c) 98 9999(c)

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Review

The political scene

President Masire On November 11th the president, Sir Quett Ketumile Masire, announced his announces his intention to retire on March 31st 1998. The president’s retirement was largely resignation— expected, and was deliberately timed shortly after his succession by the vice- president, Festus Mogae, was secured by a recent change in the constitution which provides for automatic replacement by the vice-president in the event of the president’s retirement (4th quarter 1997, page 6). Nonetheless, the announcement has caused considerable excitement in the country’s political circles. President Masire has been the head of state for nearly 17 years and was vice-president for 14 years under Botswana’s first post-independence president, Sir Seretse Khama. His retirement marks the end of an era. President Masire successfully carried on his predecessor’s policies of fiscal conservatism and market-oriented economics to oversee a remarkable expansion of the economy. In the 1990s, however, the gloss came off his reign to some extent when a series of corruption charges against some of his ministers and civil servants enabled the opposition Botswana National Front (BNF) to gain a large number of parliamentary seats in the 1994 election. Nevertheless, the retiring president can look back on his long term in office with justifiable pride as he joins the thin ranks of African presidents who have retired voluntarily.

—to be automatically The new president-elect, Mr Mogae, is highly likely to carry on the basic thrust succeeded by Mr Mogae— of his predecessor’s policies. Born in Serowe, Mr Mogae started his career as a civil servant after studying at Oxford and then rose through the ranks of the economic service. After completing a Masters degree in economics at Sussex University he became Botswana’s first director of economic affairs, and then permanent secretary in the Ministry of Finance and Development Planning, before going to the World Bank for a spell as alternate director and then director representing the African members of the bank. Upon his return to Botswana he became the first governor of the Bank of Botswana (the central bank), a post he left one year after Sir Quett Ketumile took over the presidency to become permanent secretary to the president and head of the civil service in 1981. After the 1989 election he secured the portfolio of the minister of finance and development planning and the position of vice-president, when Peter Mmusi was forced to resign in 1992 over a land scandal.

—and Ian Khama is to On December 16th Lieutenant-General Ian Khama, commander of the resign as well Botswana Defence Force (BDF), announced that he intends to retire on March 31st 1998 after nine years. Mr Khama’s retirement has started rumours. The general has openly mused about four options: devoting his energies fully to his post as paramount chief of the BaMangwato; resigning that post to go into politics like his predecessor, Mompati Merafhe; becoming involved in conserv- ation; or starting his own safari business. The timing of his resignation suggests that the second option is the most likely. Like most observers, a weekly newspaper, the Botswana Gazette, has suggested that Mr Mogae may offer the post of vice-president to Mr Khama. While this might be popular among the

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traditionalists in Central District, and would avoid the problem of favouring one faction within the Botswana Democratic Party (BDP) over another, it is likely to anger most BDP members. Mr Khama may, however, be aiming to take over Mr Mogae’s Palapye constituency in the by-election following his eleva- tion to the presidency. As the BDP candidate, Mr Khama is almost certain to win Mr Mogae’s seat.

The BNF gets recognition— The BNF’s electoral success of 1994 was rewarded in December with the eleva- tion of two of its MPs to the chairmanship of parliamentary committees. Paul Rantao, the MP for Gaborone West, is now head of the Public Accounts Committee and Otladisa Koosaletse, the MP for Lobatse, is chairman of the Finance Committee. Another step that resulted partly from its electoral success was the election in September of Gaborone’s BNF mayor, Botshabelo Bagwasi, as president of the Botswana Association of Local Authorities. The victory was helped by factional rivalries within the BDP that led some of their councillors to vote against their own party’s candidate.

—while factional quarrels The rivalry between the two wings of the BNF continues. The so-called Con- continue cerned Group of candidates—known for being more left-wing than their opposition in the party, the central committee—were unable to win a significant number of positions within the party at a BNF congress in July. However, they had their opportunity to catch up at the youth league’s fourth congress in October (youth is a relative term in Botswana—the BNF definition is under 39), at which Concerned Group supporter Comfort Maruping defeated Kabo Morwaeng for the post of secretary-general. In addition, a central committee supporter and MP, Vain Mamela, was disqualified from the presidential race, which was won by a left-winger, Gaolapelwe Ketlogetswe. Another right- winger, Sam Mphoyakgosi, was soundly defeated by Motsamai Motsamai for the post of vice-president of the BNF.

At a meeting held between the central committee and representatives of the Concerned Group at the end of October the latter were persuaded to drop their court case over the alleged misconduct of the main party congress election. The issue will now be addressed at a forthcoming constitutional congress. Nonethe- less, Concerned Group supporters marched to BNF offices in Gaborone in November to present a petition opposing the suspension by a disciplinary committee of a Concerned Group supporter and councillor in Kweneng, Lemogang Ntime, and two associates.

BDP factions compromise The BDP finally filled the post of executive secretary, which has been vacant on an executive secretary— since Aobakwe Sekgwa resigned in 1994. The appointment process had been prolonged, partly owing to attempts to reach a compromise between candidates favoured by rival factions within the party. The successful candidate, Botsalo Ntuane, who is only in his twenties and is the BDP political officer, has been acting in the post since January 1997.

—but fail to settle other The BDF has focused on settling internal wrangles in recent months. There is a disputes long-standing dispute between David Magang—the minister for mineral resources, energy and water affairs and the MP for Lentsweletau—and Utlwang Matlhabapiri—a party veteran and ex-MP who lost his bid for the Gaborone

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Central seat to the BNF in 1994. According to Mr Matlhabapiri, Mr Magang accused him of trying to steal his seat. Mr Matlhabapiri has since lodged a complaint against Mr Magang. It is no coincidence that Mr Magang is part of the Merafhe faction whereas Mr Matlhabapiri is a member of the Kwelagobe faction. One commission, headed by the party’s chairman, Ponatshego Kedikilwe, failed to settle the dispute, as Mr Magang refused to co-operate on the grounds that the commission was biased and that an inquiry was unneces- sary. A second “task team”, led by Ray Molomo, was appointed in October 1997 to investigate the problem, but has been met with hostility.

The Sedudu island dispute Written submissions were presented by Botswana and Namibia to the is submitted to the ICJ International Court of Justice (ICJ) at The Hague in November 1997 in the case involving the disputed Sedudu/Kasikili island. According to Botswana’s permanent secretary in the office of the president, Molosiwa Selepeng, a full hearing should be held in the first half of 1998. The case revolves around whether the main channel flows to the north or south of the island—which is uninhabited and only 3 sq km in size. There was another clash between the two countries over an island called Situngu on October 4th 1997. The BDF recently ordered some Namibian villagers not to farm on Situngu as it was south of the main channel. In subsequent meetings between the authorities, it was agreed that the villagers could carry on farming the fields already prepared but not extend them, until the issue had been resolved. Shortly afterwards, the Namibian- Botswana joint defence commission attended a previously scheduled meeting which stressed the need for regular border patrols and joint border operations to promote a spirit of friendship and co-operation and combat cross-border crime, including poaching, drug-trafficking and vehicle theft. It is unclear whether this will improve dialogue on the island dispute.

Botswana’s military According to the Military Balance report for 1997/98 released by the London- spending is high based International Institute of Strategic Studies, Botswana was the fourth- highest spender on arms in Southern Africa in 1996. Its military budget of $224m, representing 6.7% of GDP, put it after South Africa, Angola and Zimbabwe.

Botswana: defence expenditure ($ m) 1996 1997 South Africa 3,200 2,600 Angolaa 400 450 Zimbabwe 233 237 Botswana 226 229 Namibia 65 73

a Forças Armadas de Angola (FAA), government forces, only.

Source: International Institute of Strategic Studies, The Military Balance, 1997/98.

Economic policy

Privatisation moves on to A task-force was appointed in November to draft the proposed white paper on the agenda privatisation. Significantly the task-force is headed by Neo Moroka, who is

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president of the Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) and the chief executive of British Petroleum (BP). His deputy on the task-force is Emang Maphanyane, the general manager of the housing corporation. The team includes civil servants, trade unionists, representatives of the Bank of Botswana (the central bank), the Botswana Chamber of Commerce and Industry, other parastatals, the University of Botswana and the Botswana Institute for Development Policy Analysis (BIDPA). The BOCCIM has spearheaded calls for privatisation in the past, having commissioned a study in 1996 which called for an acceleration of the privatisation programme. Areas that have been identified for public share issues are the Botswana Meat Commission, the Botswana Telecommunications Corporation and Air Botswana. The task-force will assess the various options available, which include complete and partial privatisation and commercialisation of remaining state-owned agencies. Its findings are expected to be reported in April 1998. The BIDPA has already said in a statement that “particular attention will be given to the need to improve efficiency in delivery of public services and to the possibility of using contracting-out, employee buy-outs and similar devices to enhance the opportunities for citizen-owned businesses”.

The Trade and Investment In his speech at the opening of the fourth session of parliament in November Promotion Agency is to 1997, President Quett Ketumile Masire promised a revised industrial policy become independent paper and the transformation of the Trade and Investment Promotion Agency (TIPA) into the independent Botswana Export, Development and Investment Authority. The transformation of TIPA follows recommendations of a 1995 study by International Development Ireland, which was highly critical of TIPA.

Vision 2016 is published The final document of the Vision 2016 team charged with preparing a long-term plan for the country (4th quarter 1997, page 13) was published in November and discussed at a high-level consultative meeting. The Vision Council, as it is called, consists of 50 people who are intended to be representative of all stake- holders in Botswana society, and come primarily from civilian society and the private sector. Council members are appointed initially for three years but are eligible for reappointment. The council has statutory powers to collect information, call authorities to account and guide and monitor policies throughout implementation. The council will publish reports periodically and there is to be a national conference every two years to review progress. The main goals set out in Vision 2016 are fairly utopian, for example: eradication of absolute poverty; universal access to good quality health services; stopping the spread of HIV/AIDS; and elimination of serious and violent crime.

The economy

Commercial bank lending At the end of June 1997 total outstanding loans by commercial banks were is flat P1.84bn ($480m), 2.5% higher than at the end of December 1996. This rise contrasted with the 1.1% increase between end-December 1995 and end- December 1996 and an actual fall of 3.7% in fiscal year 1995/96 (July-June), reflecting the dearth of sound commercial projects. Of the total loans, households remained the largest borrowing sector, accounting for 43%, although their share was 4 percentage points below that in December 1996. The

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next-largest customer was business services which took 15% of the credit, much the same as in the previous two years, although down on its share in 1994. Trade accounted for 10.5%, a small increase on the end of 1996, while manufacturing took only 8%. The decline in the share going to the construction sector since 1993 was notable, indicating that that sector is still considered uncreditworthy by the banks.

The rise in government and parastatal borrowing in June 1997 is an anomaly, rising by 3.7% and 2.9%, respectively, and being almost entirely parastatal. It is noteworthy that commercial loans to parastatals have fallen since 1994, given the government’s stated aim of persuading them to rely more on commercial sources of funds.

Botswana: share of outstanding loans and advances of commercial banks, by sector, at year-end (% of total) 1993 1994 1995 1996 1997a Government & parastatals 6.2 8.2 5.4 4.0 6.0 Households 38.6 35.0 43.9 47.2 43.4 Manufacturing 9.4 9.0 8.2 7.7 8.0 Trade 12.9 10.5 9.2 9.7 10.5 Business services 12.5 19.5 15.5 15.8 14.8 Construction 5.9 5.8 5.0 3.3 2.9 Otherb 14.5 12.0 12.8 12.3 14.4 Total 83.3 91.4 93.9 95.6 92.9

a End-June. b Includes agriculture, mining, electricity and water, transport and finance, none of which took over 5% of credit.

Source: Bank of Botswana, Financial Statistics.

Inflation slows further Apart from one or two slightly aberrant months, annual inflation has been slowing steadily since the middle of 1996, led by the decline in inflation for the non-tradeable element in the index. The falling domestic trend in prices of domestic goods has not been supported by prices of imported goods, which have followed a fairly steady rising trend, despite the downturn in South African inflation rates. This is expected to change over the next few months as there is normally a lag between South African and Botswanan inflation. Domestic price increases in the last 12 months have been particularly low for the following categories: fuel, housing, leisure, healthcare and education. The highest price increases have been recorded by alcohol/tobacco, household operations, food, furniture and clothing/footwear. The particularly low three- month annualised rate of inflation in the 4th quarter of 1997 is sustained by no increases at all in the leisure and education groups and less than 2% per year for housing, transport and “other”.

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Botswana: consumer price inflation (Nov 1996=100) 1996 1997 Weight Dec Mar Jun Sep Dec All items index 100 100.6 103.2 105.9 107.4 108.4 % change, year on year 9.6 9.3 9.0 8.5 7.8 Non-tradeables index 29.2 100.1 101.5 103.3 104.0 104.1 % change, year on year 9.1 7.3 7.6 5.8 4.0 Domestic tradeables 23.8 100.5 103.8 106.4 107.3 107.7 % change, year-on-year 10.9 10.5 9.1 7.6 7.2 Imported tradeables 47.0 100.9 103.7 107.4 109.4 111.1 % change, year on year 8.6 9.0 9.6 10.0 10.1 Source: Bank of Botswana, Financial Statistics.

Finance

The stock exchange has a The domestic index of the Botswana Stock Exchange (BSE) ended 1997 at 708, boom year in 1997 101% above the level it closed at the end of 1996. However, the final outcome for the year was 7.2% down on its 1997 peak of 763 in early October. The rise to that level was largely fuelled by foreign interest, while local institutions were looking to reduce their involvement in the domestic market to take advantage of the higher overseas investment allowance granted in the 1997/98 budget. Foreign investment in the stock exchange more than doubled in March 1996— increasing by P75m ($20m)—when 25% of Sechaba was sold by the Botswana Development Corp (BDC), and increased by a further P40m between the beginning of February and the end of April 1997, when no new stock was available. Small net losses of foreign investment were recorded in September and November 1997, corresponding to the periods when the index first peaked and then declined. The main winners since March 1997 have been the banks, with Barclays up by 232%, Stanchart up by 267% and First National Bank of Botswana (FNBB) up by 115%. Botswana Insurance Holdings (BIHL), the insurance group, was up by 98%, Sechaba was up by 69% and Sefalana (milling and food wholesale) was up by 65%. The only loser was Engen (fuel, retail and wholesale) which dropped by 7%, after announcing disappointing results in November. The company is now under new management and Stockbrokers Botswana (SB) expect that its price will stabilise while investors wait to see if they can turn the firm around. The foreign companies index, which is dominated by companies on the Johannesburg Stock Exchange, lost 33% in the nine months since it first came into existence.

Botswana Development The year on the BSE was also notable for the launch of Botswana’s first fixed Corp launches Botswana’s income bond by the Botswana Development Corp (BDC). The P50m issue (at a first bond nominal 14%, equivalent to prime), which is redeemable in seven years, was oversubscribed by domestic applicants by nearly 50%. The issue, which was placed privately by a South African merchant bank, Investec, is 80% guaranteed by the Botswana government. The bonds traded at 13.75% shortly after the launch in December 1997. The funds raised are to be used to finance the BDC’s current investments, with the idea that the companies receiving support can be sold off within the seven-year period in line with the government’s privatisation policy. Foreign investors are reportedly put off the paper by the

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fact that there is a 15% withholding tax which reduces the effective yield to 12%. However, while domestic liquidity remains high, the government is more concerned about the danger of a large influx of foreign funds and may resist pressure from the financial industry to drop the tax. However, other parastatals are reported to be looking to bonds to reduce their dependence on government loans and the domestic market may not be able to absorb larger issues by the public utilities. This could force the government to remove disincentives to foreign participation in future sales.

First National Bank of In November 1997 First National Bank of Botswana (FNBB) issued its audited Botswana has the largest results for the year to September 30th 1997. Despite a scarcity of good lending, lending portfolio according to SB assets grew by 21.8% to P1.09m ($284m), including an 11% rise in loans to P646m ($168m). FNBB now has the largest lending book in the country, and its deposit base increased by 26.8%. Net interest income was up by 11.7% on 1996 (to P60.3m) and other income was up by 22.5% (to P33.5m), moving overall pre-tax income up by 20.7%. Its cost/income ratio was 58%, compared with 44% for Stanchart and 54% for Barclays (4th quarter 1997, page 14). Earnings per share were 106 thebes/share, from which a total dividend of 33.5 thebes gross (up from 28 thebes in 1996) was paid. With a historic price/earnings ratio (p/e) of 9.4 and a forward one of 7.1—based on an estimated 22% growth in earnings in 1998—SB are recommending the bank as a firm buy.

Kgolo Ya Sechaba Shareholders in an investment trust, Kgolo Ya Sechaba (KYS), agreed at an distributes an interim extraordinary general meeting held on December 19th to postpone the volun- liquidation dividend tary liquidation of the company for a year. This will enable the backers of the Botsalano Hotel Development Co (BHDC) to prepare a more detailed prospectus in support of their proposal to buy the last remaining asset—shares in Sun International (Botswana)—in return for shares in BHDC. (BHDC is to seek listing on the BSE in 1998.) Shareholders in KYS have already received an interim liquidation dividend of 165 thebes and are due to receive an additional 22 thebes/share in the first half of 1998 from the proceeds of the sale of other company assets. Under the current BHDC offer they will be offered BHDC shares with a guarantee that if the shares are listed and trade at less than 34.5 thebes in the first month, BHDC will buy them back at that price during that month. Alternatively, if the company does not achieve a listing within 12 months, the shares may be sold back to BHDC for the same price in the 13th month. This guarantees KYS shareholders 56.5 thebes/share for shares which traded at 40 thebes/share at the time of the offer.

Regional stock exchanges At a meeting held in Gaborone in October, nine Southern African Development agree to harmonise Community stock exchanges agreed to harmonise procedures in order to ease crossborder investment and enhance integration. According to Andrew Ashton, the vice-chairman of the BSE—which hosted the meeting—progress was made on the harmonisation of listing requirements and on the formulation of a best practices model to be adopted for clearing and settlement. A further workshop will be held in Mauritius in February.

Botswana Insurance The restructuring of BIHL (4th quarter 1997, page 15) was approved by share- Holdings is restructured holders at an extraordinary general meeting held on November 11th. A wholly

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owned subsidiary of BIHL, Botswana General Insurance, was sold to St Paul Multinational Holdings—which has a 24.4% share in BIHL—with effect from April 1st 1997. African Life Assurance, which is listed on the Johannesburg Stock Exchange, acquired a further 25% of BIHL from St Paul, bringing its total holding to 57%. As required, BIHL is extending this offer to other shareholders, but as the current market price is higher, this is in the form of a stand-by offer. In fact it has offered a premium price of P3.05 (80 cents) per share, compared with a mandatory one of P2.20, but this is well below the current market price of P4.25. Interim results for BIHL for April-September were announced in No- vember. Pre-tax profits were up by 44% and after-tax profits by 61%. Income from life and pension premiums was up by 20% (to P70m) and the total assets of the group grew by 36% to P760m. Dividends were increased from 4 thebes to 6 thebes, but instead shareholders were given a capitalisation issue of 1.8 shares per 100 shares held.

New companies dual-list Morgan Stanley investment company dual-listed its P780m African Investment Fund on the BSE on November 26th 1997, becoming the eighth stock to be so listed. It took the market capitalisation to P50bn ($13bn), including P2.3bn in domestic stocks. A South African corporate banking, fund and property management group, Investec, dual-listed earlier in the month, adding P10.4bn to market capitalisation. Investec Asset Management (Botswana) manages P200m of assets after two years of operation in the country, Investec Property Group has several shopping centre developments under its wing and Investec Specialised Finance Division was awarded the contract to launch the BDC’s P50m bond.

Education, health and social matters

HIV infection rates are Botswana’s Central Statistics Office issued a report in November about the rising impact of AIDS on the population. By 2021 the country’s total population is projected to be 2.01m, a drop of 24% from the figure of 2.65m which was estimated before HIV infection rates were factored into projections. Estimates indicate that by then 30% of the population will be HIV positive. These are based on the assumption that 5.2% of the population will become infected annually until half the adults in Botswana are HIV positive. The working age population will be 30% lower than it would be in an AIDS-free environment, which implies a considerable increase in the dependency ratio.

Controversy over The treatment of the Basarwa, or San, living in the Central Kalahari Game resettlement continues Reserve continues to be an issue (4th quarter 1997, page 17). The minister for local government, lands and housing, Margaret Nasha, complained that non- governmental organisations and individuals were misleading the press and the Basarwa themselves. In a statement released in December she claimed that only about 200 Basarwa remained within the reserve and that she had not received any complaints from the Basarwa when she went to the reserve to investigate claims of forcible removal. However, there are contradictory reports—a weekly newspaper, the Botswana Gazette, quoted residents of one settlement as saying that the mobile clinic, which used to come every month, had not been seen for three months, and that residents had received threats that food and water supplies would be halted; a resident of another settlement claimed that officials

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opened up the water tank, and allowed most of the stored water to run out. Another conference on the plight of the San is being organised for April 1998, with assistance from the British government. In 1997 Roy Sesana of a lobbying group, First People of the Kalahari, started a campaign for self determination for the San, stating that they want rights to land ownership and political participation in their traditional territories and schools where their children can be taught in their own language and cultural context. He reportedly said in December that he plans to table this demand at the April conference.

A new vice-chancellor is The long-standing vice-chancellor of the University of Botswana, historian selected for the university Tom Tlou, is to be replaced by an American woman when he retires in 1998. The decision has raised a formal protest from the Botswana National Front (BNF), who complained that a non-native was given the position. However, only one Motswana applied for the post, which required applicants to be full professors with extensive administrative experience in higher education. The BNF argued that the criteria should have been relaxed to enable a Motswana or someone from Southern Africa to be appointed, if necessary also appointing a deputy vice-chancellor to provide advice and back-up. This argument was emphatically rejected by the chairman of the University of Botswana council, Lebang Mpotokwane, who cited the need for the university to be a centre of excellence and for the vice-chancellor to have full authority.

Agriculture

El Niño’s effects remain Rainfall for October, the first month when there is usually significant precipi- unpredictable tation, was below average, but this was almost made up by November rainfall, which was 30% above average. However, any averaging method is fraught with difficulty as rainfall is extremely erratic. Nonetheless, so far there are no indic- ations that El Niño has had a negative effect on the climate. The World Food Programme predicted in November that Southern Africa could be facing the worst drought in 100 years. The Southern African Development Community (SADC) formed an ad hoc task-force in September to monitor the situation and held a drought policy seminar in November in Gaborone. At the seminar, Kennedy Masungu of the SADC Early Warning Unit predicted that El Niño’s impact would be greatest between December 1997 and February 1998 in the case of Botswana, when the country’s heaviest rainfall in non-drought years takes place. The Botswana government is already drawing up contingency plans in case there is a drought. According to the principal food strategy co- ordinator in the Ministry of Finance and Development Planning, N J Manamela, good rains in 1996/97 have meant that urban water supplies are now assured for the next 12 months. He added that livestock owners have been advised to increase their offtake and to keep only core breeding stock to con- serve grazing. There have also been calls to stop the restocking exercise currently under way in Ngamiland.

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SADC plans anti-pleuropneumonia campaign

In November SADC launched an urgent appeal for $7.4m to combat bovine pleuropneumonia, the disease which led to the culling of 300,000 cattle in Ngamiland. The disease has reappeared in Tanzania, Zambia, Angola and Namibia. A vaccine has been developed and is being propagated by Botswana’s Vaccine Institute and a mass immunisation campaign is planned. Zimbabwe and South Africa have not yet reported any cases but are also considered vulnerable to the spread of the disease.

In October the Botswana Meat Commission announced new price rises for stock delivered to the abattoirs in the last quarter of the year of P6.07/kg for “super”, P5.52 for “grade 1" and P5.04 for ”grade 2", an increase of 5%.

Industry and Commerce

A US trade mission visits A US trade mission arrived in Botswana in December, led by a congressman, Botswana Charles Rangel. The mission also consisted of 16 US businessmen as part of the Africa Trade Initiative of the US president, Bill Clinton. This follows on from the International Herald Tribune Trade and Investment Summit in November. Under the US-Africa Trade Initiative, the US Overseas Private Investment Corp will offer guarantees to private-sector investors.

Enterprise Botswana is Enterprise Botswana, a joint venture between the government, international launched donors and the private sector, was launched in late October by the minister for mineral resources, energy and water affairs, David Magang. Mr Magang explained that its mandate was to support and advance entrepreneurial development in the context of the national development plan. Enterprise Botswana will work directly with small and medium-sized enterprises, targeting growth- oriented firms, particularly those with export potential, and offering them a comprehensive range of services.

Coin Botswana is A South African-owned security company, Coin Botswana, was acquitted of the acquitted charge that it employed unlicensed security guards. Security guard licences are only available to companies owned by Botswanan nationals. Coin Botswana won by successfully arguing that it subcontracts the provision of guards to a wholly Batswana-owned company. Coin Botswana offers alarm monitoring and reaction, banking and payroll services, which are not restricted services, as well as providing ordinary security guard services through its subcontractor. Although the security guards were employed by the subcontractor, they were trained by Coin staff and transported by Coin vehicles. The case has considerable implications for foreign-owned companies that might want to operate in areas overlapping with those reserved for citizens, especially in the services sector.

The Botswana Housing The Botswana Housing Corp (BHC) has adopted a target of reducing arrears of Corp gets tough on rent and payments under the tenant purchase scheme from P30m ($8m) to defaulters P2m in two years to meet the stringent conditions that the Ministry of Finance and Development Planning attached to the restructuring package offered in

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1997. Eviction orders have been obtained and the first defaulters are expected to be evicted at the beginning of the year. It is believed that the ministry has refused the BHC’s request for a restoration of the 15% annual rent increase until substantial progress had been made in collecting arrears.

An anti-malarial paint A Belgian company is investigating setting up a plant to package and event- plant is planned ually produce Aktikil, an acrylic paint containing a long-lasting insecticide that kills mosquitoes and therefore acts as an anti-malarial agent. An initial investment of P200,000 ($52,000) is planned to set up a packaging plant in Serowe with the aim of supplying both local and Southern African Development Community (SADC) markets. The product is currently undergoing tests by the local council, the anti-malaria unit of the Ministry of Health, and Orapa Mines before it can be released for sale. In laboratory tests it was shown that for at least three years after application the paint will kill the malaria-carrying anopheles mosquito.

Cash Bazaar expands into Cash Bazaar Holdings (CBH), which began as a single store in Francistown in neighbouring countries 1956, completed its new headquarters and 10,000-sq-metre warehouse com- plex in the third quarter of 1997. In 1995 the group expanded into Namibia, where it now has 20 stores, and it now plans to start operations in Zambia. CBH’s head office is now in Gaborone and it has 170 stores in five chains of clothing and furniture retailers, employing 1,500 people in Botswana—including 250 at its headquarters. The group is installing a point-of-sale computer system, which will give its head office direct access to all its stores’ data. A listing on the BSE is being considered.

Mauritian companies For some time Botswana has targeted Mauritian companies in its bid to attract invest in Botswana overseas investment, particularly in the textile trade, where Mauritius’s success has brought it up to its quota in the multi-fibre agreement. Botwana’s first success was marked when the minister of commerce and industry, George Kgoroba, opened the Mauritian-owned Wanatex factory in Gaborone in October. The plant is designed to produce T-shirts, sweatshirts and polo shirts for the European market.

Power, transport and communications

A cellphone contract is Vista, a consortium of France Telecom and five local firms, has won the first awarded contract for Botswana’s cellular phone network. According to the terms of the licence, Vista is to begin offering services by the end of the second quarter of 1998. Vista will reportedly invest $30m in installing the network over the course of the next ten years. Vista estimates that upon completion of the network in 2007 there will be 60,000 cellular phone subscribers.

Television is on the way The minister for presidential affairs and public administration, Ponatshego Kedikilwe, announced in November in parliament that funds had been set aside for the establishment of a state television service. The director of information, Ted Makgekgenene, confirmed that the service plans to start broadcasting by the end of 1999. Initial broadcasting will be for two hours each evening and consist mainly of news and current affairs programmes. Mr Makgekgenene

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recently visited Germany to recruit experts for the service, following a feasibil- ity study of the project undertaken by German consultants.

A route to northern Work on a 60-km bitumen road, which will link Zimbabwe to Namibia via Namibia is set to open soon Kasane in northern Botswana, is nearing completion The road passes through Botswana’s Chobe game reserve and has until now been surfaced with gravel. It crosses into Namibia by way of the Ngoma bridge across the Chobe river where it joins the trans-Caprivi highway. The new road provides alternative, albeit distant, access to the sea for Zambia, northern Zimbabwe and Botswana, and should increase trade links between Botswana and neighbouring countries. The project is due to be completed in April 1998.

The Expanded Coal The government has sold its commercial interest in the Expanded Coal Utilisation Project is Utilisation Project (ECUP) to a local firm, Exim Enterprises. The project was privatised designed to promote the use of coal in the country and has not been a notable success. While marketing of coal will now be handled by Exim Enterprises, the permanent secretary to the Ministry of Mineral Resources, Energy and Water Affairs, Blackie Marole, said in an interview that the ministry would remain responsible for the educational aspects of the project, which entail efforts to convince people to use coal instead of wood as a source of fuel. The general manager of Exim Enterprises, Umashankar Vadlamin, claimed that there were enormous prospects for coal utilisation and that international markets were being explored. The company currently has three depots and is hoping to expand to make distribution easier. Mr Vadlamin called for the imposition of levies on imported coal, but this demand is unlikely to be met, as it runs counter to the government’s free-trade philosophy, and is unlikely to meet the requirements of the Southern African Customs Union for infant-industry recognition and qualification for protection.

The Botswana Power Corp The Botswana Power Corp (BPC) posted a P72m ($19m) profit for the year posts big profits ending March 1997, compared with P76m the previous year, according to its annual report released in October. Operating costs increased by 16% (to P209m), in part as a result of a faulty unit at the main plant, Morupule Power Station, which necessitated an increase in imports. According to BPC’s chairman, Mr M Sekwale, further cost increases resulted from the fall of the pula against the dollar. A dividend of P8.7m was paid to the government, compared with P8.6m the previous year, which was the first year any dividends had been paid.

The Water Utilities Corp In November the Water Utilities Corp signed a loan agreement with the obtains a loan Development Bank of South Africa for P190m ($50m) to finance part of the cost of the north-south water pipeline. The loan is guaranteed by the Botswana government. It has a 20-year repayment period after a five-year grace period and a fixed 15% interest rate. This compares with a current prime rate of 14% domestically with no grace period.

An environmental group An environmental organisation, Earthlife Namibia, has proposed a combined proposes alternatives to gas power and desalination scheme as an alternative to two controversial the Okavango pipeline projects, the Epupa hydroelectric scheme and the Okavango pipeline. The proposed scheme involves a 12-inch gas pipeline from Oranjemund to Walvis Bay,

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a 250-mw gas power station and desalination plant at Walvis Bay and a water pipeline from there to Swakopmund. Earthlife Namibia pointed out that the dam for Epupa would lose 900m cu metres of water each year, 45 times the amount proposed to be extracted from the Okavango. The organisation claimed that its preferred scheme, which is estimated would cost N$3,266m ($660m), would be N$966m ($194m) cheaper as well as more environmentally sound.

Mining

Diamond sales are up— A spokesman for Debswana (which is owned equally by the South African diamond giant DeBeers and the Botswana government) reported in December that, along with other producers selling to the Central Selling Organisation (CSO), it had been called upon to supply “a little more than their entitlement” under the prevailing quota. Diamond exports are indeed reported to be 9% up in dollar terms for the third quarter of 1997, compared with the first two quarters. This cannot be attributed to any increase in rated capacity and can only be attributed to a very limited degree to price increases. Presumably the CSO is reluctant to raise the quota formally while doubts still exist about the robustness of the agreement between the CSO and a Russian diamond pro- ducer, Almazy-Rossii-Sakha (Alrosa), which came into effect on December 1st (4th quarter 1997, page 22). The Russian government removed Alrosa’s sales monopoly in July and this could mean that sales from the Russian stockpile will continue to breach the spirit of the agreement with Alrosa.

—and De Beers keeps on De Beers spent P20m ($5m) to bring the small Sesulela diamond mine, located prospecting near Lerala in eastern Botswana, into production, according to Tswapong Mining’s chairman, Robin Crawford. (Tswapong Mining is a subsidiary of De Beers Prospecting.) According to Mr Crawford, P10m of this was invested in prospecting. The mining lease had been granted for only four years owing to uncertainty about the viability of the mine. If the project is worthwhile, the company will approach the government for an extension of the lease or for the absorption of the company into Debswana once the lease expires. The mine employs 29 people, excluding the mining contractor and temporary employees. Since operations started on September 24th, 10,000 tonnes of ore have been treated.

Bangwato Concessions Ltd The fall in metal prices (particularly of nickel) again led to financial problems resorts to emergency for Bangwato Concessions Ltd (BCL) in 1997. According to the terms of a funding standing agreement between the shareholders to provide emergency funding, BCL’s shareholders (the Botswana government, De Beers and Anglo American) agreed in October to inject P11m ($3m) to keep the company solvent. Two- thirds of this will come from the government. The last time emergency funding was necessary was during the scheduled closure of the smelter for reconstruc- tion in 1995, when P20m was required. This was fully repaid with interest in 1997. In October BCL’s managing director, Johnny Rech, stated that the company was relying on voluntary retrenchment and early retirement to cut 800 jobs from its current level of 5,300 and had opened negotiations with the union on the subject. He added that P30m a year had to be saved in operating costs. The minister of mineral resources, energy and water affairs, David

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Magang, attributed part of the financial problems to falling nickel grades. Councillors were critical of the mine’s management and accused it of feather- bedding its 172 expatriate employees and failing to replace its foreign work- force with locals.

BCL is about to benefit from a contract funded under the EU’s Sysmin support for African, Caribbean and Pacific countries whose mining industries suffer from fluctuating prices for their products. The $38m loan will fund a programme to deepen the shaft of the Selebi North Mine to reach new, higher quality ore, equip the shaft and carry out exploratory drilling to identify new ore bodies. Mr Magang explained that it is hoped that the programme will enable the life of the mine to be extended beyond the current estimate of 2011. Further exploration of the Tati mine near Francistown will also be funded under Sysmin, he added.

Aid

The Norwegian embassy The Norwegian government closed its embassy in Botswana at the end of 1997 closes as the country was judged to have reached an income status which precluded further aid from Norway, according to the chargé d’affaires, Oskar Oskarsson. Since the embassy opened in 1972 Botswana has received grants totalling P850m ($220m). An office of technical co-operation will, however, remain open to complete existing projects, some of which are due to continue for another five years, and an honorary consul will be appointed to oversee diplo- matic matters. Before withdrawing, Norway signed a P6m grant for technical assistance for road infrastructure, which will continue until 2000 and cover the secondment of experts to Botswana as well as the training of Batswana in Norway. In addition, Norway granted P12.5m to fund research and training for the Department of Wildlife and National Parks over the next five years. Post- graduate students will be trained and research conducted into the eco-systems of the country and sustainable utilisation of wildlife.

Botswana receives grant The EU is supporting trade diversification and export promotion with a tech- assistance— nical assistance programme costing Ecu1.7m ($1.9m) aimed at the Trade and Investment Promotion Agency (TIPA) to Botswana. The Department of Tourism will receive technical assistance from the EU under a separate programme estimated to cost Ecu1.9m. The EU is also funding an Ecu17m project to build and equip a vocational teacher-training college and a vocational training centre in Francistown.

Veld Products Research (VPR), the non-governmental organisation based in Gabane, west of Gaborone, signed an agreement in October with the Danish Co-operation for Environmental Development aid organisation to obtain a grant. VPR is involved in developing the sustainable utilisation and management of natural resource products and natural resources for environmental and economic development.

—and funding from the Botswana is to receive funding from both the Kuwait Fund and the Arab Bank Kuwait Fund and for Economic Development in Africa (BADEA) for the construction of the the BADEA Ghanzi-Sehitwa road, estimated to cost P120m ($31m). This section of road has

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acquired greater importance with the construction of the Ghanzi–Mamuno road which is connected to the Namibian network. The new road will provide a reasonable connection between southern Namibia and Zimbabwe and between Namibia and the main tourist areas of Botswana. Its construction will also complete a ring road around Botswana, connecting all the major centres of population and the district capitals.

Debswana inaugurates the Debswana’s managing director and chairman of Anglo American Botswana, Oppenheimer memorial Louis Nchindo, gave a cheque for P4m ($1m) to the University of Botswana at fund the end of December towards the setting-up of the Harry Oppenheimer Okavango Research Centre in Maun. Of the total, P1m came from Debswana, P2m from Dicorbot (the De Beers Botswana diamond purchasing subsidiary), and the remainder from Anglo American. In his presentation, Mr Nchindo stressed the companies’ view that the preservation of the unique environment of the Okavango was of paramount importance not only to Botswana but to the planet as a whole. The total cost of the centre is estimated at P9m. The centre already has a director, Lars Ramberg from Sweden, who participated in the second wetlands management conference in Maun in November organised under the auspices of the UN Development Programme. Botswana signed the international convention on wetlands—known as the Ramsar convention—in April 1997, which committed it to developing a policy on wetlands management and which is seen as strengthening its position with respect to Namibia’s plans to draw water from the Okavango.

Foreign trade and payments

1997 was a bumper year The performance of diamond exports over the last two years has been phe- for diamond exports— nomenal even in dollar terms. In pula terms, quarterly exports have risen from P915m ($238m) in the 3rd quarter of 1995 to P1.97bn in the third quarter of 1997. Capacity was increased by 20% through the commissioning of the Jwaneng mine’s fourth stream (in April 1995) and by a further 16% with the introduction of continuous working at the beginning of 1997. The remaining increase is attributable to diamond price increases, particularly for the higher quality stones, and to the delivery above quota that was authorised by the CSO (see Mining). The latter probably accounts for the 9% increase in dollar terms in the third quarter of 1997 compared with the previous two quarters, which were static.

—but a mixed outturn for After experiencing difficulties with the South Africa customs authorities in other exports— mid-1996, vehicle exports have started to take off again. Exports in the third quarter of 1997 were 34.5% up on the second quarter, which in turn was 17% up on the first quarter. For the first nine months of 1997 vehicle exports were 21% up on the equivalent period in 1996. The performance of soda ash in 1997 continues to reflect the recovery after the problems with flooding at the beginning of 1996. In the first nine months of 1997, shipments have averaged 52% above the year-earlier period. However, third-quarter figures were slightly down from the second-quarter figures and are expected to stabilise around this level in future. The value of copper-nickel exports suffered owing to the downturn in world prices, showing a 30% drop in dollar terms. Beef exports were also

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 24 Botswana

disappointing, reflecting the continuing problems resulting from the bovine spongiform encephalopathy (BSE) crisis in Europe.

—raising foreign reserves The increase in export revenue was 28% in pula terms and 12% in dollar terms for the first nine months of the year compared with the same period in 1996. The third quarter showed a 12% increase on the second quarter in both curren- cies. Foreign-exchange reserves rose to $5.6bn at the end of August 1997, an increase of 17% in 12 months, another record high.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 Lesotho 25

Lesotho

Political structure

Official name Kingdom of Lesotho

Form of state Monarchy

Legal system Based on Roman-Dutch law

National legislature Bicameral National Assembly elected according to the terms of the 1993 constitution; 65 members elected in the lower house; 33 non-elected members in the upper house (Senate), 11 nominated by the king on the advice of the prime minister, plus the 22 principal chiefs of Lesotho

National elections March 1993 (legislative); next election due March 1998

Head of state Monarch, succession governed by custom; King Letsie III sworn in on February 7th 1996

National government Prime minister and a 16-member cabinet, first appointed in April 1993 and last reshuffled in May 1996

Main political parties Party political organisation was legalised in May 1991 and the main parties include: the Lesotho Congress for Democracy (LCD, the ruling party); the Basotholand Congress Party (BCP); the Basotho National Party (BNP); the Marematlou Freedom Party (MFP); Kopanang Basotho Party (KBP); the Popular Front for Democracy (PFD); the Progressive National Party (PNP); the Lesotho Labour Party (LLP); the Communist Party of Lesotho (CPL)

The government

Prime minister, defence & public services Ntsu Mokhehle Deputy prime minister, home affairs & local government Pakalitha Mosisili

Key ministers Agriculture, co-operatives & youth affairs Mopshatla Mabitle Education & manpower development Lesao Lehohla Finance & economic planning Victor Ketso Foreign affairs Kelebone Maope Health & social welfare Tefo Mabote Information & broadcasting Monyane Moleleki Justice, human rights, legal & constitutional affairs Sephiri Motanyane Labour & employment Notsi Molopo Natural resources Shakhane Mokhehle Tourism, sports & culture Pasho Mochesane Trade & industry Lira Motete Transport & communications Mamoshebi Kabi Works Mohaila Mohale Without portfolio Thabiso Qhojeng

Central Bank governor Anthony Maruping

Economic structure

Economic indicators 1993 1994 1995 1996a 1997a GDP at market pricesb (M m) 2,286.2 2,694.4 3,088.5c 3,499.4c 4,900.0 Real GDP growthb (%) 5.6 11.9 9.8c 10.0c 10.0 Consumer price inflation (%) 13.1 7.1 9.2c 9.3c 11.0 Population (m) 1.94 2.00 2.05 2.11 2.15 Exports fob ($ m) 134 144 160 191 200 Imports fob ($ m) 868 810 850 860 880 Current account ($ m) 29 108 140a 55 20 Reserves excl gold (year-end; $ m) 252.7 372.6 456.7 460.5d 600 Total external debt ($ m) 530 602 659 740 780 External debt-service ratio (paid; %) 5.3 5.3 6.6 4.7c 4.5 Migrant miners (’000) 116.2 112.7 103.7 101.2 88.0 Exchange rate (av; M:$) 3.264 3.551 3.627 4.271d 4.680

January 16th 1998 M4.971:$1

Origins of gross domestic product 1995bc % of total Components of gross domestic product 1995bc % of total Agriculture 10.1 Private consumption 79.7 Industry 55.5 Public consumption 21.0 Manufacturing 18.1 Gross domestic investment 100.5 Services 34.4 Exports of goods & services 21.8 GDP at factor cost 100.0 Imports of goods & services –123.0 GDP at market prices 100.0

Principal exports 1995 $ m Principal imports 1995 $ m Manufactures 143 Capital goods 368 Food & live animals 11 Food 328 Diamonds 7 Fuel and energy 216 Total incl others 168 Total incl others 1,168

Main destinations of exports 1995 % of total Main origins of imports 1994c % of total Southern African Customs Union 53.0 Southern African Customs Union 81.8 North America 40.9 Asia 13.1 EU 5.0 EU 2.7 a EIU estimates. b Fiscal years starting April 1st. c Official estimates. d Actual.

Outlook for 1998-99

With Mr Mokhehle, LCD Despite some administrative shortcomings, it is likely that every effort will be will win the election— made to meet the election date at the end of March 1998. However some delay may be unavoidable, and the date may be pushed back for a few months. The prime minister, Ntsu Mokhehle, and the new Lesotho Congress for Democracy party (LCD) still have the advantage because of Mr Mokhehle’s popularity in the country, and are favoured to win as long as Mr Mokhehle stays on as leader. (In June 1997 Mr Mokhehle defected from the Basotholand Congress Party (BCP) to form the new LCD.) Support for the LCD is strongest in the rural areas, which gives the party a clear edge as only about 30% of the population is urban. However, a repetition by the LCD of the kind of electoral landslide which the former ruling party, the BCP, won in 1993 is highly unlikely. Many BCP district committees have stayed with the party rather than follow their MPs into the LCD, and this could give an organisational edge to the BCP in some areas. Another consideration is the alliance between the BCP, the Basotho National Party (BNP) and the Marematlou Freedom Party (MFP). It is questionable whether this will hold in the long run, but is expected to last at least until the election, at which it will present a united opposition front to the LCD. Even so, this is unlikely to secure victory for the alliance. Its parties will face difficulties agreeing on how to share out the constituencies and preparing a plausible joint platform in the short time available. There are also questions as to whether the BNP and the MFP could in fact attract more support if they were to stand alone rather than within the alliance. Both BNP and MFP leader- ship still seem to be dominated by the old guard and the parties do not appear to have made much progress outside their traditional areas of support.

—which seems likely to be The chairman of the Independent Electoral Commission (IEC) has expressed delayed concern that preparations for the election are moving too slowly to meet the polling date set for some time in March 1998 (4th quarter 1997, pages 33-34)— a specific date has yet to be fixed. According to an announcement by the IEC, voter registration in the capital, Maseru, began in early January, and the election is rumoured to have been delayed until April or May. Delays seem to be primarily the result of the commission’s own inefficient organisation and do not reflect any desire by the government to delay the election. In fact the government has strong motivation to go to the polls as soon as possible: in the wake of the split, the Mokhehle administration’s moral and constitutional legitimacy is being strongly challenged by opposition parties, and its ability to conduct any meaningful business is hampered by the Senate’s refusal to consider new legislation (4th quarter 1997, page 30). The election—which the LCD is likely to win—therefore presents the LCD with the best opportunity to end the governmental deadlock and restore its legitimacy. The recent release of Makara Sekauta, the leader of the United Party—who was imprisoned in 1995 for his involvement in a coup attempt—seems to be a further sign that the government is committed to a free and fair election. Meanwhile, the de facto opposition parties, including the BCP rump left in parliament, are equally eager to see the election proceed without further delay.

Detention of the chief The detention of Hae Phoofolo, chief counsel for the defence in the trial of 33 counsel jeopardises a policemen accused of treason after they seized police headquarters in February police trial 1997 (2nd quarter 1997, page 30; 3rd quarter 1997, page 25) raises concerns about the possibility of the trial proceeding fairly. Mr Phoofolo is expected to be charged for his alleged involvement in activities aimed at overthrowing the government (see Review). How solid the basis for the charges against Mr Phoofolo is remains to be seen. Mr Phoofolo’s opposition to the Mokhehle administration cannot be doubted—he led the abortive interim administration in August 1994 after Mr Mokhehle was dismissed by King Letsie III, and the government’s dislike of him is equally obvious. The timing of Mr Phoofolo’s arrest and the dubious nature of the allegations against him cast further doubt on the legitimacy of the government’s actions. At the very least the effective- ness of the defence in the police trial will be compromised and, even if Mr Phoofolo were to be released shortly, he might not be able to continue in the role of chief counsel, which could make it easier for the government to secure convictions. The Mokhehle government seems to be attempting to root out elements within the police force that have been unsupportive of it in the past and in doing so is relying heavily on the support of the police force. Nonetheless, it will have to remain wary of the rank and file who are less loyal and may feel antagonised by its handling of the trial.

The LHDA is bullish about The recent signing of agreements for new foreign financing and for the civil- Lesotho’s economic future works component of Phase 1B of the Highland Water Scheme have ensured that Lesotho will sustain its current level of economic performance well into the next decade, both through the direct impact of the scheme on investment, income and employment levels and through the spin-off into other industries and services. Nonetheless there are lingering concerns that many of the bene- fits will continue to go elsewhere. Much of the interest by South African banks in financing Phase 1B may be a result of the expectation that a large proportion of the civil works and ancillary contracts will go to South African firms. Even so, the Lesotho Highlands Development Authority (LHDA) has boosted Lesotho’s economy in all areas, although this is primarily reflected in the services sector—which accounts for about 35% of GDP—rather than in manufacturing. For the duration of Phase 1B—until end-2003—we expect annual real GDP growth to be maintained at a rate of 10% on average.

Lesotho: gross domestic product (a) Lesotho: loti real exchange rate (d) % change, year on year 1980=100

14 100 Lesotho 12 Africa 90 10 R:US$

8 80

6 70 4 M:US$

2 60

0 1993 94 95(b) 96(b) 97(c) 50 (a) Fiscal years starting April 1st. (b) Official estimates. Z$:US$ (c) EIU estimates. (d) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. 82 . 84 . 86 . 88 . 90 . 92 . 94 . 9697(c) . Outlook.

Review

The political scene

Mr Phoofolo is detained On December 18th a prominent lawyer and human rights activist, Hae on treason charges— Phoofolo, was arrested and detained on charges of treason. The move surprised most observers, coming as it did in the middle of the trial of 33 police officers— accused of sedition, treason and contravention of the Internal Security Act—in which Mr Phoofolo is chief defence counsel. The government’s case against Mr Phoofolo appears to be based on his involvement in a number of meetings which took place in June 1997 at which members of the armed forces were allegedly recruited to help topple the government. His case is linked to that of Private Mokitimi Senekane and Sergeant Thabo Tsukulu against whom treason charges have already been levelled for laying siege to police headquarters in protest against the detention of the 33 policemen (4th quarter 1997, page 34). Mr Phoofolo has been specifically charged with conspiring to secure the release of the 33 accused officers while they were in detention. Such a charge is evidently aimed at compromising Mr Phoofolo’s ability to continue to defend his clients, and reduces the prospects of a successful defence being mounted for the 33 officers.

Mr Phoofolo was reportedly remanded until January 2nd 1998, but he has not yet been released, and an application for bail has been turned down. The prospects for an early settlement in Mr Phoofolo’s case are not good, given the slowness of the Lesotho judicial system and the government’s department of public prosecutions. Mr Phoofolo has long been a thorn in the side of the Mokhehle administration: he has been active in a number of cases in which the government stood accused of human rights violations, and was the main pro- tagonist in the short-lived administration of August 1994 that was appointed by King Letsie III in place of the Mokhehle administration.

—which may disrupt the Preliminary proceedings in the Royal Lesotho Mounted Police mutiny trial got ongoing police trial under way in December in the Lesotho High Court under strong security measures. Some concerns had been expressed about the length of time that had been taken to bring the case to trial and about whether it was still legal to hold the accused for so long pending trial. Mr Phoofolo, the chief counsel for the defence, clashed on a number of occasions with the director of public prosecutions, Sipho Mdhuli, and with the presiding judge, Tseliso Monaphathi. Mr Phoofolo argued that as the accused had been remanded in custody in February 1997 and had not been brought to trial within six months, they should be released according to Lesotho law. The government appeared to be fiercely opposed to any such possibility given the serious nature of the charges levelled against the accused. Mr Mdhuli was questioned about the delay in preparing the case in light of its importance, but maintained the position that the voluminous material relating to the case, rather than any other consideration, had caused the delay. Having initially indicated that he would rule on the request for release by December 16th Justice Monaphathi postponed the ruling that day. Two days later Mr Phoofolo was arrested and detained.

The Senate sticks to its ban The ban on passing legislation which the Senate imposed in October 1997 in protest against the Mokhehle defection continues, and King Letsie III has yet to respond to the Senate’s request to dissolve parliament (4th quarter 1997, page 32). The foreign affairs minister, Kelebone Maope, has indicated that the lower house could still proceed to pass legislation, given the provision in the constitution that any bill could be regarded as passed if not debated in the upper house within a period of 30 days. The government will have to decide whether it would be politically prudent to invoke this constitutional provision so close to the election. The leader of the Senate, Vincent Malebo, remains confident that government business will be stifled, and a majority of the members of the Senate, including the principal chiefs, appear to support a ban. However, as it appears unlikely that the king is going to respond positively to the Senate request to dissolve parliament, there is a chance that opposition groups may back down and allow business to resume in the near future. The likelihood of this would be greatly increased if a specific date were to be set for the election— at present it is due to take place some time before the end of March.

The police reform bill The police bill—which was proposed in early December by the deputy prime may be delayed minister and minister of home affairs, Pakalitha Mosisili—has become a casu- alty of the deadlock in the Senate. The objectives of the bill are to strengthen parliamentary oversight of the police force, increase accountability and promote reforms to increase the capacity of the police to fight crime. The under- lying objective is to move the police force towards the role of a traditional civilian force and away from the paramilitary role it has, more often than not, played since Lesotho’s independence in 1996. These reforms are expected to attract a lot of support outside the ruling Lesotho Congress for Democracy party (LCD), and the Basotho National Party (BNP) has already spoken up about the need for such reform. The reaction within the police force itself is likely to be mixed, and the government will need to be sure that senior officers are firmly behind the initiative.

King Letsie III is The huge turnout at King Letsie III’s coronation on October 31st 1997 amply intervening less demonstrated the domestic popularity of the monarchy (4th quarter 1997, page 34). The monarchy and the chieftanship system have always been integral parts of Lesotho’s history and culture, but since independence it has sometimes proved difficult to reconcile them with the modern structures of government. Nonetheless there is broad national support for the notion of a constitutional monarchy. The chieftanship has been integrated into the process of government by having all 22 principal chiefs sit in the Senate, and recently the monarch and the senior chiefs have been increasingly cautious about using any residual powers they may still possess to interfere with government. King Letsie III’s refusal to get involved in the aftermath of the June 1997 “coup” is in marked contrast to his impetuous actions in dismissing the government in August 1994, and suggests that he has now recognised the constitutional con- straints of his role as monarch.

The electoral commission The Independent Electoral Commission (IEC) has been in business since mid- experiences difficulties September but faces a formidable amount of work in order to be ready for the election by the constitutionally mandated date of March 1998. The IEC,

through its chairman, Scara Mafisa, has not been reticent to criticise the conditions under which it is expected to work and to point out that it could benefit from more co-operation from the government than it feels it has been getting. Although the outgoing chief electoral officer, Lebohang Sepane, has reacted sharply to implications that his office is not being co-operative, current concerns about delays are mainly a result of initial procrastination by his team.

Mr Mosisili seeks to Mr Mokhehle’s June 1997 “coup” (when he defected from the BCP to form the explain developments to LCD) has essentially not changed the composition of the government and has Lesotho’s neighbours not elicited any strong negative reaction from Lesotho’s neighbours (4th quarter 1997, page 33). The government has nonetheless been careful to maintain open lines of communication with the key regional countries and has sought to explain the rationale behind the changes and any possible implications for the subregion. In mid-October the deputy prime minister, Mr Mosisili, led a delegation to Zimbabwe to confer with President Robert Mugabe. He has also visited President Nelson Mandela of South Africa and President Quett Kemumile Masire of Botswana, the other two members of the “contact group”—a loose grouping of South Africa, Zimbabwe, Botswana and Lesotho that evolved in the wake of the governmental crisis in Lesotho in 1994. There are not expected to be any changes in the opinions of the leaders of the contact group pending these meetings.

The economy

There is a small The IMF has issued some revisions to its estimates for gross domestic product downward revision in which indicate slightly lower growth rates in 1995 and 1996. In fiscal year GDP figures— 1995/96 (April-March) GDP exceeded M3bn ($600m) for the first time, with a real growth rate of an estimated 9.8% on 1994/95, compared with the earlier official estimate of 10.4%. This rate of growth still places Lesotho at the top of Sub-Saharan Africa’s growth performance table and assures real GDP per head growth for the third consecutive year. The new data point to a downward revision of the 1996 figures to M3.6bn for GDP at market prices and a real growth rate of about 10% rather than the official estimate of 14%. This 10% rate of growth could be maintained over the balance of the decade given the positive impact of Phase 1B of the Highland Water Scheme and a continued strong performance in the manufacturing sector. Although Lesotho is currently the smallest economy in the Southern African Development Community (SADC), the EIU expects it to start to catch up with Swaziland and Mozambique and to account for close to 1% of SADC’s GDP by 2000, compared with only 0.4% at the beginning of the 1990s. However, Lesotho will be paying close attention to gold prices, which have been declining in 1997 but are expected to recover slightly in 1998, as many South African mines—which employ 63,000 Basothos—are forced to cut jobs or shut down operations entirely.

—while growth in Latest IMF data on the composition of gross domestic product indicate that domestic investment gross domestic investment increased strongly in 1995/96, fuelled by strong remains strong import growth and continued success in holding down public consumption. Gross domestic investment exceeded 100% of GDP in 1995/96 compared with its recent historical average of 65-70%. However, much of the 1995/96 figure

can be attributed to the Highland Water Scheme as this period coincided with the completion of the principal elements of Phase 1A of the project. This also explains import levels of 136% of GDP in 1995/96, although in the past the ratio has reached this level when its imports were channelled to a much greater extent into private consumption. Public consumption, at 21% of GDP in 1995/96, is more or less holding its level of previous years, whereas private consumption appears to have borne the brunt of a slow-down in the growth of current spending, at 79% of GDP in 1995/96. In previous years the current spending/GDP ratio averaged over 90%, peaking at over 100% in 1990/91. The decline in private consumption lends some credence to the criticism that Lesotho’s economic policy has not succeeded in raising living standards (4th quarter 1997, page 31). A stronger rate of export growth would help, but so far the progress in the export manufacturing sector has not yet been suffi- cient to make much of an impact on living standards. In 1995/96 exports were 26% of GDP and covered 19% of imports compared with 1990/91 when exports were 15% of GDP and covered 12% of imports.

Inflation holds steady in Latest IMF data suggest no worsening of the rate of inflation in the first half of the first half of 1997 1997. In mid-1997 (end-June), the year-on-year rate of inflation in Lesotho was 8.8%, compared with 9.3% at end-1996. We expect that the rate did increase, perhaps to over 10%, by the end of the year as a result of drought-induced increases in food prices.

There is some moderation Data for end-June 1997 suggest some moderation in the rate of growth of in the rate of growth of money supply and continued sound management of monetary aggregates by money supply the authorities and the banking system. Money and quasi-money grew by only 3.2% over the first six months of 1997 and by 10.6% during July 1996-June 1997. Domestic credit has continued to contract in this same period and it is of some concern that there has been relatively little increase in new credit to the private sector. Total domestic credit was more than M1bn in deficit by the end of June 1997 owing to the continued compression of government indebtedness to the banking system. During July 1996-June 1997 credit to the private sector rose by 9% over 1996 levels to M720m ($146m). The second quarter of 1997 saw some changes in interest rates which may have a marginal effect on new credit creation; the prime lending rate fell from 18.5% to 18.1%. Lesotho’s net foreign asset position has continued to strengthen, reaching M2.5bn at the end of June 1997, up by 28% year on year. Official reserves now cover nearly six months of imports of goods and services.

The 1996/97 fiscal surplus Latest IMF estimates for the 1996/97 fiscal year suggest that Lesotho achieved a is estimated at 3.7% fiscal surplus of 3.7% of GDP, a slight improvement on the preceding year and of GDP the fifth successive year in which a surplus has been recorded. However, if grants are excluded from revenue, a deficit of M66m is recorded which is consistent with the finance minister’s presentation of the 1997/98 budget which pointed to an excess of expenditure over revenue in 1996/97. The outturn is in fact the worst since 1991/92 and illustrates that external financing is still a critical factor in the budget. However, there were exceptional circum- stances in 1996/97, in particular a much higher outturn on capital expenditure than forecast as a result of the Highland Water Scheme. Total expenditure rose

by 21% compared with that in 1995/96. The target for Lesotho in 1996/97 under its structural adjustment programme was a surplus after grants of M81.6m.

Major works contracts are On the same day as the signing of the financing agreement, Lesotho Highlands signed for Phase 1B of the Development Authority (LHDA) reached an agreement with the consortium of Highland Water Scheme contractors which will be responsible for the civil works of Phase 1B of the Highland Water Scheme. The consortium is led by Hochtief of Germany and includes Concor of South Africa and Impreglio of Italy. Two separate companies have been created—Mohale Tunnel Contractors and Matsoku Civil Contractors—to carry out the work under two separate contracts. For the Mo- hale Tunnel the contract is valued at M665m ($131m) and includes two tunnel boring machines, the sinking of a 90-metre intake shaft and all mechanical and electrical equipment. For the Matsoku Diversion the contract is valued at M180m ($40m) and includes the construction of a 15-metre concrete weir to divert 50 cu metres per second of water into the tunnel.

Drought and a poor The El Niño climatic phenomenon has affected the pattern of wet season 1997/98 harvest are rainfall in Southern Africa largely to the detriment of Lesotho. With the main looking more likely rains staying further north than usual, Lesotho is part of a belt in the southern part of the region with lower than average rainfall in November and early December (4th quarter 1997, page 35). This is after reasonably good rains in the early part of the season had induced an early start to land preparation and planting of the summer crop. The SADC Food Security Technical Assistance Unit (FSTAU) has reported that 70% of prepared land was planted by late September. Continuation of dry conditions into early January will have affected the development of the maize crop and the yield from the winter wheat crop will certainly be down because of late-season dry conditions.

The FSTAU has revised the estimates based on the end-September position for the availability of cereals in Lesotho for the 1997/98 marketing year. With a total harvest of 109,000 tonnes in 1996/97 and relatively large carry-over stocks of 43,000 tonnes, the shortfall has been revised downwards from 315,000 to 301,000 tonnes. Nonetheless it remains a substantial shortfall compared with the average shortfall of 240,000 tonnes—77,000 tonnes of imports against this shortfall are already reported as having been contracted and 12,100 tonnes of food aid have been designated for previously identified vulnerable groups. Food availability has also been improved by policy measures taken to liberalise the sale and importation of maize and wheat flour.

The Disaster Management Authority has already put certain measures into place in anticipation of food shortages in the second half of the 1997/98 marketing year and a national drought relief plan has been put together as a contingency plan. The government will probably consider extraordinary assistance to farmers such as free or subsidised tractor services and fertiliser provision to help them cope with the drought.

Flour mills are next in line After some initial delays, there is every indication that Lesotho is firmly com- for privatisation mitted to the implementation of its privatisation programme (4th quarter 1997, page 37). After the successful divestiture of Lesotho Airways, the next

enterprise scheduled for privatisation is Lesotho Flour Mills (LFM). LFM was established as part of the government’s previous strategy aimed at increasing food self-reliance, although most of the grain used to make flour was and still is imported. Although LFM was profitable in its early years, this was the result of marketing and pricing controls which gave it monopoly selling powers for its main products. With the new agricultural policy—in place since 1995—and the progressive removal of controls, the original argument for LFM no longer holds. Through privatisation, the government aims to improve LFM’s fiscal performance by eliminating all remaining subsidies. The privatisation has attracted significant interest and five firms are reported to have qualified for further consideration. A US company, Seaboard, is reportedly the front-runner. As part of a possible deal, some non-core activities such as sugar packing and distributing may be spun off and sold to a local or subregional company. The privatisation unit in the Ministry of Finance and Economic Planning has indicated that Lesotho Pharmaceutical Corporation and the government garage are likely to be the next privatisations to go forward.

LNDC defends Lesotho’s The investment promotion centre in the Lesotho National Development Corp record on foreign (LNDC) published a statement in the Lesotho press in early December refuting investment a number of allegations about the content and conduct of Lesotho’s policies towards foreign investment which had appeared in the September/October issue of a local publication, Public Eye. The article in question repeats the frequent accusation that Lesotho has attracted foreign investment only by condoning “slave labour” practices. In response, LNDC has argued that while wages in Lesotho are lower than in South Africa, they are higher than in other countries in the subregion. In fact wage rates are not out of line with what might be expected given comparative levels of per capita income. Perhaps more importantly, labour legislation and the labour inspectorate are ineffec- tive. The inspectorate has failed to monitor potential abuses of workers’ rights. Lesotho has repeatedly found itself subject to international criticism on the subject in the past.

Foreign trade and payments

There is new foreign On December 19th a consortium of HSBC Investment Bank and Crédit financing for the Lyonnais signed an agreement with the Lesotho Highlands Development Highland Water Scheme Authority (LHDA) for a loan of $51m to support the foreign-exchange costs of works under Phase 1B of the Highland Water Scheme. The principal works involved in Phase 1B are the construction of the 32-km Mohale Tunnel and the Matsoku Diversion Works—the 155-metre high Mohale Dam will be part of the next stage of the project. LHDA reports that it anticipates that the European Investment Bank will also make a major contribution to the cost of the works in 1998: $59m have been set aside for this purpose under the EU’s new financing framework agreement for Lesotho. The LDHA has already secured $270m from three South African-based banks for Phase 1B (4th quarter 1997, page 34).

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 Quarterly indicators and trade data 35

Quarterly indicators and trade data

Botswana: quarterly indicators of economic activity

1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices: 1990=100 184.1 187.5 192.6 197.8 202.6 205.5 210.4 216.3 220.1 222.4a change year on year % 10.5 10.6 10.4 10.3 10.0 9.6 9.2 9.4 8.6 n/a Money End-Qtr M1, seasonally adj: P m 812 833 846 877 963 951 1,027 1,058 1,039 n/a change year on year % 9.6 6.6 11.1 13.7 18.5 14.2 21.3 20.6 7.9 n/a Foreign trade Qtrly totals Exports fob P m 1,419.8 1,639.6 2,201.1 2,700.8 2,884.8 2,952.8 2,326.1 2,446.4 n/a n/a Imports cif “ 1,365.0 1,442.1 1,216.0 1,320.0 1,433.0 1,737.0 1,912.0 n/a n/a n/a Exchange holdings End-Qtr Foreign exchange $ m 4,684 4,695 4,648 4,724 4,903 5,028 5,310 5,490 5,528b n/a Exchange rate Market rate P:$ 2.803 2.822 3.066 3.370 3.519 3.644 3.542 3.593 3.698 3.791c

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for October-November. b End-August. c End-October.

Source: IMF, International Financial Statistics.

Lesotho: quarterly indicators of economic activity

1995 1996 1997 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Monthly av Consumer prices: 1990=100 182.1 188.1 190.7 194.4 200.2 204.1 208.3 211.7 217.8 n/a change year on year % 9.2 10.8 8.5 9.7 9.9 8.5 9.2 8.9 8.8 n/a Money End-Qtr M1, seasonally adj: M m 472.1 486.8 506.0 511.0 561.0 584.9 614.4 640.9 664.1 733.2 change year on year % 3.3 2.7 6.9 –0.6 18.8 20.1 21.4 25.4 18.4 25.4 Foreign trade Qtrly totals Exports fob M m 115.0 159.0 167.0 130.0 215.0 230.0 237.0 172.0 n/a n/a Imports cif “ 884.0 900.0 1,027.0 930.0 987.0 1,112.0 1,273.0 1,071.0 n/a n/a Exchange holdings End-Qtr Foreign exchange $ m 409.5 420.5 451.2 447.8 423.1 428.3 454.1 517.5 542.4 568.7 Exchange rate Market rate M:$ 3.636 3.650 3.648 3.981 4.334 4.530 4.683 4.423 4.531 4.662a

Note. Annual figures of most of the series shown above will be found in the Country Profile. a End-November, 4.856.

Source: IMF, International Financial Statistics.

EIU Country Report 1st quarter 1998 © The Economist Intelligence Unit Limited 1998 36 Quarterly indicators and trade data

Botswana and Lesotho: UK trade (£ ’000) Botswana Lesotho Jan-Sep Jan-Sep Jan-Sep Jan-Sep 1996 1997 1996 1997 UK exports fob Food, drink & tobacco 102 139 10 14 Chemicals 186 678 700 11 Textile yarn, fabrics & manufactures 1,106 653 19 0 Non-metallic mineral manufactures 4,320 2,702 1 0 Iron & steel 62 2 44 45 Metal manufactures 288 180 23 40 Machinery incl electric 3,455 2,234 277 3,222 Transport equipment 3,120 492 493 27 Clothing 40 128 2 0 Scientific instruments etc 1,235 1,112 17 74 Total incl others 15,896 15,504 1,717 3,665 UK imports cif Meat & preparations 16,053 13,911 0 0 Non-metallic mineral manufactures 24,888 87,339 0 0 Machinery & transport equipment 970 3,337 21 3 Clothing 530 621 16 97 Total incl others 42,788 105,442 60 100 Source: UK HM Customs & Excise, Business Monitor, MM20.