Botswana Lesotho

COUNTRY REPORT

Botswana Lesotho

4th quarter 1997

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 8 Review 8 The political scene 12 Economic policy 13 The economy 14 Finance 17 Education, health and social matters 18 Agriculture 19 Industry and commerce 20 Power, transport and communications 21 Water 22 Mining 24 Aid 25 Foreign trade and payments

Lesotho 27 Political structure 28 Economic structure 29 Outlook for 1998-99 32 Review 32 The political scene 34 The economy 36 Industry and commerce 37 Foreign trade and payments

38 Quarterly indicators and trade data

List of tables 8 Botswana: forecast summary 14 Botswana: consumer price inflation 26 Botswana: international reserves 26 Botswana: exports by principal commodity, Jan-Jun 35 Lesotho: demand and supply of cereals 37 Lesotho: quarterly trade data 38 Botswana: quarterly indicators of economic activity 38 Lesotho: quarterly indicators of economic activity 39 Botswana and Lesotho: UK trade

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List of figures 8 Botswana: gross domestic product 8 Botswana: pula real exchange rate 31 Lesotho: gross domestic product 31 Lesotho: loti real exchange rate

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November 5, 1997 Summary

4th quarter 1997

Botswana Outlook for 1998-99: A new party may take votes from both major parties. The BDP will have a tough fight on its hands to win the next election, but has the advantage of being able to give handouts at the next two budgets. A bill passed by parliament assures the vice-president of succession, and the president announced his resignation for March 1998. GDP growth should be robust over the next few years, driven by diamond exports, government spending and construction. El Niño may cause a bad drought in 1997/98.

Review: There were two resignations from the cabinet, but no reshuffle. The United Action Party was created. Both major parties held their congresses. The constitutional referendum approved several proposals but had a very low turnout. The government’s media bill was roundly criticised and shelved. NDP 8 was presented to parliament. Botswana’s low tax regime has so far failed to attract many companies. The Vision 2016 team presented its report and the government published a report on poverty. Inflation was further reduced and the stock exchange rose fast. The BDC is to issue a bond, while BoBCs continued to expand to mop up surplus liquidity. BIHL restructured to face growing competition in the insurance market. The banks reported high profits. Hyundai’s CKD factory is ahead of schedule and the BDC continued to profit from its divestiture programme. BPC and BTC posted large profits, and Air Botswana posted its first ever profit. Progress was made on the north-south water carrier project. The Orapa 2000 project made progress. Various aid projects are signed but the Peace Corps bids farewell. CITES approved ivory exports, Botswana increased its exports to Zimbabwe and production of diamonds, but the performance of other exports was more mixed.

Lesotho Outlook for 1998-99: Strife between the LCD and BCP will continue as the Senate refuses to debate any bills. The outcome of elections scheduled for 1998 is unclear. Dismissals of migrant workers in South Africa are expected to increase. The low world price of gold will have a negative impact on the economy.

Review: Ntsu Mokhehle has left the BCP taking the majority of MPs with him. His newly formed LCD is now the governing party and he is still prime minister. Qhobela Molapo has been elected BCP leader after the High Court mandated that national committee elections take place. The three man Independent Electoral Commission (IEC) has been appointed and elections are to take place before March 1998. New South African commercial financing is secured for Phase 1B of the Highlands Water Scheme. Environmental problems are being experienced with the diamond diggings. LNDC opens a major new Singaporean investment in the garment industry and appoints the first female chief executive. Lesotho Airways has been privatised. Expectations of food availability have been revised downwards.

Editor: Stephanie Wolters 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 & 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 1992 1993 1994 1995 1996a GDP at market pricesb P m 8,373 9,126 11,115 12,530 14,631c Real GDP growthb % 6.3 –0.2 4.0 3.5 6.8 Consumer price inflation % 16.1 14.3 10.6 10.5 10.1d Population m 1.39 1.44 1.49 1.54c 1.59 Exports fob $ m 1,744 1,722 1,878 2,160 2,304 Imports fob $ m 1,557 –1,455 –1,350 –1,579 –1,379 Current account $ m 244 503 243 338 671 Reserves excl gold $ m 3,845 4,153 4,462 4,764 5,098d Total external debt $ m 612 660 676 699 678 External debt-service ratio, paid % 4.0 3.7 4.0 3.2 3.5 Diamond production m carats 15.9 14.7 15.6 16.8 17.7d Cattle slaughteringse ’000 214 181 158 166 140 Exchange rate (av) P:$ 2.133 2.419 2.683 2.772 3.324d

October 31, 1997 P3.72:$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 30. c Official estimate. d Actual. e Years ending September 30. f January-June.

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Outlook for 1998-99

The new party may be The political waters have been muddied by the emergence of a new political influential grouping, the United Action Party (UAP), led by Ephraim Setshwaelo, which may prove to have more staying power than most of the small breakaway groups that have been formed in the past. Significantly, while past splinter parties have been formed mostly by disaffected members of the opposition Botswana National Front (BNF), the UAP is positioning itself to appeal most to disaffected Botswana Democratic Party (BDP) members. The UAP lacks a rural power base, however, and may in fact do more damage to the BNF, many of whose current supporters in urban areas could be classed as ex-BDP supporters. It is likely to appeal most to the middle classes, who are fed up with the complacency and inefficiency of the ruling party and the allegations of corruption, but who are wary of the BNF’s radical rhetoric and doubtful of its capacity to govern.

Lowering the voting age The referendum result approving the lowering of the voting age to 18 is likely spells higher votes for the to increase the proportion of voters who support opposition parties. Official opposition— estimates are that the change will increase the voting roll by 37,000 people, with a higher proportion of urban voters. Although the official government position for a “yes” vote for this, as well as for two other propositions, some MPs, notably the party chairman and presidential hopeful, Ponatshego Kedikilwe, were decidedly ambivalent. On the other hand, his rival to succeed the president, Sir Quett Ketumile Masire, is the vice-president, Festus Mogae, who campaigned unequivocally for the change, clearly aligning himself with the more progressive wing. The difference is likely to have some effect on the outcome of the inevitable contest for the succession. Mr Kedikilwe may have strengthened his support among the old guard of the party, while Mr Mogae is staking his claim to be the more popular figure nationally and as the man who can present a modern image to the country at large. The low turnout for the referendum is being interpreted as a snub of the ruling party, but is unlikely to mean much in the long term.

—and the vice-president The passing of a bill which provides for the automatic succession of the vice- benefits from the passing president upon the president’s death or resignation, subject only to the ap- of a new bill proval of the National Assembly, has strengthened Mr Mogae’s position. With his successor secured, it is possible that Mr Masire—long expected to retire before the end of his term in 1999—will resign in the near future.

The BDP will use all its There is going to be a very difficult campaign for the 1999 general election, resources to win the which promises to be a close one, and the first since independence in which election the outcome is not a foregone conclusion. Preparations are under way for the 1998 budget, which the BDP will be relying on to put them in a good position for the 1999 election. It is likely, therefore, that there will be a sizeable increase in civil service salaries after several years of austerity, although Mr Mogae may hold this back for 1999. There will be a strong emphasis on infrastructural investment, particularly in water and sanitation, and there could be a construction boom which would lead to a reduction in unemployment in time for the election in October 1999. The rise of inflation, which has been falling steadily,

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is likely to accelerate slightly as a result of increased government spending in the run-up to the elections, and the civil service wage increases.

GDP growth is likely to be Taking into account a surge in diamond revenue in 1997, the EIU has revised strong its forecast for GDP growth upwards to 7.3%. Despite the widespread anticip- ation of a drought in 1998 as a result of the global weather phenomenon El Niño, we have not adjusted our forecast for GDP growth downwards. Agri- culture now only accounts for less than 4% of GDP and a drop in agricultural production should be more than offset by the demand created by the Orapa 2000 diamond project and other construction projects. Growth will remain strong in 1998, fuelled by the emphasis on infrastructure development in the Eighth National Development Plan (NDP 8), the easing of the budgetary constraint as a result of the unexpected surge in diamond revenue, and the pressure on the BDP to engineer a “feel-good” factor to help it win the next general election. Our forecast for GDP growth in 1999 remains optimistic. We anticipate that continued growth will be led by the government and construction sectors, while the easing of the diamond producers export quota by De Beers’ Central Selling Organisation (CSO) should also play a part.

Export experience will be After a major increase in diamond exports in 1997 which resulted from higher mixed diamond prices, exports are forecast to increase modestly until 1999 when the quota is expected to ease and exports will see another increase. A major rise can be expected once the Orapa 2000 project is complete, beyond the end of our forecast period. Our forecast for vehicle exports for 1997 has been reduced in light of the relatively modest achievement in the first half-year, but the speedy progress on the completely knocked-down (CKD) plant should enable performance in 1998 to be better than previously expected. This improvement should continue into 1999. The forecast for copper-nickel exports has been revised downwards in light of the decline in prices on world markets. No major changes in quantities are anticipated. Beef exports are unlikely to recover from the effect of the bovine spongiform encephalopathy (BSE) crisis and the Ngamiland cattle slaughter in 1997—the performance in the first half-year was dismal, but may pick up in 1998 as farmers decrease their herds to cope with the drought. A bad drought in 1998, can be expected to have a negative impact on exports in 1999, when destocking should not artificially boost the offtake and weights will be down. Textiles are reported to be performing in a lacklustre fashion and our forecast has been adjusted to reflect this.

Import growth will be Diamond figures have been revised upwards in 1996 and 1997 due to improved significant prices and increased production. The 1996 import figure has been revised downwards to $1.4bn, and this, in conjunction with the rise in diamond exports, has had a positive effect on the current account, which remains firmly in a surplus. We estimate a marked increase in imports for 1997 and 1998 due to the impact of increased civil service wages and the large-scale construction projects outlined in NDP 8. As diamond exports level off in 1998, increased imports will lead to a deterioration of the current account in 1998. We are forecasting further growth in imports and a continued decline in the current account in 1999 as the government prepares for the elections that year. In 1999 the levelling off of diamond exports will be balanced by the completion of the

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Hyundai CKD car plant set for the end of 1998 which will increase Botswana’s car exports.

Late note At the time of going to print Mr Masire announced his resignation for March 1998. The vice-president will be his successor.

Botswana: forecast summary ($ m unless otherwise indicated) 1996a 1997a 1998b 1999b Real GDP growth (%) 6.8 7.3 6.7 7.1 Consumer price inflation (%) 10.1c 9.0 10.0 11.0 Merchandise exports fob 2,304 2,731 2,880 3,082 of which: diamonds 1,625 2,050 2,100 2,250 vehicles 242 260 330 400 copper-nickel 124 100 105 110 beef 84 80 90 80 textiles 60 65 75 80 Merchandise imports fob 1,379 1,900 –2,112 2,200 Current-account balance 671 759 593 474 Average exchange rate (P:$) 3.324c 3.59 3.78 4.09

a EIU estimates. b EIU forecasts. c Actual.

Botswana: gross domestic product (a) Botswana: pula real exchange rate (d) % change, year on year 1990=100 Botswana 120 8 Africa 7 Rand:US$ 110 6

5 100 4 P:US$

3 90

1 80 n/a 0 Z$:US$ 1995 96(b) 97(b) 98(c) 99(c) 70 (a) Years ending June 30. (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 1990 91 92 93 94 95 9697(b) 97 98(c) 98 9999(c) Outlook.

Review

The political scene

Two cabinet ministers The resignation of the only MP of European origin, Roy Blackbeard, the minister resign— of agriculture, to take up the job of chief executive of the Botswana Meat Commission’s UK subsidiary with effect from October 1 prompted the first cabinet reshuffle since the general election of September 1994. The assistant minister of agriculture, Ronald Sebego, was promoted to minister of agriculture. At the same time the minister for local government, lands and housing, Patrick

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Balopi, who had announced his retirement on August 1, giving a month’s notice, was replaced by his deputy, Margaret Nasha. Commentators are wonder- ing why it took so long to announce the successors—Mr Blackbeard’s intentions were known in April—and why the opportunity was not used to undertake a more fundamental shake-up of the cabinet.

—and a new party is A new party, called the Bosele or United Action Party (UAP), and led by Ephraim registered Setshwaelo, the former director of the Botswana National Productivity Centre, was registered in September. This brings the total number of registered parties to 12, although only two are represented in parliament. Mr Setshwaelo was active in the Botswana Democratic Party (BDP) and served on its political and cultural committee in 1980. He spent seven years with the Economic Commission for Africa in Addis Ababa and was director of information and broadcasting for the Botswana government. In an interview, Mr Setshwaelo identified unemployment and moral decline, especially among the young, as the main problems facing the country and accused the ruling BDP of arrogance. The new party has yet to announce comprehensive policies but is likely to position itself to pick up support from disgruntled BDP supporters who believe in the market economy but want more action to combat corruption and unemployment. It clearly also hopes to attract some of those who have defected to the Botswana National Front (BNF) from the BDP, but who are not at ease with its more radical stance and have not been welcomed by the old guard. Indications are that the BNF is indeed worried by the new party. It has already attracted support from two former permanent secretaries of external affairs, Sam Mpuchane and Lebang Mpotokwane; a former senior official in the Bank of Botswana (the central bank), Richard Mutshekwane; a businessman and hydrogeologist, Comfort Molosiwa; and some university staff. The interim secretariat consists of Mr Setshwaelo, Mr Molosiwa, Mr Mutshekwane and Mmantsa Sekgororwane.

The established parties The BDP held its congress in Gaborone in July. Open disagreements between hold their annual the factions were avoided but only by extreme measures—the vote for the congresses central committee was postponed by one day as a result of a threatened boycott of the elections by the supporters of the external affairs minister, Mompati Merafhe, who, according to the weekly newspaper Mmegi, were heading for a disastrous defeat. All posts for the central committee of the party were filled without a vote as candidates were unopposed after an overnight compromise was thrashed out by 15 key members of the party, including the president. The vice-president, Festus Mogae, had already announced his decision to withdraw from the race for the chairmanship of the party. He claimed that he had only stood on the assumption that the incumbent, Ponatshego Kedikilwe, did not wish to stand again. In practice he must have hoped that he could pressurise Mr Kedikilwe into withdrawing, as the latter was bound to win so long as he had the backing of the secretary-general, Daniel Kwelagobe. Mr Mogae’s with- drawal could have been regarded as a severe danger for his chance to obtain the presidency once Sir Quett Ketumile Masire retires, but a defeat in a bid for the chairmanship would have been disastrous. The overall deal gives the Merafhe faction some seats on the committee, which they may not have gained if the matter had been put to an open vote, but confirms their junior status. All three of the top posts in the party are held by the Kwelagobe faction. Mr Kwelagobe

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remains as secretary-general and Satar Dada as treasurer. The Merafhe faction was content with the deputy secretary and deputy treasurer posts.

The BNF held its party congress in Gaborone in June. The secretary-general of the South African Communist Party was invited to open the congress, a gesture which seems at odds with BNF’s toned-down rhetoric on economic policy. It also sits uneasily with the conservatism of their only rural support, namely the BaNgwaketse (a sub-tribe of the Batswana). The party has always been an uneasy coalition between rural conservatives in Kanye who oppose the dominance of the BaMangwato (based in Serowe, Seretse Khama’s subtribe) and urban radicals, drawn to socialism. Kenneth Koma was unopposed as leader of the party and Michael Dingake fended off a challenge from the former secretary-general, Klaas Motshidisi, for the vice-presidency. Mr Motshidisi went on to lose his post as secretary-general to Gil Saleshando. A number of reasons have been cited for Mr Motshidisi’s demise, including his opposition to the occupancy of the luxury flats by BNF MPs, his hasty temper and his neglect of his duties. The party achieved its promise to have 30% female representation without having to use positive discrimination, as five women were elected to the committee in contested elections. However, allegations of irregularities in the elections were made by a large group of disappointed candidates and their supporters, who are now threatening to go to court over the issue.

The referendum approves The referendum on constitutional reform was held on October 4 despite a constitutional change motion passed by the Gaborone city council calling for a postponement to carry out a fresh voter registration exercise and all three referendum questions were passed. As it was, only the 370,000 people registered for the 1994 elections were able to vote, thus confining the electorate to those over the age of 24. The turnout was very low—16.7%—which, coupled with the fact that quite a large proportion of those eligible to vote had not registered, meant that only 10% of those of voting age went to the polls. The first question related to lowering the voting age to 18, the second to substituting an independent electoral commission for the supervisor of elections and the third concerned voting for citizens overseas. Only the first question was at all contentious, due to the traditional outlook of rural Batswana. The other two items, which were included in the bill but not subject to the referendum, restricted the presidential term of office to ten years and provided for the automatic succession of the vice-president on the death or resignation of the president, subject only to confirmation by the National Assembly. The question of automatic succession is the most controversial of all and may well determine who will succeed Mr Masire as president (see Outlook for 1998-99).

The media bill is Amnesty International and the International Press Institute (IPI), as well as the condemned International Federation of Journalists (IFJ) have joined a chorus of voices criticising the government’s mass media communications bill. The bill, which proposes setting up a partly government-appointed press with the power to fine and even imprison offenders, and which requires the licensing of all journalists, would give the minister of presidential affairs and public administration the right of refusal to register a publication. The director of IPI, Johann Fritz, claimed that the proposals contravene the Universal Declaration of Human Rights and a resolution protecting press freedom passed recently at a Southern African Development Community (SADC) meeting that was hosted

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by Botswana. Trade unions, non-governmental organisations (NGOs), Botswana Confederation of Commerce, Industry and Manpower (BOCCIM), the BNF and the independent press have all strongly criticised those aspects of the bill which pose a potential threat to the freedom of the press. In July the government bowed to the pressure and put the bill aside pending consultations with media representatives, after discussions with the Botswana chapter of the Media Institute of Southern Africa (MISA).

A new chief justice is Julian Nganunu was appointed to be the new chief justice at the age of 56 after appointed the death of Moleleki Mokama in July. Although he started his career as a lawyer in the attorney-general’s chambers, rising to be acting attorney-general, Mr Nganunu also worked as permanent secretary at the Ministry of Mineral Resources and Water Affairs. He then went into private practice as a lawyer and was appointed to the bench of the High Court in 1992. In this position he proved his independence by finding against the government on a number of occasions. He takes over the department of the administration of justice at a time of unprecedented criticism, low morale among magistrates that led to open talk of industrial action and complaints about poor administration and inordinate delays.

The Botswana Democratic The South African mining giant Anglo-American is sponsoring a study by the Party calls in outside help Markdata Scientific Research Institute of Pretoria into political opinion in Bot- swana. The weekly newspaper Mmegi claims to have high-level sources which say that this research is aimed at assisting the BDP, preparing its strategy for the next general election, due in 1999. This has been denied by Mr Kwelagobe. Anglo-American has confirmed that the study is taking place but has not commented on whether it is effectively commissioned by the BDP.

Land allocation problems The chaos surrounding land allocation in Mogoditshane, a village just west of continue Gaborone and the scene of the land scandal that cost Mr Kwelagobe his cabinet seat for a token year, has worsened. The demand for land for housing in this area, which lies within easy commuting distance of the capital, far outstrips supply, and the board in charge of allocation has lost control. It has a backlog of 21,000 applications and is receiving new applications at an average of 50 per day. It should be acquiring land from holders of traditional grazing and agricultural land rights on the fringes of the village to meet the demand, but the compensation offered for the release of such rights is very low. The holders prefer to “sell” sub-plots directly to people who then technically become squat- ters. Buyers are nevertheless prepared to risk paying considerably larger sums than the government on the warranted assumption that government will not enforce the law beyond demanding the fairly paltry fine of P5,000 ($1,344) for self-allocation. According to the law, the buildings on the plot could be razed and the traditional rights holder prosecuted.

An agreement with In October Botswana and Zimbabwe signed a joint communiqué on defence Zimbabwe is signed and security issues following talks between the minister for presidential affairs and public administration, Mr Kedikilwe, and Zimbabwe’s minister of state for national security, Dr Sydney Sekeramayi. Zimbabwe invited Botswana to at- tend the next meeting of the joint commission in Harare next year.

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The first ombudsman is Mr Masire announced the appointment of Botswana’s first ombudsman, the appointed lawyer Lithebe Maine, in October. He is expected to take up his duties at the beginning of December.

Economic policy

NDP 8 is presented to The vice-president presented the Eighth National Development Plan (NDP 8) parliament to the National Assembly in June. The new plan runs from April 1, 1997, to 2003. The plan proposes sustainable economic diversification as the main means to tackle the challenges of poverty and unemployment. Mr Mogae reit- erated that economic diversification depended primarily on the private sector and that government would continue to provide the necessary stable macroeconomic conditions and enabling environment. The main development programmes in the plan are: roads (P1.1bn; $296m); village water supplies and sanitation (P1.05bn); secondary schools (P720m); primary schools (P500m); the north-south water carrier (P450m); vocational training centres (P350m); and district hospitals (P250m). The vice-president claimed that the sums allo- cated to different sectors took into account implementation capacity, saying that during NDP 7 target expenditure was not achieved because of a lack of such capacity. He cited the 100% transition from primary to junior secondary education, which occurred in 1994, as the main achievement of NDP 7. He spoke of the need to improve productivity in the civil service, of the extension of the mixed loan/grant scheme from university to other tertiary education, and of the need for cost-recovery measures in the health service, either through user charges, social financing or insurance.

Privatisation draws closer The pace of privatisation is slowly beginning to pick up, and the permanent secretary for the ministry of local government, lands and housing, Elvidge Mhauli, has announced that the government is planning on issuing a white paper on the subject. The government has yet to respond formally to the report on privatisation commissioned by the BOCCIM in 1996. So far only the Borehole Repair Scheme and drilling services have been privatised. However, Air Botswana is being groomed (see Power, transport and communications), and notice has been served that cleaning and catering in at least some public hospitals will be privatised during NDP 8. The policy is not universally popular, however, and faces opposition both from the BNF and from some of the unions, notably the Manual Workers’ Union, which launched a week-long strike on wage issues in 1991 and has threatened action if privatisation is pursued wholesale.

Botswana’s taxes compare The accounting firm Ernst & Young has produced a comparison between the well with those of its tax regimes of seven countries in southern Africa. It shows Botswana as having neighbours the lowest top rate of personal taxation (25%), compared with its nearest rival, Mozambique (30%), and South Africa (45%). Botswana has very competitive company rates (15% for manufacturing, otherwise 25%), which are the same in Lesotho, compared with Swaziland (12% for mining, otherwise 37.5%) and South Africa (35%). The comparison of sales taxes is more complex, but Botswana’s rate is 0-10%, while South Africa’s is 0-14%. At the time of writing, 50 companies had applied for registration as manufacturing companies, which

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entitles them to the lower taxation rate. Of these, 41 had been approved and nine rejected on the grounds that their products were specifically excluded by the legislation. According to the report, no new firms have yet set up in the country in response to the tax changes.

After gradually reducing the number of commodities subject to price control, the government has finally abolished the price control unit in the Ministry of Commerce and Industry altogether. It has been replaced by a consumer unit designed to educate the public and promote choice.

The Vision 2016 task The task group chaired by the central bank governor, Baledzi Gaolathe—who group reports had formerly been managing director of Debswana—was charged with preparing a long-term vision for the country and presented its report to the president in July. The task group toured the country soliciting views from a large number of people, both in written form and in a series of public meetings over the course of nine months. Although the president attempted to include all parties in the task forces, the BNF refused to participate in the exercise. The report of the task group has yet to be made public.

The economy

Inflation slows further Having broken below the 10% barrier in August 1996, the all-items cost-of- living index has remained in single figures year on year since then. Despite a rebound from 9.1% to 9.7% between January and May, inflation fell back in the following months and was reported to be 8.5% in August and September. The key to this performance is the non-tradeables element, which has stayed below 8.3% throughout the year and was 6.8% in July, falling even lower, to 5.8%, in September. Prices of domestic tradeables grew faster than imported items until May 1997, but recently those of imports have been the driving force behind price rises as a result of South Africa’s higher inflation rate. Food and alcohol/tobacco are the items which exhibited the highest inflation over the year—9.6% and 11.4%, respectively—while leisure, and fuel inflation, at 3.6%, and health and education inflation at 5.3% had the lowest rates. The three- month annualised rate of inflation dropped below 6% in both August and September, suggesting that year-on-year inflation rates should stay low for the rest of the year.

A poverty study is A government study into poverty and its alleviation was published in Septem- published ber. According to its definitions of poverty, the number of people in the country defined as poor or very poor declined from 651,000 (59%) in 1985/86 to 623,000 (47%) in 1993/94, of which 30% were classed as very poor. Rural households were much more likely to be very poor than urban households, with those in urban villages falling between. Female-headed households were rather more likely to be classed as poor or very poor (50%, compared with 44% of male-headed households) and western parts of the country were much poorer than those in the east. In the former, 71% of people were defined as in poverty and 59% were very poor.

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Botswana: consumer price inflation (Nov 1996=100) 1996 1997 Weight Sep Dec Mar Jun Sep All items index 100 99.0 100.6 103.2 105.9 107.4 % change, year on year 9.7 9.6 9.3 9.0 8.5 Non-tradeables index 29.2 98.3 100.1 101.5 103.3 104.0 % change, year on year 7.9 9.1 7.3 7.6 5.8 Domestic tradeables 23.8 99.7 100.5 103.8 106.4 107.3 % change, year on year 12.6 10.9 10.5 9.1 7.6 Imported tradeables 47.0 99.4 100.9 103.7 107.4 109.4 % change, year on year 9.0 8.6 9.0 9.6 10.0 Source: Bank of Botswana, Financial Statistics.

Finance

The stock exchange rises The Botswana Stock Exchange (BSE) continued its dramatic rise in the third fast quarter, with the domestic companies’ index rising to 755 by the end of October. The speed of its rise had effectively slowed by the end of August, however, when it stood at 749, 43% up from the end of June and 113% up on the end of 1996, which makes it one of the fastest rising exchanges in the world. In September small falls as well as rises occurred, indicating that the heat had gone out of the market after the influx of foreign funds which had fuelled the rise decreased. The main winners were once again the banks, with Barclays recording a rise of 83%, Standard Chartered 136% and FNBB 64% in the quarter. Botswana Insurance Holdings (BIHL) recorded a rise of 38%, and PEP one of 32%, but almost all other stocks recorded only moderate increases. The only loser was the investment trust Kgolo Ya Sechaba, which last traded at 40, compared with 190 at the end of June, as a result of the decision to liquidate the company with an interim dividend of 165 thebes. The foreign companies index fell to 360 in mid-October, compared with 406 at the end of June, a decline of 11%. The world crash in stock markets at the end of October also affected Botswana. The domestic companies index fell over 4% to 721 while the foreign companies index dropped a staggering 15%, mainly due to the 15% price drop in De Beers stock. The comparatively small drop in the domestic companies index indicates the relative “safe haven” status of the BSE.

The market was given another potential boost in July, when South African institutional investors were given permission to invest up to 2% of their cash- flow in SADC markets. In the first half of 1997 the Johannesburg exchange rose only 14% in dollar terms, compared with 47% by the BSE. According to a report by the Fleming Martin Group, which surveyed 36 emerging stock markets, the BSE performed better in the first half of 1997 than all others apart from Russia and Brazil. In August Protea Furnishers of South Africa became the sixth company to dual-list on the BSE. It currently has 25 shops in Botswana, with three more planned for this year.

Despite the large rise in the index this year, the chief executive of Stockbrokers Botswana, Rupert McCammon, claimed in a seminar in September that the BSE was cheap compared with other regional and international exchanges. The price/earnings (p/e) ratio had risen to only ten, compared with an average

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emerging market p/e ratio of 19.2, while in France it was 23 and Germany 26. He pointed out that Botswana had huge foreign exchange reserves (now equivalent to 36 months of import cover), consistent trade surpluses over the last five years and budget surpluses over the last 14 years, and that the stability of its political, economic, social and legal systems were unique. He stated the view that the real GDP growth rate predicted in NDP 8 (of 5.2% per year) was conservative in light of the projected increase in diamond production (see Mining) and the anticipated upturn in the diamond market as a result of the expected reduction in the supply of quality gemstones from other sources, particularly Russia. In an earlier statement he pointed out that Botswana was the top country in continental Africa in terms of the Institutional Investor’s Credit Ratings for 1996.

The BDC is to issue a bond The Botswana Development Corporation (BDC) is to issue a P50m ($13m) pula-denominated bond (the first ever in the country) in November, to be listed on the BSE. This will have a maturity of between five and seven years and is being arranged by Investec of Johannesburg. If this is successful, another parastatal, probably the Water Utilities Corporation (WUC), will issue a much larger bond—possibly $300m—early in 1998, according to bankers. The government and the Bank of Botswana have been keen for parastatals to reduce their dependence on government resources for their loan finance. However, disgruntled market sources said in October that foreign participation in the issue may be restricted to 20% and that individual foreign investors may be restricted to a maximum of 5% of each issue, an announcement which sat uneasily with Botswana’s stated policy of encouraging competition and privatisation, and becoming a financial services centre. The government is also considering introducing Treasury bills, despite the fact that it does not anticipate having to borrow until 2002.

BoBCs are popular In August the Bank of Botswana introduced mini auctions for its certificates. These are to be held every two weeks to develop an effective liquidity management system and capture fluctuations in liquidity between the major auctions, which are held monthly. The auction will initially call for a reopening of existing papers closest to a three-month maturity and will be multiple-price, unlike main auctions, which function on a uniform price set at the supply-clearing bid. By the end of June the value of outstanding Bank of Botswana certificates (BoBCs) was P3.5bn, compared with P2.5bn a year earlier. P2.3bn is held by the commercial banks—of which P800m is held on behalf of customers—and some observers are complaining that the safe return on these certificates is reducing the incentive for the banks to lend money to commercial enterprises.

BIHL restructures BIHL, which is listed on the BSE, announced that it has sold its wholly owned subsidiary, Botswana General Insurance (BGI), to St Paul Multinational Holdings for P19.95m. St Paul is at present a 25.4% shareholder of BIHL and is already technical manager of BGI. The sale is the first in a planned restructur- ing of BIHL announced in August whereby it will concentrate on life insurance and fund management. St Paul will sell its shares in BIHL to the current majority shareholder, African Life Assurance (ALA), which will then own 57% of the company. An offer will be made to the minority shareholders at the

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extraordinary general meeting to be held in late October. The change is to enable each company to concentrate on its area of expertise in the face of increasing competition in the Botswana market. The proceeds of the sale of BGI will be used as a capital injection into BIHL, while St Paul has promised to inject approximately P7m into its new acquisition.

Competition in the A new insurance group, Regent Insurance, was officially launched at a cere- insurance market increases mony in September in the presence of Mr Mogae. The group has a capital- isation of P30m and consists of Regent Insurance and Regent Life. It has in fact been operating in the country since April, during which time motor premiums have fallen by as much as 30%. It is offering direct sales as well as dealing through brokers, and for the first time people in Botswana are able to obtain premiums dependent on their age. Regent Life currently concentrates on credit cover but plans to extend to other forms of life options. The company is owned by the Regent Group of South Africa.

Botswana gets a bureau de The first licence to be issued by the central bank to operate a bureau de change change was granted to Garona Investment in September following the relaxation of foreign exchange controls. According to Moses Pelaelo of the central bank, nine other applications are being considered and more approvals are expected shortly. The managing director of Garona, Bartholomew (Pax) Gaobakwe, said the first outlet was planned for the Tlokweng Gate border post with South Africa, which is one nearest to Gaborone and is the busiest, with about 60,000 people per month. There are currently no currency facilities there. Other loca- tions are being considered, both at borders and in towns.

Banks post half-year Both Barclays and Standard Chartered released their unaudited results in the results six months to June 30, 1997. For the former, after-tax income was up 26% (for the latter, this amounted to P24.3m) and an interim dividend of 35 thebes net (compared with 25 thebes last year) was declared. The bulk of extra revenue came from a 24% increase in net interest (mainly generated by BoBCs and good management of liquidity) although foreign exchange earnings were also good. Net income rose by 11% and operating expenses by only 2%, for a cost/income ratio of 54%. Standard Chartered’s results were exceptionally good, with pre- tax profits doubling to P30.7m (P23.1m post-tax). Net income was up 27% while expenses fell 5% to (P25.1m), making its cost/income ratio 44%, the lowest of the banks in Botswana. Net dividends were 22 thebes. Part of the improvement came from a drop in the provision for bad and doubtful debt from P3m to P700,000. Loans and advances grew by 12%, in contrast to Barclays’ book, which fell by 3%. Deposits were up by 34%, compared with its rival’s increase of 22%.

The NDB makes a record The National Development Bank (NDB) posted a record P24.5m profit for the profit year ending March 1997, up 32% on the previous year, finally wiping out the accumulated deficits from the losses in the early 1990s. This includes a net write-back of P2.5m of bad-debt provision, thanks to a vigorous campaign to pursue defaulters. Total assets grew by 19% to P158m. Income totalled P33.9m, of which P9m was from fees for implementing government programmes and other non-interest sources. Direct operating expenses amounted to P8.8m,

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down from P9.2m the previous year. The chairman, Freddie Modise, said in his report that the bank was diversifying away from the troubled agriculture sector. Despite a shortage of bankable projects, Mr Modise reported that the bank disbursed P38.5m of new loan business, with a further P16.1m committed and P8.1m of loan offers awaiting clients’ acceptance. The NDB has, at least tempo- rarily, stopped issuing loans under P20,000. Mr Modise indicated that the NDB was watching the BDC’s bond issue with interest and would hope to raise some funds by this route in future to reduce dependence on government loans, which currently amount to P26.8m.

Tswelelo is on its way out The NDB owns shares in a development finance institution specialising in small scale enterprises, Tswelelo, as does the BDC. It emerged in August that the board of Tswelelo had resolved to stop new loans and the company is likely to be wound up or sold before the end of the year. The NDB is reported to have its eye on some of Tswelelo loan portfolio. The outstanding loans portfolio stood at P16.6m in March 1997, and the company had P3.1m in cash and deposits. This, coupled with the larger minimum loan from NDB, has hit small businesses hard.

Education, health and social matters

The university is to offer The University of Botswana issued a statement in June announcing that it is to higher degrees offer MA and PhD programmes for the first time, starting with biology, chem- istry and mathematics in the faculty of science. Other faculties are expected to do the same in the near future. These are designed to be research degrees without taught courses, to build on the certificate, diploma, undergraduate and masters degree programmes already offered by the university. The university hopes to be recognised as a centre of excellence in these fields.

There is dissatisfaction The row over the resettlement of the San communities from Xade in the over the resettlement of Central Kalahari Game Reserve to New Xade, 68 km outside the reserve, rum- the San bles on. In August a sociologist from the University of Botswana issued a report claiming that the government had misled the San over the opportunity for local communities to benefit from tourism in an effort to persuade them to move. This has been vigorously denied by the government. According to the Botswana Press Agency the UK High Commissioner, David Beaumont, de- scribed the conditions as deplorable after visiting the settlement. Some of the people were reported to have returned to the reserve, complaining that the government failed to deliver promised services. The government maintains that nobody is being forced to move, and that existing services will be maintained at the old site so long as there is a demand. However, at a workshop in Ghanzi in August the chair of The First People of the Kalahari, Roy Sesana, refuted government claims that the people of Xade had agreed to move, stating that only seven families had agreed and that others had not been consulted. A conference is being planned for later this year to discuss the plight of the San (See Aid).

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Agriculture

A defeat for the The government faced an embarrassing defeat when the High Court ruled in government in court favour of two farmers who were appealing against the compulsory purchase of a farm they were on the point of buying from the Commonwealth Development Corporation (CDC). The government wanted the ranch and the cattle on it as part of the campaign to restock Ngamiland, where all cattle were slaughtered in an attempt to eradicate cattle lung disease. A number of farms were used to stock the cattle until the area was declared free of the disease in April of this year. The Court found that the government rushed through the compulsory purchase order the day before the deal between the farmers and the CDC was to be concluded, in order to be able to deal with the latter rather than the former. It was within the government’s rights to issue the order, Justice Nganunu argued, but not to interfere with the tendering process which had reached the point of conclusion. Cattle could not be included in the compulsory purchase order, he ruled, as they did not constitute real estate.

A cattle lung disease The restocking exercise to replace one third of the 300,000 cattle slaughtered in inquiry is delayed Ngamiland as in-kind compensation (the other two thirds was paid in cash) should be completed in late 1997 or early 1998, according to chief agricultural information officer, Mabe Molefe. The slaughter was undertaken to eradicate cattle lung disease which swept through that area from over the Namibian border last year. Mr Molefe added that in the meantime there are no preparations for a commission of inquiry into the exercise to be set up as required by parliament, as staff were too busy with the restocking process. The commission will not be set up until the last stage of the process is completed.

El Niño threatens to cause El Niño, the global climate phenomenon which causes changes in the currents droughts and temperatures in the Pacific, is associated with drought conditions in southern Africa. This year the change is the worst ever recorded—5°C, compared with the previous high of 3°C—and the region is bracing itself for a severe drought. So far, however, rainfall in Botswana has been higher than usual. Fortunately for the cattle industry, the grazing is better than usual because of the good rains last year, and the full impact of a drought may therefore not be felt until 1998. However, crop production, already declining as government subsidies for ploughing are withdrawn, is set for a really bad year if El Niño lives up to expectations. Already prices of maize in the shops have risen as southern African markets anticipate a shortage.

An ostrich abattoir is to The government was persuaded by the Botswana Ostrich Farmers’ Association be built (BOFA) to put public funds into the construction of a specialised ostrich abattoir. As a result, it commissioned a firm of engineers to carry out a detailed design, according to BOFA’s chairman, Gavin Richards, at its annual general meeting in August. However, he said the abattoir would need a larger supply of birds than was currently available on the local market if it was to be viable and called on the two respective governments to allow the shipping of ostriches from South Africa to Botswana.

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Broiler chick hatchery A prominent businessman and treasurer of the Botswana Democratic Party, starts Satar Dada, entered into a joint venture with South Africa’s National Chick. The P5m ($1.3m) plant is designed to meet Botswana’s needs for day-old chicks and, in addition, hopes to export to Namibia and Angola. Up to now Botswana has imported its requirements from South Africa and Zimbabwe at a cost of P8m per year, according to Mr Dada. 25 people will be directly employed by the plant, but Mr Dada claimed that over 100 others would be employed in- directly as distributors and agents, and at broiler producers.

Industry and commerce

The International Trade The five-day Botswana International Trade Fair was opened by the president of Fair is a success Mozambique, Joaquim Chissano, at the end of August. It attracted 456 local exhibitors and firms from 17 foreign countries, according to the organisers. There were 25 exhibitors from South Africa and 15 from Swaziland. In his welcoming speech, the minister of commerce and industry, George Kgoroba, announced that the Trade and Investment Promotion Agency will be turned into an autonomous institution by the end of the year. At present it falls under his ministry. Some exhibitors, notably those from abroad, called for the period for the fair to be extended and timed to coincide with the end of the month, when people have been paid, in order to give exhibitors a better chance to sell enough produce to cover their transport and travelling costs.

Policy on SMEs is reviewed A task force has been set up by the minister of commerce and industry to make recommendations for a comprehensive policy to promote small and medium- sized enterprises (SMEs) and micro ones. There are plans for consultative meetings throughout the country to gather information and ideas. According to one survey there are 48,000 micro enterprises, more than 6,000 small (under 20 employees) and perhaps 300 medium-sized firms (with up to 150 employees).

Hyundai is to open earlier Hyundai Motor Distributors have managed to shorten the expected three-year than expected construction period for their completely-knocked-down (CKD) vehicle assembly plant to 18 months. The roof-wetting ceremony was held in August and the plant is expected to be in full production by April 1998. Pilot production is planned for January. Initial output is expected to be 30,000 vehicles per year, slightly above the present semi-knocked-down (SKD) output of 2,000 per month (which represents about 8% of the South African market), but that could be doubled by introducing 24-hour scheduling, should the demand jus- tify it. The budget for the project is P193m ($51m), and the plant covers 35,000 sq metres. It will employ between 1,600 and 1,700 people (compared with the present SKD employment of 524) and aims to export 75% of its output to South Africa. The project has received a total of P60m in equity investment. The South African motor industry has been worried by the inroads being made into its previously protected markets, and Hyundai faced some problems meeting South African customs requirements (3rd quarter 1997, page 14). These problems appear to have been solved, however, by political intervention.

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A trade and investment The Herald Tribune trade and investment summit is to be held on summit is to be held in 18-19 November in Gaborone and is expected to attract leading business and Gaborone finance figures from around the world as well as five heads of state from the region. The Herald Tribune chief executive, Richard McClean, is quoted as saying that the summit will focus on the outlook for business in the region and the prospects for increasing intra-regional trade.

A hotel plans a big To cater for these sorts of events, Global Resorts Botswana is planning a convention centre 700-seat convention centre at the cost of P12m at the Grand Palm Hotel. Construction is expected to start in 1998 and would take one year to complete. In addition a P4m refurbishment of the hotel is planned, to include new suites, a club floor, a new bar and restaurant and rooms with private fax and internet facilities. The hotel currently has 188 rooms and achieved an occupancy rate of 72% in the three months to July 1997, according to the general manager of the hotel, Richard Lander.

The BDC posts a profit The BDC recently published its annual report for the year ending June 1996. It posted a net profit of P35m, mainly thanks to the net revenue of P29m from the sale of its shares in five companies, namely Sechaba Investment Trust, Sefalana Holdings, Bolux Milling, Car Rental Holdings and Frasmet. The major disposal was Sechaba, which sold for P71.4m; Sefalana raised P13m, and Bolux P12.5m. Of the 35 companies earmarked for divestment over the five years beginning 1994, 19 have now been sold, and a further eight are under negoti- ation. New equity was injected into 14 companies during the year. A total of P123m was disbursed, compared with P74m the previous year and commit- ments of a further P17m were made. Return on capital employed decreased from 12.2% to 6.2%. The gross investment portfolio stood at P618m at the end of the year, of which 48% was in industry, 31% in estate/commercial property, and the balance in services, residential property and agriculture.

Power, transport and communications

The BPC goes digital The Botswana Power Corporation (BPC) increased its profits from P60m to P76m in 1996, as reported in its annual report. Sales rose 3.5% in value, despite a 10% reduction in tariffs (in October 1995) and BPC promised to keep future increases to less than half the rate of inflation for the next three years. Expend- iture increased by 16% to P180m ($48m), mainly as a result of increased imports from neighbouring countries. As well as the major links, including the new connection with South Africa (3rd quarter 1997, page 17), a number of villages remote from the Botswana grid were connected to supplies from across the border, notably Mohembo and Shakawe in the Okavango area, which are now supplied by Namibia, and Tsabong, which is connected to Eskom, the South African supplier. The BPC started to pay dividends to the government in 1995/96 and in the following year this amounted to P8.2m. Computerisation of the meter-reading services was completed in 1995 and a programme launched for the introduction of a wide area network, giving on-line billing, receipting and credit control throughout the country. This is due for completion during the current year. BPC has also introduced a system of prepaid

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magnetic strip tokens for use in rural areas, eliminating the need for meter- reading and revenue offices where the consumer base is small.

The BTC focuses on The Botswana Telecommunications Corporation (BTC) made a profit of P32m services delivery in 1996/97, representing a rate of return of 13% on shareholder’s funds. As with BPC, tariffs have been strongly restrained, having been held constant in nominal terms since 1991. The corporation has introduced total quality management in its efforts to improve services. However, it is still a long way short of its target of clearing 90% of faults within 24 hours of notification (it achieved only 46% in 1996) and only 36% of new service requests are met within ten days of payment of a deposit.

A cellphone tender is The BTC chose the operator of a South African network, Vodacom, as its joint about to be awarded venture partner in its bid to the Botswana Telecommunications Authority for the contract for providing cell phones in the country. They have set up a company, Botswana Vodacom Cellular (BVC), with each parent company own- ing 40% of the shares. The remainder are to be offered to the public if the bid is successful. The BTC reported that BVC would invest P61m in a network which would be in place within three months if their tender was successful, according to BVC. The BTA was expected to make a decision on the award of two licences towards the end of October, having postponed the date from October 2, but the decision has not yet been taken. The market for cellular phones was assessed in NDP 8 to be 24,000 by the year 2000, rising to 60,000 three years later, although BTC was less sanguine in its own estimates, which puts the date for 60,000 phones by about 2007.

Air Botswana is Air Botswana reported its first ever net profit (of P3m) in the year to March 31, streamlined for 1997, following major pruning of its fleet, staff and routes. Operating revenue privatisation increased by 22% to P51m, while costs went up by 10% (to P47.4m). In August Botswana moved from using the GETS airline reservation system to Galileo. It is hoped that this will give Botswana a higher profile in the global travel trade and thus boost tourism.

Air Botswana’s general manager, Joshua Galeforolwe, in an interview in July, confidently predicted that the government would proceed with privatisation of Air Botswana over the next two to three years, once legislative hurdles had been overcome. However, bilateral air service agreements with Botswana’s neighbours require the airline to be majority-owned and controlled by Botswana nationals, which will almost certainly restrict the process to partial privatisation. Now that it is concentrating on the French ATR 42 aircraft, Air Botswana’s maintenance team has been able to sell its services to third parties. In June it carried out a major service on a Zambian ATR and hopes to provide such services to other airlines in the region.

Water

Environmental studies of In July the Namibian cabinet approved a proposal for a full environmental the Okavango impact assessment (EIA) of the proposed north-south water carrier project, as the next step in the project to build the pipeline by 2003. According to the

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coordinator of the north-south water carrier project, Moremi Sekwale, an initial ten-month EIA was carried out with funds from the UN Global Environment Facility and should have been handed over to Botswana in March 1997. How- ever, at this point Botswana has yet to receive a copy of the report. An engi- neering company based in Windhoek has been commissioned by the permanent Okavango River Basin Commission, which brings together Angola, Botswana and Namibia, to carry out an environmental impact assessment and management plan for the whole river basin. The results of this study will not be available until May 1998.

The Letsibogo dam is In July the Letsibogo dam near Mmadinare in north-eastern Botswana was handed over— completed and handed over to the WUC by the contractors, Odebrecht of Brazil. The dam is the first main component in the north-south water carrier project, designed to transport water to the south-eastern part of the country where water is sparse. It has a catchment area of 5,693 sq km and, when full, will have a surface area of 18 sq km. The minister of mineral resources and water affairs, David Magang, said the project was the largest water project ever undertaken in Botswana and the second largest in southern Africa. The budget for the project now stands at P1.2bn.

—and water tariffs go up Revised water tariffs came into effect on September 1. Government, city, town and district councils will pay 23% more but domestic and commercial users will pay only 12% extra. The expected increase in revenue is 17%. While part of this increase is to cover general cost inflation, the rest is to raise revenue to pay for the north-south water carrier. Outside the areas to be serviced by the carrier and Francistown, rates have gone up by 10%. Further increases above the rate of inflation can be expected in the next two years as the corporation prepares to service the loans to pay for the project.

Mining

De Beers signs an De Beers’ Central Selling Organisation (CSO) signed an agreement in October agreement with Russia with Russia’s Almazy-Rossii-Sakha (Alrosa), much along the lines of the agreement negotiated in February 1996. It has some further concessions to Alrosa, notably the large window on the open market and the creation of a deal and price monitoring committee. Although the agreement only runs from December 1 this year until the end of 1998, the end to the uncertainty created by the absence of an agreement is welcome news to Botswana.

Total CSO sales this year are unlikely to be much above last year’s. The Fleming Martin Group estimates that diamond sales between January and September (eight of the ten sights) amount to $4.2bn, only slightly above the equivalent figure last year, and believe that the market is not in a condition to absorb large quantities in the last two sights. Things may look up in 1998 and should be more buoyant in 1999, once the Russian stockpile is depleted.

Diamond output is to Debswana have forecast production to increase to 18.5m carats in 1997 from increase— 17.7m the previous year, as a result of various capital investments (3rd quarter 1997, page 16) and the full introduction of a seven-day working week. The next

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major increase in output, however, will have to await the completion of the Orapa 2000 project. Orapa, already one of the lowest-cost mines in the world, will become even more efficient when output is doubled with increases of only 10% increase in the labour force and 20% in overheads. A rise of 6m carats in production at Orapa would increase national output by one-third and mining revenue accruing to the government by more than that. Given that diamonds account for over 70% of exports and nearly half of government revenue, both the balance of payments and the budget should remain healthy throughout NDP 8.

Reunion Mining announced in October that it has extended the area of diamond exploration in the Tsodilo area (west of the Okavango) to 22,000 sq km, following a magnetic survey which indicated the presence of kimberlite, the potentially diamond-bearing volcanic intrusion. It also announced that a subsidiary of Ashton Mining of Australia will acquire a 50% stake in the project by carrying the first $5.5m of exploration costs, according to Reuters. Bamangwato Concessions had a good year in 1996, producing 21,000 tons of copper (an increase of 10%), 17,500 tons of nickel (up 14%) and 421 tons of cobalt (up 50%).

—with opportunities for The budget for Orapa 2000 is quoted in a newspaper, the Botswana Gazette, as local firms in construction being P1.6bn, ($430m). Contracts worth P600m have been committed, of which P400m have been placed with firms registered in Botswana. Although capacity and track record are major determinants of the shortlists drawn up for those firms eligible to bid, only Botswana-registered companies can be shortlisted except for those tenders concerning the supply of imported equipment or specialist services. Contracts have been let to citizen-owned firms for building work, borehole drilling, drilling supervision and security guard services. Opportunities for small-scale businesses are anticipated for transport, meals and recreational facilities.

A gold mine closes The small Golden Eagle gold mine near Francistown has closed only months after production was resumed in October 1996, as a result of the low price of gold and the exhaustion of ore at the open-pit level in August. Underground operations are uneconomic at current prices according to the owners, Gallery Gold. The company is continuing its exploration of the nearby Shashe lease and have found encouraging results, however, including an intersection of 8.2 grams/ton over 6.8 metres.

MI want to start a major At the end of 1996 Makgadikgadi Investments (MI) applied for a mining lease new coal mine to develop a coal field at Mmamabula near Mahalapye. The field has 500m tons of measured reserves and a further 20bn tons indicated. Although the government is in principle in favour of the project, several hurdles remain before the lease can be granted. Bank finance for the project is dependent on MI finding a 50% equity partner, feasibility studies and an independent audit of reserves. Markets for the coal might include a new power station and Iscor’s steel plant at Saldanha. However, the latter would be dependent on the building of a high-capacity rail link to join the Sishen-Saldanha line, while the viability of the former is open to question. BPC has recently constructed the Phokoje substation to draw power from South Africa after a study concluded that this was a cheaper option than building extra capacity within the country. There

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 24 Botswana

are currently no plans for a major new power station in the country and South Africa’s power supplier Eskom points out that it has 3,500 mw of capacity mothballed at present and does not see the need for extra capacity in the southern African power pool for 15-20 years. Shell was involved in earlier exploration of the field but had decided against continuing exploration. The managing director of MI, Jock Burden, nevertheless claimed in an interview in July that the mine could be in production next year, producing mainly high- quality steam coal but some metallurgical coal as well.

Botash recovers from the The successor to Soda Ash Botswana, Botash, produced 133,000 tons during flood 1996/97, according to its managing director, Paul Henry. This was well below the target of 240,000 tons as a result of the flooding in early 1996. Sales growth of 17% was projected for 1997/98, of which, 85% of production was sold to South Africa, where Botash has a 60% market share, 11% to Zimbabwe and the balance overseas. Salt was sold to Botswana, Zimbabwe and Zambia, where Botash is the major supplier.

Aid

Japan assists in water Japanese aid is financing the construction of three water-treatment plants at a development— contract cost of about P170m ($46m). The contract has been awarded to a consortium consisting of LTA (a subsidiary of Anglo-American) and a French company, Degremont. In August Botswana’s NGOs, community-based organisations (CBOs), educational and health establishments, and local governments became eligible for small grants assistance from Japan. Applications are made directly by an organisation to the Japanese embassy in Pretoria for grants averaging P100,000-200,000.

—the Germans with The German Development corporation is to provide P800,000 to Veld Products agricultural research— Research for a pilot project on community-based management of natural resources in Kweneng West. Veld Products Research is an innovative organisation based in Gabane, which researches ways of adding value to local products, particularly wild plants.

—and the Swedes with The first of 14 villages to be electrified in a P51m ($14m) project, funded by the electrification Swedish International Development Agency (SIDA), has been connected to the national grid. The UK are funding three people to assist in the preparation of a conference on the issues facing the BaSarwa or San. The conference is to be held early in 1998.

The UNDP helps to combat The UN Development Programme (UNDP) and the government agreed on two AIDS programmes in July, an HIV/AIDS prevention programme with a budget of $4.65m, jointly funded by the government, Sweden, UNAIDS and the UN Population Fund (UNFPA), and a gender programme with a budget of $1.8m. The HIV/AIDs prevention programme will be working with district commit- tees, NGOs, the health ministry and four other government agencies, in addition to all the uniformed arms of government. The second includes strengthening the Ministry of Labour and Home Affairs, working on gender issues with the directorate of public-service management and the rural

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Botswana 25

development coordinating department, and supporting the Women’s NGO Coalition.

The Peace Corps says The American Peace Corps wound up its operations in Botswana with a confer- farewell ence in August which brought together various volunteer organisations and the government to examine lessons learned from the experience, share information and explore new ways for technical knowledge transfer and human capacity building. The Peace Corps had been active in the country since independence.

Foreign trade and payments

Trade agreements are Botswana signed a trade agreement with Malaysia in August which covers signed expropriation and nationalisation, the repatriation of profits and settlement of disputes. The agreement is designed to foster a flow of investment between the two countries. According to the Middle East Observer, a similar agreement was also signed with Egypt in October, during a visit by the Egyptian minister of trade and supply, Dr Ahmed Goweili, and a trade delegation.

CITES allows Botswana to In June, the UN Convention on Trade in Endangered Species (CITES) agreed (in export ivory again a vote with 71 in favour, 21 against and 20 abstentions) to allow Botswana, along with Namibia and Zimbabwe, to export ivory with effect from 1999. The South African Press Agency (SAPA) reported that Botswana was planning to sell 25 tons of its current stockpile of 30 tons to Japan as soon as it has put in place measures to safeguard the ivory and control poaching. The 25 tons represents the maximum allowed under the CITES decision. It is likely to be sold by auction through the Japanese Ivory Carvers’ Association, for $250-500 per kg. The stockpile has a value of between $750,000 and $1.5m. SAPA reported that the deputy director of the wildlife department, Joseph Matlhare, said that there would be no cull of elephants as a result of the relaxation, only a reduction in the existing stockpile.

Exports to Zimbabwe rise Botswana’s exports to Zimbabwe rose sharply in the first quarter of 1997, according to statistics released by the customs and excise department. The increase from $13m in 1996 to $28m this year results from a relaxation of the regulations covering trade between the two countries. The principal commodities involved are vehicles and textiles. Imports from Zimbabwe declined however, by 3.8% to $25.5m, leading to a rare surplus in Botswana’s trade balance. Although Botswana’s exports are increasing, the results for this quarter are distorted by the re-export of aircraft, which accounts for $11m of the total. It is likely that trade will be more evenly distributed in future.

Foreign reserves are up Foreign exchange reserves stood at $5.65bn at the end of May 1997, 22% again higher in pula terms and 13% higher in dollar terms than the year before. At current levels, this represents 36 months of imports.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 26 Botswana

Botswana: international reserves (P m; end-period) 1995 1996 % change Foreign exchange 4,695 5,028 7.1 SDRs 40 41 2.5 Reserve position in IMF 29 29 0.0 Total reserves excl gold 4,764 5,098 7.0 Source: IMF, International Financial Statistics.

Exports do well The performance of diamonds has exceeded expectations so far this year, rising 45% in dollar terms and providing a significant boost to the balance of payments and government revenue. Vehicle exports have fallen in the face of aggressive action by the South Africa car manufacturers who succeeded in getting their customs officials to impound Hyundai vehicles on suspicion of failure to pay appropriate import duties for a while earlier this year. This problem has since been cleared up but appears to have had an impact on overall exports. Copper-nickel values have fallen with the tumbling copper price, while beef has been hit by the impact of the BSE crisis on European demand and prices and by the loss of the Maun abattoir, which was closed as a result of the cattle lung disease problem. Soda ash figures reveal the bounce-back after the flooding of early 1996 and are now running at higher levels (in pula and rand terms) than ever before, 33% above the last half of 1995, which was the best six month period in previous years. Because of the dominance of diamonds, the overall figures are also very positive, showing a 26% increase in dollar terms over the same period last year.

Botswana: exports by principal commodity, Jan-Jun (P m unless otherwise indicated) 1996 1997 % change Diamonds 2,123 3,637 71.3 Vehicles 472 431 –8.5 Copper-nickel 211 176 –26.9 Beef 97 78 –19.6 Soda ash 27 66 149 Total 2,930 4,389 45.5 Exchange rate (av) P:$ 3.141 3.642 Source: Bank of Botswana, Botswana Financial Statistics.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Lesotho 27

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 7, 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 Party (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); and the Lesotho Congress for Democracy Party (LCD)

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

Key ministers Agriculture, cooperatives & 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

Latest available figures

Economic indicators 1992 1993 1994 1995 1996a GDP at market pricesb M m 1,977.0 2,331.6 3,084 3,651c 4,404c Real GDP growthb % 1.3 5.6 11.9 10.4c 14.0c Consumer price inflation % 17.2 13.1 7.1 9.2c 10.0c Population m 1.89 1.94 2.00 2.05 2.11 Exports fob $ m 109 134 144 168 180 Imports fob $ m 933 868 810 1,168 860 Current account $ m 38 29 108 140 55 Reserves excl gold $ m 158.0 252.7 372.6 456.7 460.4d Total external debt $ m 493 530 602 659 740 External debt-service ratio, paid % 5.3 5.3 5.3 6.6 4.7c Migrant miners ’000 119.6 116.2 112.7 103.7 93.0 Exchange rate (av) M:$ 2.850 3.264 3.551 3.627 4.271d

October 31, 1997 M4.849:$1

Origins of gross domestic product 1995bc % of total Components of gross domestic product 1995bc % of total Agriculture 10.1 Private consumption 55.3 Industry 55.5 Public consumption 37.6 Manufacturing 18.1 Gross domestic investment 82.1 Services 34.4 Exports of goods & services 12.3 GDP at factor cost 100.0 Imports of goods & services –87.2 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 1. c Official estimate. d Actual.

Outlook for 1998-99

Will Mr Mokhehle carry The actions of the prime minister, Ntsu Mokhehle, of splitting his party and on after the coup? supporting the creation of a new and possibly permanent political party in the form of the Lesotho Congress for Democracy (LCD), have raised fresh doubts as to whether he will step off the political scene after the March 1998 elections. However Mr Mokhele’s frail health continues to point to his imminent retirement. This suggests that the split in the Basotholand Congress Party (BCP) was essentially undertaken to secure a separate and strong identity for the conservative wing, which knew that it could not hope to overcome the pressure group, which is numerically stronger in the party throughout the country but weaker in the National Assembly. Nonetheless, events since Mr Mokhehle’s effective coup d’état suggest that he is still a force to be reckoned with, and that he has significant popular backing in the country. Formally, the LCD leadership will pass into the hands of the deputy prime minister, Pakalitha Mosisili, or to the natural resources minister, Shakhane Mokhehle, in due course—but in order to ensure the continued ascendancy of the conservatives there will be strong calls to keep Mr Mokhehle on as the leader until after the elections, and possibly longer if LCD is successful.

The election will be Recent developments make it very difficult to judge the likely outcome of the difficult to call forthcoming national elections, which, the constitution stipulates, must be held by March 1998. Had the BCP found the will and the wit to stay together, it would probably have prevailed over any of the opposition parties despite the evident internal tensions and its patchy record in government. The break-up throws matters open—the “pressure group” may retain the name of the BCP, but many supporters in the country believe its heart still lies with Mr Mokhehle, its long-time leader. The overwhelming support the BCP enjoyed in the 1993 elections is sure to be split, forcing both parties to look around for likely election partnerships to reduce the risk of failure. It may be beneficial for some of the smaller parties to seek alliance with the LCD as a way to get into government. The larger parties such as the BNP and the Marematlou Freedom Party (MFP) are expected to stand aloof from formal alliances—at least for now as both may feel they have a chance to gain more seats in the new National Assembly in their own right. However the BNP and BCP were aligned in their forthright opposition to Mr Mokhehle’s coup, and it is not outside the realms of possibility that some form of arrangement between the two could be forged before or after the election.

The potential for further In the months following the BCP split, Lesotho has tenuously maintained civil strife exists order despite the ejection of MPs and their supporters from the National Assembly, several protest marches on the Palace, and various political party rallies. The armed forces have remained loyal to Mr Mokhehle and this has been a critical factor in restoring some stability after the coup. The military’s support for Mr Mokhehle comes from his successful efforts at cleaning up the Lesotho Defence Force (LDF) leadership, improving parliamentary oversight and being generous with amnesty after the 1994-95 troubles. The police are not as content and could turn out to be somewhat unreliable in the run-up to the election, given the simmering resentment among the ranks towards their own

leadership over the way the February 1997 mutiny and its aftermath have been handled.

The Senate, which does not consider the present government legitimate, recently passed a motion halting discussion on bills from the National Assembly until King Letsie III responds to its petition demanding that he suspend parliament. The king has not yet responded; the deadlock effectively blocks the process of governance, and represents a serious challenge to the Mokhele government.

The impact of gold price The potential economic and social impact on Lesotho of a continued fall in the movements may be gold price is being watched closely. The mines in South Africa are facing their adverse for Lesotho— most difficult circumstances in many years. Profitability is being squeezed by the lowest prices in over ten years while costs are being pushed up by rising labour costs and increasingly difficult ore recovery due to geological conditions in the goldfields. It has been suggested that up to 63,000 job losses may be incurred in the coming year. Inevitably, some Basotho, who account for about 25% of the total workforce, will be among that number despite the protection afforded by the higher experience and skill profile of the Basotho mining mi- grants. There had been an abatement in the decrease in migrant numbers and remittances, which had been particularly acute since 1993; however, recent developments now suggest an acceleration rather than a deceleration in the reduction of employment and incomes. With the movement towards tying wage increases more closely to productivity increases, the scope for future increases in real incomes for miners may be restricted. As the South African mines still effectively account for about 40% of Lesotho’s GNP and migrant remittances cover about 38% of total imports, there will inevitably be some slowdown in growth in the near future. These developments may, however, encourage more miners to seek retraining and new job opportunities in South Africa and are not expected to lead to any significant return of miners to Lesotho. The EIU expects the price of gold to rise in 1998, slightly tempering the difficulties of the South African mining sector. However long-term problems associated with high extraction costs will continue to lower the number of migrant workers from Lesotho who are employed by the South African mines.

—while the weather We expect the 1997/98 cereal harvest to be below average as a result of the brings bad news— impact of the El Niño climate phenomenon which could have serious adverse effects on Lesotho’s staple summer maize crop. After poor harvest in the 1996/97 season, Lesotho faces declining food security and is likely to have to rely heavily on food imports and drought aid to meet the needs of the population. The need for food imports in 1997 and 1998 will have an adverse impact on the current account, which has been deteriorating drastically since 1995, the last good harvest season. If good rains return in 1999, we expect the current account to stabilise.

—and exacerbates prices Shortages in certain items have already caused price increases. Given the high weight of food in the basket we expect the inflation rate in 1997 and 1998 to rise with further food shortages.

Some divergence of views Lesotho Bank officials launched in mid-July a new economics and financial on economic policy— publication, Flashpoints: The occasion gave rise to a rare show of public discussion and dissent with regard to economic policy matters when the bank’s chief economist suggested that outsiders’ recipes for success were being too uncriti- cally adopted for use in Lesotho. His concern was that these prescriptions were maintaining low levels of income and consumption growth which were not sufficient to improve living standards in the country. An adherent of IMF-in- spired polices on fiscal and monetary management as well as a beneficiary of a series of financing arrangements of which the latest, a stand-by arrangement for SDR7.17m ($9.7m), has yet to be drawn down, Lesotho has seen significant improvements in macroeconomic stability over the past five years. The debate over which policy directions to follow may stimulate fresh thinking on what could be done with the tax code and fiscal incentives to stimulate further private-sector investment in the economy. A return to a higher level of public investment to drive up domestic demand seems unlikely.

—but the constraints Lesotho’s constraints on sustainable growth are formidable and may be diffi- remain the same cult to address in the short term. The capacity of the economy to absorb some 10,000 new entrants into the labour market per year is extremely limited. Despite the success of the Lesotho National Development Corporation (LNDC) in creating the basis for a viable export-oriented manufacturing sector where none at all existed 25 years ago, new businesses are absorbing only 10-15% of the new entrants and the majority of positions are not professional or highly skilled. There is a growing environmental challenge to Lesotho’s fragile ecosys- tem which is already barely able to cope with the current level of development. The limited availability and low carrying capacity of arable land will seriously affect the country’s continued self-sufficiency in food. A spokesman for the ministry of agriculture indicated at a conference in July in Maseru that Lesotho had lost so much topsoil through inappropriate agricultural practices and over- grazing that the percentage of arable land may actually have fallen from its historical figure of 13% to 9%. According to the latest Bureau of Statistics figures, agriculture’s contribution to GDP in 1995 fell to only 10% when it accounted for over one-third 20 years ago.

Lesotho: gross domestic product (a) Lesotho: loti real exchange rate (d) % change, year on year 1980=100 100 14 Lesotho Africa 12 90 10 R:US$

8 80

6 70 4 M:US$

2 60

0 1993 94 95(b) 96(b) 97(b) 50 (a) Fiscal years starting April 1. (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

There have been no changes in the composition of the cabinet. All ministers however crossed the floor with most of the other 42 MPs to join the newly created Lesotho Congress for Democracy (LCD). The balance of 22 MPs (one is an independent) remain with the official Basotholand Congress Party (BCP) which has refused to accept the status of official opposition to the LCD government which the Speaker of the National Assembly, J T Kolane, has sought to bestow upon it.

Mr Mokhehle’s coup d’état Ntsu Mokhehle’s decision to leave the BCP together with his closest supporters stuns his BCP adversaries— in the National Assembly caught the BCP leadership largely by surprise and resulted in a quasi-coup d’état which put the newly formed LCD into power (3rd quarter 1997, page 25). The move appears to have been decided upon over the weekend of June 6-7 and carried out on the National Assembly floor on June 8 after presentation of a letter to Mr Kolane. With a majority of MPs behind him and all the major players in the pressure group faction having been eased out of the cabinet some time beforehand, Mr Mokhehle was able to effect the move with minimum risk and maximum surprise. It is not anticipated that the policies the LCD will pursue will be any different from those of the BCP. Statements of party philosophy indicate a commitment to truth, justice and peace but are otherwise short on detail. With the pulling power of Mr Mokhehle, the evidence indicates that the LCD has a popular base. Its inaugural rally in Maseru on June 21 appears to have attracted a larger audience than any protest meeting or march organised by the opposition.

—leads to a series of The mass defection from the BCP has encountered a wave of protests. BCP protests by the members of the National Assembly have steadfastly refused to recognise their “opposition”— role as the official opposition to the LCD government. The BCP walked out of the National Assembly on June 11 but returned after seemingly failing to mobi- lise sufficient support to force the LCD to negotiate an interim government or call earlier elections to legitimise the government. A series of protest meetings took place as did as two major marches on the palace on June 16 and July 2, the latter of which led to the presentation of a petition to King Letsie III by five opposition parties, including the BCP. The second march took place in defiance of instructions by the deputy prime minister, Pakalitha Mosisili. Several at- tempts at organising stayaways from work and selective strikes, especially in the civil service, appear to have been poorly supported. The BCP has subsequently tried to disrupt parliamentary proceedings; on August 28 this resulted in the Speaker clearing the house and having 21 BCP MPs formally suspended for one week. The media’s exclusion from the Senate appears to have been reversed— they have had access to the Senate since September 3 and to the lower house since September 15, but both houses remain closed to the public.

In protest against Mr Mokhele’s actions, the Senate passed a motion on October 13 to suspend discussion on bills coming from the National Assembly. It has appealed to King Letsie III to dissolve parliament. The law and justice minister has announced this would amount to the monarch a staging a coup.

—but no constitutional What has not materialised, contrary to initial expectations, is any legal chal- challenge— lenge to the constitutionality of Mr Mokhehle’s “coup”. Evidently this line of action has been much discussed and has been subject to a deeper enquiry by the Lesotho Council of Non-Governmental Organisations (NGOs) which had ex- pressed concern about recent political developments. However, these investig- ations have failed to come up with a clear and strong case for a constitutional challenge to the actions of Mr Mokhehle and his supporters. As elected MPs represent a constituency, not a party, the change of allegiance from BCP to LCD does not on the surface have constitutional implications and does not in principle infringe on the civil rights of the electorate. The BCP has claimed that Mr Mokhehle left the party because he failed to carry out the BCP manifesto upon which basis his government was originally elected. Even if this were true, it would not appear to constitute sufficient grounds for an effective legal challenge. It appears therefore that the BCP has determined that its best line of action is to prepare for the forthcoming elections because the mandate of the current National Assembly and the government expires in March 1998 anyway.

—and muted reaction There has been relatively little negative reaction from Lesotho’s neighbours outside the country and other outside parties. South Africa will continue to watch developments very closely and the foreign minister, Alfred Nzo, indicated at the end of June that his country was prepared to assist if asked to do so. A UN envoy, Tayebe Merchong, met with both government and opposition elements during a visit in the last week of June but this was largely to provide reassurance to the UN that the upcoming elections would not be put at risk by recent events. No foreign governments appear inclined to take up the case of the opposition and no outside intervention is foreseen, unlike in August 1994 when the regional leaders Nelson Mandela, Robert Mugabe and Sir Quett Ketumile Masire helped shut down the Phoofolo administration and reinstated the elected BCP administration under Mr Mokhehle.

Mr Qhobela is elected BCP The High Court-mandated elections for the national executive committee for leader the BCP took place at the conclusion of an extraordinary conference on July 26-27 (3rd quarter 1997, pages 24-25). The deputy party leader and national executive secretary, Molapo Qhobela, has been confirmed as leader with Tseliso Makhakhe retaining the post of national chairman. Mr Qhobela is a long standing member of the BCP who, like the former leader Mr Mokhehle, spent a large part of his life outside of Lesotho. Mr Qhobela will clearly lead the party through the next elections but, depending on their outcome, he may face further challenges from younger pressure group members.

The Independent Electoral The three commissioners for the Independent Electoral Commission (IEC) Commission starts its have been nominated and took up their positions in mid-September. The cre- work— ation of the IEC arises out of legislation passed earlier in the year by the National Assembly for electoral law reform (3rd quarter 1997, page 26). The IEC commissioners are a lawyer, Scara Mafisa (chairman), and two civil servants, Letjea Qhobela and Moriee Khaebane. The commissioners will be supported by a Commonwealth-funded legal expert from Zimbabwe, Professor Reg Austin, as they start work in preparation for the March 1998 elections. In October

Mr Mafisa announced that voter registration would have to be redone as the electoral register had never been updated.

—and high participation While there has been some dissatisfaction with the way in which the IEC has in the forthcoming been set up and the commissioners selected, the various parties are generally elections looks likely happy with the reform which addresses longstanding grievances. Parties were invited to nominate candidates for the positions, with the final say resting with State Council who advised the King on the conferring of the appointments. Two relatively small and somewhat left-wing parties, the Communist Party of Lesotho and the Popular Front for Democracy (PFD) joined with the LCD for this purpose. This may signal further collaborative activity in the run up to the election.

An LDF private faces a Private Mokitimi Senekane was charged with treason on August 26 and has since treason charge been held without bail. The charges arise out of the alleged circulation of a document calling for King Letsie III to bring the army and the police forces together and to intercede in getting the 32 members of the police force held in prison on treason charges released. Mr Senekane had also been demanding action from the police commissioner to whose office he laid siege in order to get a hearing. This has been interpreted as an attempt to overthrow the government (3rd quarter 1997, page 25), and suggests that the government is slightly nerv- ous of dissent in the army and the police force in the wake of the recent political developments. Mr Senekane has reasonable personal grounds for his alleged actions, whatever their political intent may have been—his brother was one of those killed when the army broke the police mutiny in February this year.

King Letsie III is crowned King Letsie III was crowned for the second time in front of a crowd of 25,000 enthusiastic onlookers. He returns to the throne after the death of his father, King Moshoeshoe II, in a car crash in 1996. King Moshoeshoe II was deposed by a military coup in 1990 and Letsie III was king until he returned from exile in 1995.

The economy

New financing is The Lesotho Highland Development Authority (LHDA) has succeeded in rais- announced for the ing about M1.3bn ($270m) in new loan finance for the construction costs of Highlands Water Scheme— Phase 1B of the Highlands Water Scheme in the South African market. The banks involved are Rand Merchant Bank, Société Générale, Nedcor and Investec. This should help move the overall profile of project financing in a more commercial direction, which is appropriate as revenues are starting to be generated by the Scheme. Under Phase 1A, LHDA announced that the Katse Dam is expected to fill by January 1998 and that the Muela hydroelectric facility will be ready for commissioning by the end of 1998. Under Phase 1B, works are still on course for completion of the Mohale tunnel and dam and the Matsoku diversion works by the end of 2003.

—but problems are being The environmental record of the Highlands Water Scheme has been relatively encountered with the good considering the scale of the project and the amount of dislocation of diamond diggers communities and existing economic activity involved. However, the pollution

of the sources feeding the scheme by artisanal diamond digging has raised new concerns. The activity of the diggers, who number about 600 and are mostly concentrated in the Kao area, is creating a siltation problem that could reduce the life of the Katse dam and could, in an extreme case, make it difficult for Lesotho to meet its water-supply obligations to South Africa. As is the case with small-scale mining operations in many parts of the world, the diggers do not have the resources to get remedial works done to address this problem. Kao is the site of a rich kimberlite pipe where Lesotho at one stage hoped to develop a large scale mining operation with donor support. Better access to the area has increased its attractiveness to South African and other outside investors. The problem might therefore worsen before it improves. At present, diamonds account for less than 5% of Lesotho’s exports by value.

The 1997/98 harvest may Early forecasts which take into account the damaging impact of the global be a poor one— climate phenomenon El Niño suggest another below-average cereal harvest for Lesotho in 1997-98. The whole southern part of the continent is expected to receive below-average rainfall, especially in the earlier part of the growing season up to December. This could have a major impact on the development of the summer maize crop in Lesotho which is the country’s main staple. In the 1996/97 growing season Lesotho was afflicted by a lack of late season rains, especially in January and February, after initial good early development. Rain- fall in January and February 1997 was also below normal and forecasts indicate that domestic production will only satisfy 30.4% of food needs compared with 72.3% in the 1996/97 harvest.

Lesotho: demand and supply of cereals (’000 tons) 1995/96 1996/97 1997/98a Maize Sorghum Wheat Maize Sorghum Wheat Maize Sorghum Wheat Domestic availability 92.9 7.8 38.5 217.4 36.1 75.0 88.7 15.6 33.8 Requirements 279.8 59.1 85.7 303.7 66.9 83.9 304.7 44.9 103.2 Balance –186.9 –57.3b –47.2 –86.3 –30.8 –8.9 –216.0 –29.4 –69.4 Imports 169.0 8.0 58.0 112.6 3.0 45.8 189.0 – 88.2 of which: aid 25.3 0.0 0.0 4.9 0.0 0.0 0.0 0.0 0.0 Balance –17.9 –43.3 10.8 26.3 –27.8 36.9 27 –29.4 18.8 a Estimates. b Figures do not sum in the original.

Source: Central Bank of Lesotho.

—and food availability is The low output of last season’s harvest has dramatically affected the assessment already down of Lesotho’s food security (2nd quarter 1997, page 35). In the 1997/98 marketing year a cereal deficit of 315,000 tons is expected; it was only 126,000 tons in the previous year, and in an average year it would be about 240,000 tons. Shortages of certain products have already resulted in some price increases— bread went up 10-15% in July and more increases may follow. This will tend to drive up the overall rate of inflation given the high weight of food in the basket, and the EIU anticipates the rate going up to 11% or beyond. The effects of shortages may be to a certain extent be offset by additional food aid pledges. The only recent announcement in this regard, however, concerns Japan’s

assistance for the current marketing year —$1.7m worth of wheat and rice— which represents a continuation of an annual food assistance programme which has been in place for eight years.

Industry and commerce

Lesotho looks east for new Lesotho continues to pay attention to markets in the Far East with regard to investment opening up new opportunities for trade and investment. A high level delegation led by the deputy prime minister, Mr Mosisili, and the minister of finance, Victor Ketso, visited Malaysia at the end of July at which Malaysian investment in irrigation and highways projects were also discussed. The incl- usion of the head of the privatisation unit, Mothusi Mashologu, on the Lesotho team suggests an interest in exploring Malaysian interest in investing in the variety of public enterprises which are to be offered for sale in the near term. Mr Mokhehle has called for new strategies for investment promotion to augment past successes but also to give more emphasis to linkages between foreign investors and the local business community.

The LNDC celebrates The end of August saw celebrations to mark the 30th anniversary of the creation 30 years in business— of the Lesotho National Development Corporation (LNDC), a parastatal organisation that has played an important role in the growth of income and employment in industrial and commercial activities in Lesotho. Mr Mokhehle attended the opening of four new factories on the Thetsane industrial estate to the south of Maseru, which included the opening of Lekim Textiles Lesotho, a new shirt manufacturing operation with a total investment of M21m ($4.4m) with the main foreign investor coming from Singapore. The venture employs 800 Ba- sotho workers. The prime minister welcomed a number of international guests including the first chief executive of LNDC, Wynand van Graan, who had been seconded by the Anton Rupert organisation. LNDC’s portfolio still contains a large number of businesses in all sectors despite the government’s adoption of a privatisation programme. The portfolio has an asset value of M186m, comprises 48 firms that employ 18,000 persons, a clear majority of whom are gainfully employed in manufacturing in Lesotho. A further 21 projects with an investment value of M57m and a job creation potential of 6,500 are under consider- ation. This is testament to the continued effectiveness of Lesotho’s investment promotion drive which has seen major increases in output and exports from manufactures, especially footwear and garments in recent years.

—and announces the LNDC has broken new ground with the announcement that Sophie Mohapi appointment of its first will take over as chief executive from the departing Pako Petlane. Ms Mohapi female chief executive had previously worked in the LNDC group in 1974-84 and subsequently with the Centre for Accounting Studies. She comes with a diversified business and financial background at a time when LNDC must give more attention to divest- ing itself of many of its investments while maintaining financial solidity. Lesotho has a large number of female middle managers in both the public and the private sectors. This has been the case for some time because of the relatively high education levels of the population. For reasons that are more cultural than anything else, very few women have, however, reached the top.

The airline is now As an indication that concrete progress is being achieved in the implement- privatised ation of the government’s privatisation program, the sale of Lesotho Airways Corporation (LAC) was announced on September 18 (2nd quarter 1997, page 34). A new company, Air Lesotho, will assume the assets of the former LAC, valued at M11.2m. This includes one Fokker F27 and two DeHaviland Twin Otter passenger aircraft. 80% of the shares are held by Ross Air with the balance of 20% held by the government pending their eventual sale to Basotho shareholders. LAC had been providing a wide variety of domestic services, usually at a loss, to a number of otherwise remote and barely accessible parts of the country. Its regional services have struggled to expand and only the Johannesburg route appears to be unquestionably viable. There are some air charter and air freight opportunities, however, that a privately managed company may be better able to exploit than LAC.

The ministry of finance announced at the end of September that it will be selling all or parts of its shares in six state-owned enterprises: parts of Radio Lesotho, the Lesotho Telecommunications Corporation (LTC), the Lesotho Water and Sewerage Authority vehicle maintenance shop and laboratory, and the Lesotho Electricity Corporation’s equipment store in Maseru.

The LTC lockout hurts Telephone communications with Lesotho were disrupted in the aftermath of business industrial relations troubles at the government-owned LTC, which has a mono- poly on fixed line voice services in Lesotho. A number of workers walked out around August 22 to protest grievances relating to pay and conditions. At one point international communications were totally cut off. The striking workers, along with others who joined the protest, were locked out at the end of August when they refused to sign new agreements with the management which they felt were restrictive of the right to take industrial action. The matter has been referred to the courts for jurisdiction. The dispute may not help LTC’s efforts to ensure high quality of service that is essential to Lesotho’s continued attractiveness for new investment.

Foreign trade and payments

Lesotho’s exports continue to rise steadily as a result of good performance in manufacturing, which represents 72% of its exports. Latest available data suggest that imports are increasing steadily as a result of years of drought and the concurrent need for food imports, and the trade balance is expected to worsen in 1998 as Lesotho faces another season of bad rains.

Lesotho: quarterly trade data (M m) 1995a 1996b 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Exports fob 140 114 158 166 130 215 229 246 Imports –762 –884 –899 –1029 –930 –987 –1063 –1132 Trade balance –622 –770 –741 –863 –800 –772 –834 –866 a Provisional. b Estimates.

Source: Central Bank of Lesotho.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 38 Quarterly indicators and trade data

Quarterly indicators and trade data

Botswana: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Monthly av Consumer prices: 1990=100 174.5 179.3 184.1 187.5 192.5 197.7 202.5 205.8 210.3 216.2a change year on year % 10.7 10.3 10.5 10.6 10.3 10.3 10.0 9.8 9.2 9.4 Money End-Qtr M1, seasonally adj: P m 762 772 812 833 847 877 963 951 1,027 1,104b change year on year % –2.7 1.2 9.6 6.6 11.1 13.7 18.5 14.2 21.3 n/a Foreign trade Qtrly totals Exports fob P m 1,265.4 1,615.1 1,419.8 1,639.6 2,201.1 2,700.8 2,884.8 2,952.8 n/a n/a Imports cif “ 1,137.4 1,340.0 1,365.0 1,442.1 1,621.1 1,521.1 1,433.4 n/a n/a n/a Exchange holdings End-Qtr Foreign exchange $ m 4,651 4,821 4,684 4,695 4,648 4,724 4,903 5,028 5,310 5,490 Exchange rate Market rate P:$ 2.729 2.762 2.803 2.822 3.066 3.370 3.519 3.644 3.542 3.593c

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for July-August, 219.5. c End-May. c End-August, 3.709.

Source: IMF, International Financial Statistics.

Lesotho: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Monthly av Consumer prices: 1990=100 177.2 182.1 188.1 190.7 194.4 200.2 n/a n/a n/a n/a change year on year % 8.6 9.2 10.8 8.5 9.7 9.9 n/a n/a n/a n/a Money End-Qtr M1, seasonally adj: M m 514.3 472.1 486.8 506.0 511.0 561.3 584.9 614.4 640.9 641.1a change year on year % 7.4 3.3 2.7 6.9 –0.6 18.8 20.1 21.4 25.4 n/a Foreign trade Qtrly totals Exports fob M m 140.0 115.0 159.0 167.0 n/a n/a n/a n/a n/a n/a Imports cif “ 763.0 884.0 900.0 1,027.0 n/a n/a n/a n/a n/a n/a Exchange holdings End-Qtr Foreign exchange $ m 388.2 409.5 420.5 451.2 447.8 423.1 428.3 454.1 517.5 567.7a Exchange rate Market rate M:$ 3.590 3.636 3.650 3.648 3.981 4.334 4.530 4.683 4.423 4.531b

Note. Annual figures of most of the series shown above will be found in the Country Profile. a End-April. b End-August, 4.694.

Source: IMF, International Financial Statistics.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 39

Botswana and Lesotho: UK trade (£ ’000) Botswana Lesotho Jan-Jul Jan-Jul Jan-Jul Jan-Jul 1996 1997 1996 1997 UK exports fob Food, drink & tobacco 102 126 10 14 Chemicals 174 322 685 11 Textile yarn, fabrics & manufactures 250 2,014 19 0 Non-metallic mineral manufactures 3,852 2,226 1 0 Iron & steel 62 2 44 45 Metal manufactures 285 143 19 24 Machinery incl electric 2,645 1,683 274 2,664 Transport equipment 2,913 448 493 1 Clothing 19 97 2 0 Scientific instruments etc 974 535 14 68 Total incl others 12,778 12,226 1,657 3,055 UK imports cif Meat & preparations 11,234 10,576 0 0 Non-metallic mineral manufactures 24,888 0 0 0 Machinery & transport equipment 418 3,240 21 3 Clothing 444 549 9 90 Total incl others 37,275 14,492 53 94 Source: UK HM Customs & Excise, Business Monitor, MM20.