AFRICAN DEVELOPMENT BANK GROUP

REPUBLIC OF BOTSWANA: COUNTRY ASSISTANCE EVALUATION

OPERATIONS EVALUATION DEPARTMENT (OPEV)

2 May 2002

TABLE OF CONTENTS Page

Acronyms and Abbreviations i Preface ii Executive Summary iii

1. ECONOMIC AND SOCIAL BACKGROUND 1 1.1 Country Background 1 1.2 Recent Economic Developments: An Evolving Development Success Story? 2 1.3 Poverty, Inequality and Social Conditions 2

2. DEVELOPMENT CHALLENGES AND CONSTRAINTS 3 2.1 3 2.2 The Dominance of the Mining Sector 3 2.3 Unemployment 3 2.4 Poverty 4 2.5 HIV/AIDS Epidemic: A Formidable Challenge 4 2.6 Shortage of Skills 6 2.7 Public Sector Reform 6 2.8 Environmental Degradation 6 2.9 Limited Direct Foreign Exchange 7

3. BANK GROUP ASSISTANCE TO BOTSWANA: PRODUCTS AND SERVICES 7 3.1 Non- lending Operations 7 3.2 Lending Operations 9

4. DEVELOPMENT EFFECTIVENESS OF BANK ASSISTANCE TO BOTSWANA 13 4.1 Relevance of Bank Strategy 13 4.2 Macroeconomic Outcomes 14 4.3 Sectoral Outcomes: Transport Sector 15 4.4 Sectoral Outcomes: Education Sector 20 4.5 Attribution of Performance of Development Partners 23 4.6 The Counterfactual 24

5. OVERALL ASSESSMENT AND DIRECTIONS FOR THE FUTURE 25 Overall Assessment 25 Directions for the Future 25 Recommendations 25

ANNEXES No. of Pages

Annex 1: Selected Macroeconomic Indicators 1 Annex 2: Comparative Socioeconomic Indicators 1 Annex 3: Summary of Bank Group Operations: 31 August 2000 2

This Report was prepared by Mr. O. OJO, Chief Evaluation Officer, OPEV. Background papers were prepared by Mr. I. PINARD (Consultant) on the Transport Sector and Mr. D.K. KOUASSI, Principal Evaluation Officer, OPEV and a Consultant, on the Education Sector. Questions on this report can be addressed to Mr. G. M. B. KARIISA, Director, OPEV on extension 4052 or to Mr. OJO on extension 4262.

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ACRONYMS AND ABBREVIATIONS

ADB : African Development Bank ADF : African Development Fund AIDS : Acquired Immune Deficiency Syndrome APPR : Annual Portfolio Performance Report BADEA : Arab Bank for Economic Development in Africa BIDPA : Botswana Institute for Development Policy Analysis CDA : Department of Civil Aviation CJSS : Community Junior Secondary School CSP : Country Strategy Paper DEID : Department for International Development EPCP : Economic Prospects and Programming Paper EU : European Union FAP : Financial Assistance Policy GDP : Gross Domestic Product GNP : Gross National Product GOB : Government of Botswana HIV : Human Immuno-deficiency Virus IBRD : International Bank for Reconstruction and Development IDA : International Development Agency KFAED : Kuwait Fund for Arab Economic Development KFW : Kreditanslalt fur Wiederaufbau MCI : Ministry of Commerce and Industry MFDP : Ministry of Finance and Development Planning NDF : Nordic Development Fund NDP : National Development Plan NIB : Nordic Investment Bank NORAD : Norwegian Agency for Development ODA : Overseas Development Agency OECF : Overseas Economic Cooperation Fund (of Japan) OPEC : Organisation for Petroleum Exporting Countries PCR : Project Completion Report RMC : Regional Member Countries RNPE : Revised National Education Policy, 1994 SACU : South African Customs Union SADC : Southern African Development Community SFD : Saudi Fund for Development SMMEs : Small, Medium and Micro Enterprises UA : Unit of Account UNDP : United Nations Development Programme UNICEF : United Nations Children’s Fund USAID : United States Agency for International Development

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PREFACE

1. This Report evaluates Bank Group assistance to the Republic of Botswana since it started operational activities in that country in 1973. The report is based on materials gathered during a mission to Botswana, and a review of relevant Bank documents. The main objective of the report is to evaluate Bank Group assistance to Botswana and the strategy underlying that assistance.

2. Until recently, the Bank did not have country-specific development strategies. Thus, most Bank interventions were inspired either by the broad Bank mandate to foster economic and social progress in Africa or by specific country financing requests. In Botswana therefore, there was no specific Bank development strategy. But traditionally, the Government of Botswana had relied on five-yearly Development Plans to manage the economy. These plans define the development strategy for the country and it was into these programmes that the Bank fitted its assistance to the country.

3. The evaluation was conducted at two levels – non-lending assistance (development strategy, economic and sector work, policy dialogue and advice, resource mobilisation and cofinancing). Here, the outcome (relevance, efficacy and efficiency) was found to be relatively unsatisfactory as there was no country-specific strategy, no evidence of economic and sector work and policy dialogue and advice were non-existent. Bank lending assistance was relevant as it was efficacious. But its institutional development impact is minimal while its sustainability is uncertain, threatened as it were by the HIV/AIDS epidemic. Overall, Bank performance was rated unsatisfactory.

4. In the years ahead however, the Bank would need to focus its intervention more closely on the non-lending instruments (because the country is currently not borrowing from the Bank) in order to make meaningful impact on those development challenges and constraints which potentially threaten the economic and social achievements of Botswana.

iii EXECUTIVE SUMMARY

1. This Report evaluates Bank Group assistance to the Republic of Botswana since the inception of Bank Group lending to that country in 1973. The report focuses on two key sectors – transport and education – where the bulk of Bank intervention is to be found. This selectivity did not at all preclude a global review of the performance of the economy or of Bank’s entire portfolio in Botswana.

2. The Republic of Botswana is a small, landlocked, semi-arid country, with a population of about 1.6 million people. At independence in 1966, it was a poor country, deriving the bulk of its livelihood from peasant farming operations. But since independence, the economy has undergone tremendous economic and social transformation, thanks to mineral (diamond) exports. The resulting boom in resources has been well managed, thereby paving the way for one of the best economic performances in Africa.

3. The Bank Group started operations in Botswana without a country-specific development strategy. The Bank was however guided more or less by its broad mandate to promote economic and social development in Africa. But there was no internal vacuum in strategic orientation as the Government relies on successive Five-Year Development Plans for the management of the economy. Thus, the Bank conveniently fitted its lending operations into these successive Development Plans.

4. The evaluation of Bank assistance was carried out at two levels. One was at the level of non-lending, while the other dealt with lending assistance. At the level of non-lending assistance, (strategic orientation, economic and sector work, policy advice and dialogue, resource mobilisation and cofinancing) the outcome was unsatisfactory. But the lending strategy was relevant to Government development strategy. It was also efficacious in that it achieved its objectives. There was no strategic orientation in Bank intervention other than that spelt out in broad Bank mandate, neither was there any economic and sector work. Policy dialogue and advice were non-existent. Although the Bank undertook several co-financing operations with other donors, there was little by way of evidence to show that these activities were well coordinated.

5. On the other hand, the outcome of Bank lending activities was rated as satisfactory. Bank lending in both the transport and education sectors were both relevant and efficacious as they achieved their objectives. In the transport sector, efficiency in terms of economic and financial returns was satisfactory. In the education sector, all projects were implemented below appraised costs, while teacher/student ratios declined marginally, but some schools remain under-utilised.

5. The sustainability of the achievements in the transport sector is certain given Government commitment. This commitment is indicated in the resources made available for maintenance and other recurrent needs. While Government commitment is also assured in the education sector, sustainability in this sector is rendered uncertain by the consequences of the HIV/AIDS pandemic. Indeed, the huge economic and social achievements of the country could be undermined by this epidemic.

7. Bank lending in both the transport and education sectors had minimal institutional development impact. In the transport sector, Bank lending did not significantly strengthen or sustain Government capability in that sector. In the education sector, there iv was minimal provision for institutional development.

8. In general, Bank performance was rated unsatisfactory. Its role in non-lending assistance was poor while many of the projects were subject to long implementation delays. In design, many of the projects made no provision for institutional development. The performance of the Borrower was satisfactory, even though there were delays in implementation and in the submission of audited accounts. There was however strong evidence on the part of the Borrower for successful implementation of projects. The country does not have problematic or potentially problematic projects, neither does it have projects at risk. Although there were several co-financed projects in Botswana, there was no evidence of strong donor coordination. Thus the performance of other donors can be described as unsatisfactory.

9. Botswana has made tremendous economic and social progress in the last few years. As a result of these achievements it was graduated from the ADF in 1992 and currently, it is even reluctant to borrow from the ADB. But the country faces daunting economic and social challenges. These include poverty, unemployment, HIV/AIDS pandemic, shortage of skills and the development of the private sector. As the country does not currently borrow from the Bank, it is advised that the Bank uses its non-lending activities to address some of these challenges. To ignore these challenges is to reverse the development gains which Botswana has achieved since independence.

1. ECONOMIC AND SOCIAL BACKGROUND

1.1 Country Background

1.1.1 The Republic of Botswana is a landlocked, semi-arid country. The country straddles the tropic of Capricorn and it is bordered by Namibia in the west, Zimbabwe in the north-east, the Republic of South Africa in the south and south-east; and Zambia at the Caprivi strip. The mean altitude is about 1000 meters above sea level. Rainfall is not only erratic, but it is also low and unevenly distributed. Almost all of the rainfall occurs during the summer months of October to April. Droughts are common occurrences and could last for long periods like the drought of 1981/82 – 1986/87. Droughts have severely affected the already fragile food situation in the country and seriously impaired the rural economy and socio-cultural structures. It is estimated that food production fell during the drought years from 10% of the country’s requirements to 4%.

1.1.2 The 1991 Population and Housing Census estimated the population at 1.327 million, with a growth rate of 3.5% per annum. Eight years later, the population was estimated at 1.611 million. Improvements in health and socio-economic conditions which the country experienced in the 1980s and early 1990s contributed to high fertility rates and declining mortality rates. Total fertility rate has since declined and the population growth rate is currently estimated at about 2.3%. The structure of the population shows a young age structure and therefore, a built-in momentum to grow. In the years ahead this could put a huge burden on efforts to reduce poverty and increase the welfare of the citizens.

1.1.3 Botswana is a member of the South African Customs Union (SACU) along with South Africa, Lesotho, Swaziland and Namibia. The country derives an average of 16% of its total revenue from the Customs Union. About 75% of its imports comes through South Africa and most of its exports goes to the rest of the World through South Africa. All these combine to make the country highly vulnerable to developments inside South Africa.

1.1.4 At the time of independence in 1966, Botswana was one of the poorest countries in Africa. The population, which was entirely rural, was dependent heavily on agriculture for livelihood. Beef production was the mainstay of the economy in terms of output and export earnings. Years of drought have ravaged both arable land and livestock agriculture. Over 30% of Botswana men between the ages of 20 and 40, were working in South Africa. The infrastructure was underdeveloped except the railways. In short, the prospects for development were bleak as the Government was heavily dependent on foreign aid for investment and recurrent expenditures.

1.1.5 But the period since independence has seen a major transformation of the economy. Successive development efforts have increased access to water, roads, health, and education facilities. School enrolment has improved over the years with over 90% of primary school aged children enrolled in primary schools. Notable achievements have been recorded in secondary school education and in health. There has been a significant expansion of Community Junior Secondary Schools, with the result that school leavers are able to secure a place in Form I. Improvements in the health sector now guarantee that about 85% of the rural population are within 15 km radius of a health facility.

1.2 Recent Economic Developments: An Evolving Development Success Story?

1.2.1 The performance of economy of Botswana has generally been regarded as an outstanding case of successful economic management in Africa. Since independence, the economy has been transformed from an agrarian into a modern economy. The performance during the decade of the 90s was particularly impressive. During 1995-2000, the GDP grew in real terms at the annual average rate of 5.8% (Annex 1).

This performance, like others before it, was fuelled largely by the mining sector, in particular 2 the diamonds sub-sector. This performance was unevenly distributed through the years. For example, GDP growth rate fell to 4.0% in 1999, partly as a result of the weak international demand for diamonds. Public investment, as a proportion of GDP was an average of 26.5% during this period, while private investment averaged 16.1% during the same period. The rate of inflation (as measured by the Consumer Price Index) averaged 8.5% during this period. In the area of fiscal management, the Government has similarly been prudent. Government revenue was an average of 41% of GDP, while expenditure was held to an average of 39%. The inevitable outcome was that Government budget maintained an average surplus of 1.7% during this period.

1.2.2 On the external front, performance was even better, thanks to huge diamond exports. Current account balance as a share of GDP was an average of 9.7%, while debt service, as a percentage of exports, was an average of 3%. External debt, as a percentage of GDP, stood at a mere 9.8%. External reserves, in months of imports, averaged 36.5 months during this period.

1.2.3 Several factors account for this performance. These include some elements of luck in the form of discovery of diamond mining opportunities, sound and stable macro-economic framework (prudent monetary, fiscal, trade and exchange rate policies) and basic human capital development policies.

1.3 Poverty, Inequality and Social Conditions

1.3.1 During 1995-2000, Botswana’s GNP per capita averaged US$3,330 a year, qualifying it as a middle income country1. Its per capita income is higher than in any country in Africa and it certainly ranks favourably with the middle income countries of the world. Yet, and in spite of this, poverty is highly prevalent in the country. According to the 1997 study of Poverty and Poverty Alleviation in Botswana, 47% of Botswana individuals and 38% of households were living under poverty conditions in 1993/94. A higher proportion, 50% of female-headed households were living in poverty compared to 44% of male-headed households. It was also estimated that 62% of the poor were living in rural areas, 24% in urban villages and 14% in urban areas. The 1998 Demographic Survey estimated unemployment at 19.6% of the labour force—a decline of 1.9% from the 1996 level.

1.3.2 The principal cause of unemployment, and therefore poverty, is that the most important sector (mining) generates very little employment because of its relatively capital-intensive nature. On the other hand, agriculture, which has the potential for generating employment, has shrunk in relative terms, in the last few years. Another reason for the slow growth of employment is that employment mix has become continuously more skill-intensive in both private and Government sectors. Each year, more skilled workers are required relative to unskilled workers. Thus, lack of skill, partly explains why a significant proportion of the labour force remains unemployed.

1.3.3 In spite of the poverty and unemployment situation, the country’s other socio-economic indicators appear better than the rest of Africa. (Annex II). Total primary school enrolment was 107.8% in 1996, whereas it was 80% for Africa. Female school enrolment was 108.2% whereas it was 73.4% for Africa. Adult illiteracy rate in 1999 was 23.7% and for Africa it was 38.8%. Male and female adult illiteracy rates were 26.5% and 21.1% respectively during that year. In Africa, the corresponding figures were 30.7% and 48.2%. During 1992-97, the percentage of people having access to safe water was 90% in Botswana and for Africa it was 58% during 1992-98. These impressive indicators point in the direction of potential hope for poverty reduction.

2. DEVELOPMENT CHALLENGES AND CONSTRAINTS

2.1 Since independence, the Republic of Botswana has made tremendous economic and social

1 In 1999, its per capita was the fourth largest in Sub-Saharan Africa, after Seychelles, Mauritius and Gabon. 3 progress. Its per capita income is among the highest in Africa. Its GDP continues to grow at impressive rates, even when other economies on the Continent are faltering. The country is also sitting over huge external reserves, perhaps the largest in Africa. Over the years, it has made significant investments in infrastructure. This, coupled with its high savings and investment ratios, point in the direction, at least potentially, of continuous economic and social progress in the years ahead.

2.2 But all is not well with the economy as it faces enormous domestic and international development challenges and constraints. These include the excessive reliance on the mining sector, in particular on diamonds, the prevalence of unemployment and poverty, the Human Immuno-deficiency Virus/Acquired Immuno Deficency Syndrome (HIV/AIDS) epidemic, shortage of skills, large public sector, environmental degradation and low direct foreign investment.

2.2 The Dominance of the Mining Sector

One of the major problems facing the economy of Botswana is its excessive reliance on the mining sector, in particular, on diamonds. Over the years, the sector accounts on the average, for about 44% of the GDP, 75% of exports and about 47% of total revenue. This is a potentially dangerous situation to be in, given the well-known consequences of commodity price fluctuations. Admittedly, the Government has used the export proceeds of the mining sector judiciously and has accumulated huge external reserves, the fact remains that in terms of long-term development, the excessive reliance on the mining sector is not sustainable. The major challenge before the Government is how to reduce this dependence on the mining sector through the diversification of the production base of the economy. The Government is fully aware of the need for diversification and it is indeed taking steps in this direction. The 8th National Development Plan (NDP 8) and Vision 2016 both attach significant importance to economic diversification as macroeconomic policies and policies relating to ownership, regulation and control are being made more investor-friendly. The new Industrial Development Policy which was approved in 1997, is a comprehensive policy agenda for promoting growth in competitive manufacturing and service industries. Other major policy initiatives are the establishment of the International Financial Services Centre, the Privatization Policy for Botswana and the Reform of the Public Procurement System. Significant among other policies aimed at diversification as well as citizen empowerment is the Financial Assistance Policy (FAP) and the Small, Medium and Micro Enterprises (SMMEs) policy.

2.3 Unemployment

Another major development challenge facing the economy is unemployment. The 1998 Demographic Survey estimated unemployment at 19.6% of the labour force. This is located mostly in rural areas, among the under-privileged like women, school learners and unskilled rural migrants. In 1996 it was estimated at 21.5% of the labour force. The existence of unemployment in an economy growing at on an average of about 10% in the last ten years, and with population growing at just a little higher than 3% amounts to a policy problem requiring some explanation. One explanation is that mining, which accounts for most growth in the economy, creates little direct employment because of its relatively capital-intensive nature. Another explanation is that the agricultural sector, which is labour-intensive and therefore has the potential for generating employment, has declined over the years relative to the rest of the economy as a result of outmoded and inappropriate technologies and the ever-recurring drought. Yet another explanation is that the employment mix has become more skill intensive in both private and public sectors. Thus each year, more skilled labour is required relative to unskilled workers. Lack of skill is therefore one of the explanations for the prevailing unemployment.

2.4 Poverty

2.4.1 Closely related to the unemployment situation is the prevalence of poverty in Botswana. According to the 1997 Household Income and Expenditure Survey, 47% of Batswana individuals and 4 households were living in poverty. About 50% of female-headed households were living in poverty compared to 44% of male-headed households. It was also estimated that 62% of poor or very poor Batswana were living in rural areas, 24% in urban villages and 14% in urban areas. While the figures for 1997 represented some 12 percentage points decline from 59% estimated for 1985/86, and therefore some improvement, the poverty situation is still intolerable, particularly in a country with one of the highest per capita incomes in Africa. It also suggests the extent to which income distribution is highly skewed in favour of the few rich people.

2.4.2 Several factors have been identified as causes of poverty. Lack of income (a direct consequence of lack of wage employment) is singled out as an important factor. Mention must also be made of the lack of opportunities for self employment, and the lack of human capabilities in education and health. The main tool identified by the Government for fighting poverty is continuous growth of the economy and the diversification of its production base. The Government is also putting in place programmes to target specific groups such as destitutes. Examples of such programmes are destitute allowance for drought-induced and other destitutes.

2.5 HIV/AIDS Epidemic: A Formidable Challenge

2.5.1 Ever since the first AIDS case was confirmed in 1987, the HIV/AIDS epidemic has spread rapidly in Botswana. The country has one of the highest rates of HIV/AIDS infection in Africa. It is estimated that the infection has increased from13% among the general population in 1996 to 19% in 1999, and from 23% among the sexually active group (15 to 49 years) to 29% during the same period. The estimated number of infected individuals has increased from 180 000 in 1996 to 300 000 in 1999.

2.5.2 Several factors are known to account for the spread of the epidemic. These include the extreme mobility of the population, particularly of migrant workers within Southern Africa, sexual behavioural patterns and the high rate of other sexually transmitted diseases, increasing urbanisation and growing poverty among the population

2.5.3 The pandemic has affected the entire country, with relatively minor regional variations. The situation in the north is most critical, with an overall adult infection rate of 44%. The south has a rate of 36% (39% in Gaborone) and the rural west a rate of 30%. The prevalence rate in rural areas is 82% that of urban areas (much higher than the 50% differential assumed for most countries in sub-Saharan Africa). It is anticipated that adult prevalence rates will level off for all areas of the country at between 40 and 45% by the early 2000s.

2.5.4 Full-blown AIDS cases are estimated to be 2% of the adult population at the beginning of 1999. By 2009, 5% of the adult population would be living with full-blown AIDS. By 2001, there would be more than 15,000 AIDS deaths per annum, overtaking all other causes of death and effectively doubling the crude death rate. By 2010, cumulative AIDS deaths from 1991 would be about one quarter of Botswana’s current population. These estimates are based on current HIV infection rates and will not be affected by current preventive interventions. In 2000, 50,000 children less than 15 years of age would have lost their mothers to AIDS (“AIDS orphans”), and this number will rise to between 150,000 and 200,000 by 2010.

2.5.5 Botswana’s economic and social performance is likely to be adversely affected by the epidemic. High HIV prevalence rates and the attendant rise in morbidity and mortality rates have caused Botswana to slip 51 places down the Human Development Index rankings of 174 nations from an impressive 71 in 1996 to 122 in 1999.2 It has also slashed years off life expectancy. In its own report prepared for the Government of Botswana, the Botswana Institute for Development Policy Analysis (BIDPA) has predicted that Botswana’s GDP would fall by about 1.5% per year as a result of

2 United Nations Development Programme and Government of Botswana,(2000), Botswana Human Development Report, Gaborone. 5 the epidemic.3 In other words, after 25 years from the date of the publication, the economy would be 31% smaller than it would otherwise have been. Unemployment among unskilled workers would be 8% lower as a result of the epidemic. The existing shortage of skilled workers would be exacerbated, causing a 12-17% rise in skilled wages. One consequence which the study predicted is that one half of all households are likely to have at least one infected member. One quarter of households can expect to lose an income earner within the next ten years. As a result of all these, there would be an increase in the number of very poor and destitute households in the coming decade. In aggregate terms, there would be an 8% fall in national household level per capita income, and an increase in the number of people living in rural households. The epidemic would severely affect government expenditures as more resources are diverted to health care. Indeed government expenditures are projected to increase by between 7% and 18% in 10 years time. The study also estimated that government revenue would likely decrease by some 20% within 10 years. Thus overall, the epidemic is likely to cause an increase in government budget deficit.

2.5.6 The findings of 1999 UNDP-funded studies on the impact of HIV/AIDS on the demographic characteristics of Botswana present an alarming situation. The HIV prevalence rate among the total population of Botswana was estimated in 1999 to be between 15 and 17%. The rate for the adult population (aged 15-59 years) was estimated at 30%, or 240,000 people. As it is increasingly unlikely that effective interventions to reduce transmission will be found in the short- term, prevalence is expected to rise to about 20% of the total population by 2004. The ratio of affected women to men is estimated at 1:0.83. It is further estimated that about 15% of children aged 0-4 were infected. AIDS will be responsible for 64% of deaths of children under five by the year 2000, offsetting much of the country’s impressive child health progress.

2.5.7 Life expectancy would dramatically fall to about 35 years for males and females by 2010. Pre-AIDS pandemic projections based on 1990 census data were that life expectancy would rise from 50 to 68 years for males, and from 60 to 74 years for females between 1980 and 2020. According to the most recent projections, however, Botswana’s population would begin to decline in 2004, due to the prevalence of AIDS. It is currently projected that the population would peak 1.6 million in 2003, and begin to fall thereafter.

2.5.8 Rising morbidity would result in (i) a reduction in productivity per capita, (ii) an increase in public expenditure on health care, replacement training, and sick pay, and (iii) a reduction in national investment (due mainly to reduced domestic savings). Rising mortality, also due to HIV/AIDS, would result in reduction in the size of the labour force, and a loss of experience and skills. The negative impact of HIV/AIDS on labour, capital and productivity would reverse the growth of GDP, which the country has achieved in recent years. The shortage of both skilled urban labour and unskilled rural agricultural labour would have a negative impact on rural household food security and income, and worsen the poverty situation.

2.5.9 For the average household, there would be an income loss through the death or sickness of breadwinners, and increased expenditure on health care and funeral arrangements. The fiscal impact will be to increase Government health care expenditure to meet the growing needs, and reduce the tax base. The growing size of the population of AIDS orphans has economic as well as social implications. Without policy interventions, AIDS orphans could become a socially disruptive force resulting in rising levels of crime and discouraging investment.

2.6 Shortage of Skills

Another constraint (a rather ironical one because of the unemployment situation) is the shortage of skills in several areas of formal sector employment. It is caused in part, by the free movement of trained manpower to neighbouring countries like South Africa. This shortage, which is

3 Botswana Institute for Development Policy Analysis,(2000), Macroeconomic Impacts of HIV/AIDS Epidemic in Botswana, Gaborone. 6 being compounded by the HIV/AIDS epidemic, is also adversely affecting government efforts at diversification. The shortage is also affecting efforts to develop the private sector. The Government has responded by intensifying its training programmes particularly those relating to industrial and vocational training. The Government is also putting an increased emphasis on scientific and technical training in order to improve the skills of the labour force and make it competitive for employment opportunities.

2.7 Public Sector Reform

The public sector is the third largest sector in Botswana. During 1990/91 to 1998/99, its share of real GDP (1985/86 prices) was an average of 15.4%, while mining was an average of 44%. Trade, hotels and restaurants came second at 16.4%. This gives the impression of a large and pervasive public sector. The Government has recognised the need to right-size its activities and “hive off” some of them to the private sector. Although this has been constrained by skills shortage, there is evidence that some success is being achieved. For example, recent data on formal sector employment show that employment in the private sector increased by 7.6% from September 1998 to September 1999 whereas employment in the Government sector increased by 3.2% in the same period. The desire to increase the extent of private sector participation in the economy is the core objective of the Privatization Policy which was recently approved. Under the Policy, many state-owned enterprises are slated for full or partial privatization. The successful implementation of the programme remains one of the development challenges facing Botswana.

2.8 Environmental Degradation

Environmental degradation is a common feature of Botswana. It is caused by a combination of long and severe droughts and the absence of environmental conservation policies. Botswana is subject to long and sometimes disastrous droughts like that of 1981/2-1986/87. They have severe consequences for agriculture (sometimes leading to food deficit) and for the environment. The factors which contribute to environmental degradation include the pollution of underground water sources by pit latrines, overgrazing of communal lands, depletion of woodlands for fuel wood and other uses, extraction of river sand for construction, indiscriminate waste disposal and air pollution by mining operations. Unattended to, environmental degradation could harm long-term development. In recognition of this, the Government is currently looking into the issue with a view to integrating environmental considerations systematically into development programmes and policies.

2.9 Limited Direct Foreign Investment

2.9.1 Botswana has one of the best and most conducive policy environments in Africa4. The economy is growing at impressive rates. The rate of inflation was only 7.2% in 1999, down from 16.5% in 1992. This achievement is attributed to sound monetary and fiscal policies. The country also has a strong balance of payments position. In 1999, the country has an overall balance of payments surplus of P.1.685 billion, representing 7% of the GDP. The real exchange rate of the Pula has remained stable with little change against the US. dollar and the South African Rand.

2.9.2 Yet the country has not been successful in attracting foreign direct investment. The country started out by providing export incentives to would-be investors, but it was soon realised that this was not working. In 1982, the Government put in place the Financial Assistance Programme. Through this Programme, investors can obtain cost incentives in the form of capital, employment and training grants. Initially this policy attracted investors but no sooner than the financial support was withdrawn than the investors disengaged from the economy; citing unprofitability of their ventures as their main

4 Botswana was ranked second in competitiveness in Sub-Saharan Africa (after Mauritius) in the World Economic Forum’s Africa’s Competitiveness Report, 2000. 7 excuse.

2.9.3 Behind this excuse however, is the narrowness of the market. With a population of under 2 million people, the economy does not provide a viable market on which to build industrial development. The narrowness of the market would tend to explain the failure of Botswana to attract foreign direct involvement, which is proportional to the conducive policy environment, which the country has created over the years. The country’s situation is further worsened by its close proximity to the relatively more developed economies of South Africa and Zimbabwe. It would appear that the country would probably be better off integrating its economy with the neighbouring countries in order to be able to exploit the economies of scale that could accompany sustained industrial development.

3. BANK GROUP ASSISTANCE TO BOTSWANA: PRODUCTS AND SERVICES

The Bank provides an array of products and services of its regional member countries. For analytical purposes, these can be divided into non-lending and lending assistance. Non-lending assistance includes Bank developments strategy towards a country, economic and sector work (ESW), policy dialogue and advice, aid coordination and resource mobilization. Lending assistance is basically the provision of loans and grants in support of projects and programmes.

3.1 Non-lending Assistance

Bank Strategy Towards Botswana

3.1.1 Since it started operations in Botswana in 1973, the Bank Group has produced three strategy documents to guide its assistance to the country. The first was the Economic Prospects and Country Programming (EPCP) paper of 1990. This was followed by another one in 1995. The latest, which is strictly not under review here because it is outside the period of this review, was the Country Strategy Paper (CSP)5 of 2000. The two EPCPs attempted, in varying degrees of success, to provide a strategic framework within which the Bank Group operated in the country.

The 1990 EPCP6

3.1.2 Following a review of performance of the economy and the constraints facing it, the EPCP proposed a medium-term programme to assist Bank intervention. It argued that the objective of the Bank Group medium-term programme is to “support and facilitate the Government’s planned development process to relieve the major constraints to achieve longer-term development. The economic base is narrow and the objective of diversification away from the mineral sector faces serious bottlenecks, which include inadequacy of manpower, and social and economic infrastructure. Attempts at expansion of the industrial sector are frustrated by inadequate indigenous entreprenuership and support infrastructure” (p.42). It then proposed a medium-term lending programme of UA 85 million, with the transport sector taking up 45%, followed by social services (28%) and public utilities (25%). Technical assistance/institutional building was to receive 2.0%.

3.1.3 The emphasis on the transport sector was justified on the grounds that it would relieve the bottlenecks against the diversification of the economy. Consequently, the emphasis would be on the development of road network to link centres of economic activities, urban roads, and network that facilitate access to neighbouring countries. The programme will include the development of industrial infrastructure like industrial shells and layout to facilitate the industrial development programme. The programme on utilities will include the supply of water and electricity to urban and rural areas. All these would further stimulate economic and social activities towards the diversification of the economy.

5 The CSPs were successor documents to the EPCPs. 6 ADB/BD/WP/90/50 (May 9, 1990). 8

The 1993 EPCP7

3.1.4 The objective of the Bank Group as spelt out in the 1993 EPCP would be to support and facilitate the attainment of sustained long-term development. Recognising that the major constraint facing the economy was one of heavy reliance on the mining sector, the EPCP proposed a strategy that will emphasise the development of infrastructure, utilities, skills training and the creation of the requisite atmosphere for private sector initiative (p.59). The EPCP proposed a lending programme of UA 75 million for the period 1993-95. Out of this, the share of public utilities will be 66.7% while that of transport sector will be 33.3%. The industrial sector will be left largely to the private sector, presumably to be taken care of by the Bank’s private sector window.

3.1.5 The Bank has also produced sector strategy papers to guide its interventions in the various sectors of the economies of regional member countries. This is no less true of the sectors (transport and education) of interest to this report. In the transport sector, Bank Group sector policy (approved in 1992) hinges on three major pillers—continuous improvement of the standard of servicing transport infrastructure and equipment, strengthening of the efficiency of the institutions responsible for the sector’s administration, and liberalising the transport market. The Bank Group education sector paper (approved in 1986) had basic education, manpower development (inclusive of teacher, technical and vocational training) as its priorities.

Economic and Sector Work, Policy Advice and Dialogue

3.1.6 Since it started operations in Botswana, the Bank has not carried out any Economic and Sector Work (ESW) on the country. The closest thing to an ESW was the Economic Prospects and Country Programming Paper (EPCP) of 1989 and 1993, and its successor, the Country Strategy Paper (CSP) of 2000. These documents are essentially country reviews which, focus on the economic and social developments in Botswana, the Government’s development agenda and Bank Group lending programme. Partly because Botswana has never borrowed Bank resources to finance policy reforms, there has not been a forum whereby the Bank could have used these EPCPs as tools of policy advice and dialogue. They have tended to be used more as instruments for programming Bank interventions in Botswana. But there were some studies in the transport sector—the Sebele airport study, the Nata-Maun road study and the Road maintenance study. The first two studies were prerequisites for determining the feasibility of the projects, while the third was a Bank response to a Government request to review maintenance operations in the road sector. Even when account is taken of these studies, it is obvious that the Bank has not done much in the area of economic and sector work in Botswana. Similarly the Bank has not used its policy documents (EPCP and CSP) to engage in fruitful policy discussions with the Government of Botswana.

Aid Coordination and Co-financing

3.1.7 Partly as a result of its level of per capita income and the subsequent scaling down of operations by donors, the level of donor activity in Botswana has declined over the years. There are no new resources coming from the Bretton Woods Institutions and the Bank Group, but some resources are made available by bilateral donors and NGOs.

3.1.8 Traditionally the Economic Affairs Division of the Ministry of Finance and Development Planning is the overall coordinator of external assistance. There is no formal coordinating mechanism among donors in Botswana partly because the country is neither a Round Table nor a Consultative Group country. But the United Nations Development Programme (UNDP) coordinates UN activities in the country and convenes informal meetings of the Government and donors. The Government too makes contacts with bilateral donors.

3.1.9 Interviews with GOB stakeholders reveal that aid co-ordination by the Bank was generally

7 ADB/BD/WP/93/49 and ADF/BD/WP/93/54 (July 1, 1993). 9 weak and was not promoted at either the project preparation or implementation stages. However, the Bank was active in co-financing activities and, since its first intervention in the transport sector in Botswana, has co-financed all of its lending projects either with GOB alone or with GOB and other donors.

3.2 Lending operations

Aggregate Analysis

3.2.1 Following its initial intervention in Botswana in 1973, the Bank has granted a total of 35 loans and two grants for the financing of 22 projects, 4 studies and 2 lines of credit. Net commitments to date stand at UA 263.65 million of which UA 175.44 million (66.5%) were from ADB resources. The ADF accounted for UA 80.58 million (30.6%), while the NTF accounted for UA 7.63 million (2.9%). About 44% of Bank resources were devoted to the social sector (mostly education subsector), 34.6% and 11.6% were directed to transport and public utilities sectors respectively. The remaining (8.8%) was devoted to the agricultural sector (Table I, see also Annex 3 for details of Bank Group portfolio in Botswana).

Table I

Botswana: Sectoral Breakdown of Bank Group Net Commitments (September 2000) (UA Million)

SECTOR NO. OF APPROVED ADB ADF/TAF NTF TOTAL % OPERATIONS Agriculture 6 8.38 9.76 7.63 25.77 9.8 Transport 12 67.14 24.14 -- 91.28 34.6 Industry ------Public Utilities 7 30.34 0.33 -- 30.67 11.6 Social Services 12 69.58 46.35 -- 115.93 44.0 Multi-sector ------

TOTAL 37 175.44 80.58 7.63 263.65 100%

% Total Net Approved 66.5 30.6 2.9 100%

Source: ADB Compendium of Statistics, 2000 Note: ADB: African Development Bank ADF: African Development Fund NTF: Nigeria Trust Fund

3.2.2 In 1992, Botswana became ineligible for ADF resources as a result of her level of per capita income, thereby becoming an ADB-only country. Even with this status, the country is reluctant to borrow at commercial rates partly as a result of her huge external reserves and partly because she does not want to increase her stock of external debt, which currently stands at a mere 9.8% of the GDP. Although there are no fresh borrowings from the Bank, virtually all projects financed by the Bank to date have been completed. Project completion reports (PCR) have been prepared for 13 projects while post-evaluation has been carried out on 12 of these completed projects.

3.2.3 The overall conclusion of these reports is that implementation performance was generally satisfactory, and that most of the projects achieved their objectives. In terms of aggregate performance, Botswana does not have problematic or potentially problematic projects according to the findings of successive Annual Portfolio Performance Review reports (APPR). Neither does it have any project at 10 risk. However several PCRs, post evaluation reports and the country portfolio review report of 19958 observed that the implementation of a few projects had been hampered by problems of inadequate institutional capacity, shortage of skilled manpower, and communication difficulties between the Ministry of Finance and Development Planning (MFDP) and executing agencies. These limited weaknesses have manifested themselves in occasional delays in project start-ups and slippages in implementation schedules. However, these have not been enough to significantly affect project implementation and project outcomes in an adverse way as revealed in Table II.

Table II

OPEV ratings of Closed Projects

PPER IP PPER DO PROJECT NAME SECTOR ASSESSEMENT ASSESSMENT TRAINING OF HEALTH PERSONNEL (ADF) GENERAL HEALTH HUS S

SECONDARY TEACHERS TRAINING EDUCATION HUS HS COLLEGE – EDUCATION I EXTENSION AND MODERNISATION OF TELECOMMUNICATIONS HUS HS TELECOMMUNICATIONS NEW GABORONE (SIR SERETSE KHAMA) AIR TRANSPORT / AIRPORT HUS US INTERNAT. AIRPORT FRANCISTOWN ABATTOIR (NTF) AGRO-INDUSTRY S S

FRANCISTOWN NEW HOSPITAL GENERAL HEALTH S S

GABORONE-LOBATSE WATER – SUPPLY WATER SUPPLY S S

ARABLE LANDS DEVELOPMENT AGRICULTURE HUS US PROGRAM (phase I) MORUPULE POWER ELECTRICITY HS HS

NATA-MAUN ROAD ROAD TRANSPORT / S S HIGHWAYS ROUTE SEROWE-ORAPA ROAD TRANSPORT / S HS HIGHWAYS RURAL ROADS II PROJECT ROAD TRANSPORT / S S HIGHWAYS

Source: Operations Evaluation Department

KEY: S: Satisfactory. HS: Highly Satisfactory HUS: Highly Unsatisfactory HS: Highly Satisfactory IP: Implementation Performance DO: Development Objectives PPER: Project Performance Evaluation Report

3.2.4 The table shows that even though implementation performance was rated unsatisfactory in 7 projects, the attainment of development objectives was not thereby affected as 10 out of 12 projects had satisfactory or highly satisfactory ratings.

Sectoral Analysis9

The Transport Sector

8 ADB/BD/WP/IF/245 and ADF/BD/IF/95/174, 22 November 1995. 9 The background papers on which this section is based are available upon request. 11

3.2.5 As a British Protectorate, Botswana was governed from Mafeking in South Africa. Thus, its capital Gaborone came into existence only in the wake of independence in 1966. As a country governed from outside, it had a relatively low level of infrastructure. Its road network, railways and airports all came into being after independence.

3.2.6 Thus at independence, the development of an efficient and effective transport infrastructure became an imperative for the economic and social development of Botswana. Botswana shares borders with four countries, Namibia to the west, Zimbabwe to the north-east, Zambia to the north and South Africa to the south and south-east. As a result, it is an important transit country for traffic between Namibia and South Africa and for traffic from South Africa to the countries to the north of its border, namely, Zimbabwe, Zambia, Democratic Republic of Congo, Tanzania and others conducting trade with South Africa.

3.2.7 Botswana’s transport infrastructure comprises a system of trunk and rural roads, a railway system and airport system with one international airport and a number of smaller airports. Botswana’s Public Highway Network comprises some 18,327 km of roads for which responsibility is split between two ministries. The Ministry of Works, Transport and Communications, through the Roads Department, is responsible for 8,761 km of primary and secondary roads (approximately 75% paved) while the Ministry of Local Government and Development, through various District Councils, is responsible for 9,566 km of tertiary and access roads (approximately 5% paved). There are also some 3200 km of primary and secondary roads and streets in urbanized areas which are the responsibility of the City, Town or District Councils.

3.2.8 Botswana’s railway network comprises a single 642 km track that links Botswana to the South African Railway system (Spoornet) at Mafeking to the south and the Zimbabwe Railway System (National Railways of Zimbabwe- NRZ) at Plumtree to the north. From there, there are links with the Zambian system (Zambia Railways) at Livingstone onward to the port of Dar-Es- Salaam in Tanzania through the Tanzania-Zambia Railway Authority (TAZARA). Thus, historically, the Botswana Railways (BR) system has been a major link in the trade between South Africa and countries to the north including East Africa and it forms part of the designated SADC Interconnected Regional Railway Network (IRRN).

3.2.9 The country’s aviation sector is relatively well developed given the country’s small population and level of economic activity. Botswana has one major international airport, the Sir Seretse Khama International Airport (SSK) which was opened in 1984. Other major airports are at Maun, the tourism capital of Botswana, Francistown, Kasane and Selibe Phikwe. These airports are managed by the Department of Civil Aviation (DCA). Ghanzi is designated a secondary airport. In addition, the DCA also maintains about 20 airfields countrywide. Of these, only three – Kang, Gumane and Shakawe - are bitumenised while the rest are unpaved, being of gravel or earth- sand construction. DCA has embarked on an extensive programme of upgrading of these airfields.

3.2.10 The Bank’s first involvement in the transport sector of Botswana was the construction of the Lobatse-Kanye Road in 1975. This was followed by the study for an international airport at Sebele and subsequent part financing for the construction of Botswana’s only international airport, Sir Seretse Khama (SSK) International Airport. Since then, Bank Group involvement in the transport sector in Botswana has been concentrated in the roads sector with financing for a number of critical trunk road links and two rural roads projects. The trunk roads were, Lobatse-Kanye; Nata-Maun; and Serowe-Orapa and the Trans-Kgalagadi Road which was completed in 1998, linking Botswana to Namibia and offering an alternative transport route to a sea port for Botswana.

3.2.11 The rural roads projects were the most extensive and were constructed in two phases, Rural Roads I and Rural Roads II. Rural Roads I was located in various parts of the country and comprised the following road links: Molepolole-Letlhakeng (50 km); Sefophe-Bobonong (56 km); Tsabong-Makopong (50 km); Mopipi-Rakops (40 km); Ramokwabane-Kalakamate (67 km); and Tasu-Gumare (117 km), a total of 380 km. Rural Roads II was also located in various parts of the 12 country and comprised the following road projects: Makopong-Sekoma (163 km); Kalakamate-Sebina (30 km); Maun-Toteng-Sehitwa (100 km); and Gumare-Etsha-Sepopa (75 km) giving a total of 368 km. Altogether, the Rural Roads Projects totalled 748 km. In addition, the Bank financed two roads related studies, the Road Maintenance Study and the follow-up Institutional Study of Botswana Roads Agencies.

The Education Sector

3.2.12 Government Policy on education has historically been guided by the National Policy on education formulated first in 1977 and revised in 1992. The thrust of the policy was the expansion of basic education educational opportunities within the shortest possible time-frame. On the part of the Bank, its general objective (as formulated in the sector strategy paper of 1986) was to promote basic education, manpower development and institutional strengthening. The convergence of views on the part of the Bank and GOB resulted in Bank funding of five projects in the education sector.

3.2.13 The combined purpose of the five projects was to increase access to primary, secondary and tertiary education, to improve the quality of primary and secondary education, to increase the output of primary and lower secondary teachers, to reduce inequalities in rural areas, to improve the efficiency of secondary education (through policy studies) and to improve MOE capacity in project implementation. The appraised value of the five projects amounted in total to UA 157.6 million, of which GOB contributed UA 41.9 million and OPEC UA 2.1 million. ADF/TAF financing totalled UA 43.3 million and ADB loans totalled UA 70.3 million.

3.2.14 The operations focused on the financing of facilities for primary, junior secondary, senior secondary, vocational, and tertiary education. Infrastructure development accounted for over 95% of the combined output by value of the five operations. In addition, provision was made for the procurement of primary school learning materials, and the introduction of computer education in senior secondary schools. The main thrust of the projects was to support GOB’s objective of achievement universal lower secondary education. To this end Bank operations financed the construction of 82 CJSSs and extended 21 others, inclusive of hostel accommodation for students and housing for teachers.

4. DEVELOPMENT EFFECTIVENESS OF BANK ASSISTANCE TO BOTSWANA

4.1 Relevance of Bank Strategy

4.1.1 For purposes of managing its economy, Botswana relies on successive 5-year national development plans (NDP). These plans review past economic performance and highlight the problems facing the economy. On the basis of these analyses, the country maps out its investment and development strategies. The country is currently in the 8th development planning horizon—1997/98- 2002/2003.

4.1.2 Bank Group interventions in Botswana (see para. 3.4) have been supportive of Government development objectives as spelt out in successive NDPs. During the life of the 1990 EPCP, which also coincided with NDP 5, Government emphasis was on the reinvestment of the large returns from the mining sector into economic and social infrastructure like transportation and education, health and public utilities. This would lay the foundation for further growth of the economy. In accordance with its mandate of supporting RMC development efforts, the Bank fitted its interventions into successive development plans of the Government. Hence in the 1990 ECPC, it proposed and indeed invested, the bulk of its lending (45%) into transportation and social services, mostly education, (28%). The EPCP for the period 1993-95 coincided with the NDP7, the objective of which was the further opening up of the economy, through adequate transport network, as a step towards the diversification of the economy. But the EPCP changed course (without any explanation) by emphasising utilities rather than transportation in its proposed lending programme. This changed emphasis resulted in the share of public utilities moving up to 66.7% while that of the transport sector was reduced to 33.3%. 13

4.1.3 From the analysis above, it is obvious that economic development in Botswana has been driven largely by the Government through its successive development plans. The Bank as well as other donors merely fitted their interventions into the Government development strategy. But insofar as the coincidence (of Bank lending and Government strategy) produced results, it can be concluded that the strategy was relevant. This verdict however does require some qualification. The 1993 EPCP de- emphasised the transport sector without providing explanation for that decision. By this decision, the EPCP lending programme diverged from Government declared objectives. Furthermore, both EPCPs ignored pressing development problems of Botswana—poverty, unemployment, excessive reliance on the mining sector, HIV/AIDS epidemic, etc. Some of these issues are addressed in the latest CSP10. But this CSP is coming at a time when Botswana is no longer eligible to borrow ADF resources, and indeed when the country is reluctant to borrow non-concessional funds. The Bank is thus constrained in its ability to address some of these problems through its lending programme. But it is the contention of this report that some of them can be addressed through non-lending assistance.

4.2 Macroeconomic Outcomes

4.2.1 Over the last decade, the economy of Botswana has grown rapidly, perhaps better than any other economy on the Continent (see para. 1.2-3 above and Annex 1). Its social indicators are also one of the best in Africa (Annex 2). A 1999 World Bank report11 cited the followings as the factors behind the country’s success:

♦ A sound mining policy framework that encouraged foreign investment, while providing the government with significant revenues through an equity stake in mining ventures;

♦ Disciplined fiscal policies, which enabled mineral revenues to be applied to: (i) accumulation of significant international reserves, which served to cushion Botswana from price cycles and external shocks; (ii) investment to initiate new major mining projects; (iii) investment in local infrastructure and social services.

♦ Prudent monetary policy that provided price and financial sector stability;

♦ Trade and exchange rate policies that kept the economy open, including maintaining good relations with South Africa and participation in SACU; and

♦ Human capital development policies that emphasized investment in basic social services – primary education and primary health-care services.

4.2.2 But this performance is anchored precariously on the performance of the mining sector and on continued good economic management. The economy even harbours potential threats to its continued good performance. These include the threat posed by HIV/AIDS epidemic, and the narrow production base of the economy, which makes it vulnerable to terms of trade shocks. Poverty remains endemic, particularly in the rural areas (see para. 2.4), while the shortage of skills undermines development efforts. These and other constraints could derail or undermine whatever economic and social gains the country has achieved in the past.

4.2.3 Bank assistance to Botswana was not in directly productive activities, but rather in social overhead capital. But in so far as there is a direct relationship in social overhead capital and economic growth, the Bank can be said to have contributed to the performance. But the Bank also has a responsibility in assisting the country to respond to the constraints which pose potential danger to the country’s continued good economic performance.

10 ADB/BD/WP/2000/138, 31 October, 2000. 11 World Bank, (1999) Botswana: A Case Study of Economic Policy Prudence and Growth. 14 4.3 Sectoral Outcomes: Transport Sector

Efficacy

4.3.1 The development of Botswana’s road network since the first Bank funded project in 1976 has been nothing short of phenomenal. Since then, the length of the bitumenised road network increased from approximately 500 km to over 6000 km at the time of completion of the Bank’s last funded project (Trans-Kgalagadi Road) in 1998. During that 22 year period of support to the roads sector, the Bank co-funded some 1337 km or approximately 25% of all new roads constructed – a substantial contribution to the development of the country’s road infrastructure.

4.3.2 The Rural Roads projects funded by the Bank have had a major positive impact in bringing Botswana’s rural areas into the orbit of development. The benefits have been at three main levels. The first is improving access to hitherto isolated communities thereby enabling the government to provide essential services in the form of schools, health services and relief in times of drought and also logistical access during times of major disease outbreaks such as foot and mouth.

4.3.3 The second level is opening up economic opportunities for the rural populations and facilitating the delivery of economic services. Because of the country’s arid climate, the mainstay for the majority of the rural population is livestock rearing. According to the Botswana Meat Commission (BMC), three decades ago access to most rural areas was virtually impossible and rural farmers had to track their livestock on foot for sale at the then only abattoir at Lobatse over long distances. By the time the farmers arrived in Lobatse, their herds had dwindled thereby reducing potential incomes to the farmers. As a result of improved access today, rural farmers can now truck the livestock themselves to Lobatse or to the nearest abattoir in their area or they can wait for the BMC buying missions that go around the rural areas sourcing livestock.

4.3.4 The third level is facilitating linkages across Botswana’s nine Districts (Central, Ghanzi, Kgalagadi, Kgatleng, Kweneng, North-East, North-West, South-East, and Southern) and fostering social and cultural interaction and cohesion. This was facilitated by the ADB supported Rural Roads I and Rural Roads II secondary roads projects which acted as a spur for the development and improved connectivity of the District Road network of some 11,8333 km of mostly unpaved, low volume, tertiary/access roads.

4.3.5 The trunk roads funded by the Bank are the Lobatse-Kanye, Trans-Kgalagadi, Serowe- Orapa and Nata Maun roads. Interviews by key stakeholders during the evaluation revealed that there can be no doubt about the efficacy of constructing these roads. Prior to the construction of the Lobatse-Kanye Road, for example, traffic from South Africa going to the west of the country and onward to Namibia had to pass via Gaborone, a longer route. The Lobatse-Kanye Road therefore offers a more direct link from South Africa to the Trans-Kgalagadi Highway.

4.3.6 The Trans-Kgalagadi Road (TKR) is one of Botswana’s most recent major road projects. Apart from linking the western and eastern parts of the country, the highway is a strategic regional link and forms part of the Southern African Regional Trunk Road Network (RTRN).

The TKR is now considered to be an integral part of the Maputo-Walvis Bay Corridor, also referred to as the Coast-to-Coast (C2) corridor. It offers an alternative international transport access route for Botswana through the port of Walvis Bay in neighbouring Namibia as well as a shorter and potentially more cost-effective route for trade between Gauteng, South Africa’s industrial heartland, and Namibia and it cuts the road distance by nearly 900 km for a return journey. It also offers potential access to southern and western Zambia and well as western Zimbabwe to the port of Walvis Bay and onward to North American markets. Thus, the highway is not only a strategic national link, but also a strategic regional link.

15 4.3.7 Discussions with GOB officials and other stakeholders suggest that the objectives of the Serowe-Orapa road were fully met. There were two main objectives. The first was to connect Serowe, the regional headquarters of the Central District the largest District in Botswana to the diamond mining town of Orapa and also to link Serowe to the main north-south highway which links Botswana to South Africa to the south and Zambia and Zimbabwe to the north. The second was to improve links to existing settlements and cattle ranching areas between Serowe and Orapa. From the design and construction perspectives, the road was also a success in that it used construction materials researched and developed in Botswana for construction in a desert environment.

4.3.8 The efficacy of constructing the Nata-Maun Road was also fully endorsed by stakeholders interviewed. The Nata-Maun Road links eastern Botswana to the North-West District and therefore provides a vital link to two of Botswana’s major tourist areas, the Okavango Delta around Maun and the Chobe/Kasane national parks with proximity to the Victoria Falls. It also facilities easier access from Maun to Zambia and Zimbabwe both for tourism and commerce.

4.3.9 The Bank involvement in airports was at two levels, financing the feasibility and design studies and co-financing for the construction of what was then called Gaborone International Airport, now the Sir Seretse Khama Airport (SSK). The airport was established as a “feeder” rather than a major airport handling full-load intercontinental flights. At the time of construction, long-haul services to Europe were routed via Lusaka, Harare or Johannesburg. As a result, the runway at SSK, although built to cater for large aircraft (B747), was not designed to service full- load direct services from Gaborone to Europe.

4.3.10 The primary objective of providing Botswana with a reliable and adequate airlink with the outside world other than relying on its neighbours within the region was fully met. However, the secondary objective of creating market opportunities for shipment of beef from the airport has not materialized in the absence of cold storage facilities. However, BMC has indicated that even if such facilities were available at the airport, their utilisation would depend more on considerations of meeting EU phytosanitary standards, efficiency and cost effectiveness than merely seeking to utilise a national facility. On the whole, therefore, the project can be said to have attained the objectives set at appraisal .

Efficiency

4.3.11 The efficiency with which the Bank funded transport projects were implemented was not satisfactory as explained below. There were significant delays in various aspects of project implementation. A recurring cause of delay was the high lead-time between the date of loan approval and loan effectiveness and between the date of signature of loan agreement and loan effectiveness. For example, for the Rural Roads I and the Nata-Maun Road, the delays were 19 months and 13 months respectively. The delay for the Serowe-Orapa Road was 15 months. These delays are largely attributed to lack of effective co-ordination between the Ministry of Finance and the Executing Agencies. Another cause of delays was slowness by the Borrower in meeting CPs. It should be noted here that the cause was slowness rather than inability or reluctance by the Borrower to adhere to CPs. Other causes of delays were, modifications to original project designs, late contractor start-ups and related issues.

4.3.12 Lack of timely reporting was another area where the overall efficiency of project implementation was impaired. In a number of projects, the GOB delayed or did not submit Annual Audit Reports as required by the Bank. This shortcoming was due to a combination of staff constraints and lack of familiarity with Bank procedures by the Borrower (Ministry of Finance and the Executing Agencies).

4.3.13 Efficiency in terms of cost of inputs, implementation times and economic and financial returns was satisfactory given the complex nature of road and airport projects and multiplicity of 16 funding agencies, consultants and contractors often involved. Many of the projects at least realized, if not exceeded, their estimated traffic growth rates and, even with cost over-runs, they remained viable in terms of achieving acceptable EIRR’s.

4.3.14 For the Gaborone International Airport, loan effectiveness was delayed by 21 months. This was attributed to delays with other donor procurement processes and slowness in approval of tender documents. However, despite this initial delay, there was no overall delay in project execution. Costs of the project escalated by 41.4% in Pula terms due largely to appreciation of the US Dollar. Economic and financial viability, although important, were viewed as secondary to the more important strategic, social and economic context of the airport project at the time. The Internal Rate of Return (IRR) for the project was 10% and this was considered acceptable for projects of this nature. The various evaluation reports indicate that EIRR and FIRR alone could not determine the viability of the project given unquantifiable strategic, social and other considerations. Other examples are the Rural Roads project, the Serowe-Orapa Road, and the Nat-Maun Road.

4.3.15 Despite the intra-regional function of the TKR, there was some concern that it was not being fully utilized for a variety of reasons stemming largely from operational constraints along the road (stray animals on the road, limited border opening hours, high transit charges, and weight restrictions in Botswana which are not harmonised with those in South Africa) and absence of facilities along the road to cater for traffic. There are, for example, very few fuel stops along the highway and settlements are scattered and far apart. In the event of a breakdown, there is little recourse for assistance in time. These constraints have been recognised by the GOB and measures are being taken to address the various constraints related to the utilisation of the Highway. A Tripartite Working Group involving the three countries of Botswana, Namibia and South Africa has been set up to address operational constraints along the route.

4.3.16 The Ministry of Commerce and Industry (MCI) has recently commissioned a study called “Trans-Kgalagadi Development Corridor – Business Opportunity Development” which was released in August 2000. The objectives of the study were aimed at identifying business opportunities; creating an enabling environment conducive to economic development; focusing on SMME development; creating local employment and alleviating poverty and promoting the creation of institutional capacity to support business development and effective implementation facilities. Many stakeholders interviewed felt that a more holistic approach extending beyond mere provision of the road facility should have been given at the appraisal stages to the utilisation of the highway and its marketing as an alternative route and economic zone.

4.3.17 Although a broad socio-economic impact of the Bank funded transport projects in Botswana, has not been done, evidence gleaned from other indicators suggests that the road projects have had an overall positive impact on other sectors of the economy. For example, as a result of improvements in rural roads, there has been increased efficiency in the delivery of animals by rural farmers to the BMC. Whereas in the past journey times from some locations took up to a week, this has now been reduced to a day or two. The BMC is also able to access remote rural areas to source animals. Interviews with District Authorities confirmed that improved roads had spurred economic development.

Where services such as shops, banks and bakeries were not available prior to the construction of the roads in some of the major towns and villages, these are now readily available obviating the need for people to travel long distances to source these services. There has also been an increase in services offered by the Government such as schools, health services and public protection such as Police.

4.3.18 The Trans-Kgalagadi Highway offers great potential as a strategic regional transport 17 corridor and provided effective marketing is undertaken, it can provide a viable alternative international access route not just for Botswana, but also for South Africa, Zambia and Zimbabwe and be developed into a major economic corridor.

4.3.19 Botswana is now generating considerable revenue from over-flight charges. This is a development that could not have been the foreseen at the time the international airport was being appraised and is largely a result of the changed political situation in the region. There are now more international flights into South Africa and with the elimination of apartheid and sanctions, there are no more restrictions which barred flights to and from South Africa from traversing international airspace in other countries. In the past, flights to and from South Africa had to avoid overland flying and were restricted largely to flying across oceans.

4.3.20 In its Transport Sector Policy, the Bank indicated that it supports introduction of appropriate safety design standards which improve the transport safety and security of humans, commodities, transport equipment and other items. However, Bank supported transport projects in Botswana did not specifically address the issue of road safety and how to manage and mitigate against the adverse impacts of road safety that may result from road developments. This shortcoming has contributed to a major problem faced by GOB – an inordinately high road accident situation - one of the highest in Africa and in the world. This imposes considerable economic and social costs to the country in terms of loss of life and damage to property as well as the cost of insurance. Road safety remains an area where the Bank can still play a role to assist Botswana in tackling his monumental problem.

4.3.21 On balance, and notwithstanding the short-comings pertaining to environmental issues and road safety, Bank Lending assistance was certainly efficacious in terms of the projects achieving their primary goals of reducing transport costs and contributing to the socio-economic growth and development of the country.

4.3.22 Whilst a more detailed study would need to be undertaken to determine the impact of the Bank interventions in a quantitative manner, it can be stated qualitatively, nonetheless, that the Bank’s transport projects have enhanced the competitiveness and efficiency of the Botswana economy. Thus, based on the efficiency in overall project implementation as well as on examination of various internal and external efficiency indicators, the outcome of the Bank’s Lending assistance to Botswana is judged as being satisfactory.

Sustainability of Achievements

4.3.23 There is no doubt about the commitment of the GOB to the country’s transport sector. All the country’s National Development Plans including the current NDP 8 place infrastructure development and transport in particular as a priority sector. As indicated above, in the current budget, the highest allocations are for the MWTC specifically to support infrastructure. Spending on transport and roads in particular, continues to grow as evidenced by the fact that during the mid- term review of NDP 8, additional funds were allocated to the MWTC and MLGD, principally for rural roads and rural telecommunications. The MLGD received an additional P1.418 billion or a 44.9% increase while the MWTC received an additional P502 million or 17.2% increase.

4.3.24 There has been a sustained increase in recurrent funding expenditure at Central Government level to Roads Department. For example, in the past 7 years to FY 2000/01, maintenance allocations for the upkeep of primary and secondary roads have increased by some 78% from P38.5 million to P68.4 million. Such funding is believed to be close to the optimum requirement. However, the problem has traditionally been one of inability to utilize all the funding due to implementation capacity constraints. The anticipated institutional reform of the Roads Department 18 into a more autonomous roads agency is expected to improve institutional capacity and, ultimately, the sustainability of investments made in the provision of main roads.

4.3.25 Funding for maintenance at Local Government level has traditionally been grossly inadequate with allocations reported as being about 25% of the total requirement. The situation is exacerbated by severe staffing constraints with the result that tertiary/access roads have been neglected and road conditions are continuously deteriorating. Until the institutional framework for maintenance is radically over-hauled, as recommended by the Road Maintenance Study, the chances of an improvement in the situation at Local Government level are very remote and the sustainability of the country’s tertiary/access road system is placed in jeopardy.

4.3.26 Little, if any, attention was paid to cost-recovery in Bank funded projects which was not an integral part of Bank Lending. Nonetheless, as clearly stated in NDP 8, GOB is fully committed to cost recovery in the transport sector where the policy is to recover an increasing proportion of maintenance costs from beneficiaries of infrastructure. To this end, a Road User Charging Study was carried out in 1998, the recommendations of which are still being considered by government. The study recognizes that, given Botswana’s small population and the country’s high poverty levels, full cost recovery may not be feasible in the short term. Nonetheless, in principle, a move towards cost recovery augurs well for the future sustainability of transport infrastructure.

Institutional Development

4.3.27 Institutional development through capacity building is an area which, although recognised in Bank policy, was not integrated into the lending for Botswana, with the exception of the Gaborone International Airport, where TA support was provided, and the very last project, the Trans-Kgalagadi road, where TA support and training were provided. For all the other Bank supported projects, lack of TA support and associated skills transfer was practically non-existent and development of the contracting and consulting industries was negligible because these activities were undertaken mostly by expatriate companies. Thus, Bank intervention in the transport sector did not significantly strengthen and sustain GOB’s capability in the sector where, for example, the implementation capacity of one of its key implementing agencies, the Roads Department, remains as fragile as ever with 25% of its current (2001) establishment still filled by expatriates and with 12% of its positions still vacant.

4.3.28 As regards airports and air transport, GOB’s intention to establish an autonomous Civil Aviation Authority in place of the current DCA, as well as to privatize the national airline, Air Botswana, provide a solid base for improving the efficiency and effectiveness of these organisations and hence, for the sustainability of the air transport industry in Botswana. This applies similarly to the intention to transform the Roads Department into a more autonomous Roads Authority with a supporting Road Fund. However, these developments are unlikely to materialize for the next two to three years.

4.3.29 Consultations with both Roads Department and the Roads Unit in MLGD revealed that currently co-ordination and consultation arrangements between the two institutions are ad-hoc rather than systematic and normalized and that there are no synergies being created between the two institutions although they work towards similar objectives. For example, although the Roads Department has a modern Road Management System (an output of the Road Maintenance Study), this facility is not yet operated together with MLGD who manage a significant kilometrage of tertiary and access roads.

This obviously has an adverse impact on the overall efficiency of carrying out maintenance on the country’s road network and poses a serious threat to the sustainability of tertiary and access roads in Botswana.

19 4.4 Sectoral Outcomes: Education Sector

Efficacy

4.4.1 Several donors participated in the expansion of basic education in Botswana. This makes attribution difficult. Nonetheless, it can be said, on the basis of the information below, that all the projects achieved their goals. The rate of expansion of secondary educational opportunities, particularly in rural areas, has been remarkable by African standards. Botswana ranked fourth in Africa in the UNDP Human Development Index, with adult literacy at 74% and combined gross enrolment for all levels of education at 70%. These achievements are traceable in part to Bank lending in the educational sector of Botswana.

4.4.2 Between 1986 and 1997, primary enrolment increased from 236,000 to 322,000, and the net enrolment ratio reached 98.4% in 1997 for the 7 to 13 age cohort, the highest in Botswana’s history. The progression rate from Standard 7 (the top primary grade) to Form 1 of the secondary system was 95.3% by 1997, indicative of near-universal access to lower secondary education. Government estimate that in 1999 progression would have reached 100%.

4.4.3 Total enrolment in the first year of junior secondary education more than tripled between 1986 and 1996, from 11,090 to 36,102 (the 12 year-old cohort was just less than 40,000 in that year). CJSSs report a high progression rate through the three grades of junior secondary education, marred only pregnancy-related dropouts. At the senior secondary level, the Government has reached its interim target of 50% progression.

4.4.4 In the area of vocational training, the objective was that of establishing of two rural vocational training centres at Jwaneng and Selebi-Phikwe, with an enrolment target of 278 students at each centre. Enrolment in 1996 was 469 and 337 respectively. While the original objectives were achieved and enrolment targets met, programming deficiencies were identified in the 1993 report of the National Commission on Education and other reviews. One estimate was that VTC facilities countrywide were “80% under-utilised” in 1999.

4.4.5 Investment in teacher training facilities has had less favourable returns. The Molepolole College of Education has maintained enrolment near to the 640-target set on the revision of the first Education project. For the Sorowe College of Education, the situation is of concern. The appraisal report for Education IV was not specific about the enrolment target for Sorowe (“to renovate and expand Sorowe TTC to accommodate the excess capacity of students from Lobatse”), but the PCR noted that Sorowe was at 100% capacity with an enrolment of 300. By 1997, the annual trained output was 150, but the training programme has been lengthened from 2 to 3 years, and the accommodation reduced to 240 (by doubling the square metre allowance per student in the original hostels). Based on the current scenario, the annual output of trained teachers at Sorowe will average 80 per year, only about 50% of the output assumed at project appraisal.

4.4.6 The objective of Education III project was to expand tertiary education. Total enrolment anticipated for the expanded (science) faculty at appraisal was 600. By 1997, enrolment was almost double that, and the 1999-2000 academic year, 727 were admitted to Year 1 of the 4-year programme alone - a situation “beyond saturation point”, according to the faculty dean.

4.4.7 One of the objectives of all the projects is to eliminate rural-urban disparities in education. Access to basic education has been successfully spread to the most remote areas; Bank-financed facilities were consistently targeted on rural areas. The operations have been particularly successful in contributing to the achievement of this target, as attested by near-universality in the 20 provision of basic education.

4.4.8 An objective of the first Bank operation was to ‘progress towards the full localisation of the secondary teaching force’. At appraisal in 1980, non-Botswana accounted for 55% of secondary teachers (down from 80% in 1973). By 1988, non-Botswana accounted for 41%, and by 1997, 28%. In absolute terms, however, the total number of non-Botswana teachers increased from 349 in 1980 to 1,878 in 1997, a fivefold increase. As no objectively verifiable indicator was given in the 1981 appraisal report, it is difficult to know how much progress was anticipated, but the localisation objective cannot be considered achieved.

4.4.9 Until recently, pregnancy-related dropouts have kept more boys than girls in the educational system. The cooperation between the Government and UNICEF has reversed this trend. In 1997, girls’ participation in basic education was 50% at the primary school level and 54% at the junior secondary level. At senior secondary level, it was 52%. In primary teacher training institutions, 66% of the trainees were females. In secondary teacher institutions, the gender balance is almost equal. At the tertiary level, 48% of University of Botswana students are females. While these statistics are positive in terms of female participation, there is a danger that males may in the long term be marginalised. Already the progression rate from primary to secondary is higher for girls, and females outstrip males in enrolment in half of the university’s faculties and in its part-time Centre for Continuing Studies. The primary teaching force is 77% female, while 43% of trained secondary teachers are females.

Efficiency

4.4.10 All projects were implemented below appraised costs as estimated by the Bank. The savings were due largely to exchange rate fluctuations, which reduced project costs in UA terms, and to the benefits of competitive tendering procedures established. Unexpended loan amounts were utilised to contribute to other NDP education sector targets. Education I’s scope was widened, for example, following the construction of Molepolole College of Education to establish three CJSSs. Education II’s surplus was used to expand selected CJSSs established under the project. The Bank agreed in 1999 that unutilised ADF funds under Education V could be utilised for computer equipment to support CJSS curriculum enrichment plans (as approved under the 1994 RNPE).

4.4.11 Teacher/student ratios at primary level declined marginally over the period of Bank operations (1:30 in 1978, 1: 28 in 1997). The ratio ranged by district between 17 and 32. The total number of primary school repeaters declined from 13,000 repeaters in 1987 to below 10,000 in 1997 (50% of the 1997 repeaters in Grade 4). The ratio of repeaters to total enrolment over the period declined from 5% to 3%. The mean drop out rate in 1997 was 1.5%.

4.4.12 There are no means of analysing the unit costs in order to be able to verify the efficiency of the operations. This is because recurrent and development budget for education is shared between two ministries (of Education and Local Government), and primary education recurrent and development budgets are aggregated with other sectors. Unit cost estimates were produced in the process of developing NDP8, but Government regards the resulting figures as unreliable. While these estimates suggested that the 1995-96 disparity between the unit cost of primary and junior secondary education was 1:2.3 and of primary and senior secondary was 2.67, it is probable that the disparity is much greater. Government’s failure to produce and analyse education costs is a serious short-coming on the part of Government capacity, particularly in a sector which consumes one quarter of the annual budget.

4.4.13 Some schools established or extended with Bank financing are underutilised. This is, in part, due to physical planning deficiencies in demand projection, and to social and political pressures for the provision of facilities in certain communities. In some cases, underutilisation has 21 resulted from population migrations in respond to economic or climatic difficulties.

Sustainability of Achievements

4.4.14 Government’s continued commitment to the education sector, the consistency of its policy directions and the continued provision of adequate recurrent and development financing to the sector augurs well for the medium term sustainability. The functionality of facilities financed by the Bank was reiterated in the clearly defined policy and strategies for sector development in the 1997 Long Term Vision, Toward Prosperity for All, and in the 1994 RNPE, and by the medium term targets of NDP8. The proportion of the recurrent budget dedicated to the education sector increased from 19.5% in 1986-87 to 25.2% in 1996-97 (a tenfold increase in monetary terms from P113 million to P1018 million over the period). But the HIV/AIDS pandemic poses severe threat to the considerable achievements in the education sector. One of the consequences of the pandemic is that demand for primary school places would begin to decrease markedly from 2005, and for junior secondary school places from 2010. This would exacerbate the under-utilisation of existing junior secondary schools. There would be an increasing attrition of the teaching force as a consequence of AIDS-related illnesses and death. Dependence on externally recruited teachers would probably increase. The number of children living with HIV or AIDS, and the number of AIDS orphans, enrolled in schools would grow exponentially. Thus, Government commitment to the sector as spelt out above notwithstanding, the sustainability of the achievements in the education sector remains uncertain.

4.4.15 While GOB, in concert with donors led by the UNAIDS, is mobilising efforts to address selected AIDS issues, the education sector - viewed by many as key to the preventive effort - has not developed strategies to respond to what is now a pandemic. Mission observations and interviews with head teachers and MOE officials confirmed that the formal education sector had not been harnessed in the national AIDS prevention and mitigation programmes, and individual schools had been less than proactive in this critical area.

4.4.16 GOB was quick to respond at the outset of the HIV/AIDS epidemic, and within two years of the first known death from AIDS in 1987, had established a national preventive programme with donor support based in MOH. The second of the medium term plans (MTPII, 1997-2002) is currently being implemented with a focus on prevention and a multi-sectoral mandate. MOE was not, however, represented in the steering committee which drafted MDPII in 1997, and was also omitted from the multi-sectoral National AIDS Committee (NAC) established to implement MTPII. There is no specific reference to the role of the formal education sector in strategies and interventions outlined in MTPII.

Institutional Development

4.4.17 The five Bank operations made minimal provision for institutional development. All projects made some provision for project implementation capacity through physical and training support for BEPU. Education V financed studies in the areas of school maintenance and education sector recurrent financing. No other component was designed to have direct impact on capacity. There is evidence of a wider indirect (unintended) impact only in the area of project management, and bank operations have had no impact on Botswana’s educational management and planning capacity. But the Bank’s Education operations have also contributed, indirectly, to the development of GOB’s internal procedures in project appraisal, procurement, supervision, and project performance audit.

4.4.18 There was also little by way of human capacity development. There was provision for some overseas training of two national counterparts under Education IV, and some overseas training in 22 education financing under Education V, there was no evidence (from the respective PCRs) on the implementation of these capacity building components. By 1999, and after 20 years in existence and 19 years after the commencement of Bank Group operation in that sector, the leadership of the Education Projects Unit of the Ministry of Education is still entrusted to an expatriate staff on contract appointment.

4.5 Attribution of Performance of Development Partners

Bank Performance

4.5.1 Overall, Bank performance can be described as unsatisfactory. While project identification in the transport sector was consistent with Government objectives, project preparation suffered from lack of measurable indicators. Although various PPERs on completed projects had suggested that the Bank should take the lead in projects involving several donors, there was no evidence that the Bank followed the suggestion. This might have been partly responsible for observed delays in project implementation. Although Bank intervention in the education sector was efficacious, its institutional development impact is minimal. Above all, there was no evidence of either economic and sector work or policy advice and dialogue. Based on consideration of the quality of service provided by the Bank in relation to the various tasks for which it had primary responsibility, Bank performance was judged as unsatisfactory.

Borrower Performance

4.5.2 GOB demonstrated an open, constructive and genuine partnership with the Bank throughout its operations in Botswana. Its governance was characterized by democratic processes, accountability and transparency. There was close collaboration in the identification of the projects. The Government owned the development process as evidenced by the formulation and implementation of successive development plans and their regular midterm reviews. There was also a strong commitment by the Borrower to projects, and a supportive environment for project implementation and expeditious facilitation of all Bank missions related to various aspects of the projects.

4.5.3 There were however delays in the fulfilment of loan conditions precedent to first disbursement and other conditions. This short-coming was attributed to the lack of co-ordination between the Ministry of Finance and Executing Agencies. Implementation schedules were often delayed because of the Executing Agencies lack of familiarity with loan administration and Bank procedures. Progress reports and annual audited accounts were often late and, in the case of audited accounts, were sometimes not sent to the Bank either because of ignorance of that requirement or implementation capacity constraints.

4.5.4 Notwithstanding, these few short-comings on the part of the Borrower, it is noteworthy that many of these problems were of a recurring nature. But Bank assessments neither identified the specific nature of the constraints that led to this situation nor do they seem to have addressed the problem on a systematic basis. Moreover, the Borrower was always committed to successful project implementation. Thus, on balance, Borrower performance is judged as satisfactory.

Performance of Other Donors

4.5.5 Apart from two studies (Feasibility Study for the Airport and Road Maintenance Study) and the Rural Roads II Project, funded by the ADB and ADF or TAF, all the other transport projects in which the Bank was involved were undertaken on a co-financing basis with other funding agencies.

These agencies included, Arab Bank for Economic Development in Africa (BADEA); Kreditanstalt fur Wiederaufbau (KFW); Kuwait Fund for Arab Economic Development (KFAED); Organisation 23 for Petroleum Exporting Countries (OPEC); Saudi Fund for Development (SFD); Overseas Economic Cooperation Fund of Japan (OECF); Nordic Development Fund (NDF); Nordic Investment Bank (NIB); and Norwegian Agency for Development (NORAD).

4.5.6 In the education sector, there were also several cofinanced operations. Education sector development in Botswana was supported from the 1970s by the World Bank (IDA/IBRD), by several donors (including Sweden (SIDA), Norway (NORAD), United States Agency for International Development (USAID), the European Union (EU), the United Kingdom (ODA/DFID) and the OPEC Fund) and by United Nations agencies, including UNICEF. Each element of support was co-ordinated by GOB to support specific NDP targets.

4.5.7 But donor performance in the education sector was similar to that of the transport sector. There as little coordination among the donors and there was no evidence that the Bank was pro- active in facilitating such coordination. The PPAR’s for some projects, notably Gaborone Airport and Nata-Maun road project, reveal that delays were caused by the large number of donors involved in the project coupled with lack of a lead role played by any of them to provide effective coordination.

4.6 The Counterfactual

The Bank has never invested in directly productive activities in Botswana. Yet the economy has grown rapidly. Similarly it has never engaged in any form of policy dialogue or advice to the country. Yet, the economy is regarded as one of the better managed economies in Africa. Could these results have been achieved without Bank intervention? The answer is probably in the negative. The bulk of Bank interventions was in infrastructure and in human resource development. These are not activities that contribute directly to GDP growth. But through its intervention, the Bank has filled a financing gap and thereby freed resources for directly productive activities elsewhere in the economy. In addition, by developing transport infrastructure, the Bank has made it possible to move goods across the country with relative ease and in a cost efficient manner. Similarly, through its investment in education, the Bank has assisted the development of human infrastructure, which is a major input into the development process. Thus even though the Bank has not invested in directly productive activities, its interventions in infrastructure and human resource development have not only freed up resources for other activities, but have indirectly contributed to growth of the economy.

5. OVERALL ASSESSMENT AND DIRECTIONS FOR THE FUTURE

Overall Assessment

5.1.1 The Republic of Botswana has made tremendous economic and social progress since its independence in 1966. These achievements are a combination of luck (for example, the discovery of minerals) and sound economic management. Its rate of growth is one of the best in Africa, while its social indicators are similarly impressive. Bank contribution to this effort has been indirect through the provision of assistance mainly to the transport and education sectors. As a result of its economic and social performance, the country has ceased to be eligible for ADB resources. It is in fact, reluctant to borrow non-concessional resources. Its last borrowing from the Bank was in 1992.

5.1.2 Bank assistance was inspired more by the broad Bank mandate rather than by a country- specific assistance strategy. But whatever assistance was provided turned out to be relevant in so far as it achieved the developmental objectives as initiated by the Government. Lending activities were efficacious in that they achieved their objectives. On the other hand, non-lending activities were not so efficacious.

24 The sustainability of the achievements are however uncertain, largely as a result of the HIV/AIDS pandemic, and other constraints, while the institutional development of the interventions is just modest (see background reports for details of the ratings). Bank performance was unsatisfactory while that of the Borrower was satisfactory.

Directions for the Future

5.1.3 The Republic of Botswana is rated as a middle income country. By this status, it is not eligible for ADF resources. Indeed on its own volition, it is reluctant to borrow on non- concessional terms. Strictly speaking, this status would tend to eliminate Botswana from Bank assistance for sometime to come. But that needs not be the case. Development assistance is not just about the provision of finance. Effective development assistance should include the provision of finance as well as ideas and advice about development. This is no less true in the case of Botswana, which may not borrow from the Bank for sometime to come. While the country is currently growing at impressive rates, it faces enormous development challenges, which if not addressed in a timely fashion, could undermine future development prospects.

5.1.4 Several lessons of experience emerged from the analysis of this report. But perhaps the most important is the need for the Bank to fully understand the environment in which it operates in its RMCs. This would suggest a strong need for the Bank to accumulate this knowledge through economic and sector work. Closely related to this is the imperative of having a focussed country strategy. The availability of such a strategy would enhance the quality of Bank intervention in a country. Finally, many of the projects could not be properly evaluated because of the absence of relevant performance indicators in appraisal reports. In the absence of such indicators, it becomes exceedingly difficult judgement on the performance of Bank-supported projects.

Recommendations

5.1.5 Several recommendations also emerge from the report. The more important ones are listed below: 1 Given the centrality of economic and sector work to operational activities, it is recommended that the Bank should intensify its economic and sector work (ESW) in Botswana. The Bank does not have to await the resumption of borrowing by the country before it starts the process of dialogue with it. Such ESW would enhance Bank knowledge of the economy of Botswana in a way that the Bank would be able to assist the country to design appropriate diversification strategies, labour- absorbing technologies, and public sector reforms.

2 The economic and social gains which Botswana has recorded in the last few years could be wiped out or reduced as stated in the report by series of development challenges and constraints and by the HIV/AIDS pandemic. In order to prevent this, the Bank should put in place an effective programme of assistance for the HIV/AIDS pandemic, skills development, employment creation and poverty alleviation.

3 Botswana is highly susceptible to severe weather conditions, thereby generating environmental hazards. The Bank should assist the country to put in place a credible programme for the management of the environment.

4 Botswana is a small country with a population of about 1.7 million people. The small size of the domestic market does not encourage the entry of private investors despite the sound policy environment and the various industrial incentives granted by the Government. The Bank should encourage the country, through policy dialogue and advice, to strengthen its collaboration with the economic integration units in its sub-region. 25

An expanded market which economic integration would provide could probably be an incentive towards industrialization. In the same vein, the Bank should assist the country to develop national development niches in which it could have comparative advantage. One such area is the development of financial services.

5. The public sector has a major influence in the economy, accounting for about 40% of formal labour force and controlling firms in key industries, including livestock, mining, electricity, transport, telecommunications and real estate. The public sector has not been known to work well at all times. The poor performance of government participation in automobile assembly plant in the 1990s is a case in point. Apart from assisting the Government to restructure the public sector, there is a need to enhance the role of the private sector. Thus, it is recommended that the Private Sector Development should conduct studies of investment opportunities for the private sector and the likely constraints that the sector could face as it increasingly takes over many of the activities currently performed by the Government.

6. Throughout this report, attention was called to little, it any, coordination between the Bank and other donors in Botswana. Yet, the importance of collaboration or partnership cannot be over-emphasized. As development assistance becomes more complex, effective partnership can substantially improve the management of risks and their management. It can also be a critical factor in leveraging development assistance. It is therefore recommended that the Bank should take the issue of effective partnership with borrowers and other donors more seriously in its assistance to regional member countries.

7. In the final analysis, development is about people – their well-being, their standard of living, etc. In this report, it was demonstrated that Botswana harbours (mostly rural) unemployment, and poverty. There is evidence that the Government is making decisive efforts to alleviate these problems. But these are issues which the Bank cannot ignore. While it is true that Botswana does not fall into the ADF-type poverty reduction schemes, it is nonetheless recommended that the Bank should find ways and means to addressing these problems, perhaps through policy dialogue and advice.

Annex 1 BOTSWANA SELECTED MACROECONOMIC INDICATORS

Indicators Unit 1995 1996 1997 1998 1999 2000

National Accounts GNP at Current Prices Mn US$ 4,902.6 5,094.0 5,012.6 4,794.7 5,139.2 5,817.3 GNP per Capita US$ 3,360 3,410 3,270 3,070 3,240 3,630 GDP at Current Prices Mn US$ 4,419.6 4,272.2 4,789.6 4,818.6 6,024.5 6,471.2 GDP at 1995 Constant prices Mn US$ 4,419.6 4,710.4 5,047.6 5,467.1 5,685.7 6,026.9 Real GDP Growth Rate % 2.7 6.6 7.2 8.3 4.0 6.0 Real per Capita GDP Growth Rate % 0.1 4.3 5.0 6.4 2.3 4.4 Gross Domestic Investment % GDP27.026.327.629.427.721.3 Public Investment % GDP 8.8 9.4 9.8 10.1 12.7 11.9 Private Investment % GDP 18.2 16.9 17.7 19.4 15.0 9.5 Gross National Savings % GDP36.538.341.143.332.733.2

Prices and Money Inflation (CPI) % 10.5 10.1 8.7 6.7 7.1 8.2 Exchange Rate (Average) local currency/US$ 2.8 3.3 3.7 4.2 4.6 5.0 Real Exchange Rate Index Base 1995=100 100.0 111.9 115.8 127.6 133.2 137.6 Monetary Growth (M2) % 12.3 18.8 28.6 39.4 26.3 11.9 Income Velocity (GDP / M2) % 5.1 5.0 4.9 4.3 4.0 4.4

Government Finance Total Revenue and Grants % GDP39.443.642.637.943.640.9 Total Expenditure and Net Lending % GDP 37.5 37.0 37.4 42.0 43.5 40.3 Overall Deficit (-) / Surplus (+) % GDP 1.9 6.6 5.2 -4.0 0.1 0.6

External Sector Exports Volume Growth (Goods) % 16.8 -6.3 28.0 -28.0 29.8 19.8 Imports Volume Growth (Goods) % 15.9 -0.5 35.1 14.6 11.7 4.2 Terms of Trade Growth % -2.8 19.3 2.4 12.8 6.3 -1.1 Current Account Balance Million US $ 299.7 494.6 721.5 170.2 539.2 890.6 Current Account Balance % GDP 6.3 10.4 13.9 3.3 9.9 14.5 External Reserves months of imports 35.6 41.7 35.8 36.5 33.0 ...

Debt and Financial Flows Debt Service % exports 4.2 3.2 2.6 3.0 2.9 2.3 External Debt % GDP 13.2 10.1 9.3 9.5 8.9 7.8 Net Total Financial Flows Million US $ 46.9 86.2 162.3 110.3 76.8 ... Net Official Development Assistance US $ 90.1 74.6 121.6 106.4 60.9 ... Net Foreign Direct Investment Million US $ 70.0 71.0 100.0 90.0 112.0 ...

Real GDP Growth Rate, 1995-2000 Inflation (CPI), 1995-2000 Current Account Balance as % of % GDP,1995-2000 10.0 12.0 16.0 10.0 8.0 14.0 8.0 12.0 6.0 10.0 6.0 % 4.0 8.0 4.0 6.0 2.0 4.0 2.0 2.0 0.0 0.0 0.0 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000

Source : ADB Statistics Division; IMF: World Economic Outlook, April 2001 and International Financial Statistics, March 2001; World Bank: Live Database, February 2001; United Nations: World Investment Report, 2000; OECD, Reporting System Division, December 2000. Notes: … Data Not Available Last update : May 2001

Annex 2 BOTSWANA COMPARATIVE SOCIO-ECONOMIC INDICATORS

Year Botswana Africa Developing Developed Countries Countries

Basic Indicators GNP Per Capita ( US $ ) Area ( '000 Km²) 600 30,061 80,976 54,658 Total Population (millions) 1999 1.6 765.6 4,793.2 1,185.2 4000 3500 Urban Population (% of Total) 1999 49.6 37.1 39.4 75.8 3000 Population Density (per Km²) 1999 2.7 25.5 59.2 21.7 2500 GNP per Capita (US $) 1999 3,240 684 1,250 25,890 2000 Labor Force Participation - Total (%) 1999 44.0 43.3 … … 1500 Labor Force Participation - Female (%) 1999 39.4 35.0 … … 1000 Gender -Related Development Index Value 1998 0.6 0.483 0.634 0.916 500 0 Human Development Index (Rank among 174 countries) 1998 122 n.a. n.a. n.a. 1991 1992 1993 1994 1995 1996 1997 1998 1999 Population Living Below $ 1 a Day (% of Population) 1985-86 33.0 45.0 32.2 … Botswana Africa Demographic Indicators Population Growth Rate - Total (%) 1999 1.7 2.4 1.6 0.3 Population Growth Rate - Urban (%) 1999 10.8 4.5 2.8 0.6 Population < 15 years (%) 1999 42.3 42.7 32.8 18.5 Population >= 65 years (%) 1999 2.4 3.2 5.0 14.0 Dependency Ratio (%) 1999 92.9 86.1 61.0 48.6 Population Growth Rate (%)

Sex Ratio (per 100 female) 1999 96.3 99.4 103.3 94.8 3.5 Female Population 15-49 years (millions) 1999 0.4 181.1 151.8 297.2 3.0 Life Expectancy at Birth - Total (years) 1999 42.6 52.7 64.3 75.5 2.5 Life Expectancy at Birth - Female (years) 1999 43.1 53.5 66.0 79.2 2.0 Crude Birth Rate (per 1,000) 1999 32.7 36.3 23.4 10.9 1.5 Crude Death Rate (per 1,000) 1999 17.9 13.7 8.4 10.3 1.0 0.5 Infant Mortality Rate (per 1,000) 1999 58.7 76.4 57.6 8.9 0.0 Child Mortality Rate (per 1,000) 1999 98.0 116.6 79.8 10.2 1991 1992 1993 1994 1995 1996 1997 1998 1999 Maternal Mortality Rate (per 100,000) 1990-96 250 698 491 13 Total Fertility Rate (per woman) 1999 4.0 4.8 2.8 1.6 Botswana Africa Women Using Contraception (%) 1990-99 41.7 … 56.0 70.0 Health & Nutrition Indicators Physicians (per 100,000 people) 1992-97 24 35 78 287 Nurses (per 100,000 people) 1992-97 219 107 98 782 Life Expectancy at Birth ( Years ) Births attended by Trained Health Personnel (%) 1992-98 77 38 58 99 Access to Safe Water (% of Population) 1992-98 90 58 72 100 70 Access to Health Services (% of Population) 1992-98 ... 64 80 100 60 Access to Sanitation (% of Population) 1990-97 55 58 44 100 50 Percentage of Adults (aged 15-49) Living with HIV/AIDS 1997 25.1 5.7 … … 40 Incidence of Tuberculosis (per 100,000) 1997 456 201 157 24 30 20 Child Immunization Against Tuberculosis (%) 1997 59 72 82 93 10 Child Immunization Against Measles (%) 1997 79 64 79 90 0 Underweight Children (% of children under 5 years) 1990-97 17 26 31 … 1991 1992 1993 1994 1995 1996 1997 1998 1999 Daily Calorie Supply 1998 2,159 2,439 2,663 3,380 Public Expenditure on Health (as % of GDP) 1993-98 ... 2.0 1.8 6.3 Botswana Africa Education Indicators Gross Enrolment Ratio (%) Primary School - Total 1996 107.8 80.0 100.7 102.3 Primary School - Female 1996 108.2 73.4 94.5 101.9 Infant Mortality Rate ( Per 000 ) Secondary School - Total 1996 64.6 29.3 50.9 99.5 100 Secondary School - Female 1996 69.0 25.7 45.8 100.8 Primary School Female Teaching Staff (% of Total) 1990-97 77.4 40.9 51.0 82.0 80 Adult Illiteracy Rate - Total (%) 1999 23.7 38.8 27.2 1.3 60

Adult Illiteracy Rate - Male (%) 1999 26.5 30.7 19.5 0.9 40 Adult Illiteracy Rate - Female (%) 1999 21.1 48.2 35.0 1.7 20 Percentage of GDP Spent on Education 1990-97 8.6 3.5 3.9 5.9 0 Environmental Indicators 1991 1992 1993 1994 1995 1996 1997 1998 1999 Land Use (Arable Land as % of Total Land Area) 1998 0.6 5.9 9.9 11.6 Botswana Africa Annual Rate of Deforestation (%) 1990-95 0.5 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 1981-90 ... 4.0 … … Per Capita CO2 Emissions (metric tons) 1996 1.4 1.1 2.1 12.5 Source : Compiled by the Statistics Division from ADB databases; UNAIDS; World Bank Live Database and United Nations Population Division. Notes: n.a. Not Applicable ... Data Not Available Last update: May 2001

ANNEX 3 Page 1 of 2

BOTSWANA SUMMARY OF BANK GROUP OPERATIONS 31 AUGUST 2000

APPROVALS Deadline Sector AMOUNT CANCELLED Net Date Date Effective Amount Disbursed Amount % % Disb. Net Final ADB ADF TAF NTF TOTAL ADB ADF TAF NTF Total Commitments Approved Signed Date Signed ( UA Million ) Disb.Appr Commitments Undisbursed Disbursement Status amount AGRICULTURE Arable Lands 7.2 7.2 4.43 4.425 2.775 27/10/81 05/03/82 03/06/83 7.20 3.83 53.19 138.02 0.00 31/12/93 Completed Development Arable Lands Development 6.17 6.17 1.02 1.02 5.15 30/10/81 05/03/82 03/06/83 6.17 5.15 83.47 100.00 0.01 31/1294 Completed (Phase I) Vetinary Services Development 3.21 3.21 0.17 0.17 3.04 21/06/83 08/10/83 16/10/84 3.21 3.04 94.70 100.00 0.00 31/12/97 Completed Francistown Abattoir Project 7 7 2.41 2.41 4.59 18/08/87 03/10/87 7.00 4.59 65.57 100.00 0.00 30/06/94 Completed

SUB-TOTAL 7.2 6.17 0 10.2 23.58 4.43 1.02 0 2.58 8.03 15.555 23.58 16.61 70.44 106.78 0.01

TRANSPORT Gaberone Inter. Airport 8 8 0.13 0.13 7.87 23/10/79 20/06/80 14/07/81 8.00 7.87 98.38 100.00 0.00 30/06/88 Completed Sebele Airport Study 0.65 0.65 0.01 0.012 0.638 08/02/78 0.65 0.64 98.46 100.31 0.00 31/12/81 Completed Lobatse-Kanye Road 4.61 4.61 0.042 0.042 4.568 12/12/75 01/04/76 07/02/77 4.61 4.57 99.13 100.04 0.00 31/12/90 Completed Contruction Nata-Maun Road 7.7 7.7 0 7.7 23/08/88 02/03/89 7.77 7.77 100.91 100.91 0.00 30/06/94 Completed Nata-Maun Road Studies 1.38 1.38 0.3 0.3 1.08 28/08/85 04/02/86 12/01/88 1.38 1.08 78.26 100.00 0.00 30/06/94 Completed Road Maintenance Study 1.15 1.15 0 1.15 27/08/90 31/01/91 21/06/91 1.15 0.73 63.48 63.48 0.42 30/06/99 Completed Rural Roads Ii 10.65 10.65 0 10.65 23/03/87 03/10/87 03/02/88 10.65 10.65 100.00 100.00 0.00 31/12/93 Completed Rural Roads II 6.82 6.82 0.069 0.069 6.751 23/03/87 03/10/87 03/02/88 6.82 6.75 98.97 99.99 0.01 30/06/94 Completed Rural Roads Project 15 15 3.14 3.14 11.86 23/08/83 08/10/83 31/12/87 15.00 12.43 82.87 104.81 0.00 30/06/94 Completed Serewe-Orapa Road 22.74 22.74 13.5 13.46 9.28 15/11/84 17/10/85 06/02/86 22.74 9.28 40.81 100.00 0.00 30/06/94 Completed Trans-Kgalagadi Road 18.5 18.5 0 18.5 25/11/91 13/05/92 09/09/93 18.50 13.38 72.32 72.32 5.12 31/12/00 On Going Trans-Kgalagadi Road 10.59 10.59 0 10.59 25/11/91 13/05/92 09/09/93 10.60 7.82 73.84 73.84 2.77 31/12/00 On Going SUB-TOTAL 107.8 17.2 90.637 82.97 76.97 91.54 8.32 ANNEX 3 Page 2 of 2

WATER SUPPLY

Gaborone Lobtse Water Supply 4 4 0 9E-04 3.99914 23/08/88 03/02/89 30/01/90 4.00 4.00 100.00 100.02 0.00 30/06/94 Completed Gaborone-Lobtse Water Supply 2.44 2.44 0.1 0.1 2.34 23/08/88 30/05/89 21/02/90 2.44 2.34 95.90 100.00 0.00 31/12/97 Completed Nort-East Region Water Development 0.32 0.32 0.016 0.016 0.304 15/10/75 01/04/76 0.32 0.31 96.88 101.97 -0.20 31/12/78 Completed Electricity Network 20 20 6.61 6.61 13.39 30/09/82 28/10/82 22/09/83 20.00 13.34 66.70 99.63 0.00 31/12/88 Completed Telecommunication I 2.2 2.2 0.05 0.045 2.155 06/11/73 10/03/74 2.20 2.16 98.18 100.23 0.00 31/12/76 Completed Telecommunication Ii 10 10 5.12 5.12 4.88 12/11/80 18/02/81 08/06/82 10.00 4.88 48.80 100.00 0.00 31/12/87 Completed Telecommunication Iii 10 10 0.2 0.2 9.8 27/02/81 15/05/81 30/06/82 10.00 9.80 98.00 100.00 0.00 31/12/87 Completed

SUB-TOTAL 48.96 12.1 36.86814 36.83 75.22 99.90 -0.20

INDUSTRY

Agricultural Line Of Credit 4.61 4.61 2.31 2.31 2.3 21/01/88 02/29/88 10/04/89 4.61 2.30 49.89 100.00 0.01 30/06/94 Completed Ndb Line Of Credit I 5 5 3.84 3.84 1.16 21/12/82 05/11/83 12/05/83 5.00 1.16 23.20 100.00 0.00 31/12/86 Completed

SUB-TOTAL 9.61 6.15 3.46 3.46 36.00 100.00 0.01

EDUCATION

Education Iv 25.07 25.07 5.84 5.84 19.23 23/03/89 30/05/89 13/02/90 25.07 19.24 76.75 100.05 0.00 31/12/95 Completed Education Iv 4.61 4.61 0.002 0.002 4.6077 23/03/89 30/05/89 14/02/90 4.61 4.60 99.78 99.83 0.00 31/12/94 Completed Secondary Professionnal School 8.16 8.16 5.76 5.76 2.4 26/08/85 17/10/85 8.16 2.40 29.41 100.00 0.00 31/12/91 Completed I Secondary Schools – Vocational Training 6.45 6.45 0.15 0.15 6.3 26/08/85 17/10/85 30/09/85 6.45 6.30 97.67 100.00 0.01 30/12/94 Completed Secondary Teachers Training College 7.37 7.37 0.15 0.15 7.22 24/09/81 05/03/82 05/02/83 7.37 7.22 97.96 100.00 0.00 31/12/95 Completed ion Iii 25.5 25.5 0 25.5 25/11/87 29/02/88 02/03/89 25.50 25.50 100.00 100.00 0.00 30/06/94 Completed Education Iii 18.81 18.81 0 18.81 25/11/87 29/02/88 02/03/89 18.81 18.71 99.47 99.47 0.09 31/12/95 Completed Education V 11.5 11.5 4.01 4.01 7.49 29/10/90 09/05/91 11.50 7.49 65.13 100.00 0.00 30/06/94 Completed Education V Project 0.46 0.46 0.02 0.023 0.437 29/10/90 31/01/91 20/03/92 0.46 0.44 95.65 100.69 0.00 31/12/97 Completed Eduction V 4.9 4.9 0 4.9 29/10/90 09/05/91 4.90 4.60 93.88 93.88 0.03 30/09/00 On Going

SUB-TOTAL 112.8 15.9 96.8947 96.50 85.53 99.59 0.13

SOCIAL

Francistown Hospital Construct 17.96 17.96 3.01 3.01 14.95 27/09/83 10/05/84 17.96 14.96 83.30 100.07 0.00 30/06/94 Completed Training Of Heaht Personnel 4.14 4.14 0.065 0.065 4.075 15/10/75 01/04/76 06/08/76 4.14 4.08 98.55 100.12 0.00 01/12/79 Completed

SUB-TOTAL 22.1 3.08 19.025 19.04 86.15 100.08 0.00

Source: Botswana: 2000-2002 Country Strategy Paper, October 2000.