Botswana Lesotho

COUNTRY PROFILE 2001

Botswana Lesotho

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ISSN 1352-0865

Symbols for tables “n/a” means not available; “–” means not applicable

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Comparative economic indicators, 2000

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 1

Contents

Botswana

4 Basic data

5 Political background 5 Historical background 6 Constitution and institutions 7 Political forces 8 International relations and defence

10 Resources and infrastructure 10 Population 11 Education and health 13 Natural resources and the environment 13 Transport and communications 14 Energy provision

15 The economy 15 Economic structure 15 Employment and expenditure 16 Economic policy 19 Economic performance

20 Economic sectors 20 Agriculture, forestry and fishing 21 Mining and semi-processing 24 Manufacturing 24 Construction 25 Financial services 26 Other services

27 The external sector 27 Trade in goods 28 Invisibles and the current account 29 Capital flows and foreign debt 30 Foreign reserves and the exchange rate

31 Appendices 31 Regional organisations 31 Sources of information 32 Reference tables 32 Population 32 Transport statistics 33 Telecommunications 33 Gross domestic product

33 Sectoral origins of gross domestic product 34 Trend of gross domestic product by sector 34 Employment by sector 35 Average monthly earnings by sector 35 Minimum monthly wages 36 Recurrent expenditure for NDP8 36 Government finances 37 Money supply 37 Interest rates 37 Consumer prices 38 Consumer price index 38 Livestock numbers 38 Production of principal crops 38 Mineral production by volume and value 39 Building plans approved 39 Botswana Stock Exchange, domestic shares 39 Foreign trade 40 Exports by destination 40 Imports by origin 40 Balance of payments, national estimates 41 Balance of payments, IMF estimates 41 External debt, World Bank estimates 42 Net official development assistance 42 Foreign reserves 42 Exchange rates

Lesotho

43 Basic data

44 Political background 44 Historical background 48 Constitution and institutions 49 Political forces 51 International relations and defence

53 Resources and infrastructure 53 Population 53 Education and health 54 Natural resources and the environment 55 Transport and communications 56 Energy provision

57 The economy 57 Economic structure 58 Economic policy 60 Economic performance

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62 Economic sectors 62 Agriculture, forestry and fishing 63 Mining and semi-processing 64 Manufacturing 64 Construction 65 Financial services 66 Other services

66 The external sector 66 Trade in goods 68 Invisibles and the current account 69 Capital flows and foreign debt 70 Foreign reserves and the exchange rate

71 Appendices 71 Regional organisations 76 Sources of information 77 Reference tables 77 Population 77 Government revenue and expenditure 78 Summary of recent fiscal trends 78 Money suply and credit 79 Gross domestic product 79 Gross national product 79 Gross domestic product by sector 80 Gross domestic product by expenditure 80 Migrant miners’ deferred pay and remittances 80 Consumer prices 80 Estimated livestock numbers 81 Commercial banking statistics 81 Principal interest rates 81 Foreign trade 81 Origin of imports cif 82 Destination of exports fob 82 Balance of payments, IMF estimates 82 Balance of payments, national estimates 83 Net official development assistance 83 External debt 84 Disbursed public external debt outstanding 84 Foreign reserves 84 Exchange rates

Botswana

Basic data

Land area 581,730 sq km

Population 1.7m (2001 government estimate)

Main towns Population (1999 government estimates)

Gaborone (capital) 213,017

Francistown 101,805

Selebi-Phikwe 49,017

Climate Subtropical

Weather in Gaborone Hottest month, January, 19-33°C; coldest month, June, 5-23°C (average daily (altitude 1,000 metres) minimum and maximum); driest months, July-August, 1 mm average rainfall; wettest months, January-February, 105 mm average rainfall

Languages Setswana and English

Measures Metric system

Currency Pula (P)=100 thebe. Average exchange rate in 2000: P5.10:US$1; exchange rate on April 17th 2001: P5.65:US$1

Time 2 hours ahead of GMT

Public holidays (2001) January 1st (New Year’s Day), January 2nd, April 13th (Good Friday), April 16th (Easter Monday), May 1st (Labour Day), June 1st (Ascension Day), July 1st (Sir Seretse Khama Day), July 16th (President’s Day), September 30th (Botswana Day), December 25th (Christmas Day) and December 26th (Boxing Day)

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Political background

The Botswana Democratic Party (BDP) came to power in 1967. Although the urban population is becoming increasingly frustrated with high levels of unemployment, the BDP’s rural support network has ensured that its power base remains undiminished. The BDP, led by President Festus Mogae, currently occupies 33 of the 44 seats in parliament and will remain in power at least until the next legislative election, which is due by October 2004.

Historical background

The emergence of a The earliest inhabitants of what is now Botswana were almost certainly the nation state nomadic Basarwa (commonly known as Bushmen). During the 17th and 18th centuries the area was settled by Tswana-speaking peoples whose communities overlapped into what are now South Africa’s North-West and Northern Provinces, as well as Zimbabwe. Europeans began to venture into the region in the early 19th century. In 1872 Khama III emerged as the most prominent indigenous leader and built up a powerful army. As expansionary pressure from the Afrikaners in South Africa increased, intensified by the discovery of gold near Francistown, Khama III sought protection from the British. In 1885 Britain declared a protectorate, British Bechuanaland, over Khama’s people, while annexing Tswana-inhabited territory in the Northern Cape to its own Cape Colony. After the Cape Colony became part of the South African Union in 1910, white South African leaders pushed for the incorporation of the rest of Bechuanaland into the Union.

Khama III retained control of local administration, law and justice. He also resisted pressure to grant mining concessions to the British South Africa Company and successfully prevented unification with South Africa. Economically, however, the protectorate remained neglected and became little more than a labour reservoir for South African mines and farms. Cattle ownership remained at the core of Tswana society.

Independence A grandson of Khama III, Seretse Khama, founded the Botswana Democratic Party (BDP), which won most of the elected seats in the pre-independence poll of 1965. At independence in September 1966 Mr Khama became the country’s first president. He was a conservative, and favoured the creation of a multiracial democratic society in which traditional laws would retain their due place. His policies included the transfer of tribal land rights to elected district committees, guarantees for white leasehold farmers, encouragement of foreign investment and a neutral stance towards the racist regimes in South Africa and Rhodesia (now Zimbabwe), reflecting Botswana’s strategic vulnerability. He did however, refuse to open diplomatic relations with apartheid South Africa, despite strong commercial links. Mr Khama held office until his death in 1980. His vice-president, Sir Quett Ketumile Masire, a co-founder of the BDP, succeeded him. In March 1998, Mr Masire retired and his vice-president, Festus Mogae, took over as president. Mr Mogae chose Ian Khama, Seretse Khama’s

son—previously head of the army—as his vice-president. BDP policy has remained fairly constant throughout these leadership transitions.

Important recent events

October 1997: A referendum on constitutional reform lowers the voting age to 18, limits presidents to two terms and provides for the automatic succession of the vice-president.

March 1998: President Quett Ketumile Masire retires and is replaced by his vice-president, Festus Mogae. Mr Mogae selects Ian Khama as vice-president.

June 1998: The main opposition party, the Botswana National Front (BNF), officially splits after factional infighting. The majority of its MPs join the Botswana Congress Party (BCP), which becomes the official parliamentary opposition.

February 1999: The 1999/2000 budget freezes civil service salaries after a 30% rise in 1998. All foreign-exchange controls are removed.

October 1999: The BDP wins the legislative election easily, and Festus Mogae remains president. The BCP loses most of its seats and the BNF regains its position as the official opposition.

October 1999: In a cabinet reshuffle Mr Mogae moves a key BDP faction leader, Pontashego Kedikilwe, from the Ministry of Finance to the Ministry of Education. Baledzi Gaolathe—who, like Mr Mogae, is a former bureaucrat from outside the BDP’s inner circle— replaces Mr Kedikilwe. Southern Africa’s first female central bank governor, Linah Mohohlo, takes over from Mr Gaolathe.

December 1999: The International Court of Justice finds in Botswana’s favour in a long-standing border disagreement with Namibia.

January 2000: Botswana’s flagship manufacturing enterprise, the Hyundai vehicle-assembly plant, closes because of the liquidation of its South African parent company.

February 2000: A project to double diamond production at Orapa, Botswana’s single largest private investment, is completed.

June 2000: Mr Kedikilwe resigns as a minister, but remains party chairman.

August 2000: The vice-president, Ian Khama, is recalled from a controversial year-long sabbatical by the president, following opposition from within the BDP.

January 2001: An international diamond conglomerate, De Beers, announces its intention to de-list. The government of Botswana will have a minority stake in the new company, which will move away from controlling global diamond production and towards establishing a luxury-goods brand name.

March 2001: Two international credit ratings agencies, Moody’s and Standard & Poor’s, award credit ratings to Botswana which make it by far the highest-rated country in Africa (and rated at the same level as Israel and Greece).

Constitution and institutions

A presidential democracy The constitution adopted at independence vests legislative power in a parliament comprising the National Assembly, with 40 elected members, the president, the speaker, the attorney-general and four members nominated by the president. The assembly is elected for five years on the basis of universal

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adult suffrage, with full freedom to organise political parties. A 15-member House of Chiefs has advisory powers only. Executive power lies with the president, who is elected by the parliament. The constitution may be amended in minor ways on a simple parliamentary majority vote. More substantive amendments require a two-thirds majority, while major alterations must be put to a national referendum. Under a local government system introduced at independence, there are nine district councils, two city councils (Gaborone and Francistown) and four town councils. Local elections coincide with national elections and are also conducted on a party basis.

Rights are protected Full protection of the fundamental rights and freedoms of the individual is provided under the constitution, though there has been criticism of the treatment of the minority indigenous Basarwa. An independent judiciary interprets and administers the constitution and other laws. Roman-Dutch law is the common law, while criminal law is based largely on English law. Customary law cases in rural areas are heard by tribal courts associated with village kgotla (an assembly of elders), the traditional chiefs acting as court presidents.

Political forces

The BDP in control The ruling BDP has a secure hold on power. In the 1999 general election it won 33 of the 40 elected parliamentary seats. This was an improvement on the 27 seats the party won in 1994, but it was largely a reflection of opposition weakness rather than strong BDP support. The BDP’s urban support base is quite weak, and rising unemployment and poverty are major issues; it is the BDP’s rural support base that ensures the party’s continued success. Internally, traditional BDP factions appear to have lost ground in recent years, though the party’s conservative policies and constituency remain unchanged. Sir Quett Ketumile Masire selected Festus Mogae, a former civil servant, as his successor in a bid to neutralise the internal factions. Mr Mogae subsequently chose the former army head, Ian Khama, as his vice-president for similar reasons. BDP faction leaders have thus taken more of a back seat, but remain powerful. The main opposition, the BNF, is led by the ageing Kenneth Koma, who has promised to stand down in mid-2001. Without its longstanding leader the future of the party is unclear, especially as there is no obvious successor. Other political parties, including those that fought the 1999 elections in a coalition, are in a very weak position. Their prospects of political power will rest heavily on their ability to forge successful alliances, probably with the BNF.

Main political figures

Festus Mogae: The president since Quett Ketumile Masire retired in March 1998. He was formerly the vice-president and the governor of the Bank of Botswana (the central bank).

Ian Khama: The son of Botswana’s first president, Seretse Khama. He resigned as head of the army to take up the position of vice-president in March 1998. He has made enemies through his impatience with formal politics, but remains important in keeping the BDP’s important rural support.

Daniel Kwelagobe: The minister of commerce and industry. An important member of a powerful faction within the BDP.

Ponatshego Kedikilwe: The chairman of the BDP. He resigned as minister of education in 2000, having been sidelined in cabinet. He is rumoured to have harboured presidential ambitions in the past, and may yet be part of a move to oust Mr Mogae.

Mompati Merafhe: The minister of foreign affairs, former commander of the Botswana Defence Force (BDF), and the leader of another main faction within the BDP.

Baledzi Gaolathe: The minister of finance and development planning, and another former governor of the Bank of Botswana.

Satar Dada: A prominent businessman and treasurer of the BDP.

Louis Nchindo: The managing director of Debswana, the partly state-owned diamond mining company. Mr Nchindo has been vocal in demanding a greater role for local political groups.

Kenneth Koma: The leader of the main opposition party, the BNF. Mr Koma claims he will retire in mid-2001, but an obvious successor has yet to emerge.

Election results

1989 1994 1999 Seats % of vote Seats % of vote Seats % of vote Elected seats Botswana Democratic Party (BDP) 31 75 27 54 33 57 Botswana National Front (BNF) 3 15 13 37 6 26 Botswana People’s Party (BPP) 0 5 0 5 – – Botswana Congress Party (BCP) – – – – 1 12 Others 0 5 0 4 0 5 Nominated seats Botswana Democratic Party (BDP) 4 n/a 4 n/a 4 n/a Total 38 100 44 100 44 100 Source: Press reports.

International relations and defence

A volatile region Botswana’s domestic stability is not always reflected in its international relations. A dispute with Namibia over claims to Sedudu island (Kasikili to the Namibians) was settled in Botswana’s favour by the International Court of Justice in December 1999, but other sections of the border remain in dispute. The border itself is relatively insignificant; the disagreement is more reflective of national pride and possible future water resources. Both countries’ behaviour bodes well for future relations, though further tensions cannot be ruled out.

More important for Botswana is the threat posed by regional instability. A secessionist flare-up in Namibia’s Caprivi strip in 1999 caused an inflow of refugees, and Botswana had to tread carefully not to antagonise the Namibian government. In addition, the Angolan civil war has spread into Namibia,

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increasing the flow of refugees through the Caprivi strip. Political unrest in Zimbabwe since mid-2000 has raised the prospect of an influx of Zimbabwean refugees, and of Botswana’s entanglement in internal disputes. Concern that Zimbabwe’s political turmoil will damage domestic political stability in Botswana is unfounded; the two countries’ political and land situations are very different, and civil institutions are much stronger in Botswana than they are in Zimbabwe.

Relations with Trade relations have always been strong, but political relations with South South Africa Africa warmed only after the demise of the apartheid regime. The two countries co-operate closely, though divisions have emerged. In particular, the renegotiation of the Southern African Customs Union agreement led to some dissent over the revenue-sharing formula (the Southern African Customs Union, or SACU, comprises Botswana, Lesotho, Namibia, South Africa and Swaziland). Perhaps more important are disagreements concerning Botswana’s manufactured exports and the level of their local content, and hence their duty-free access to South Africa. However, this is mostly negotiating bluster, and economic and political ties will remain close.

SADC secretariat is based in Botswana was a founding member of the Southern African Development Co- Botswana ordinating Conference, which is now called the Southern African Development Community (SADC). The SADC promotes regional co-operation and trade between southern African states, and its secretariat is based in Gaborone (see Regional organisations).

High defence spending The commander of the Botswana Defence Force (BDF) is Major-General Matshenwenyego Louis-Fisher. The president is commander-in-chief of the armed forces. Botswana faces no immediate military threat, but military spending is high as a proportion of total expenditure (over 8%); in South Africa it is only 4.5%. Such high spending is justified by the need for a strong regional peacekeeping force, but is probably more a result of national pride and a perceived need to keep Botswana’s more volatile neighbours on their guard.

Military forces, 2000 (no. of troops unless otherwise indicated) Army 8,500 Air force 500 Police mobile unit 1,000 Defence budget (P m) 990 Source: International Institute for Strategic Studies, The Military Balance 2000/01.

Resources and infrastructure

Population

Population indicators, 1997

Population (m; mid-year) 1.51 Population growth rate (%) 2.2 Crude birth rate (per 1,000 population) 35.0 Crude death rate (per 1,000 population) 13.0 Fertility rate (no. of births per woman) 4.45 Life expectancy at birth (years) 50.4 Urbanisation (%) 28.0 Projected population in 2007 (m) 1.87 Source: UN Population Division.

Population growth The UN Population Division estimated Botswana’s population at 1.51m in mid- is slowing 1997 (national sources estimate the population at 1.7m in 2001). The population density is very low, at 2.8 people per sq km. National population censuses are conducted every ten years and at the last count, in 1991, the population was 1.7m, an increase of 41% since the 1981 census. Annual population growth, which was 3.5% during the period between these censuses, is now forecast at 2.2% by the UN and at 2.5% by the government, owing to the decline in total fertility associated with more effective family planning and the spread of HIV/AIDS. The urban population has increased rapidly, from 18% of the total in 1981 to 50% in 1999, according to (broadly defined) government estimates, though the UN reports a 28% urbanisation rate. Gaborone has grown from only 18,000 people in 1971 to an estimated 213,017 in 1999. About 50% of the total population live within 100 km of Gaborone. (For historical figures on population growth see Reference table 1.)

The majority of the About 90% of the population are Tswana, of Setswana-speaking descent; most population is Tswana of the rest are Kalanga-speaking in origin, and the remainder are Basarwa (Bushmen), Herero (from Namibia), whites (including some Afrikaner farmers in the north) and Asians. The national language is Setswana, but English is used in business and in higher education, and is widely spoken. In South Africa’s North-West Province there are about 3m Setswana-speakers— representing 66% of the province’s population (which includes the former Tswana homeland of Bophuthatswana)—and 7% of South Africa’s population.

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Population distribution, 1999 (Official projections) % change on No. of people % of total 1991 census Urban 800,422 50 32 of which: Gaborone 213,017 13 60 Francistown 101,805 6 55 Selebi-Phikwe 49,017 3 23 Molepolole 45,811 3 24 Kanye 36,189 2 16 Serowe 32,940 2 10 Lobatse 32,075 2 23 Mahalapye 31,865 2 14 Maun 31,104 2 15 Mochudi 30,040 2 18 Rural 810,599 50 12 Total 1,611,021 100 21 Source: Central Statistics Office, Statistics Update.

Education and health

Education One of the government’s significant achievements has been the provision of almost universal free education. Adult literacy has increased from 34% in 1981 to around 68%. Employment in education accounts for nearly 15% of total employment. By 2000 the pupil/teacher ratio had reached 26.6:1 in primary schools, and, according to 1999 data, it was 18:1 in government senior schools despite an annual increase of more than 6% in the number of pupils since 1981. Female pupils remained a majority at primary, secondary and university levels. A total of 7,871 students enrolled at the University of Botswana in Gaborone in 1998, up from 5,468 in 1996 and just 1,022 in 1981.

Education

1996 1997 1998a 1999a 2000a Primary schools Number 700 714 725 739 n/a Enrolment 318,629 322,268 323,348 324,782 325,948 Teachers 11,197 11,454 11,617 11,864 12,324 Pupil/trained teacher ratio 30.6 30.2 29.9 29.9 29.5 Pupil/all teacher ratio 28.5 28.1 27.8 27.4 26.6 Secondary schools Number 261 274 272 272 n/a Enrolment 108,353 116,076 143,604 149,334 n/a Teachers 6,132 6,772 7,977 8,298 n/a Pupil/trained teacher ratio 20.5 19.9 22.7 21.5 n/a Pupil/all teacher ratio 17.7 17.1 18.0 18.0 n/a Tertiary institutions (enrolment) University of Botswana 5,468 5,811 7,871 n/a n/a

a Provisional.

Source: Central Statistics Office, Statistical Bulletin.

Healthcare system Botswana has a well-developed, decentralised primary healthcare system. Referral to hospital is caused most often by diarrhoea, tuberculosis and pneumonia. Malaria is rife in northern Botswana, moving east and south in the rainy season. Bilharzia occurs in areas with year-round water, but few cases are reported.

Healthcare provision, 2000a No. Beds General hospitals 16 2,618 Primary hospitals 17 533 Clinics 230 421 Health centres 324 0 Mobile clinics 712 0 Total 1,299 3,572

No. Per 10,000 Doctors 393 2.4 Nurses 4,265 25.8

a Number of beds and health personnel carried forward from 1998.

Source: Central Statistics Office, Statistical Bulletin.

HIV/AIDS As at June 2000, a UN report estimated the incidence of HIV/AIDS in Botswana at 35.8% of those aged 15-49 years—the highest rate in the world. A National AIDS Prevention and Control Programme (NAPCP) is in place, and a National AIDS Committee (NAC) promotes preventive measures among the population. A 1999 US Bureau of the Census report estimated that, as a result of HIV/AIDS, life expectancy in Botswana may decrease from a peak of 63 years in 1991 to only 29 years in 2010. Research from the Botswana Institute for Development Policy Analysis (BIDPA) predicts that, in the worst-case scenario, annual real GDP growth between 1996 and 2021 may fall from 3.9% to just 1.9%. The government grants an allowance of P90 (US$20) per month for people with HIV/AIDS, and it has also set aside money to provide expensive medical treatment to pregnant mothers to minimise the risk of their passing on the HIV virus to their unborn children. Botswana is receiving substantial international financial assistance in its fight against HIV/AIDS, and is negotiating for cut-price drugs with international pharmaceutical companies.

HIV/AIDS infection rates (% of total women aged 15-49 years attending antenatal clinics) Gaborone Francistown Lobatse Serowe 1992 14.9 23.7 n/a n/a 1993 19.2 34.2 17.8 19.9 1994 27.8 29.7 n/a n/a 1995 28.7 39.6 37.9 29.9 1996 31.4 43.1 n/a n/a 1997 34.0 42.9 33.7 34.4 1998 39.1 43.0 n/a n/a 1999 39.1 43.0 31.3 41.8 2000 36.2 44.4 n/a n/a Sources: AIDS Analysis Africa; Botswana Institute for Development Policy Analysis.

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Natural resources and the environment

Botswana is landlocked, and straddles the Tropic of Capricorn in the centre of the Southern African plateau. The mean altitude above sea level is about l,000 metres. Much of the country is flat, with occasional rocky outcrops. The eastern part, where most people live, has a milder climate and more fertile soil than elsewhere. Much of the country is covered with the thick (up to 120 metres) sand layers of the Kalahari Desert.

It is estimated that less than 5% of Botswana’s land area is cultivable, and drought is a recurring hazard. Rainfall varies from over 650mm a year in the north-east to less than 250mm a year in the south-west. Belts of indigenous forest and dense bush in the north are sustained by relatively high rainfall in that area. More than half of the country supports scrub and tree savannah.

Geology Botswana’s mineral resources still hold untapped potential. The thick sand covering much of the country hides the underlying geology, though the eastern part of the country is relatively well mapped, geologically. Numerous minerals are known to occur in significant quantities.

Transport and communications

Roads Botswana’s road network is well developed, with tarred roads of a good standard linking all major population centres. The Trans-Kalahari highway, finished in 1998, links Botswana with all four of its neighbours. A study conducted a year after the highway was opened revealed that traffic on the highway is only 46% of the volume for which it was designed. It appears that this can be explained by delays at border crossings, lack of facilities, high toll fees and less traffic than expected going through Walvis Bay port in Namibia. Botswana boasted a road network of 19,372 km in 1997, of which about 30% is tarred. Car usage is rising fast; the registration of private vehicles grew by 16.5% in 1999. Under the Eighth National Development Plan (NDP8, 1997- 2003) road construction accounts for 58% of the investment allocation of the Ministry of Works, Transport and Communications.

Railways The country’s main railway line runs for 640 km from Zimbabwe to South Africa, via Francistown, Gaborone and Lobatse. There is also a spur to the mining town of Selebi-Phikwe. The railway carries the country’s bulk exports such as copper, nickel and beef to Cape Town, and was an important transit route between Zambia, Zimbabwe and South Africa until Zimbabwe built a separate link in 1999 and insisted that all operators use it. This has seriously affected the financial viability of the freight business of the state-owned Botswana Railways. In addition, passenger numbers have declined as unprofit- able short commuter routes have been closed. The government will soon need to make a tough decision as to whether railways have a future in Botswana.

Civil aviation Botswana has several airports and airfields, but air services are restricted by low demand. There are daily flights between South Africa and Gaborone, but British

Airways stopped its direct intercontinental flights in 1999. An Air Botswana pilot destroyed three of the national airline’s four aircraft in a suicide crash in late 1999, and the airline is currently rebuilding its fleet and being prepared for privatisation. (See Reference table 2 for a breakdown of transport statistics.)

Telecommunications Botswana’s telecommunications system is fully digital. Fibre-optic cables link the major population centres in the east, and the country is surrounded by a microwave ring. International calls are made via satellite, using international direct dialling. Since 1998 there have been two providers of cellular phone services, Vista Cellular and Mascom Wireless, both of which initially set up operations in Gaborone but have now spread to most urban areas and tourist regions. There are several Internet service providers, which are accessed by users all over the country. (See Reference table 3 for telecommunications data.)

Media Radio Botswana provides national broadcasting services in English and Setswana. Botswana’s first commercial radio station, Ya Rona FM, was awarded a licence in May 1999. M-Net (Botswana), the first commercial television service, began broadcasting in 1993. A national TV station was established in 2000 but has won little critical acclaim, and faces serious personnel problems.

The only daily paper is the government-owned Botswana Daily News (Dikgang tsa Gompieno), but there are several weekly, privately-owned newspapers, notably Mmegi (The Reporter), which take a robustly independent view.

Energy provision

The generating capacity of the Botswana Power Corporation (BPC) was 132 mw in 1996, about 40 mw being provided by private operators. International connections with the Southern African Power Pool provide a further 820 mw, ensuring that Botswana has an adequate electricity supply. All domestic capacity is thermal, mainly coal-fired, with some small diesel generators in rural areas. The mining industry consumes over half of the total, though sales to domestic and commercial users have risen rapidly in recent years. Nearly all Botswana’s refined-oil needs are supplied from South Africa.

Energy balance, 2000 (m tonnes oil equivalent) Elec- Oil Gas Coal tricity Fuelwood Total Production 0.00 0.00 0.62 0.00 0.33 0.95 Imports 0.52 0.00 0.00 0.29a 0.00 0.81 Exports 0.00 0.00 0.00 0.00 0.00 0.00 Primary supply 0.52 0.00 0.62 0.29a 0.33 1.76 Net transformation –0.03 0.00 –0.24 –0.32 0.00 –0.59 Transformation output 0.00 0.00 0.00 0.18 0.00 0.18 Final consumption 0.49 0.00 0.38 0.15b 0.33 1.35

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

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The economy

Economic structure

Main economic indicators, 2000

Real GDP growtha (%) 6.0 Consumer price inflation (av; %) 8.6 Population (m)a 1.6 Current-account balancea (US$ m) 397 Total external debta (US$ m) 384 Average exchange rate (P:US$) 5.10

a Estimate.

Source: EIU.

Botswana’s economy has been built on the diamond-mining industry, and this sector still dominates the economy. It contributed 33% of GDP in 1999/2000, but its contribution has declined in recent years because of the expansion of the services sector, mainly government services. In its drive for economic diversification the government has tried to promote private-sector manufacturing companies and—more recently—financial services. Manufacturing maintained a fairly stable contribution to GDP (at about 5%) during the 1990s, but it is expected to slacken in 2000-01 because of the closure of the Hyundai vehicle-assembly plant. Financial services accounted for around 10% of GDP in the 1990s, and modest increases in the contribution from this sector are likely during the coming decade. Agriculture, the mainstay of the economy before the development of the diamond-mining industry, now only contributes about 3% of GDP. (See Reference tables 4-6 for data on GDP.)

Comparative economic indicators, 2000

Botswana Lesotho South Africa Namibia Swaziland Zimbabwe GDP (US$ bn) 5.67 0.88 124.6 3.47 1.22 7.09 GDP per head (US$) 3,540 408 2,845 2,005 1,262 591 Real GDP growth (%) 6.0 2.5 3.1 4.0 2.4 –6.1 Consumer price inflation (av; %) 8.6 6.2 5.3 9.1 6.4 55.7 Current-account balance (US$ m) 397 –154 –1,391 85 47 –126 Merchandise exports fob (US$ m) 2,700 201 30,209 1,400 881 1,708 Merchandise imports fob (US$ m) 2,036 700 27,394 1,611 928 1,329 Source: EIU.

Employment and expenditure

Although diamond mining is the main contributor to wealth, it is not labour- intensive and accounts for less than 5% of total employment. Instead, nearly half of total employment is provided by the public sector (central and local

government and parastatals). This level of concentration is high by any standard, and emphasises Botswana’s continued limited economic diversification. Unemployment—officially 15.6% in 2000, but unofficially estimated at over 30%—is one of the greatest challenges facing the government. More than 90,000 people are self-employed or work in the informal sector.

The country’s employment pattern is reflected in expenditure patterns. Of consumption expenditure (60% of GDP), the government accounts for about half. Investment spending (27% of GDP) follows a similar pattern, being divided roughly equally between public and private spending. (See Reference tables 7, 8 and 9 for data on employment, monthly earnings and minimum wages, respectively.)

Employment by sectora

1997 1998 1999 ’000 % ’000 % ’000 % Private sector 119 52.2 126.2 52.2 137.1 53.6 Central governmentb 77.9 34.2 83.1 34.4 86.2 33.7 Local government 17.8 7.8 18.8 7.8 19.0 7.4 Parastatals 13.1 5.8 13.5 5.6 13.3 5.2 Total 227.8 100.0 241.7 100.0 255.6 100

a As of September; excludes working proprietors and unpaid family workers. b Excludes Botswana Defence Force, casual and temporary employees.

Source: Central Statistics Office.

Economic policy

The broad outline of economic policy is mapped out in national development plans, the latest of which (the Eighth National Development Plan, NDP8), runs from April 1997 to March 2003. The main focus of economic policy is diversifying the economy and increasing employment opportunities, though dealing with HIV/AIDS has become another priority in recent years. In pursuing sustainable economic development, the government has focused on prudent economic policies that have allowed it to build up savings to invest in the physical and human infrastructure required for development. (See Reference table 10 for data on recurrent expenditure for NDP8.)

A mid-term review of NDP8 was issued in October 2000. It identified nine areas as priorities for the remainder of the plan’s term: curbing the spread of HIV/AIDS; lowering unemployment; reducing poverty; economic diversification; public-sector reform; improving government expenditure control; citizen economic empowerment; environmental conservation; and maintaining the existing infrastructure.

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Balancing incentives for foreign investors with demands for local empowerment

In its bid to attract inward direct investment Botswana offers some of the lowest tax rates in the region, as well as various capital grants and equity injections under the government’s Financial Assistance Policy (FAP), with the involvement of the Botswana Development Corporation (BDC). In the 1990s these policies seemed to be attracting larger businesses successfully, and the government was able to sideline opponents of the schemes. However, opposition has been reignited by the closure of several foreign-owned operations, under suspicion of fraud—among other allegations—in recent years. This has strengthened the hand of those demanding more action to empower locals. The government has responded by consolidating the various schemes to assist local entrepreneurs and by introducing a bail-out scheme for local property developers. It is also amending the investment code and Companies Act to tighten the definition of foreign investment and make it easier for small enterprises to become established. The government’s balancing act—appeasing local demand for empowerment while remaining focused on attracting much-needed foreign direct investment—will continue to be a major challenge in coming years.

Monetary and fiscal policy Although government spending is relatively high as a proportion of GDP, fiscal policy is generally restrained. Budget surpluses are the norm (they have been recorded in every year but one since 1980), allowing the government to build up massive savings. Nonetheless, high levels of capital spending have fuelled inflationary expansions in some sectors, particularly construction. Monetary policy is constrained by the country’s close linkages with South Africa. Botswana’s managed exchange rate follows the rand closely; along with liberal capital and trade arrangements, this leaves the Bank of Botswana (BoB, the central bank) with little room for manoeuvre outside South African policy. However, the central bank has generally followed a tight monetary policy. This has not always been successful in containing sharp increases in private credit fuelled by rising incomes and access to credit, but annual average inflation in Botswana has remained below 10% since 1996. (See Reference table 11 for historical data on government finances.)

Summary of government finances (fiscal years Apr-Mar; P m unless otherwise indicated; % of GDP in brackets) 2000/01 2001/02 Budget Revised estimates Budget % of total

Revenue 11,777 12,962 13,557 – of which: mineral 6,288 7,557 7,953 59 customs 2,249 2,124 1,856 14 non-mineral income & other tax 1,440 1,592 1,786 13 Expenditure 11,730 11,881 14,084 – (41) (41.6) (43.3) – of which: general administration 1,628 1,678 2,007 14 defence 1,015 1,015 1,183 8 education 2,879 2,801 3,313 24 Overall balance 47 1,081 526 – (0.2) (3.8) (–1.6) – Sources: Ministry of Finance and Development Planning; Bank of Botswana, Annual Report; Botswana Institute for Development Policy Analysis.

The 2001/02 budget

• No major tax changes.

• A budget surplus of P1bn in 2000/01, due to higher-than-expected diamond revenue.

• A small deficit of P0.5bn is forecast for 2001/02 as diamond-revenue growth slows. Education has received the largest share of expenditure. Defence spending remains high.

• Money for a civil service pay award and HIV/AIDS-related projects is not budgeted, but significant outlays are likely to be announced in 2001.

BoB certificates have smoothed fluctuations in the money supply, but the banking sector’s reliance on the central bank for liquidity control is seen as expensive, and the BoB is trying to encourage more issues of private paper in order to reduce the pressure on the central bank to undertake open-market operations. So far only the Botswana Telecommunications Corporation and the Botswana Development Corporation have issued commercial bonds, though South Africa’s Investec has issued a floating-rate note, which is traded on the Botswana Stock Exchange. As part of an attempt to improve short-term liquidity management, the BoB introduced repurchase agreements (repos) in early 1999. (See Reference table 12 for data on money supply and Reference table 13 for interest rates.)

Privatisation is slow Policy focuses on encouraging private-sector economic activity, but the government has not been successful in rolling back its activities in various parastatals. A white paper on privatisation was released in October 1998, recommending the privatisation of Air Botswana, the meat commission, the National Development Bank and public enterprises involved in electricity, railways and telecommunications. It also recommended the commercialisation of 65 public services, ranging from customs and excise to refuse collection. The paper was updated in 2000 but progress remains slow; the first major privatisation (of Air Botswana) was due to take place in 2001, but has been delayed because it is claimed economic conditions are not conducive. Privatisation is being undertaken for reasons of efficiency rather than to raise revenue. Trade union opposition to privatisation is stiff, and increasing calls for local empowerment suggest that the privatisation process will remain slow. According to the timetable laid out in the 2001/02 budget, a privatisation agency will be established in July 2001. However, there have been problems in finding a chief executive for the agency.

Tax policy and regional competition

Botswana’s main sources of government revenue are diamond earnings and income from the common customs pool of the Southern African Customs Union (SACU). Although the government is trying to diversify revenue sources, the relative unimportance of corporate tax gives it leeway to use generous tax breaks to encourage the investment needed to diversify the economy. To this end, corporate tax is capped at 25%, with a special 15% concession for manu-

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facturing and financial services using Botswana’s International Financial Services Centre status. Other countries in the region have also tried low tax policies (notably Mauritius), but regional bodies such as the Southern African Development Community (SADC) have expressed concern that this is encouraging a race to offer the lowest taxes. Botswana is unlikely to reverse its tax policies because of regional pressure, but this may be a source of future dispute, and may discourage the introduction of further tax concessions. More immediately, South Africa has changed its laws to mitigate tax losses from South African companies taking advantage of tax breaks elsewhere. In 2000 it shifted its taxation system from source-based to residence-based, so any South Africa- based company will now be liable for South African tax on all its earnings regardless of where they are made. In effect this means that any tax breaks given elsewhere are scooped up by the South African revenue service. Some concessions have been made to South African businesses, but Botswana will find it must sell itself on more than tax breaks alone; improving the infrastructure, increasing the availability of commercial land in Gaborone and building up international telecommunications are also important goals for the country.

Economic performance

Real GDP grew strongly Between the late 1960s and the early 1990s Botswana recorded the highest until the early 1990s sustained real GDP growth rates in the world, averaging 6.1% between 1966 and 1991 and pushing up GDP per head from US$660 in 1966 to over US$3,000. A fall in mining output and a serious slowdown in the construction industry led to a small recession in 1992/93 (to end-June), but growth resumed quickly and has continued since—GDP per head in 2000 was nearly US$3,500. Export earnings were hit by a global slowdown in diamond demand in 1998, but diamond production continued to grow as the Orapa 2000 project came on line, ensuring strong real GDP growth. High government spending is the other major driver of economic activity, and in recent years ambitious capital spending plans have combined with civil service wage increases to ensure that most sectors have expanded.

Gross domestic product (% real change) Annual average 1999/2000 1995/96-1999/2000 GDP 7.7 5.7 Source: Ministry of Finance and Development Planning, Annual Economic Report.

Inflation is rising Botswana sources most of its imports from South Africa. With the pula loosely linked to the South African rand, local consumer price inflation is traditionally driven largely by changes in the consumer price index in South Africa. Following South African trends, and aided by civil service wage increases below the rate of inflation, inflation fell below 10% in 1997 for the first time since 1988. Inflation remained subdued until late 1998, when civil service pay awards of 30%, a depreciation of the pula, and increases in private-sector credit pushed the rate up from its year low of 5.9% to reach 6.4% by year-end. Continued currency falls and rising oil prices saw inflation average 7.1% in 1999 and 8.6% in 2000 although thanks to prudent monetary policy inflation is at minimal risk of getting out of control. (See Reference tables 14 and 15 for trends in consumer prices and the consumer price index.)

Inflation (av % change) Annual average 2000 1996-2000 Consumer prices 8.6 8.3 Source: Bank of Botswana.

Economic sectors

Agriculture, forestry and fishing

A country prone to drought Botswana’s climate is subtropical, though large areas are semi-arid and the country is prone to periods of severe drought. Every year from 1991 to 1995 was declared a drought year, as were 1998 and 1999. Because of high levels of government assistance, farmers often find drought years more profitable than those with normal weather conditions. The declaration of a drought also has an added advantage for the ruling Botswana Democratic Party (BDP), in that it presents the party with an opportunity to shore up the patronage network underlying its rural support base.

Livestock—the backbone of Livestock remains the focus of Botswana’s traditional and modern agricultural agriculture sectors. The total national herd is estimated at about 2.3m head of cattle, 1.8m goats and 240,000 sheep. About 300,000 cattle were killed in 1995-96 to eradicate a contagious lung disease in northern Botswana, and beef exports have yet to recover to reach the levels they achieved prior to this. (See Reference table 16 for historical data on livestock numbers.)

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Beef processing accounts for around 80% of agricultural output, and more than 95% of beef output is exported. The normal yearly herd offtake of 10% is processed by the Botswana Meat Commission (BMC) at its abattoirs in Lobatse—Africa’s largest—and in Francistown. Around 140,245 head of cattle were slaughtered in 1998/99, representing just 54% of the two abattoirs’ combined capacity. Drought, disease and new EU directives on identification and registration have all hampered the livestock industry. The BSE scare in the EU has also hit demand, but Botswana’s cattle industry received an unexpected boost in early 2001 when an outbreak of foot-and-mouth disease in the UK led to a European supply shortage and a rapid pick-up in demand.

Food production falls short Food-crop production—mostly maize, sorghum, millet and beans—covers less of consumption than one-third of consumption, even in drought-free years. Although exceptional rainfall has the potential to bring the annual production of major grain crops up to the 103,000 tonnes recorded in the 1995/96 crop year (July- June), output is more commonly 20,000-40,000 tonnes. (See Reference table 17 for data on production of principal crops.)

Forestry and fishing There are large areas of deciduous forest in the north-east, with mopani trees prevalent throughout the north. Six areas have been designated reserves in Chobe district. Natural forest and bush continue to be overexploited as a source of fuel for domestic heating and cooking.

Fishing is not conducted on a commercial scale. It is confined mainly to the Chobe River and Okavango Delta, providing a small supplementary food source.

Mining and semi-processing

Minerals have provided the basis for Botswana’s high level of economic growth and the country is now the third-largest African mining producer by value, after South Africa and the Democratic Republic of Congo. The government has brought in a new Mining and Minerals Act to encourage private investment in mining exploration in more remote areas. Diamonds, copper-nickel, soda ash and coal are exploited, together with small amounts of gold.

Minerals production, 1999 (‘000 tonnes unless otherwise indicated)

Diamonds (m carats) 21.3 Copper-nickel matte 59.9 Coal 945.3 Soda ash 233.6 Salt 233.1 Gold (kg) 8.0 Semi-precious stones (tonnes) 84.0 Mineral production index (1984=100)a 163.0

a Excluding soda-ash; data from 3rd quarter 1999 (most recent available).

Sources: Department of Mines, Annual Report; Central Statistics Office, Statistical Bulletin.

Large-scale mineral exploitation began in 1971 with the commissioning of the Orapa diamond mine in Central district by the Debswana Mining Company, an equal joint partnership between the international mining conglomerate De Beers and the Botswana government. Soon after, the Botswana Roan Selection Trust (Botrest), in which a South African company, Anglo American, was the original major shareholder, opened the Selebi-Phikwe copper-nickel mine. Debswana opened the small Letlhakane mine, south-east of Orapa, in 1977, and opened a third diamond mine at Jwaneng in the south in 1982. The mining sector’s contribution to GDP rose from only 1% in fiscal year 1971/72 to 32% in 1979/80, and peaked at 53% in 1988/89. Since then the mining sector’s importance has declined to 35% of GDP in 1998/99. (See Reference table 18 for a breakdown of mineral production by volume and value.)

Diamonds are marketed exclusively by De Beers’s London-based Diamond Trading Company (DTC), which replaced the company’s Central Selling Organisation in 2000. The stones are sorted in Gaborone and a government- appointed firm checks the valuations. Botswana is the second-largest volume producer after Australia, and is the largest in terms of the value of output. In 1999 production rose to 21.6m carats from 19.8m carats in 1998. South Africa produced 10m carats and Namibia produced 1.5m. The introduction of a seven-day working week in January 1997 and a major new investment in treatment capacity at Orapa lifted output to 24.6m carats in 2000. Exploration has continued and several new kimberlite pipes have been discovered in the north-west of the country. However, no new major finds have been made since Jwaneng, and production is expected to increase only slightly, in line with improvements in technology.

Botswana has two diamond-cutting and polishing factories. A subsidiary of Debswana began operations in 1992 at Serowe in Central district, and a US firm, Lazare Kaplan International (LKI), opened its P60m (US$24m) plant in Molepolole, near Jwaneng, in 1993. The latter plant was sold in 1998 to Israel- based Shacter & Namder Group. Both plants are suffering from cheap Indian competition, and are cutting jobs.

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The changing face of the diamond industry

Historically, De Beers has had a near-global monopoly on diamond production, allowing it to maintain high, stable prices. However, in 2000 the company decided to change strategy for the following reasons:

• It found it increasingly expensive to maintain diamond supplies as producers such as Russia grew more belligerent.

• International concern about diamonds from conflict areas meant the company had to move out of those markets, although supply continued.

• US anti-trust legislation prevented the company from marketing in the US, its main area of sales.

De Beers claims it will no longer try to control global supply, but will instead concentrate on promoting its diamonds as a luxury- goods brand. In early 2001 the company also announced that it would shed its public company status. The current main shareholders—a South Africa-based mining conglomerate, Anglo American, and De Beers’ founding family, the Oppenheimers— are to buy out minority shareholders and hold 45% of stock each. Debswana, the joint venture between De Beers and the government of Botswana, will hold the remaining 10%. The implications of these moves for Botswana are as follows:

• Greater volatility in international diamond prices may lead to increased volatility in government revenue.

• Botswana will play an important role in the international marketing campaign to convince consumers that De Beers diamonds are “development” diamonds, as opposed to “conflict” diamonds.

• Theoretically, Botswana’s influence on the new company will increase, because it will hold the balance of power between Anglo American and the Oppenheimers.

At the time of publication the deal does not have the approval of all minority shareholders, but seems likely to go ahead.

Copper and nickel The copper-nickel mining operation at Selebi-Phikwe has suffered from falling international prices, and in 1998 it relied on emergency government funding. However, a recovery in nickel prices in 1999 allowed the repayment of an emergency loan, and, combined with political pressure to protect the workforce of 5,000, the mine will probably continue operations. The mine is owned and operated by BCL (formerly Bamangwato Concessions), which is controlled by the government and Anglo American. Large debts to Anglo American have gone unpaid for several years, and may never be cleared. The Tati Nickel Mining Company produces copper-nickel from two small mines near Francistown, for smelting by BCL. In 2000 it announced plans to double production at its Phoenix mine. The mine will shift from selective to bulk mining, and nickel recovery is forecast to improve by about 80%, with a 90% improvement in copper recovery. The mine, which currently employs about 500 people, plans to take on a further 700 people.

Coal and soda ash Total proven reserves of bituminous coal are very large, with resources of 17bn tonnes in coalfields in eastern Botswana. However, South African coal is of better quality, and, given the lack of regional markets, transport costs for export are high. At present the only operating coal mine is at Palapye, which is owned by Anglo American.

Botswana Ash (Botash) took over the Sua Pan brine deposits in Central district after the previous company closed owing to strong South African competition. Botash is 50%-owned by the government, the balance being divided between Anglo American, De Beers, and African Explosives and Chemical Industries (AECI) of South Africa. Production is rising and the company is making a profit. It hopes to expand sales overseas despite continued strong competition .

Other minerals Small quantities of gold (8 kg in 1999) are produced in the Francistown area and exploratory drillings showed positive results in north-eastern Botswana in 2000. Semi-precious stones, mainly pink carnelians and agates, are gathered (production was 84 tonnes in 1999). The manganese mine at Kgwakgwe Hill in the south closed in 1993.

Oil A survey in 1987-89 identified three deep sedimentary basins in the western Kalahari region, suggesting either oil or gas deposits. In 1990 a deep borehole was drilled in the Nossop-Ncojane basin, under a joint development programme with the Petro-Canada International Assistance Corporation (PCIAC). However, no applications for prospecting have been made.

Manufacturing

Manufacturing accounts for only about 5% of GDP, but employs about 10% of all those in formal employment. The government sees it as crucial to labour growth and to helping diversify exports away from the mining sector. Because of the small size of the domestic market, manufacturing activity in Botswana depends on the country’s access to the South African market through its membership of the Southern African Customs Union (SACU). As a direct result of government support, vehicle assembly became a prominent industry, and was Botswana’s second-largest source of export revenue in 1994. However, production stopped in early 2000 when the South African group which ran the Hyundai vehicle-assembly plant went into liquidation. The equipment in the plant was sold to a South African consortium, and was moved across the border to Kimberley in early 2001. Despite this bad news a growing number of medium-sized manufacturing plants are now springing up, to take advantage of the 15% tax concession available to them, though shortages of serviced land, high rent, water and transport costs and relatively low labour productivity are proving barriers to expansion in the sector. The textiles industry has been largely marginalised by regional competition.

Construction

Until 1991 construction was one of the most dynamic sectors in the economy. It suffered a substantial contraction in 1992-93, when the Botswana Housing Corporation (BHC) cancelled all contracts after a corruption scandal. These contracts have been gradually resumed, but construction activity has struggled to reach its previous level. However, several large capital projects have led to a modest construction boom since 1997. Industrial and commercial plots are in

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short supply in some urban areas (notably Gaborone) despite the government’s efforts to remedy this problem. Nonetheless, some speculative projects have run into financial difficulties, causing the government to set up a bail-out fund for citizen investors in property. (See Reference table 19 for further data on building plans approved.)

Financial services

Having commissioned several feasibility studies, the government of Botswana has chosen to focus on financial services as an area of growth in the economy. Although the domestic market is small, the government is trying to attract investment in an International Financial Services Centre (IFSC) to act as a conduit for funds from South Africa and the rest of the world into other parts of Africa. The government has adopted a concessional 15% tax rate for firms in the industry, and has hired the consultants who assisted in setting up an IFSC in Dublin, Republic of Ireland, to help establish a similar facility in Botswana. It will be several years before the success of the project can be determined. The authorities claim there has been considerable interest from South Africa, around which construction projects are being planned. By early 2001 five companies had been approved for tax certification to carry out financial services activities in the IFSC. Botswana’s international reputation is enhanced by its high credit ratings, and with banks relocating from central Johannesburg the outlook for some modest success is positive.

Commercial banking Two of Botswana’s four main banks are UK-based (Barclays and Standard Chart- ered), while Standard Bank Investment Corporation (Stanbic) and the First National Bank of Botswana are South African. Barclays Bank of Botswana is the largest commercial bank in terms of capital, deposit liabilities and outstanding loans. Investec of South Africa was granted a licence to operate in 1998, but concentrates mainly on investment banking. An Indian bank, Bank of Baroda, was scheduled to begin commercial banking operations in March 2001.

Non-bank financial Historically, the National Development Bank has been one of the main institutions financiers of commercial agricultural projects in Botswana, but is diversifying into lending to other sectors, particularly manufacturing and services. The Botswana Building Society is the main provider of mortgages to households. The Botswana Savings Bank, which concentrates on rural areas, has registered significant growth in recent years but remains relatively small.

Botswana Development The state-owned Botswana Development Corporation (BDC) is a major Corporation investor—in partnership with foreign companies and local entrepreneurs—in both equity and loans. It prioritises financial services, tourism, property development and selected manufacturing activity. In 1995 the BDC began a programme of divestment from successful ventures to generate extra revenue for its core operations, and in 1998 its financial position was strong enough for it to be able to issue Botswana’s first fixed-income bond. However, the BDC made a loss in 1999 as provisioning for bad loans grew; the situation was

exacerbated by the collapse of the Hyundai plant, to which BDC was heavily exposed. BDC returned to profitability in 2000.

Insurance Botswana’s insurance industry is growing rapidly. Two new insurance brokers and 14 new corporate insurance agencies were registered in 1999. The country now has ten insurance companies, 16 insurance brokers and 54 insurance agencies.

Botswana Stock Exchange Having started as an informal share market in 1989 with six companies registered, the Botswana Stock Exchange (BSE) was officially established in 1995. Stockbrokers Botswana, the only brokers registered at the time, ran the exchange. The first of the dual-listed foreign companies (mainly South African) was registered in 1997. Since 1999 the exchange has been run as an independent entity, and two other stockbrokers have entered the market— Investec and Capital Securities. At end-2000 the domestic companies index (DCI) had 15 companies listed, and a total market capitalisation of P5.248bn (US$979m). Nine companies are listed on the foreign index. The BSE recorded consistent gains since 1995, though performance in 2000—when the DCI rose by 3.9% in local currency terms—was affected by negative sentiment towards the region. Liquidity is low (turnover is around 6% of market capitalisation) and the vast majority of shares are owned by institutional investors. The market should receive a boost from government plans to establish a contrib- utory pension scheme, as some of the funds collected will be invested in the local bourse. The corporate bond market, though currently highly illiquid, is also developing rapidly. (See Reference table 20 for further data on the BSE..)

Other services

Tourism The government has identified environmentally sensitive, low-volume, high- price tourism as a potential source of growth, employment and economic diversification. Investors in the tourism sector, particularly those who are also involved in community-based resource management initiatives, are eligible for the government’s Financial Assistance Programme (FAP). Botswana’s main tourist attraction is the unique wetland environment of the Okavango Delta, and the country has three national parks and five game reserves. After a slump in the early 1990s, the number of tourist visitors to Botswana has risen by about 14% per year, to reach around 205,000 in 1998 (the most recent year for which figures are available). However, regional political troubles, particularly the situation in Zimbabwe, are likely to have affected tourist arrivals in 1999 and 2000. Airports capable of handling passenger aircraft are located at Maun, the gateway to the Okavango Delta, and at Kasane.

Facilities throughout Botswana are generally of a high standard. There is a range of high-quality hotels, casinos and two conference centres in Gaborone. Accommodation in the rest of the country is divided between hotels in the towns and tourist lodges and camps in the wildlife areas.

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Retail Large retail outlets serve Botswana’s main towns. In Gaborone there are many South African retailers, based increasingly in US-style shopping malls. Retail facilities in rural areas are more basic.

The external sector

Trade in goods

An open economy Botswana’s economy is very open; it relies on diamond exports for most of its income, and has to import almost all of its consumables, including food. Visible imports are around 40% of GDP. Visible exports are normally between 45% and 50% of GDP, but this figure is heavily dependent on diamond exports.

Although there are no official restrictions on trade between Botswana and South Africa and the other members of the Southern African Customs Union (SACU), disputes over rules of origin have hampered some of Botswana’s manufactured exports. Botswana also has privileged access to the EU, as a member of the African, Caribbean and Pacific (ACP) group of countries, and to the US under the generalised system of preferences (GSP) and the Africa Growth and Opportunities Act (AGOA).

Trade surpluses are Because of its substantial diamond export earnings, Botswana generally records the norm trade surpluses. (See Reference table 21 for exports by principal commodity and imports by commodity group.) Diamond exports picked up in late 1999 and 2000, after a dip in 1998 when demand in Asia fell, but vehicle exports—the second-largest export earner, at 7-8% of total exports in the late 1990s—ceased in 2000 owing to the closure of the Hyundai assembly plant. Diamond exports may suffer from a slowing US economy in 2001, but a trade surplus is anticipated in coming years.

Primary exports, 1999 (P m; fob)

Total 12,227 of which: d i a m o n d s 9,706 vehicles 667 copper-nickel 558 meat products 223 textiles 249 soda-ash 107 Source: Central Statistics Office, Statistical Bulletin.

The UK is the largest market for Botswana’s exports, followed by the rest of Europe (particularly Switzerland)—both markets consist largely of diamond exports. The SACU’s share of exports is about 15%, and this is the main market for Botswana’s manufacturing base. With this export profile, Botswana’s exchange-rate policy is dominated by the need to maintain competitiveness in

regional markets, particularly its manufactured exports to South Africa. (See Reference table 22 for a breakdown of main export destinations.)

Main trading partners, 1999 (P ‘000; exports on fob basis; imports on cif basis)

Exports fob to: Imports cif from: SACU 1,270,872 UK 272,481 Zimbabwe 290,956 Others (Europe) 664,268 Others (Africa) 137,177 Zimbabwe 396,600 UK 8,130,141 SACU 7,783,143 Others (Europe) 2,220,581 South Korea 263,961 US 86,471 US 187,955 Sources: Central Statistics Office, Statistical Bulletin.

Imports A booming economy, rising government expenditure and associated pay rises caused import spending to rise sharply in the late 1990s. Botswana relies heavily on imported goods for its consumption needs, and, unsurprisingly, the largest single import category is normally food, beverages and tobacco. When an outbreak of foot-and-mouth disease in South Africa in 2001 disrupted agricultural imports, Botswana ran out of milk products, even though cattle are the mainstay of rural life. However, on the back of demand from large capital projects since 1997, spending on vehicles and machinery has overtaken food. In 1999 machinery accounted for 32% of import spending, vehicles 14% and food 15%. The primary source of imports is the SACU area, mainly South Africa. Europe is the second most important source of imports, followed by Zimbabwe. For some years South Korea was a major exporter to Botswana, associated with vehicle assembly, but because of the closure of the Hyundai vehicle-assembly plant in 2000 this is now no longer the case. The only data available are for the first quarter of that year, but show that imports from South Korea dropped to 0.2% of total imports, from 3% in the same period of 1999. (See Reference table 23 for a breakdown of main import origins.)

Invisibles and the current account

Current account Because Botswana is a landlocked country which exports high-value diamonds while importing goods with a much lower value/weight ratio, its services balance—largely freight and insurance costs—has been negative since the 1980s. However, tourism earnings are now starting to boost service earnings. Income credits stem mainly from earnings on Botswana’s large foreign- exchange reserves, while debits reflect profit repatriation—particularly by De Beers—and the repayment of interest on loans. Since 1993 the net income balance has been negative in every year except 1998. Net transfers have remained positive in all recent years except 1995 due to high SACU revenue. The overall current-account balance has similarly remained positive, often strongly so. (See Reference table 24 for balance of payments (national estimates) and Reference table 25 for balance of payments, IMF estimates.)

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Current account, 1999 (US$ m)

Goods: exports 2,671.0 Goods: imports –1,996.5 Trade balance 674.5 Services: credit 372.6 Services: debit –515.9 Services balance –143.3 Income: credit 429.8 Income: debit –696.0 Income balance –266.2 Current transfers: credit 474.4 Current transfers: debit –222.6 Current transfers balance 251.8 Current-account balance 516.8 Source: IMF, International Financial Statistics.

Capital flows and foreign debt

The financial account, which has been in surplus for six of the past ten years, is driven mainly by direct investment, because portfolio flows remain relatively small. The majority of foreign direct investment (FDI) has been directed towards the mining sector, followed by the manufacturing and finance sectors. The main sources are Western Europe and South Africa. When Botswana liberalised its capital account in the 1999 budget there was no major capital outflow, and the country is not subject to the volatile swings in capital which sometimes affect South Africa.

Low foreign debt At end-1999 Botswana’s total external debt was US$462m, of which around 70% was owed to multilateral creditors (notably the African Development Bank, the European Investment Bank and the World Bank). Bilateral official creditors accounted for almost all of the remainder. The government borrows externally on concessional terms, mainly to finance infrastructure projects, because this is more efficient than using its own foreign-exchange reserves (US$6.1bn in November 2000). However, because the country is relatively wealthy, the government is finding it increasingly hard to borrow on concessional terms. The government is unlikely to borrow much at commercial rates—notwithstanding a possible small benchmark bond issue—when it can draw on its own savings, and total external debt is therefore expected to fall in the coming years. Botswana’s sovereign credit rating, awarded in March 2001 by two international agencies, Moody’s and Standard & Poor’s, may encourage some exploratory forays into international money markets, first from parastatals and then from private companies. On a regional comparative basis Botswana’s debt is small, and with a debt-service ratio estimated at 2.4% in 2000, servicing it is not a problem. (See Reference table 26 for a breakdown of external debt.)

External debt, 1999 (US$ m unless otherwise indicated) Total external debt 462 Long-term debta 442 Official creditors 421 Multilateral 322 B i l a t e r a l 99 Private creditors 21 Short-term debt 20 Debt service paid 83 Debt-service ratio, paidb (%) 2.4

a Maturity of over one year. b Total debt service as a proportion of exports of goods and services.

Source: World Bank, Global Development Finance.

Aid Botswana’s official aid receipts remained fairly stable in the early 1980s, but rose substantially from 1986. Since 1990 net receipts have tended to fall. Germany, Japan, Sweden and the UK tend to be the most generous bilateral donors, though US assistance for the fight against HIV/AIDS has been substantial in 2000-01. Despite attaining middle-income status, Botswana continues to receive aid, reflecting donors’ responses to drought conditions and, increasingly, to the perceived threat of HIV/AIDS. (See Reference table 27 for detailed statistics on net official development assistance.)

Foreign reserves and the exchange rate

Having had a positive balance of payments for many years, Botswana has accrued large foreign-exchange reserves, which rose from US$3.3bn at the end of 1990 to US$6.1bn in November 2000. This is equivalent to about 28 months of import cover. (See Reference table 28 for data on foreign reserves.)

Exchange-rate policy Since breaking its parity to the South African rand in 1976, Botswana’s national currency, the pula, has been linked to a basket of currencies comprising— roughly—the South African rand (60%) and the SDR (40%). The rationale for this basket has been to minimise imported inflation and currency fluctuations associated with tracking the rand, while ensuring that Botswana’s manufactured goods remain competitive in South African markets. In practice, however, the need to maintain competitiveness has been the overriding factor in exchange-rate management; on several occasions in the past few years the authorities have devalued the pula against the SDR portion of the currency basket, to follow the rand downwards, though some small appreciation against the rand has occurred. Depreciations against other major currencies have revived the national debate on the link with the rand. However, the government’s commitment to promoting diversified manufactured exports, which has been endorsed by the IMF, suggests that there will be no change to current policy. (See Reference table 29 for historical data on exchange rates.)

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 31

Appendices

Regional organisations

Botswana and Lesotho belong to the same regional organisations, apart from the Multilateral Monetary Agreement, to which Botswana was not a signatory. For information about these organisations, see Lesotho: Regional organisations.

Sources of information

National statistical sources Bank of Botswana, Annual Report, Gaborone

Bank of Botswana, Botswana Financial Statistics (monthly), Gaborone

Central Statistics Office, Statistical Bulletin (monthly) and Statistics Update (in theory quarterly, in practice occasional), Gaborone

International sources Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex HA5 5PJ

IMF, International Financial Statistics (monthly)

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

UN Food and Agriculture Organisation, Production Yearbook

World Bank, Global Development Finance (annual)

Selected bibliography Auditor-General, Report on the Accounts of the Botswana Government for the year and websites ended March 1999, Gaborone

Department of Minerals and Mines, Annual Report, Gaborone

Ministry of Finance and Development Planning, Annual Economic Report 2001, Gaborone

Ministry of Finance and Development Planning, Eighth National Development Plan (NDP8), Gaborone

Ministry of Finance and Development Planning, Mid-Term Review of NDP8, Gaborone

Presidential Task Group for a Long Term Vision for Botswana, A Framework for a Long Term Vision, Gaborone

Peters, P., Dividing the Commons, Politics, Policy and Culture in Botswana, University Press of Virginia, 1994

Picard, L., The Politics of Development in Botswana: A Model for Success, Lynne Rienner Publishers, 1987

Ranker, L., Botswana: 30 Years of Economic Growth, Democracy and Aid, CMI, 1996

Salkin, J. (Ed.), Aspects of the Botswana Economy, James Curry Publishers, 1998

Samatar, A., An African Miracle, Heinemann, 1994

Bank of Botswana: www.bankofbotswana.bw

Botswana government: www.gov.bw

Botswana Institute for Development Policy Analysis: www.bidpa.bw

Botswana Online: www.botswana-online.com

Mmegi newspaper: www.mmegi.bw

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Reference table 1 Population (m unless otherwise indicated) 1995 1996 1997 1998 1999 Population 1.46 1.50 1.53 1.57 1.61 % change, year on year 2.8 2.7 2.0 2.6 2.5 Source: IMF, International Financial Statistics.

Reference table 2 Transport statistics (‘000 unless otherwise indicated) 1995 1996 1997 1998 1999 Road Vehicle registrations & renewals 107.7 84.8 89.9 105.4 122.7 of which: cars 30.4 26.7 28.0 36.9 43.5 trucks 14.0 10.4 11.1 5.8 6.3 Rail Passengers 615 619 503 371 336 Freight (‘000 tonne-km) 687 668 1,049 1,278 1,074 Revenue (P m) 70.1 75.6 104.9 115.6 111.5 Air Passengers (‘000) 380.7a 368.5 366.6 404.1 427.4 Arrivals 178.8 184.2 183.2 201.3 214.4 Departures 196.5 184.5 183.5 202.7 213.0

a Includes transit passengers.

Source: Central Statistics Office, Statistical Bulletin.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 33

Reference table 3 Telecommunications (years ending Mar 31st) 1995 1996 1997 1998 1999 Telephone lines 50,447 59,673 72,189 85,592 102,016 per 100 people 3.4 4.0 4.7 5.5 6.4 Payphones 457 636 1,028 1,943 2,449 National traffic (bn metered call units) 440.1 478.2 573.2 694.6 847.0 BTC net income (P m) 18.5 8.5 30.1 47.6 74.6 Return on equity (%) 8.6 3.7 12.2 15.7 19.6 Return on capital (%) 9.3 7.3 11.5 13.6 15.9 No. of staff 1,645 1,624 1,610 1,703 1,700 Revenue per employee (P ‘000) 112 125 157 182 227 No. of lines per BTC employee 31 37 45 50 60 Source: Botswana Telecommunications Corporation (BTC).

Reference table 4 Gross domestic producta (current market prices) 1995/96 1996/97 1997/98 1998/99 1999/2000b Total (P m) At current prices 14,204 17,740 20,163 21,524 25,208 At constant (1993/94) prices 12,030 12,704 13,729 14,296 15,394 Real change (%) 5.5 5.6 8.1 4.1 7.7 Per head (P) At current prices 9,728 11,827 13,178 13,710 15,657 At constant (1993/94) prices 8,240 8,469 8,973 9,106 9,561 Real change (%) 3.9 2.7 5.9 1.5 5.0 a Fiscal years ending Jun 30th. b Provisional.

Source: Bank of Botswana.

Reference table 5 Sectoral origins of gross domestic producta (current market prices) 1990/91 1999/2000b P m % of total P m % of total Agriculture, forestry & fishing 333.9 4.5 665 2.6 Mining & quarrying 3,012 40.3 8,389 33.3 Manufacturing 362 4.8 1,237 4.9 Electricity & water 152 2.0 540 2.1 Construction 552 7.4 1,424 5.6 Trade, hotels & restaurants 1,060 14.2 2,730 10.8 Transport & communications 208 2.8 934 3.7 Financial servicesc 557 7.5 2,743 10.9 Government services 1,114 14.9 4,105 16.3 Social & personal services 286 3.8 994 3.9 GDP at market pricesd 7,475 100.0 25,208 100.0

a Fiscal years ending Jun 30th. b Provisional figures. c Including imputed bank service charges. d Including a dummy sector adjustment, which corrects for imputed bank service charges.

Source: Central Statistics Office.

Reference table 6 Trend of gross domestic product by sectora (% real change, year on year) 1995/96 1996/97 1997/98 1998/99 1999/2000 Agriculture, forestry & fishing 6.6 –7.5 5.9 –7.6 –8.7 Mining & quarrying 4.5 5.8 9.5 –2.8 11.9 Manufacturing 7.8 3.7 5.4 5.7 3.2 Electricity & water 0.2 4.6 9.9 12.9 8.0 Construction 3.3 5.5 4.3 11.5 2.4 Trade, hotels & restaurants 9.8 13.9 4.7 5.6 6.1 Transport & communications 0.4 4.3 9.1 16.2 1.7 Financial services 9.7 1.2 9.7 9.0 3.7 Government services 5.2 8.3 9.3 6.3 6.0 Social & personal services 5.4 5.0 2.9 7.5 4.4 GDP at constant prices 5.5 5.6 8.1 4.1 7.7 Non-mining private GDP 6.3 4.7 6.7 8.3 5.6 a Fiscal years ending Jun 30th.

Source: Bank of Botswana.

Reference table 7 Employment by sectora (‘000 unless otherwise indicated) 1997 1998 1999 2000 Agriculture 3,800 4,000 5,400 5,500 Mining 8,600 8,600 8,300 8,200 Manufacturing 23,500 23,100 28,000 28,400 Water & electricity 2,600 2,700 2,700 3,700 Construction 19,400 25,100 27,500 28,400 Commerce 41,000 43,300 44,500 45,600 Transport 8,400 8,500 9,800 10,200 Financial & business services 15,600 15,800 17,200 17,400 Community 3,700 3,900 4,200 4,400 Education 4,400 4,700 5,600 6,100 Private & parastatal 131,100 139,700 153,100 157,800 of which: parastatal 13,100 13,500 15,500 16,500 private 118,000 126,200 137,600 141,400 Central governmentb 77,900 83,100 84,900 85,700 a As of Sep; excludes working proprietors and unpaid family workers. b Excludes Botswana Defence Force (BDF), and casual and temporary employees.

Source: Ministry of Finance and Development Planning, Annual Economic Report, 2001.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 35

Reference table 8

Average monthly earnings by sectora (P) 1995 1996 1997 1998 1999 Botswana citizens Private & parastatal 678 815 871 1,067 1,502 Agriculture 276 267 291 346 501 Mining & quarrying 1,170 1,238 1,354 1,950 2,747 Manufacturing 570 617 633 632 883 Electricity & water 1,311 1,371 1,857 2,043 3,028 Construction 595 656 794 754 1,141 Commerce 565 604 623 940 1,050 Transport & communications 1,159 1,251 1,255 1,725 2,092 Finance & business services 1,250 1,301 1,348 2,456 2,968 Community & personal services 775 808 912 886 1,924 Education 1,594 1,617 1,889 1,983 3,074 Local government 877 947 964 1,190 1,526 Central government 1,068 1,134 1,170 1,566 1,872 Non-citizens Private & parastatal 3,311 3,531 3,779 4,906 5,445 Local government 2,657 2,915 3,207 3,927 5,264 Central government 2,646 2,808 3,303 3,623 4,216

a Mar data 1995-98; Sep data 1999.

Sources: Central Statistics Office, Statistical Bulletin; Bank of Botswana, Annual Report.

Reference table 9

Minimum monthly wagesa (P) 1995 1996 1997 1998 1999 Building & quarrying 135 145 159 175 190 Manufacturing 135 145 159 175 190 Wholesale 129 139 152 165 180 Retail 121 131 143 155 170 Hotels & catering 135 145 159 175 190 Motor trades & transport 135 145 159 175 190 Night-watchmen 113 123 135 150 165

a May.

Sources: Central Statistics Office, Statistical Bulletin; Bank of Botswana, Annual Report.

Reference table 10 Recurrent expenditure for NDP8a (P m, 1997/98 prices; fiscal years Apr-Mar; budget estimates) 1998/99 1999/2000 2000/01 2001/02 2002/03 Parliament 11 11 11 11 11 State presidentb 645 672 699 728 758 Ministries Education 1,273 1,351 1,433 1,520 1,613 Local government, lands & housing 1,042 1,105 1,171 1,241 1,316 Works, transport & communications 484 509 535 563 592 Health 333 359 388 419 452 Finance & development planning 305 310 315 320 325 Agriculture 251 253 254 255 256 Labour & home affairs 126 133 139 146 154 Mineral resources & water affairs 111 117 123 130 137 Commerce & industry 79 81 82 84 86 Foreign affairs 61 61 61 61 62 Administration of justice1415151617 Office of the attorney-general 10 10 10 10 10 Office of the auditor-general55555 Elections office 22222 Ombudsman’s office 11111 Totalc 4,757 5,002 5,261 5,537 5,798 a Eighth National Development Plan. b Includes Botswana Defence Force. c Figures as in original table.

Source: Ministry of Finance and Development Planning, projections.

Reference table 11 Government finances (P m; fiscal years Apr-Mar) 1998/99 1999/2000 2000/01a 2001/02 b Revenue 7678 11,963 12,962 13,557 of which: mineral taxes & royalties 3,187 6,687 7557 7,953 customs pool 1,261 1,931 2,124 1,856 Bank of Botswana profits 1217 1,200 860 1,056 Expenditure 9,065 10,427 11,881 14,084 of which: recurrent 6,265 7,048 8,357 9,552 capital 2,935 3,451 3,584 3,600 net lendingc –134 –71 –60 –93 Overall balance –1,388 1,536 1,081 –526

a Revised estimates. b Budget estimates. c Mainly to parastatals via the Public Debt Service Fund.

Sources: Ministry of Finance and Development Planning; Botswana Institute for Development Policy Analysis (BIDPA).

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 37

Reference table 12 Money supply (P m unless otherwise indicated; year-end) 1996 1997 1998 1999 2000a Currency in circulation 247 276 353 404 481 Demand depositsb 639 693 968 1,129 1,118 M1 886 969 1,320 1,533 1,599 % change, year on year 8.3 9.4 36.3 16.1 6.4 Call, savings, notice & time deposits 1,962 2,591 3,438 4,429 4,484 M2 2,848 3,560 4,759 5,962 6.083 % change, year on year 18.1 25 33.7 25.3 11.9 Bank of Botswana certificatesc 1,641 1,756 1,920 2,525 2,515 M3 4,489 5,316 6,679 8,486 8,598 % change, year on year 26.9 18.4 25.6 27.1 14.4 Foreign currency deposits 296 482 939 1,096 1,200 M4 4,785 5,798 7,618 9,582 9,798 % change, year on year 27.4 21.2 31.4 25.8 13.3

a September data are latest available. b Half of interbranch deposits are deducted from demand deposits to account for items in transit. c Discounted value.

Source: Bank of Botswana, Botswana Financial Statistics.

Reference table 13 Interest rates (%; year-end) 1996 1997 1998 1999 2000a Bank rate (Bank of Botswana) 13.0 12.5 12.5 13.3 14.3 Prime rate 14.5 14.0 14.0 14.8 15.8 Real prime lending rateb 4.5 5.8 7.1 7.3 6.4 3-month Bank of Botswana certificate 12.2 11.4 10.7 12.0 12.7 Real Bank of Botswana certificateb 2.4 3.3 4.0 4.8 3.7 Mortgage loans (Botswana Building Society) 14.5-15.0 14.5-15.0 13.5-14.0 13.5-14.0 14.5-15.0 Savings accounts (commercial bank) 7.7 7.6 7.1 7.3 8.0 12-month fixed rate (commercial bank) 10.3 9.9 9.1 10.4 10.6 a Oct data are latest available. b Deflated by consumer price inflation, three-month annualised rate.

Source: Bank of Botswana, Botswana Financial Statistics.

Reference table 14 Consumer prices (annual average; % change year on year in brackets) 1996 1997 1998 1999 2000a Consumer prices (1995=100) 110.1 119.6 127.6 136.6 148.3 (10.1) (9.3) (6.6) (7.1) (8.6)

a EIU estimate

Source: Bank of Botswana.

Reference table 15 Consumer price index (Nov 1996=100; end-year values; % change year on year in brackets) 1995 1996 1997 1998 1999 2000a Domestic tradeables 90.6 100.5 107.7 114.1 121.8 129.5 (10.5) (10.9) (7.2) (5.9) (6.7) (6.3) Imported tradeables 92.9 100.9 111.1 117.8 127.1 138.3 (12.7) (8.6) (10.1) (6.0) (7.9) (8.8) All tradeables 92.1 100.8 110.0 116.6 125.2 135.1 (11.9) (9.4) (9.1) (6.0) (7.5) (7.9) Non-tradeables 91.8 100.1 104.1 111.7 118.4 125.9 (8.0) (9.0) (4.0) (7.3) (6.0) (6.3)

a Index values are EIU estimates.

Sources: Bank of Botswana, Annual Report; Central Statistics Office, Consumer Price Statistics.

Reference table 16 Livestock numbers (‘000; av) 1989-91 1995 1996a 1997a 1998a Cattle 2,694 2,668a 2,400 2,420 2,330 Goats 2,097 1,900 1,850 1,870 1,820 Sheep 317 250 240 250 240

a Estimates.

Source: UN Food and Agriculture Organisation, Production Yearbook.

Reference table 17 Production of principal cropsa (‘000 tonnes) 1994/95 1995/96 1996/97 1997/98 1998/99b Sorghum 11.5 77.8 16.8 9.1 13.7c Maize 2.3 25.2 11.6 1.1 4.9 Millet 0.8 n/a n/a n/a n/a

a Crop years Jul-Jun. b Estimates. c Official estimates conflict; this figure also estimated at 11.5.

Sources: Central Statistics Office, Statistical Bulletin; National Early Warning Unit.

Reference table 18 Mineral production by volume and value (‘000 tonnes unless otherwise indicated) 1995 1996 1997 1998 1999 Diamonds (m carats) 16.8 17.7 20.2 19.8 21.3 Copper-nickel matte 48.5 57.9 40.3 45.3 59.9 Coal 898.4 763.2 776.9 928.1 945.3 Soda ash 201.7 119.1 199.9 195.5 233.6 Salt 208.1 93.9 184.5 214.7 233.1 Gold (kg) 86.0 5.0 28.0 1.0 8.0 Semi-precious stones (tonnes) 20.0 25.0 54.0 38.0 84.0 Mineral production indexa 126.8 134.3 149.1 145.2 163.0b

a (1984=100), excl soda ash. b Latest available data are for 3rd quarter 1999.

Sources: Department of Mines, Annual Report; Central Statistics Office, Statistical Bulletin.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 39

Reference table 19 Building plans approved 1995 1996 1997 1998 1999 No. of plans Residential 657 687 1,070 1,595 2,310 Non-residential 358 233 276 221 183 Total 1,015 920 1,346 1,966a 2,493 Estimated value (P m) Residential 100.9 56.6 88.9 163.8 1,115.0 Non-residential 68.2 29.0 43.9 159.7 312.9 Total 169.1 85.6 132.9 323.5 1,427.5

a Total does not sum in original.

Source:. Central Statistics Office, Statistical Bulletin.

Reference table 20 Botswana Stock Exchange, domestic shares (end-period) 1995 1996 1997 1998 1999 2000 No. of stocks quoted 12 12 12 14 15 15 Market indexa (Jun 1989=100) 333 352 706 947 1,399 1,454 Capitalisation (P m) 1,120 1,190 2,329 3,224 4,874 5,248 US$ m 397 326 614 724 1,052 979

a Domestic shares only; foreign shares were first quoted on Apr 1st 1997; eight South African companies were dual-listed at mid-Apr 2001.

Source: Bank of Botswana, Botswana Financial Statistics.

Reference table 21 Foreign trade (P m) 1995 1996 1997 1998 1999 Exports fob Diamonds 3,993 5,272 7,670 6,040 9,706 Vehicles 957 1,145 1,182 966 667 Copper-nickel matte 328 445 480 436 558 Meat products 179 206 231 298 223 Textiles 146 195 248 303 249 Soda-ash 22 69 110 98 107 Total incl others 5,941 8,133 10,390 8,697 12,228 Imports cif Food, beverages & tobacco 846 972 1,083 1,247 1,412 Fuel 271 366 465 433 495 Chemical & rubber products 491 587 749 843 941 Wood & paper products 402 420 512 653 819 Textiles & footwear 400 427 533 570 596 Metals & metal products 461 506 881 958 877 Machinery & electrical goods 832 924 1,453 2,019 2,142 Vehicles & transport equipment 989 809 1,648 1,546 1,374 Total incl others 5,307 5,720 8,256 9,513 10,164

a Full-year estimate.

Sources: Central Statistics Office, Statistical Bulletin; Department of Customs & Excise.

Reference table 22 Exports by destination (%) 1995 1996 1997 1998 1999 South African Customs Union 21.5 18.3 14.3 17.2 10.4 Zimbabwe 3.1 3.1 3.7 2.9 2.4 Other Africa 0.8 0.6 1.1 1.3 1.1 UK 37.4 54.3 56.2 55.5 66.5 Other Europe 36.1 22.5 23.5 21.5 18.2 US 0.9 1.0 1.0 1.0 0.7 Others 0.2 0.3 0.2 0.6 0.7 Sources: Central Statistics Office, Statistical Bulletin

Reference table 23 Imports by origin (%) 1995 1996 1997 1998 1999 South African Customs Union 74.0 78.0 72.5 74.8 76.6 Zimbabwe 5.5 5.7 4.5 3.9 3.9 Other Africa 0.3 0.4 0.5 0.6 0.3 UK 2.5 2.6 2.0 3.4 2.7 Other Europe 6.0 4.2 7.0 6.8 6.5 South Korea 7.1 4.4 9.5 4.8 2.6 US 2.0 1.3 1.1 1.4 1.8 All other 2.5 3.4 3.0 4.4 5.6 Sources: Central Statistics Office, Statistical Bulletin.

Reference table 24

Balance of payments, national estimatesa (P m) 1995 1996 1997 1998 1999 Visible trade balance (adjusted) 1,538 2,493 3,269 328 3,151 Net services –510 –602 –841 –988 –1,114 Net income –90 –841 –529 505 –1,452 Net transfers –108 595 735 1,015 1,257 Current-account balanceb 831 1,643 2,634 860 1,842 Capital-account balance 40 21 62 134 132 Current- & capital-account balance 871 1,664 2,695 994 1,974 Financial-account balance –94 141 20 –855 –182 Net errors & omissions –186 –83 –398 4,728 –106 Overall balance 591 1,722 2,318 4,867 1,685

a According to IMF Manual V. b Totals do not sum in source.

Source: Bank of Botswana, Botswana Financial Statistics.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Botswana 41

Reference table 25 Balance of payments, IMF estimates (US$ m) 1995 1996 1997 1998 1999 Goods: exports 2,160 2,218 2,820 2,061 2,671 Goods: imports –1,605 –1,467 –1,924 –1,983 –1,997 Trade balance 555 750 895 78 675 Services: credit 260 163 210 255 373 Services: debit –444 –344 –441 –522 –516 Income: credit 483 502 622 623 430 Income: debit –516 –755 –767 –503 –696 Current transfers: credit 331 355 457 461 474 Current transfers: debit –370 –177 –256 –221 –223 Current-account balance 300 495 722 170 517 Net direct investment in Botswana 30 72 96 92 35 Financial-account balance –34 42 6 –202 –175 Capital-account balance 15 6 17 32 21 Net errors & omissions –74 –33 –109 45 9 Overall balance 207 511 635 44 371 Source: IMF, International Financial Statistics.

Reference table 26 External debt, World Bank estimates (US$ m unless otherwise indicated) 1995 1996 1997 1998 1999 Public & publicly guaranteed long-term debta 693 608 522 508 442 Official creditors 646 572 494 484 421 Multilateral 486 433 383 372 322 Bilateral 160 139 112 113 99 Private creditors 47 36 28 24 21 Short-term debt 10 6 40 7 20 of which: interest arrears on long-term debt 6b 0000 Total external debt 703 614 562 516 462 Debt service paid 92 152 102 76 83 Ratios (%) Total external debt/GNP 14.5 12.6 11.7 11.1 8.1 Debt-service ratio, paidc 3.2 5.2 2.8 2.6 2.4 Short-term debt/total external debt 1.4 1.0 7.1 1.4 4.3 Concessional long-term debt/long-term debt 48.3 52.5 51.6 57.4 58.0 a Maturity of over one year. b These arrears are disputed by the Botswana authorities and probably reflect differences in accounting definitions. c Total debt service as a proportion of exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 27

Net official development assistancea (US$ m) 1995 1996 1997 1998 1999 Bilateral 54.5 67.9 55.8 73.1 41.1 of which: Japan 3.7 18.0 9.8 34.0 13.9 US 13.0 7.0 9.0 3.8 3.6 Sweden 6.5 15.7 8.5 3.8 1.2 UK 5.9 4.7 6.5 5.2 4.8 Norway 6.9 6.6 7.3 4.2 2.7 Germany 9.8 7.7 7.2 14.2 10.5 Multilateral 35.2 8.4 69.2 35.9 20.7 of which: EC 22.6 2.7 64.8 29.1 17.4 UN Development Programme 1.6 –1.6 0.6 0.6 0.7 African Development Fund 1.3 3.1 1.5 4.6 –0.5 Totalb 90.1 74.6 121.6 106.4 60.9 of which: grants 79.9 67.1 82.1 77.0 60.1

a Official development assistance is defined as grants and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country. b Includes aid from the EU and Arab countries not counted as multilateral or bilateral sources.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 28 Foreign reserves (US$ m; end-period) 1995 1996 1997 1998 1999 2000 Foreign exchange 4,695.5 5,027.7 5,675.0 5,940.7 6,229.2 n/a SDRs 40.2 41.3 40.9 45.6 38.5 38.9 IMF reserve position 28.7 28.6 24.5 38.9 31.0 23.1 Total reserves excl gold 4,764.4 5,097.6 5,740.5 6,025.2 6,298.7 n/a Source: IMF, International Financial Statistics.

Reference table 29 Exchange rates (annual averages) 1995 1996 1997 1998 1999 2000 P:US$ 2.772 3.324 3.651 4.226 4.624 5.102 P:R 0.764 0.774 0.792 0.771 0.757 0.720 Sources: IMF, International Financial Statistics; Bank of Botswana, Botswana Financial Statistics.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Lesotho 43

Lesotho

Basic data

Land area 30,344 sq km

Population 2.11m (1999 estimate)

Main town Maseru (capital) has an estimated population of 150,000

Climate Continental, extreme temperatures

Weather in Maseru Hottest month, January, 15-33°C; coldest month, July, –3-17°C; driest month, (altitude 1,500 metres) June, 7 mm average rainfall; wettest month, February, 141 mm average rainfall

Languages Sesotho and English

Measures Metric system

Currency Loti, plural maloti (M)=100 lisente. Pegged at par with the rand. Average exchange rate in 2000: M6.94:US$1. On April 17th 2001 the loti stood at M8.08:US$1

Time 2 hours ahead of GMT

Public holidays (2001) January 1st (New Year’s Day), March 11th (Moshoeshoe’s Day), April 4th (Heroes’ Day), April 13th (Good Friday), April 16th (Easter Monday), May 1st (Workers’ Day), May 24th (Ascension Day), July 17th (King’s birthday), October 4th (Independence Day), December 25th (Christmas Day), December 26th (Boxing Day), December 27th (public holiday)

Political background

Lesotho is a constitutional monarchy with an unstable democracy. The country was under military leadership from 1986 to 1993. Democracy was restored in 1993 with the election of a government led by the Basotho Congress Party (BCP). The BCP split in 1997 and the majority of MPs followed the prime minister into a new party, the Lesotho Congress for Democracy (LCD). The LCD, led by Pakalitha Mosisili, won all but one of the seats contested in the parliamentary election held in May 1998. Soon after the election some of the results were challenged in the courts, and there was civil unrest. The political situation continued to deteriorate and junior army officers mutinied. A regional intervention force, comprising troops from South Africa and Botswana, put down a further upsurge in popular protest and another apparent coup attempt. This was not before an escalation in the fighting, which led to the widespread destruction of property in Maseru. After calm was restored, a new election was scheduled for April 2000 and a new body, the Interim Political Authority (IPA), was set up to review the electoral system. In December 1999 an agreement was reached between the government and the IPA which seemed to pave the way for an election to be held by June 2000. Subsequently, however, the parliament started to change key provisions in the agreement, leading to further delays. The election was rescheduled for May 2001, but this too could not be met as arguments over the electoral format continued. It is likely that the election will now be held in early 2002.

Historical background

The emergence of a The origins of Lesotho as a nation date back to the 19th century, when King nation state Moshoeshoe I rallied the Basotho from the remnants of ethnic groups scattered in southern and central Africa after the Mfecane—the inter-African wars caused by the rise of the Zulu people. As the Basotho were losing ground against the advancing Trekboers, Moshoeshoe I asked the British to declare a protectorate over his kingdom in 1868. Basutoland, as the country came to be known, was initially administered by the Cape Colony, but in 1884 the British government took over direct responsibility for the protectorate. It was thereafter administered as a high commission territory with traditional government through a king and principal chiefs.

Independence Basutoland became Lesotho at independence in 1966. Chief Leabua Jonathan, whose Basotho National Party (BNP) won the first election held under universal suffrage in 1965, became prime minister. Relations between the prime minister and the monarch, Moshoeshoe II (Bereng Seeiso), were strained as the king was seeking to extend his personal powers beyond those granted in the constitution. In 1970 Chief Jonathan suspended the constitution and annulled that year’s general election, the first after independence, which he appeared to be losing to the Basotho Congress Party (BCP). The National Assembly was abolished and opposition leaders and (briefly) the king were exiled. An election called in 1985 was boycotted by all opposition parties, the

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exiled wing of the BCP going as far as to back armed resistance through the Lesotho Liberation Army (LLA).

The military regime Chief Jonathan was toppled in a military coup led by Major-General Metsing Lekhanya in January 1986, when deteriorating relations with South Africa compounded the government’s domestic political isolation. General Lekhanya established a five-man Military Council, which in effect ruled the country. The interim National Assembly was dissolved and all executive and legislative power was vested in the monarch. Relations with South Africa improved, but all internal political activity was banned and the constitution remained suspended. In 1988 the monarch’s powers were also suspended when King Moshoeshoe II refused to endorse General Lekhanya’s dismissal of two military councillors. Relations between the king and the general deteriorated so much that King Moshoeshoe II was exiled in 1990. His eldest son, who was crowned as King Letsie III, replaced him.

The advent of democracy In April 1991 General Lekhanya was removed from power in a bloodless coup and replaced as head of the Military Council by Colonel (later Major-General) Phisoana Ramaema. The ban on political activity was lifted in May 1991 and a new constitution, largely modelled on that of 1966, set the ground rules for elections. In 1992, under an amnesty, many political figures, including the former king, Moshoeshoe II, returned to Lesotho. The BCP won 54% of the vote in the election held in 1993, which gave it all of the parliamentary seats under the first-past-the-post system. International observers declared the election largely free and fair and Ntsu Mokhehle was sworn in as prime minister. Mr Mokhehle invited the BNP and other opposition parties to nominate members for the newly constituted Senate and confirmed that Letsie III would continue as constitutional monarch.

Political instability The BCP government ran into difficulties in early 1994. It struggled to maintain its authority over the army and police, whose discontent was stoked up by opposition elements. King Letsie dismissed the government in August 1994 but, under internal and external pressure, he was obliged to restore it in September. As part of an internationally brokered settlement, the BCP had to agree to a national dialogue with the opposition and reinstated Moshoeshoe as monarch in place of Letsie in January 1995. However, Letsie again became king when Moshoeshoe was killed in a car accident in January 1996.

The BCP then slowly fell apart as a result of jockeying for position to succeed the ailing Mr Mokhehle. When Mr Mokhehle’s term as BCP leader came to an end in January 1997, his rivals sought to replace him with his long-time deputy, Molapo Qhobela. Mr Mokhehle, however, carried out his own coup by quitting the BCP in June 1997, taking the majority of the MPs and all cabinet members into a new party, the Lesotho Congress for Democracy (LCD), and continuing as prime minister.

The 1998 election and The 1998 election was held under the auspices of the Independent Electoral its aftermath Commission (IEC; see Political forces), but was dogged by lack of time for the preparation of voters’ lists and by concerns about ballot security. However, all

major parties contested the poll on May 23rd, which was given a qualified “free and fair” assessment by independent observers. The resounding victory for the LCD, which took 78 out of the 79 contested seats and over 60% of the popular vote, was surprising and provoked legal challenges from the main opposition parties in around 20 constituencies. By August, protests over the election results had escalated and parliament was prevented from opening. Despite an attempt by South Africa’s then deputy president, Thabo Mbeki, to calm the situation and the establishment of the Langa Commission to investigate the conduct of the election, the political situation continued to deteriorate, and there was a mutiny by junior army officers.

Election results, 1998

% of vote Seats Lesotho Congress for Democracy (LCD) 61 78 Basotho National Party (BNP) 25 1 Basotho Congress Party (BCP) 11 0 Others 3 0 Total 100 79a

a One seat was not contested owing to the death of a candidate on the eve of the poll.

Source: EIU.

SADC intervention On September 17th 1998, the report by the Langa Commission was released. It noted that there were many administrative and practical problems with the 1998 election, but not widespread fraud. It did not see the need for a re-run of the election. This led to an upsurge of popular protest and another apparent coup attempt, which was put down only when a regional intervention force, under the auspices of the Southern African Development Community (SADC), entered Maseru on September 22nd. The force was initially made up of 600 South African troops supported by 200 troops from Botswana, but the total eventually reached about 1,000 soldiers. On entry into Maseru the SADC force met with unexpected and violent opposition. There was burning and looting of shops and 70 people were killed, including a dozen South African soldiers, before order was restored.

Disagreement over voter An Interim Political Authority (IPA) was set up to review the electoral code and registration and PR recommend changes to it. In December 1999 the government and the IPA signed a memorandum of agreement. The next election was to be based on a system that retained the existing 80 first-past-the-post constituency seats, supplemented by an additional 50 seats allocated on a proportional basis. For practical reasons the election scheduled for April 8th 2000 could not be held. But it was widely believed that the election would take place by June; the LCD, as the likely winner, would have no obvious motive to impede the process further. This expectation proved wrong, however. When the necessary enabling legislation was brought to the LCD-dominated parliament in February, it was unexpectedly amended, leading to a stand-off with the opposition parties and the IPA.

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Important recent events

June 1997: Mr Mokhehle leads the majority of MPs out of the Basotho Congress Party to form the Lesotho Congress for Democracy (LCD). He retains the position of prime minister.

May 1998: The LCD wins 65% of the popular vote and 78 out of 79 seats contested in the election. The following month, Pakalitha Mosisili is sworn in as prime minister.

July-August 1998: The election results are challenged in the courts. Protesters camp outside the king’s palace and prevent the opening of parliament.

September 1998: Civil unrest continues and junior military officers attempt a coup. Mr Mosisili requests foreign military assistance to secure order and a SADC intervention force enters Maseru. There is intense fighting and considerable looting and destruction of property in all major towns.

October 1998: A political compromise is reached and the unrest dies down. The government and opposition agree that a new election will be held by April 2000 and that multiparty bodies will consider electoral and constitutional changes.

December 1999: Agreement is reached for an election to be held in 2000, to be based on a mixture of first-past-the-post and proportional representation.

February 2000: The agreement on the election starts to unravel as the required bill amending the constitution is altered in parliament.

April 2000: The government announces the appointment of an independent commission to investigate the political disturbances of 1998 and to identify the perpetrators.

May 2000: The government announces that the election will be held in 10-12 months.

January 2001: A National Forum is held in Maseru on the formulation of a National Vision for Lesotho to guide the development of the country until 2020.

February-March 2001: Legislation on the electoral model finally passes through parliament and the Independent Electoral Commission determines the method of voter registration. Registration is set for August-September 2001.

Opposition parties warned of possible civil unrest and chaos if an election was not held during 2000. In mid-May of that year, following further discussions with international mediators, the government announced that an election would be scheduled for 10-12 months in the future. Although the IPA endorsed the new programme, agreement on the arrangements for the election had not been reached. The government was insisting that the number of seats to be allocated under proportional representation should be reduced from 50 to 40, on the grounds that the 80 constituency-based members should be able to form the two-thirds parliamentary majority necessary to amend the constitution. In addition, it started to raise objections about the fingerprint-

based technology that the IPA wanted to use for voter registration, arguing that it was unproven and too expensive.

Deadlock is broken This deadlock lasted until early 2001, when legislation was enacted allowing in early 2001 the IEC to determine the method of voter registration and the Senate agreed to a reduction in the number of seats elected by proportional representation. Although some had hoped that the Senate would continue to oppose this, the government had made clear that such action would trigger a referendum on the issue and lead to further delays. The IEC announced that registration would take place during August and September 2001 using a combination of fingerprint recording and indelible ink. Although there was still talk of holding the election during 2001, the consensus among observers was there was insufficient time and that the poll would be held in the first part of 2002.

Constitution and institutions

A constitutional monarchy Despite being suspended from 1970 to 1986 and rewritten by a National Constituent Assembly in 1990, the key elements of Lesotho’s post- independence constitution have changed little. As under the original 1966 constitution, Lesotho is a constitutional monarchy, with the king as head of state, although his power has been curtailed. Executive power resides in the government, led by the prime minister. The bicameral parliament consists of a lower house, the National Assembly, whose members are elected by universal suffrage, and (since the 1990 constitutional revisions) a 33-seat upper house, the Senate, with 22 principal chiefs and 11 other persons nominated by the king. The number of seats in the lower house was raised from 65 to 80 for the 1998 election, owing to population increases and constituency boundary changes.

Following the political unrest of late 1998, the Interim Political Authority (IPA) was mandated to review the current Electoral Code, the Independent Electoral Commission (IEC) and the constitution, and bring about a new election by April 2000. The IPA has 24 members representing all of Lesotho’s 12 political parties. In February 1999 the IPA convened a National Consultative Forum to debate the future model of democracy to be used in Lesotho. This was in order to effect a compromise between those—mainly the opposition parties—who favour a move to some form of proportional representation and those who support retaining the first-past-the-post system.

In October 1999 the IPA voted in favour of a compromise under which the existing 80 constituencies would again be elected on a first-past-the-post basis, but would be supplemented by an additional 50 seats to be allocated on a proportional basis. In December this was ratified by a memorandum of agreement between the IPA and government, which included further provisions, such as the retirement of the existing members of the IEC. However, the agreement began to unravel shortly afterwards when the required enabling legislation was amended in parliament. This legislation finally passed through parliament in early 2001, with the number of proportional seats reduced to 40. Although this cleared the way for the elections to take place, the

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high-handed tactics used by the government to change the agreement with the IPA caused much resentment, and continues to cloud the future of democracy in Lesotho.

The legal system Lesotho’s legal system is based on Roman-Dutch law and is very close to that practised in South Africa. The judiciary is independent of the executive and the legislature and has generally been allowed to carry out its role effectively, even during the years of military rule. However, draconian internal security legislation gives considerable power to the police and restricts the right of assembly and some forms of industrial action. In 1997 legislation was passed creating the Independent Electoral Commission (IEC), which was to supervise the conduct of the 1998 election and all future elections. The reform was initially well received as a means of increasing transparency and fairness, but it has since come under increasing criticism. Following review by the IPA, the existing members of the IEC were removed in January 2000 and replacements were appointed in April—the new chairman of the IEC is Leshele Thoahlane, a former finance minister. The appointments were welcomed by the IPA and by all political parties.

Political forces

The BNP held power for a Modern party politics began with the formation of the Basotho Congress Party long time in 1952, which won the limited election in 1960. Its founder, Mr Mokhehle, was an outspoken opponent of apartheid and had close ties with the Pan- Africanist Congress of South Africa. The 1965 election, however, was won with a very narrow majority by the Basotho National Party (BNP), led by Chief Jonathan. The BNP had been created in the early 1960s, receiving strong support from the Catholic Church and, allegedly, the South African government. Other important parties at the time included the Marema Tlou Party (MTP), which had a very close relationship with King Moshoeshoe II and was formed in 1957. It eventually merged with the Basutoland Freedom Party to form the Marema Tlou Freedom Party (MFP).

From the mid-1970s to the 1980s, the BNP’s hold on power was virtually absolute. The government’s efforts at reconciliation failed, and opposition parties boycotted the 1985 election in spite of an official political amnesty. Under the Military Council, from 1986 to early 1991, political parties were banned, though for a while it seemed that the return to civilian rule would take the form of a grassroots movement. After the annulment of the 1970 election by Chief Jonathan, the BCP split into two factions, and Mr Mokhehle, following the failure of a coup allegedly perpetrated by his followers, fled the country in 1974. Under mounting domestic pressure, the military eventually agreed to a free and fair national election and Mr Mokhehle and other prominent BCP leaders were allowed to return from exile in 1991. Although 13 parties contested the March 1993 general election, the three parties that had been established the longest—the BCP (the winners with 54%), the BNP and the royalist MFP—won more than 90% of the popular vote in the election.

Main political figures

King Letsie III: Constitutional monarch from March 1990 to January 1995, then again after the death of his father, Moshoeshoe II, in January 1996.

Pakalitha Mosisili: Prime minister. Succeeded Ntsu Mokhehle as leader of the Lesotho Congress for Democracy (LCD) and won the 1998 election.

Tom Thabane: Foreign minister and a powerful LCD insider.

Major-General Metsing Lekhanya: Leader, since March 1999, of the Basotho National Party (BNP). Experienced politician who was a former head of government (1986-91) and chairman of the ruling Military Council.

Molapa Qhobela: Re-elected leader of the third-largest party, the Basotho Congress Party (BCP), at the party’s general meeting in January 2001.

Ts’eliso Makhakhe: Previous leader of the BCP, who continues to dispute the legitimacy of Mr Qhobela’s election.

Major-General Makhula Mosakeng: Head of the Lesotho Defence Force.

Billy Macaefa: leader of the increasingly powerful Lesotho Clothing and Allied Workers Union (LECAWU), which has announced its intention to form a political party to contest the next election.

The birth of a new ruling Internal tension within the BCP intensified in 1996, as a “pressure group” party in 1997 sought to replace the ailing Mr Mokhehle with new, more radical leadership. In June 1997, on the eve of party elections which were expected to oust him, Mr Mokhehle left the BCP and formed a new party, the Lesotho Congress for Democracy (LCD), taking with him all the cabinet ministers and about two- thirds of the sitting MPs. The rump BCP, now under the leadership of Mr Qhobela, failed in its legal challenge to prevent the new party from forming the government and Mr Mokhehle from continuing as prime minister. In preparation for the 1998 election, the LCD held its first national conference, at which Mr Mokhehle declined a request to continue as leader (he was, however, elected honorary life president). The deputy prime minister, Mr Mosisili, was elected party leader, easily defeating his only challenger, Kelebone Maope.

The LCD sidelines the IPA The main issue for democracy in Lesotho is for opposition parties to feel that they will gain a share of power to reflect their popularity. The challenge of creating an electoral system to address this issue has been the biggest faced by the Interim Political Authority (IPA). The IPA attempted to broker a com– promise between the government, which was resistant to any change in the electoral system, and the opposition parties, which have given vocal support to a system of proportional representation. By December 1999 it seemed that such a compromise had been reached, but the LCD-dominated parliament rejected the IPA’s proposal that 50 seats should be elected on a proportional basis. Ultimately, the government appeared determined to establish the sovereignty of parliament and, by extension, its own legitimacy, while at the same time sidelining the IPA.

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LCD is best placed to win Agreement on the election was finally reached in early 2001, and when the the election election takes place an LCD win is likely. Despite frequent rumours of impending splits between the conservative grass roots and the elite of the parliamentary leadership, the party has largely maintained its public unity. Problems in the two other main parties, the BNP and BCP, where factional splits have been frequent and very public, are much greater. In January 2001 the BNP secretary-general, Majara Molapo, called on the party leader, Justin Lekhanya, to resign, in explicit support of the prime minister’s view that Mr Lekhanya should play no part in public life because of his past role as leader of a military government. At the same time, the annual meeting of the BCP saw the continuation of a factional dispute between supporters of Ts’eliso Makhakhe and Molapo Qhobela. A vote at the meeting led to Mr Makhakhe being replaced as leader by Mr Qhobela, who had himself been replaced by Mr Makhakhe at a special meeting in 2000. However, Mr. Makhakhe’s supporters refused to accept the result, and its legitimacy is to be challenged in the courts.

In November 2000 the Lesotho Clothing and Allied Workers Union (LECAWU) announced its decision to form a political party to represent workers’ interests. For some time LECAWU had been looking for ways to gain political influence on behalf of its extensive membership. Its decision to form a separate party was attributed explicitly to disillusionment with the performance of the established political parties.

International relations and defence

South Africa is Lesotho’s external relations are dominated by its economic and geographic “big brother” dependence on South Africa, which completely encircles the country. Income from migrant mining workers in South Africa still accounts for a large share of GNP, and over 80% of imports originate in South Africa. Lesotho’s economic interdependence with South Africa has increased in recent years, as the massive Lesotho Highlands Water Development Project (LHWDP), the cost of which surpasses Lesotho’s present GDP, has come on stream. The LHWDP provides water to the central Gauteng area of South Africa, and its ongoing viability depends on the continuation of strong ties between the two countries. Lesotho is part of the Southern African Customs Union (SACU), which also includes Botswana, Namibia, South Africa and Swaziland (see Regional organisations).

Although political relations between the two countries have been difficult in the past, they improved markedly after the 1986 military coup, and diplomatic ties were officially established in 1992. In September 1994 the president of South Africa, Nelson Mandela, played an important role in persuading King Letsie III to restore the BCP government. Relations are not, however, without tension. Both countries are seeking ways to reduce crossborder crime, particularly the problem of cattle theft. Lesotho has also been upset by a number of unilateral decisions made recently by South Africa, which include: the authorities’ offer of permanent residence to qualifying Basotho migrant mine workers; the withdrawal of multiple-entry visas for Basotho travelling to and from South Africa; and the introduction of a border rebate system for

value-added tax (VAT). The Lesotho government welcomed the intervention of the then South African deputy president, Thabo Mbeki, in the post-1998 election impasse, and the subsequent assistance from the SADC military force in putting down a wave of popular protest. However, the opposition parties have vocally opposed this external intervention. In addition, the government has reacted badly to comments made by Tony Leon, leader of the opposition Democratic Alliance in South Africa, who referred to a conflict between the government and the IPA.

Lesotho and the SADC Lesotho has established diplomatic relations with over 70 countries. It is an active member of the SADC, within which it has taken responsibility for regional co-ordination in the areas of soil and water resources and tourism. Lesotho decided to leave the Common Market for Eastern and Southern Africa (Comesa) at the end of 1997 to focus its attention on the SADC. Lesotho has been a member of all the Lomé (now Cotonou) conventions between the EU and the African, Caribbean and Pacific (ACP) countries.

The army is small Lesotho has a small standing army of about 2,000 regular troops, the Lesotho but active Defence Force (LDF). This includes one air squadron. About 10% of recurrent expenditure is allocated to defence and internal security. The army has traditionally played an important role in the governance of the state, and assumed power between 1986 and 1993. Junior officers were also closely involved in the political unrest during late 1998, and 50 were court-martialled on charges of mutiny. In 2000 the majority of this number were found guilty.

However, the 1998 political crisis led the government to examine closely the role of the army, with the aim of reducing its political involvement. In March 1999 the government announced plans to retire about 200 soldiers and to review recruitment procedures, and in March 2000 several high-ranking officers were abruptly retired. The reforms were backed by Operation Maluti, in which soldiers from the LDF received training from the South African military. Similar reforms are also likely to be introduced into the police and national security services. After Operation Maluti it was revealed that a further 500 hundred troops were to be demobilised. The official reason was that they had not performed adequately during the training, but opposition parties alleged that this was a government attempt to staff the army with its own supporters.

Military forces, 2000 Army (no. of troops) 2,000 Defence spending (US$ m) 26 Source: International Institute for Strategic Studies, The Military Balance 2000/01.

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Resources and infrastructure

Population

Population indicators, 1998 Population (m; mid-year) 2.06 Population growth rate (%) 2.2 Crude birth rate (per 1,000 population) 35.0 Crude death rate (per 1,000 population) 12.0 Fertility rate (no. of births per woman) 4.86 Urbanisation (%) 23.0 Life expectancy at birth (years) 56.0 Source: UN Population Division.

In mid-1998 the UN estimated that the population of Lesotho was about 2.06m people. Population density is about 68 people per sq km. Most inhabitants are Basotho. There are small numbers of amaXhosa in the south- west of the country. There are some whites, mostly expatriates, and Asians, including Chinese businessmen. About 250,000 Lesotho nationals are normally resident in South Africa, and their number has tended to grow as job opportunities in South Africa increase and as families of mine workers with permanent-residence status opt to live there. Lesotho’s population growth rate is estimated at 2.2% per year. Fertility rates are declining, though they remain high, and this has begun to have a slight impact on the rate of population growth. The impact of HIV/AIDS remains uncertain, but estimates of its prevalence have increased rapidly in recent years. About 23% of the population lives in urban areas. These areas are growing by about 5.8% per year, owing to increasingly poor agricultural yields and a lack of alternative employment opportunities in rural areas. (See Reference table 1 for IMF population data.)

Education and health

Education Lesotho enjoys a high literacy rate for Sub-Saharan Africa: 82.3% of the population is literate, though the provision of education is barely able to keep up with demand. There has been no recent improvement in the availability of facilities, and pupil performance, measured by examination results, has been declining. A new Education Act was passed in 1996 to strengthen school management and to increase the effectiveness of inspection, and in April 1999 the World Bank announced a 12-year programme aimed at improving the quality of education and increasing the availability of educational facilities in Lesotho. Enrolment in primary education is still high for Sub-Saharan Africa, at 69%, but it has been falling in recent years. However, this trend was reversed in 2000 with the introduction of a policy of free primary education for new enrolments. The provision of vocational and technical post-secondary education has increased in recent years, but it is still insufficient. The very high pupil/teacher ratio, of around 70:1, remains a major problem. It has not been

helped by the new policy of free primary education, and additional resources provided by the government and financial support from UNICEF and the World Food Programme have so far been inadequate to cope with the demand. Annual enrolment in the single university, the National University of Lesotho, at Roma (near Maseru) is around 1,700 students.

Health The level of health is generally good, and the climate does not encourage tropical diseases. Life expectancy in 1998 was 56 years. However, waterborne diseases are spread by poor sanitation. Malnutrition also occurs, and was exacerbated by drought in the late 1980s and early 1990s. Primary healthcare in rural areas is being improved, and, according to the UN Development Programme, about 80% of the population enjoys access to health services, compared with 57% for Sub-Saharan Africa as a whole. The prevalence of HIV/AIDS has risen from almost no reported cases in 1992 to an estimated 236 cases per 100,000 people in June 2000. A study by the US Bureau of the Census has predicted that life expectancy in Lesotho will drop to 45 years by 2010 because of HIV/AIDS (the study assumed an infection rate of only 4.4 percent). In response, the government has implemented a prevention and control programme, and has embarked on a scheme for the rehabilitation and construction of screening clinics.

HIV/AIDS infection rates, Jun 2000 (% of population aged 15-49) Botswana 35.8 Côte d’Ivoire 10.8 Kenya 14.0 Lesotho 23.6 Malawi 16.0 Namibia 19.5 South Africa 19.9 Zambia 20.0 Zimbabwe 25.1 Source: UNAIDS, AIDS in Africa, Country By Country.

Natural resources and the environment

Lesotho is a predominantly mountainous country, on a high plateau which rises from 1,500 metres in the west to 3,350 metres in the east. Several rivers, among them the Orange/Senqu River, rise in the central plateau. Most of the population lives in the lower lands of the north-west, along the Caledon River, where the capital, Maseru, and most of the arable land are situated.

Lesotho’s ecology is Lesotho’s ecology is fragile because of its mountainous topography, the thin under threat soil layer and the limited vegetative cover. As a result of pressures on the land from human and animal activity, the country faces several major environmental problems: loss of topsoil, which is eroding agricultural productivity and

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has increased siltation in the Caledon River; increased gully erosion, which reduces the land available for cultivation; loss of tree cover, owing to excessive cutting for firewood and damage to saplings from animals; and loss of pasture because of overgrazing.

Transport and communications

Roads The road network has been developed substantially since the early 1970s, to improve communications with regional centres and to reduce some of the more remote areas’ dependence on routes through South Africa. There are nearly 800 km of tarred roads, which mainly link Maseru with Butha Buthe in the north and Mohale’s Hoek in the south. Roads into the interior have also improved, with the building of the Lesotho Highlands Water Development Project (LHWDP), and there are about 1,600 km of gravel roads of reasonable quality.

Railways Lesotho does not have its own railway system, but limited passenger and goods services are provided by the South African railway system, which extends to Maseru, just inside Lesotho.

Civil aviation As part of the government’s privatisation programme, Lesotho Airways, which was sold to a Johannesburg-based charter company, Ross Air, in August 1997, ceased operations and closed in early 1999. South African Airways continues to fly direct from Johannesburg to Maseru international airport, which is located south of the capital and is capable of handling medium-sized aircraft. There are 31 airstrips around the country, now served mainly by charter flights.

Telecommunications In recent years the telephone network has been extensively modernised and expanded. Connections grew by an average of 13% per year in the early 1990s, after years of stagnation. In 1997 about 28,000 telephones were in use (about 1.3 telephones per 100 people). However, by 2000 the accumulated backlog in lines awaiting connection was estimated at 20,000. Since June 1995 a cellular telephone service has been provided by Vodacom Lesotho (VCL), a joint venture between Lesotho Telecommunications Corporation (LTC) and South Africa’s Vodacom. LTC was restructured in 2000, and renamed Lesotho Telecom in the process. An agreement was then reached for a 70% stake in the company to be sold to a consortium, Mountain Communications, which, from June 2001, will have the right to a second cellular phone licence. Simul- taneously, the government agreed to sell its stake in VCL.

Media South Africa’s electronic and print media are widely available in Lesotho. There is an increasing number of independent newspapers, of varying quality and reliability. Most of them are critical of the government. Two of these are well- established weekly newspapers, Mopheme (The Survivor) and The Mirror. The Catholic and Evangelical churches produce weekly and fortnightly publications, respectively, and the Lesotho News Agency (LENA) provides a limited news service. The information ministry has indicated that an Internet

news service will be established eventually. The Lesotho National Broadcasting Service provides radio and television programmes in Sesotho and English.

Energy provision

Lesotho Highlands Water A major undertaking in Lesotho for the past 15 years has been the Lesotho Development Project Highlands Water Development Project (LHWDP). Started in 1986, the LHWDP is a joint venture with South Africa. It aims to provide water for South Africa— especially the rapidly growing urban population in Gauteng—and to meet Lesotho’s electricity needs. Water exports began in 1998; the revenue from these exports is now starting to figure in government budgets. The project is supervised by a statutory body, the Lesotho Highlands Development Authority (LHDA), and is funded by a wide range of public and private investors. The project has created an estimated 3,500-4,000 jobs so far, and has helped to improve rural infrastructure in the project area.

Energy balance, 2000 (m tonnes oil equivalent) Elec- Oil Gas Coal tricity Others Total Primary production 0.08a 0.00 0.00 0.08 0.40 0.48 Imports 0.15 0.00 0.06 0.00 0.00 0.21 Exports 0.00 0.00 0.00 0.00 0.00 0.00 Primary supply 0.15 0.00 0.06 0.08a 0.40 0.69 Losses and transfers 0.00 0.00 0.00 0.08 0.00 0.08 Transformation output 0.00 0.00 0.00 0.03b 0.00 0.03 Final consumption 0.15 0.00 0.06 0.03b 0.40 0.64

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

When the ‘Muela hydropower station opened in September 1998, Lesotho stopped being nearly entirely dependent on imported electricity from South Africa, and became self-sufficient. Fully operational in January 1999, the plant is generating 80 mw of power, but this may increase to 110 mw if Phase 2 of the LHWDP goes ahead. Even without this increased capacity, Lesotho now has surplus electricity production for its domestic needs, and may export electricity to South Africa. However, the cost of electricity from ‘Muela is high compared with prices in South Africa. An EU-supported study of the prospects for privatising the plant is to be undertaken this year. At the very least, the government is committed to running the plant as a commercial entity separate from the rest of the LHDA. The energy distribution network is extensive and the reliability of the power supply is high, but because of problems with the operations of the distributor, Lesotho Electricity Corporation (LEC), there is a severe backlog of consumer connections. In early 2001 a private management company was appointed to handle operations at LEC, with a view to preparing it for privatisation in 2002. The government also supports solar energy projects designed to meet some of the needs of rural areas.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Lesotho 57

The Lesotho Highlands Water Development Project

Phase 1A: This phase was completed at end-1997, at a cost of about US$2.5bn. The centrepiece of Phase 1A is the Katse dam, which, at 185 metres, is Africa’s highest dam. The dam had filled by January 1997 and was officially opened in January 1998. Current water-flow capacity is 18 cu metres per second. Phase 1A also included a smaller dam and an 80-mw hydropower plant at ‘Muela. This started generating electricity in September 1998, and became fully operational in January 1999.

Phase 1B: This phase has now begun and is expected to be completed in 2003. It will cost an estimated US$1.1bn and includes the construction of the 145-metre-high Mohale dam, a smaller dam on the Matsoku River and 40 km of interconnecting tunnels. This phase is expected to raise total water-flow capacity to 30 cu metres per second.

Phases 2-5: The governments of Lesotho and South Africa have begun negotiations on Phase 2 of the project. Along with all subsequent phases, this phase is open to major revision. Forecasts for water demand in South Africa’s Gauteng region need to be adjusted to take into account recent developments, including the impact of the HIV/AIDS epidemic. In addition, the extension of the Lesotho Highlands Water Development Project is not necessarily the lowest-cost option for meeting additional demand for water: alternative sources of supply exist in South Africa and, possibly, in the Democratic Republic of Congo; and agreement from the Government of Namibia, which holds rights on the use of the Orange river, would also be required. If all the phases go ahead, they are expected to be complete by 2020, boosting total water flow to 70 cu metres per second and total electricity output to 200 mw.

The administration of the project has drawn allegations of corruption. In 1995 an investigating committee concluded that the executive director of the Lesotho Highlands Development Authority (LHDA), Masupha Sole, was guilty of misusing funds. Subsequent investigations have implicated international construction companies in making payments to influence the award of tenders. A trial opened in May 2000, and the stakes are high; the accused wish to maintain their previously good reputations, while the Lesotho government and the World Bank, which was heavily involved in financing the project, are committed to demonstrating publicly that they will not tolerate corruption.

The economy

Economic structure

Main economic indicators, 2000

Real GDP growth (%) 2.5 Consumer price inflation (av; %) 6.2 Population (m) 2.16 Current-account balance (US$ m) –154 Total external debt (US$ m) 700 Average exchange rate (M:US$) 6.94 Source: EIU.

A poor but fast-growing Lesotho is one of the world’s poorest countries, with GDP per head estimated country at just US$408 in 2000. It remains heavily dependent on remittances from migrants working in South African mines, though the number engaged in this activity has fallen dramatically in recent years. However, the country’s economic prospects are slowly being transformed by the exploitation of its

rivers to sell water and, in the future, hydroelectric power to South Africa. That said, there are other short-term problems, apart from the fall in remittances from migrant workers. A sharp contraction in GDP occurred in 1998 as a result of the destruction associated with a failed army mutiny; at the same time, the construction boom caused by the first phase of the Lesotho Highlands Water Development Project (LHWP) ended. Agricultural production is erratic, and there have been serious droughts in recent years. Only about 13% of the land area is suitable for crop cultivation, and agriculture’s share of national output has declined to around 10% because of serious soil erosion caused by population pressure and overgrazing. Mining declined after the closure of the main diamond mine in 1983, but the mine has now reopened, and there are signs of further positive developments in the sector. Other sectors have been growing rapidly thanks to a favourable tax regime and trading arrangements. The most notable development has been the growth of export-oriented manufacturing, led by the clothing and footwear subsector selling into the South African and US markets. Until recently, growth in construction has been double that of manufacturing. However, this growth was strongly related to the LHWDP and has now levelled off, though some renewed growth occurred in 1999 because rebuilding was necessary after the destruction caused in 1998.

Comparative economic indicators, 2000

Lesotho Botswana South Africa Namibia Swaziland Zimbabwe GDP (US$ bn) 0.88 5.67 124.6 3.47 1.22 7.09 GDP per head (US$) 408 3,540 2,845 2,005 1,262 591 Real GDP growth (%) 2.5 6.0 3.1 4.0 2.4 –6.1 Consumer price inflation (av; %) 6.2 8.6 5.3 9.1 6.4 55.7 Current-account balance (US$ m) –154 397 –1,391 85 47 –126 Merchandise exports fob (US$ m) 201 2,700 30,209 1,400 881 1,708 Merchandise imports fob (US$ m) 700 2,036 27,394 1,611 928 1,329 Source: EIU.

Economic policy

A history of state Between 1969 and 1988 Lesotho’s economic policy was governed largely by intervention four successive national development plans. Under these plans, the state took a leading interventionist role in the economy with regard to employment creation, the development of economic infrastructure and the diversification of the economy. To achieve these goals, the Lesotho National Development Corporation (LNDC) was established in 1967. Aid flows increased sharply between 1976 and 1984, and the reduction of the country’s economic dependence on South Africa became a major secondary objective.

Structural adjustment With support from the IMF, a structural adjustment programme (SAP) was launched in 1988. The programme sought to increase the efficiency of the public sector and to improve the private-sector environment through tax reform and streamlined investment incentives. Lesotho broadly met the programme targets set by the Fund. A privatisation programme has been

adopted and the first sales of public enterprises were carried out in 1997. Progress on privatisation has been slow—often because of a lack of demand, rather than government bureaucracy—it has still progressed favourably in comparison with other countries in the region. The main development in 2000 was the agreement to sell a 70% share of Lesotho Telecom (formerly Lesotho Telecommunications Corporation, LTC). Progress was also made in establishing a unit trust to make ownership of shares in privatised businesses more accessible. During 2001 the management of Lesotho Electricity Corporation (LEC) was contracted out, with the aim of preparing the corporation for privatisation in 2002.

The government entered into a nine-month programme of policies, monitored by the IMF, in 2000. The programme was not supported by financial resources, but was intended to pave the way for a medium-term programme of support under the Fund’s poverty reduction and growth facility (PRGF). As well as making progress on privatisation, the programme included measures to strengthen the financial sector and to improve the government’s revenue base. Performance under the programme was deemed satisfactory, and in March 2001 it was announced that a three-year PGRF had been agreed, with the Fund committing resources of about US$32m. This builds on the measures taken as part of the 2000 programme, with particular emphasis (as well as achieving various quantitative financial targets) on improving government implementation capacity. The government produced an interim poverty reduction strategy paper (I-PRSP) in preparation for the programme, and is committed to producing a full PRSP including developing institutional capacity to implement programmes aimed at poverty reduction.

Fiscal policy Since the late 1980s significant progress has been made in diversifying revenue and in keeping expenditure under control. The fiscal balance was in deficit by the equivalent of 18% of GDP in 1988/89 (April-March), but between 1992/93 and 1997/98 it was in surplus. However, budgetary pressures on revenue and expenditure, coupled with the effects of the 1998 unrest, have reversed this, and a budget deficit of 2.3% of GDP was recorded in 1998/99. In 1999/2000 the deficit was 16.2% of GDP, according to IMF data, though this included exceptional factors, notably the cost of recapitalising Lesotho Bank prior to privatisation. In 2000/01 the projected deficit is much lower, at 3.9% of GDP. Under the programme agreed with the IMF it is targeted to become a modest surplus by 2003/04 (although without assistance from grants, equivalent to about 4% of GDP, it will still be in deficit).

A sales tax was introduced in 1982. Income tax administration has been strengthened. The top rate of income tax has been lowered to 35%, and a double-taxation agreement was signed with South Africa in 1996. A flat rate of corporate tax of 15%, introduced in the same year, improved incentives and increased collection. Dependence on revenue from the Southern African Customs Union (SACU) has been gradually reduced, from over 75% of total revenue in the early to mid-1980s to just under 50% in recent years. However, as a result of recent negotiations on the future of the SACU this source of income is likely to decline considerably in the coming years. In response to this, the government is committed to further strengthening tax admin-

istration, and the establishment of a new National Revenue Authority is a major structural benchmark in the IMF programme for 2001. A programme is also under way to introduce value-added tax (VAT) as a replacement for the existing sales tax at the start of the 2002/03 fiscal year.

Summary of government finances, 1999/2000 (M m; fiscal year Apr-Mar)

Receipts 2,442.7 Revenue 2,312.7 Grants 130.0 Expenditure 2,786.7 Balance –344.0 Source: Central Bank of Lesotho.

Civil servants’ wages account for the majority of recurrent expenditure, though the category has been in decline since the mid-1990s—when it accounted for 50% of total recurrent expenditure—and now represents less than 40% of the total. Increases in capital expenditure have been limited by fiscal constraints and by weaknesses in the government’s capacity to implement projects. (See Reference tables 2 and 3 for data on government finances.)

Monetary policy The 1974 Common Monetary Area (CMA) agreement, which was revised in 1986, provides access to the South African capital market for the Lesotho banking system. The local currency, the loti (plural maloti), was introduced in 1979, and the Central Bank of Lesotho (CBL) was created in 1982. Since 1988 government policy has focused on expanding credit to the private sector. Growth in the manufacturing, services and construction sectors caused strong private-sector demand for credit during most of the 1990s. In contrast, between 1992 and 1997, claims on central government were reduced sharply, as the government ran budget surpluses and was a net saver with the domestic banking system. Interest-rate movements are tied closely to developments in South Africa because of Lesotho’s membership of the CMA (renamed the Multilateral Monetary Agreement in 1992). In the 1990s interest rates remained positive in real terms, and, until recently, were slightly higher than in South Africa. The Central Bank of Lesotho (CBL) is taking measures to improve methods of bank supervision and to modernise the payments system. In 2001 the CBL is scheduled to establish a system for Treasury bill auctions for liquidity control purposes. (See Reference table 4 for data on money supply.)

Economic performance

Gross domestic product (% real change) Annual average 1999 2000a 1996-2000 GDP 2.0 2.5 3.4

a Projection.

Source: Central Bank of Lesotho.

In the 1980s real GDP grew by an average of 4.2% per year, while real GNP grew by an average of 3.4%, owing to a decline in the rate of growth of migrant earnings. Manufacturing and services fuelled growth in the late 1980s and early 1990s. In the mid-1990s growth was driven by construction of the Lesotho Highlands Water Development Project (LHWDP), which also caused the sharp fluctuations in the growth rate from year to year. Real GDP growth averaged 3.4% per year in 1996-2000, though this was influenced heavily by a sharp contraction in the economy in 1998 following political unrest in that year. Before work commenced on the LHWDP, the GDP/GNP ratio was about 50%. However, the ratio has risen sharply in recent years, to around 80%. (See Reference tables 5-8 for data on GNP and GDP.)

Miners’ remittances Remittances from abroad are still an important contributor to national income, remain vital and migrant labour in South Africa is still the most important source of wage employment for Basotho. Private consumption growth in Lesotho is, in turn, driven partly by wage developments in the South African mines, and by the extent of the resulting remittances. In 1995 the economically active and employed population was estimated at about 653,000; migrant workers accounted for about 15% of this total. About 25% of mining workers in South Africa are Lesotho nationals, but the numbers employed have fallen from a high of 127,000 in 1989 to only 65,000 in September 2000. This decrease is mainly the result of the declining profitability of the gold mines, which absorb about 80% of Basotho migrants. During 2000 there were tentative reports of some recovery, owing to stabilisation in the gold market and positive developments in other mining activities. (See Reference table 9 for information on migrant miners’ pay and remittances.)

Employment creation Job creation in Lesotho’s small formal sector has been a policy priority since the 1980s, but has been disappointing. Up-to-date statistics are not readily available, but only about 2,000 new jobs are thought to be created every year. It is estimated that the active population is increasing by over 20,000 per year, which does not include the numbers of laid-off migrant mineworkers. Using information derived from the 1997 Labour Force Survey, the Central Bank of Lesotho estimated that in 1999 the unemployment rate was 42% of the economically active population. In the 2000 budget speech it was estimated that 40,000 jobs need to be created every year if unemployment is to be reduced significantly; and that this would require GDP growth rates of 8-10%. In contrast, the programme agreed with the IMF in March 2001 targets GDP growth of only 4% by 2003. Although the LHWDP has helped to create employment, it has not compensated for the sharp fall in mining jobs in recent years. One of the largest sources of new jobs, the textiles and footwear sector, is estimated to have employed 21,000 people at the end of 1999, and had been creating about 1,000 jobs per year. After a period of uncertainty following the 1998 unrest, interest in this sector appears to be reviving and several major investments are reportedly in the pipeline. There is justifiable anticipation that major opportunities will arise in the US market, owing to the 2000 Africa Growth and Opportunities Act (AGOA). The government is the single largest employer, but is committed to curbing the growth of public-sector employ– ment in the face of budgetary pressure. In 1999 growth in government

employment was negative. Real income growth in the formal sector has been very slow, and new manufacturing employment has been predominantly low- wage, low-skill jobs in the textiles, clothing and leather industries.

Inflation Inflation in Lesotho, as in many of the smaller countries surrounding South Africa, is influenced strongly by the South African inflation rate. In particular, the movement of the rand against major trading currencies has a strong bearing on price movements in Lesotho, because the loti is pegged at par with the rand. Inflation halved between 1992 and 1994, during which time it fell into single digits for the first time in ten years. After a slight increase in 1999, when inflation averaged 8.7%, the rate fell to an average of 6.2% in 2000. While there were upward inflationary pressures due to increased fuel prices, these were offset by low rates of increase in food prices. Inflation in South Africa was generally higher in 2000, which may lead to increase inflationary pressures in Lesotho during 2001. (See Reference table 10 for data on the consumer price index.)

Inflation (av % change, year on year) Annual average 2000 1996-2000 Consumer prices 6.2 8.0 Source: Bureau of Statistics.

Economic sectors

Agriculture, forestry and fishing

Agriculture is in decline Estimates for 1999 show that agriculture provided employment for about 57% of the domestic labour force. Of this number, the vast majority is engaged in subsistence farming. However, the sector’s share of GDP has fallen from 50% in 1973 to about 15% in recent years. Poor soil quality, erosion and unpredictable weather conditions have negatively affected potential agricultural output. Around 13% of the land is now suitable for arable production. The agricultural year runs from August to July; winter wheat and peas are harvested in the first half of the year, and maize, sorghum and beans are harvested in the second half. Yields increased in the mid- to late 1990s, but production levels varied widely depending on rainfall, and the country has tended to rely heavily on imported cereals. Despite some expectations for a good harvest, production remained low in 1999/2000, with the areas planted for sorghum and maize declining by 6%. The destruction of farm equipment during the 1998 unrest has been a factor in this decline. Further falls in output have been projected for 2000/01. The government hopes to enhance the fortunes of the sector by continuing with the liberalisation of farm pricing arrangements, and by encouraging diversification into non-traditional crops for export, such as asparagus, fruit or flowers. As part of a World Bank-sponsored agricultural

sector adjustment programme, the government is committed to a privatisation programme for agricultural parastatals.

Production of major crops, 2000/01a (‘000 tonnes)

Maize 123.4 Wheat 53.4 Sorghum 20.5

a Estimates.

Source: Lesotho National Early Warning Unit.

Livestock Livestock provides a significant proportion of rural income. Much of Lesotho’s terrain is well suited to animal husbandry, though the sector suffers from poor and declining animal quality and disease control, as well as droughts. However, cattle imports, financed out of the savings of migrant workers, have generally been increasing, partly offsetting declines in the domestic stock. An abattoir provides capacity for meat exports to the regional market. Lesotho also exports wool and mohair, which are generally deemed to be of high quality. In 1999 the national livestock population was estimated at 2.6 million, a slight increase from the previous year. At 37% of this total, sheep represent the largest number. (See Reference table 11 for estimated livestock numbers.)

Forestry and fishing The area planted with forest trees (mainly eucalyptus species) in Lesotho is estimated at only 874 ha, mostly in a single development under the auspices of the Ministry of Agriculture. Fish production in Lesotho is negligible. River trout are fished for sport, and some carp and other freshwater species are used in village fishpond projects.

Mining and quarrying

Diamonds Diamonds are the principal mineral of commercial value in Lesotho. Until 1976, production, largely from small diggings, averaged 9,000 carats per year. In 1977 the Letseng-la-Terae open-cast mine was opened by a South African mining company, De Beers. Output, mostly of large, high-quality gemstones, reached 105,200 carats in 1980, and diamond sales accounted for 55% of Lesotho’s exports. Operations ceased in 1983 when, because of falling world diamond prices, the Lesotho mine was no longer viable. Digging co-operatives continued to mine low-grade diamonds. However, in November 1999 the Letseng-la-Terae mine was officially reopened under new ownership, with a government holding of 24%, with production scheduled to resume when the infrastructure has been rehabilitated. The government is also reported to be considering proposals from two Canadian companies to open diamond mines.

Other minerals In the absence of substantial diamond mining, the contribution of the mining sector has been very low, at less than one percent of GDP in the late 1990s. In 1998 and 1999 output fell because the quarrying business was hit by the civil

unrest in 1998. Minor deposits of coal, galena, quartz, agate and uranium have been identified, but are believed to be of little commercial value. Lesotho does, however, possess deposits of clay, which are being exploited for the manufacture of bricks, high-quality ceramic ware and tiles.

Manufacturing

Manufacturing has increased its share of GDP at factor cost from 8% in 1980 to 17% in 1999. Most of this increase was due to the expansion of the textile, clothing, footwear and leather sub-sectors. The sector contracted in 1998 after the political unrest, but started to grow again in 1999. Early indications are that growth in 2000 was strong, and the government continues to expect much from the sector as a source of future output growth and employment creation. It was reported early in 2001 that the supply of factory space was insufficient, and the government is now committed, despite budgetary constraints, to funding the provision of the necessary infrastructure. Manu- facturing is targeted mainly at the export market, with exports of manufactures growing by 71% between 1995 and 1999. The US market has been particularly important, and, owing to exports of clothing and footwear, now accounts for nearly half of Lesotho’s total exports. This trend is expected to continue, with the passage in 2000 of the US Africa Growth and Opportunities Act (AGOA), which allows duty-free access for African textile exports. The Central Bank of Lesotho has estimated that the sector employed a total of 21,000 people in 1999. Of this total, about 19,000 were employed by firms which are joint ventures between the Lesotho National Development Corporation (LNDC) and foreign investors from East Asia, notably Taiwan, Hong Kong and Singapore. In early 2001 the LNDC reported that this number had risen to 23,500. Other companies are involved in the production, for export, of handicrafts, furniture, pottery and tapestries, or in import substitution for products such as bricks, candles, beer and beverages, canned foods and bread and milled products.

Construction

In the second half of the 1990s building and construction contributed about 20% of GDP at factor cost; until the mid-1970s this figure had been only 5-6%. Expansion in the sector began in the 1980s, with the construction of roads and commercial buildings financed largely by the LNDC on the back of rising migrant incomes and the availability of loan finance. This growth picked up further in the 1990s, as a result of the LHWDP. Output declined in 1998—as it did in other sectors—because of the political unrest, but the resulting need for rebuilding led to a rebound in 1999. Government-related construction activity is the main source of growth in the sector, reflecting potential investors’ caution following the 1998 upheaval and the consequent political uncertainty. The government is committed to further spending on infrastructure, such as roads, and servicing industrial areas. However, as part of the programme agreed with the IMF, only projects that are considered to be economically viable and

consistent with development priorities will be funded. This will limit the scope for increased construction activity.

Financial services

Structural changes in the Lesotho has a number of commercial banks and specialised financial banking sector institutions. Overall supervision is provided by the Central Bank of Lesotho (CBL). The commercial banking sector in Lesotho has recently undergone some major changes. In 1999 the government largely privatised the state-owned Lesotho Bank. This was recapitalised, and its deposits and performing loans were taken over by Lesotho Bank (1999), 70% of which was sold to South Africa’s Standard Bank Investment Corporation (Stanbic). The remaining 30% shareholding is to be sold off by the government, and the liquidation of the non-performing loans of the original Lesotho Bank is scheduled for completion by mid-2002. The liquidation of the Lesotho Agricultural Development Bank (LADB), which was closed down in 1998, was completed in 2000. As well as dealing effectively with inefficient financial institutions, a programme of measures is under way to improve the efficiency of banking supervision, the national payments system and the implementation of monetary policy. This has been underpinned by the passage of a new Financial Institutions Act in 1999 and a Central Bank Act in 2000. The structural reform programme agreed with the IMF includes various benchmarks relating to the continued reform of the financial sector. Central to this is the introduction of a system of Treasury- bill auctions. This is scheduled for 2001, and is explicitly for the purpose of monetary control, the government not having any access to funds raised from such sales. Financial services contribution to national output declined during the 1990s, and was only 3.5% of GDP at factor cost in 1999. However, the programme of restructuring is expected to improve the sector’s performance. (See Reference table 12 for commercial banking statistics and Reference table 13 for details of the main interest rates.)

It is generally recognised that the existing institutions do not provide sufficient financial services for a large part of the population, particularly in rural areas. The institutions that exist in these areas mainly provide finance for consumption and burials. Direct provision of development finance services by the central bank was terminated in the mid-1990s owing to operational difficulties. However, the CBL is explicitly committed to expanding its involvement in rural intermediation, and in 2001 it held a workshop to discuss a blueprint for making progress in this area.

Non-bank financial The state-owned Lesotho National Development Corporation, and its sister institutions organisation, the Basotho Enterprises Development Corporation (Bedco), provide industrial credit and a range of other services. Insurance services are provided by several brokers and by South Africa-based insurance companies, with strong emphasis on life policies. As part of its privatisation programme the government has been divesting its interests in insurance businesses. In 2000 the newly restructured Lesotho Bank sold 31% of its 51% shareholding in

Minet Kingsway. The 20% still held by the bank was reserved for future sale to Lesotho nationals.

Other services

Tourism Tourism, though a small sector, has been actively promoted by the LNDC, and a number of hotels, mountain lodges and national parks have been developed. The LHWDP has helped the development of the sector by improving access to the mountains, and the LNDC has plans to develop a major ski resort and casino complex in the area. The recent unrest will have led to a downturn in the number of visitors in 1998 and 1999, but the long-term prospects remain good. In 1999 the Maluti Tourism Forum was established to promote tourism not only in Lesotho but also in South Africa’s Free State and Northern Cape provinces. In July 2000 the Lesotho Tourist Board ceased operations, which had been mainly promotional in nature. It is intended that a Tourism Develop- ment Corporation, as provided for in the proposed Tourism Development Bill, will replace it. The bill seeks to establish a legal and institutional framework, based on international standards, conducive to the further development of tourism in Lesotho. It provides for the establishment of tourism development zones and for schemes for financial assistance for the industry. The role of the new corporation is seen as similar to that played by the LNDC in supporting industrial development.

Wholesale and retail trade During the 1990s the wholesale and retail sector averaged about 8-10% of GDP at factor cost. A range of business and retail services are available, concentrated heavily in the Maseru area where the main market is located. Many items are also bought directly from South Africa, either just across the border from Maseru in Ladybrand, or further away in Bloemfontein. The sector was a major casualty of the unrest of 1998; shops became a main target for rioters, who associated them with foreign interests. It was estimated that between 4,000 and 6,000 retail jobs were affected by the unrest. While there were some signs of a return to normality in 1999, it is estimated that output declined by about 5%.

The external sector

Trade in goods

Foreign trade, 1999 (M m)

Exports fob 1,054 Imports fob –4,761 Trade balance –3,707

Structural trade in deficit, Source: Central Bank of Lesotho.Despite recent growth in exports, there is a though exports are rising strong structural imbalance in external trade. Between 1969 and 1998 the trade

deficit grew in absolute terms every year, though it has been decreasing in real terms since 1992. In 1998 the gap narrowed as imports fell back while exports continued to grow rapidly. Allowing for some year-on-year variation this trend should continue. (See Reference table 14 for a breakdown of foreign trade statistics.)

Exports have increased rapidly since 1986, supported by growth in manu– facturing exports following the establishment of new export-oriented industry. The rate of growth has slowed since 1993 but it has still been rapid, with manufactured exports increasing by more than 70% during 1995-99. This new manufacturing capacity has transformed the export profile—which was once dominated by diamonds, wool and mohair—with the result that textiles and footwear exports have accounted for about 70% of total exports in recent years. Subject to social stability being maintained, prospects for further growth in this area appear good. The passage of the AGOA in 2000 is expected to provide good opportunities in Lesotho.

Export destinations The new export trade has helped to diversify Lesotho’s export markets, to the are diversifying extent that South Africa is no longer by far the largest export destination. In 1985 exports to countries in the Southern African Customs Union (SACU, dominated by South Africa) accounted for 87% of Lesotho’s total exports, but by 1999 this figure was only 52%. Sluggish demand in South Africa led to a fall in exports to the SACU compared with 1998, but exports to the US grew by 43%, resulting in its share of Lesotho’s total exports reaching 47% in 1999. Lesotho has benefited from Asian textile manufacturers’ relocation of their operations to take advantage of the preferable terms Lesotho enjoys, and to avoid the quota restrictions which apply to exports from some countries. The slowdown in the US economy in 2001 may slow this growth, but there are opportunities for significant further expansion in the medium term, especially as Lesotho has gained a reputation for efficient production in the textiles subsector. Imports from Asia have also increased, because Asian firms in Lesotho have bought significant amounts of raw materials from their home countries, notably Taiwan, Hong Kong and Singapore. After a surge in the early 1990s, when it reached over 9% of the total, the share of exports destined for the EU has declined to an insignificant level. (See Reference tables 15 and 16 for details on origin of imports and destination of exports.)

Main trading partners, 1999a (M m)

Exports fob to: Imports cif from: SACU 546.0 SACU 4,009.1 US 480.6 Asia 711.4 EU 2.4 EU 167.7 Asia 2.2 US 84.2

a Projections.

Source: Central Bank of Lesotho, Annual Report .

Invisibles and the current account

Remittances are important The structural trade deficit is offset to a large extent by workers’ remittances from South Africa. However, remittances have followed a downward trend since the 1990s, and net labour income as a proportion of imports has fallen from 35-40% to around 30% in recent years. This has been countered in part by growth in net investment income receipts. Current transfers—mainly SACU receipts and grant-aid inflows—also make a positive contribution, but this has also been diminishing, not least because of a decline in SACU revenue receipts. Revenue from the LHWDP began to trickle in during the 1996/97 fiscal year (April-March) and will grow in importance in the coming years. However, it is not anticipated that such receipts will exceed the costs of imports associated with the project until 2002/03. According to the IMF’s most recent estimates, the current-account deficit stood at M1.28bn (US$185m), or 22% of GDP, in 1999/2000. However, the deficit is following a declining trend—it was 35% of GDP in 1997/98—and is targeted to fall further in the three-year duration of the IMF-supported programme. (See Reference table 17 for national estimates and Reference table 18 for IMF estimates of the balance of payments.)

Aid Net official development assistance (ODA) was US$31.1m in 1999, continuing on a downward trend. Aid per head fell to US$12 in 1999, compared with US$76 in 1992. Multilateral sources accounted for just over one-quarter of net receipts in 1999; the International Development Association was the largest single donor, with a contribution of US$8.1m. Ireland was the largest bilateral donor, contributing US$7.5m in 1999, followed closely by Germany and the UK. ODA loans, as opposed to grants, have risen to about one-third of aid receipts. This indicates a hardening of the terms of assistance to Lesotho, though the terms are still highly concessional. (See Reference table 19 for data on aid disbursements.)

Net official development assistance, 1999a (US$ m)

Bilateral 25.7 of which: Ireland 7.5 G e r m a n y 5.0 U K 4.4 Multilateral 6.6 of which: International Development Association 8.1 E C 1.4 UN Development Programme 1.3 Total 31.1b

a Disbursements minus repayments; official development assistance is defined as grants and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country; IMF loans, other than trust fund facilities, are excluded, as is aid from the Eastern bloc. b Includes Arab states.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Capital flows and foreign debt

The LHDWP boosts long- Net inflows of long-term capital have resulted in a consistent surplus on the term capital flows financial account of the balance of payments, which until 1999 was sufficient to maintain a surplus on the overall balance of payments. These inflows, which mainly reflect direct investment associated with the Lesotho Highlands Water Development Project (LHWDP), showed a sharp fall from M1.5bn in 1998 to M830m in 1999. This decline reflects the lower costs associated with Phase 1B of the project, which began in 1998. This should be offset to some extent by the financing of government capital spending in other sectors, but the government is constrained by its commitment, under the agreed IMF programme, to restrict external finance to grants and concessional loans. The government’s medium-term strategy aims to attract significant private-sector foreign direct investment. Achieving this will be a major challenge. Although it has increased in recent years, private investment has been modest compared with official capital inflows; even with rapid growth in the 1990s, it has not accounted for more than 10% of the total. It is also sensitive to the economic climate, and investor confidence was shaken badly by the unrest in 1998. This is indicated by the Central Bank of Lesotho’s estimate that capital flight equivalent to about 1% of GNP occurred in the final quarter of 1998. Some positive signs were reported during 2000, with several investments said to be in the pipeline. However, investor confidence will remain fragile until an atmosphere of social stability is firmly re-established.

Debt According to the most recent data from the World Bank’s Global Development Finance, total external debt stock in 1999 was US$686m, equivalent to 62% of GNP. The debt-service ratio, at 9.4% in 1999, remains low and is expected to fall in future.

External debt, 1999 (US$ m unless otherwise indicated)

Public & publicly guaranteed long-term debta 661.8 Official creditors 605.9 Multilateral 485.3 B i l a t e r a l 120.6 Private creditors 55.9 of which: commercial banks 47.3 Short-term debt 7.4 Use of IMF credit 17.1 Total external debt 686.4 Debt service 44.6 Ratios (%) Total external debt/GNP 61.8 Debt-service ratio, paidb 9.4

a Maturity of over one year. b Total debt service as a proportion of exports of goods and services.

Source: World Bank, Global Development Finance.

In 1999 concessional lending constituted almost 70% of total long-term debt. However, average terms have been hardening as a result of increasing recourse to IMF facilities. As part of the IMF programme agreed in March 2001, the government has made a commitment not to borrow on non-concessional terms. (See Reference table 20 for a breakdown of external debt, and Reference table 21 for data on disbursed public external debt outstanding.)

Foreign reserves and the exchange rate

According to the IMF, total reserves (excluding gold) have increased sharply since 1990, after several years of erratic movement. At the end of 1998 total reserves stood at US$575m, providing just over six months of import cover. However, there was some decline during 1999 and 2000, reflecting emerging balance-of-payments pressures. At the end of 2000 reserves stood at US$418m. (See Reference table 22 for data on foreign reserves.)

Lesotho used the South African rand until December 1979 when a new currency, the loti, was introduced. The loti, made up of 100 lisente, is at par with the rand and is freely exchangeable with it. Both currencies are accepted as legal tender in Lesotho. In South Africa the loti is legally convertible without charge. The loti has continued to depreciate against all major trading currencies because of economic developments in South Africa. The rand, and hence the loti, experienced particularly sharp falls against the major currencies, led by the dollar, in 1996, in the second half of 1998 and in the first half of 2000. (See Reference table 23 for exchange rates data.)

Appendices

Regional organisations

Organisation of African The OAU was founded in 1963 by 30 African nations to promote solidarity and Unity (OAU) higher living standards, to defend the sovereignty of member states, and to eliminate colonialism. Another 21 signatories have since joined, the last being South Africa in 1994. Morocco left in 1985. The OAU is committed to creating an Africa-wide customs union and to removing tariff and non-tariff barriers by 2004. The organisation has been criticised for lacking effectiveness—little real action results from its policy decisions—and has been hampered for years by severe budgetary problems. The General Secretariat has a budget of roughly US$30m and is headquartered in Addis Ababa, Ethiopia, with ten sub-regional offices and missions abroad in Banjul, Conakry, Cairo, Lagos, Nairobi, Niamey, Yaoundé, Brussels, Geneva and New York. The General Secretariat is headed by the secretary-general, currently Salim Ahmed Salim, who is appointed for a four-year term. The foreign ministers of member states meet twice a year to discuss the implementation of the organisation’s accords. The issues raised are dealt with at the annual assembly of heads of state, which meets in June or July. The annual conference is hosted by the member state that is due to hold the chairmanship of the organisation for the next year. The 2000 conference took place in Togo, where the Togolese president, Gnassingbé Eyadéma, assumed chairmanship of the organisation. There have, in addition, been three extraordinary conferences of heads of state; the first was in 1970 to discuss the Angolan crisis; the second, in 1980, sought to address the continent’s economic problems; and the third, in 1990, attempted to address the problem of African debt.

The OAU is committed to the creation of an African economic community (AEC) according to the Lagos Plan of Action drawn up in 1980. Originally this was scheduled to be in place by 2000, but at the 27th summit of heads of state in Abuja, Nigeria, in June 1991, this target was postponed to 2025. The AEC treaty, signed at the summit, outlined six stages, including the removal of tariff and non-tariff barriers to trade and the establishment of a continent-wide customs union by 2004. A commitment was also made to establish an African common market, with a central bank and single currency, by 2031. The annual summit meeting in Togo in July 2000 agreed to the formation of the African Union, to replace the OAU, which would enter into force one year after ratification by two-thirds of member states.

The possibility of establishing a military force to observe and monitor ceasefires negotiated by the OAU has been raised. Although no agreement to deploy peacekeeping forces has been reached, the organisation has agreed to send observer missions. Conflict resolution has come to dominate the annual summit of heads of state since the mid-1990s, amid the crises in the Great Lakes, the Democratic Republic of Congo, Somalia, Sierra Leone and Ethiopia and Eritrea. Although the OAU did not intervene directly during the Rwandan genocide in 1994, it was the only international institution to quickly recognise

the gravity of the situation and to condemn events openly at an early stage. In 1996 the OAU agreed to impose sanctions on Burundi, following a military coup, although an earlier proposal to send a military force was never implemented. Since 1999 the OAU has become involved in mediation in the conflicts in Somalia, Ethiopia and Eritrea, Comoros and the Democratic Republic of Congo, where seven member states are involved as direct combatants. The OAU’s Council of Ministers endorsed President Patrick Chiluba of Zambia as mediator in the conflict in 1999; under his guidance a framework peace agreement, the Lusaka Accord, was negotiated in July 1999, and numerous summits have been held to attempt to bring the various parties to an agreement. The attempted secession of Anjouan island from Comoros is another area of activity for the OAU, which imposed sanctions on the secessionists in 2000 and has threatened to intervene militarily.

Any move to step-up OAU activity is hampered by the organisation’s severe budgetary problems. In November 1995 the ten worst debtor countries, owing US$16.5m between them, were barred from speaking or voting at any OAU meeting. By 1999 this was reduced to eight countries, although additional sanctions were imposed which refused nationals from these countries the right to work at the General Secretariat. The return of the countries’ full rights is conditional upon the payment of a large part of their arrears.

Southern African In August 1992 Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Development Community Swaziland, Tanzania, Zambia and Zimbabwe signed a treaty establishing the (SADC) SADC. This replaced the Southern African Development Co-ordination Conference (SADCC), formed in 1980 by the Southern African states in a largely unsuccessful attempt to reduce the region’s economic dependence on white-ruled South Africa. Namibia joined the SADCC shortly after independence in 1990; South Africa became a member in 1994; Mauritius joined in 1995; and the Democratic Republic of Congo (DRC, formerly Zaire) and Seychelles joined in 1997.

The SADC inherited the SADCC’s secretariat, based in Gaborone, Botswana, and the responsibilities of each member for co-ordinating a different policy sector have remained broadly unchanged. The end of apartheid in South Africa, following multiracial elections, and South Africa’s admission into the SADC on August 29th 1994, inevitably shifted some of the SADC’s political and economic emphasis, but its goals remain much the same; to promote regional trade and integration, to boost the region’s general economic independence, and to mobilise support for national and regional projects. In mid-1994, before South Africa joined the SADC, only 4% of members’ trade was within the community and 25% was with South Africa—this pattern has not changed greatly.

Although the SADC voted in 1994 to set up a regional rapid-deployment peacekeeping force—and there are long-term plans for a regional development bank, a common currency and a regional parliament—in recent years the group has focused mainly on energy and trade issues. The member countries aim to interlink their power grids, and considerable progress has been made on this to date. As for trade issues, on September 1st 2000 the SADC trade protocol came into effect, having been ratified by all member states. This aims to

remove tariff and non-tariff barriers to trade within the region within eight years, although progress will depend on the speed with which individual member governments dismantle their existing barriers to trade. So far, only South Africa has made a concrete commitment to progress, agreeing to reduce its tariffs substantially during the eight-year period. Progress in reducing tariff barriers within the region is also likely to be complicated by the fact that many of the countries belong to other regional groupings, such as the Common Market for Eastern and Southern Africa (Comesa), diverting time and energy and occasionally presenting conflicting agendas. In addition, the EU and South Africa have now concluded their own free-trade agreement successfully, and many of the other SADC countries—particularly members of the Southern African Customs Union—feel that they may be flooded with cheap European imports. However, now that the EU and African, Caribbean and Pacific states have replaced the Lomé Convention with a new convention, it is clear that all SADC member states will have to decide whether the SADC as a region should have a free-trade agreement with the EU, or whether they should negotiate individual free-trade agreements on a bilateral basis.

Progress in other areas of potential intra-SADC co-operation, such as mining or establishing a landmine-free zone and measures to combat drug-trafficking, have been delayed owing to members’ disagreements over intervention in the civil war in the DRC, and by the amount of time taken up by the search for a resolution to the conflict. According to the SADC defence protocol, member states are bound to help defend existing governments from foreign invasion and internal insurgency. Zimbabwe, Angola and Namibia sent troops to the DRC to support the then president, Laurent Kabila, but initially South Africa opposed the intervention. Indeed, the growing animosity between Zimbabwe’s president, Robert Mugabe, and the South African leadership threatens to undermine the SADC. Further complicating mutual security arrangements, in September 1998 South African and Botswanan troops entered Lesotho to prevent a coup, leaving South Africa open to criticism for its inconsistent regional policy. Zambia and South Africa have emerged recently as mediators in the DRC conflict, but it will continue to overshadow all SADC initiatives.

Recently, however, the SADC has begun a programme to reform its institutions. Most notably, the political, defence and security organ will now be formally integrated into the SADC structure, and its chairman will change annually. The existing structure will also be streamlined into four directorates (trade, industry, finance and investment; infrastructure and services; social and human development; and special programmes) during the next two years. If they are carried out according to schedule, these reforms may increase the effectiveness of the SADC.

Southern African Customs This customs union linking Botswana, Lesotho, Namibia, Swaziland (the Union (SACU) “BLNS” states) and South Africa, is the oldest and most formal regional economic grouping in Southern Africa and dates back to 1910. Administered by South Africa, the customs union gathers excise duties on local production and customs duties on member states’ imports from outside the SACU area. These are then paid to all the member states in quarterly instalments, using an agreed revenue-sharing formula. In the past, particularly in South Africa,

imports have been subject to very high tariffs, to protect industries within the union. However, the tariffs have been reduced in recent years, as South Africa has reformed its trade policy in accordance with the South Africa-EU free-trade agreement and to meet World Trade Organisation (WTO) guidelines. The BLNS states still depend on South Africa for most of their imports and, more importantly, on the privileged access to the South African market that their goods receive.

Negotiations to reform SACU have been under way for years. Although originally scheduled to take only three months, six years later—and despite several supposedly inviolable deadlines—it now appears that the renegotiation of the SACU agreement will conclude in 2001. The basic problem with the existing revenue-sharing formula has been its inclusion of a compensation element, which was supposed to offset the fact that, under South Africa’s old trade regime, exports from South Africa to the BLNS states were more expensive than on the world market. It was also meant to compensate for the concentration of industry within South Africa and for the loss of policy discretion. However, with the end of apartheid and with South Africa joining the WTO, the BLNS states continue to benefit from the stabilisation and compensation elements even though external trade barriers are now being lifted. In addition, the compensation element is magnified because imports into the BLNS countries have grown more rapidly than imports into South Africa, at a time when South Africa greatly needs to increase fiscal revenue. The new agreement will therefore be based on the following three principles.

• Each country will receive a share of the common customs revenue pool, based on its imports from SACU as a proportion of total intra-SACU imports. The BLNS countries import much more from South Africa than it does from them, so the formula is biased in their favour and implicitly takes account of price-raising effects and other distortions, which will in any case decline as tariffs are lowered under WTO obligations.

• 15% of total excise duties will be allocated to development, and will be shared on the basis of an inverse ratio of income per head to the SACU mean, reduced by a factor of 10 to smooth out distortions. Each member country will thus receive between 18% and 22% of the development allocation. Because excise duties are levied mainly on South African production, this is a way of redistributing to the BLNS countries.

• 85% of total excise duties will be allocated on the basis of GDP, which implicitly favours the poorer states—Lesotho, and to a lesser extent, Swaziland—over the richer states such as Botswana.

Although the negotiations were not fully finalised at the start of 2001, reports indicate that the new agreement will be implemented in stages; it is intended that the revised revenue-sharing arrangements will be introduced on April 1st 2001, but it will not be possible to redraft the entire agreement for ratification until the institutional structure has been finalised and other aspects, relating to common farm and industrial policies, have been agreed. It is also likely that the EU will increase aid to the BLNS countries, to offset any long-term decline in revenue under either the revision of the SACU agreement or as a result of

the South Africa-EU free-trade agreement which will reduce the total customs revenue accruing to the BLNS countries.

It has also been proposed that an independent SACU secretariat be established to administer the new agreement—the administration of the agreement by the South African government has long been a source of contention. The new secretariat should also allow any further reforms to be adopted more quickly.

The EU-ACP convention Following 18 months of negotiations, a new EU-ACP convention was signed in June 2000 in Cotonou, Benin. It replaced Lomé IV, a convention which was signed in 1989 and had replaced previous agreements signed in 1975, 1979 and 1984. The EU-ACP conventions afford a group of 71 African, Caribbean and Pacific (ACP) countries preferential trade and aid links with the EU.

The new agreement, which is to last 20 years, has a strong political dimension. As well as respect for human rights, democratic principles and the rule of law, which were all essential components of Lomé IV, the ACP countries have also agreed—reluctantly—to promote good governance and to combat corruption and illegal immigration into the EU.

Under previous conventions, ACP products, whether agricultural or industrial, entered the EU duty-free, but four agricultural products—beef, sugar, bananas and rum—were subject to a more restrictive system of tariff quotas. The new agreement offers a negotiating framework for tailor-made regional free-trade agreements (RFTAs), under which ACP countries, preferably within existing economic groupings, will gradually open their domestic markets to European products. Given the adjustment costs involved, a preparatory period of eight years has been agreed, during which the old system of preferences will continue to apply.

In any event, 33 African countries classified as least developed countries will still be given the option of entering the EU generalised system of preferences (GSP). By 2004, one year before the GSP is to be renegotiated, the EU will assess which other ACP countries are not in a position to enter a RFTA. Unlike the Lomé Convention, the GSP, which benefits all developing countries, complies with the rules of the World Trade Organisation because it is based on the dual principles of non-reciprocity and non-discrimination.

The European Development Fund (EDF) will remain the main source of multilateral EU aid to the ACP countries. Under the new convention, EDF instruments have been regrouped and rationalised into two programmes: one to provide grants for country and regional long-term development schemes, with additional support available in case of fluctuation in export earnings; and the other to finance risk-capital and loans to the private sector. The ninth EDF will total ¤13.5bn (US$12.9bn). In addition, about ¤10bn left undisbursed from previous programmes will remain available until 2007, and ¤1.7bn will be provided by the European Investment Bank.

Multilateral Monetary The MMA formalises the use of the same, or parallel, currencies among Agreement (MMA) members of the Common Monetary Area (CMA); Lesotho, Namibia, South Africa and Swaziland. Botswana participated in negotiations to form the Rand

Monetary Area (RMA), predecessor of the CMA, but in 1976 instead opted to pursue independent monetary and exchange-rate policies. The CMA replaced the RMA in 1986 and Namibia joined in 1992, shortly after independence.

Lesotho, Namibia and Swaziland introduced their own national currencies after independence, but their exchange rates remain fixed at parity with the rand. There are no exchange controls between members. This ensures that the external exchange rate and interest rates are essentially exogenous to the smaller members, being determined in a unified market, the core of which is in South Africa. The rand is legal tender in Namibia and Lesotho, which are compensated by South Africa for loss of seigniorage. Since 1992 the rand has not been legal tender in Swaziland (although in practice it is still widely used), opening the possibility of de-linking the Swazi lilangeni from the rand. However, all member countries have maintained the parity of their currencies with the rand, and foreign-exchange regulations and monetary policy throughout the CMA have continued to reflect the influence of the South African Reserve Bank (the central bank).

Sources of information

National statistical sources Bureau of Statistics, Annual Statistical Bulletin, Maseru

Bureau of Statistics, Monthly Statistical Bulletin, Maseru

Central Bank of Lesotho, Annual Report, Maseru

Central Bank of Lesotho, Quarterly Review, Maseru

Leselinya la Lesotho (Sesotho newspaper), Maseru

Lesotho National Development Corporation, Annual Report, Maseru

Ministry of Development Planning: Interim Poverty Reduction Strategy Paper, Maseru

The Mirror (English-language newspaper), Maseru

Moeletsi oa Basotho (Sesotho newspaper), Maseru

Mopheme (English-language newspaper), Maseru

Southern Star (English-language newspaper), Maseru

International sources IMF, International Financial Statistics (monthly); Staff Country Report (occasional)

Ministry of Finance and Development Planning, Interim Poverty Reduction Strategy Paper (December 2000)

Government of Lesotho, Lesotho Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding (February 2001)

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

UN Food and Agriculture Organisation, Production Yearbook (annual)

World Bank, Global Development Finance (annual)

The government is working with the IMF on improving the quality and timeliness of economic and financial statistics. Particular attention is being paid to improving data on prices and national accounts.

Selected bibliography Ambrose, D., Maseru—An Illustrated History, Morija Museum and Archives, 1995 and websites Casalis, E., The Basutos, Morija Museum and Archives, 1992 (first published in 1861)

Ellenberger, F., History of the Basuto, ancient and modern, Morija Museum and Archives, 1992 (first published in 1912)

Gay, J., Gill, D. and Hall, D. (eds), Lesotho’s Long Journey: Hard Choices at the Crossroads, Sechaba Consultants, Maseru, 1995

Gill, S., A Short History of Lesotho, Morija Museum and Archives, 1993

Mapetla, E. & Rembe, S., Decentralisation and Development in Lesotho, National University of Lesotho, 1989

Rule, S., Elections in Lesotho: May 1998, Electoral Institute of South Africa, 1998

Central Bank of Lesotho: www.centralbank.org.ls

Interim Political Authority: www.ipa.org.ls

Lesotho National Development Corporation: www.lndc.org.ls

Mopheme newspaper: www.lesoff.co.za/mopheme

Reference tables

Reference table 1 Population (estimates; m unless otherwise indicated) 1995 1996 1997 1998 1999 Population 1.93 1.97 2.02 2.06 2.11 % change, year on year 2.7 2.1 2.5 2.0 2.4 Source: IMF, International Financial Statistics.

Reference table 2a Government revenue and expenditure (M m) 1995/96 1996/97 1997/98 1998/99 1999/2000 Receipts 1,844.8 2,238.0 2,425.7 2,289.6 2,442.7 Revenue 1,681.6 2,034.6 2,247.8 2,169.6 2,312.7 Customs receipts (mainly SACU) 906.5 1,006.0 1,172.8 1,033.4 1,183.1 Income taxes 275.8 299.0 340.1 324.5 419.5 Sales tax 174.0 194.0 223.5 233.3 283.2 Other tax 64.0 54.9 58.6 99.1 2.9 Non-tax revenue 261.3 480.7 452.3 479.3 424.0 of which: water royalties n/a 142.8 83.3 133.1 142.9 Grants 163.2 203.4 178.4 120.0 130.0

continued

1995/96 1996/97 1997/98 1998/99 1999/2000 Expenditure 1,736.5 2,052.7 2,341.4 2,438.4 2,786.7 Recurrent 1,118.1 1,179.0 1,473.1 1,942.7 2,307.5 Personal emoluments 518.7 604.4 721.3 837.6 835.9 Interest payments 59.2 66.3 90.0 128.5 228.7 Subsidies & transfers 132.9 240.1 201.2 292.0 268.5 Other goods & services 407.3 268.2 460.6 684.6 974.4 Capital 618.4 873.7 868.3 495.7 479.2 Balance 108.3 185.3 84.3 –148.8 –344.0 Financing Foreign drawings (net) 211.2 352.0 345.5 18.1 –70.9 Domestic drawings (net) –319.5 –537.3 –429.8 130.7 414.9 a Fiscal years Apr-Mar.

Source: Central Bank of Lesotho, Quarterly Review.

Reference table3 Summary of recent fiscal trends

1995/96 1996/97 1997/98 1998/99 1999/2000 Total receipts (M m) 1,844.8 2,238.0 2,425.7 2,289.6 2,442.7 of which: SACU receipts (% of total receipts) 49.1 45.0 48.3 45.1 48.4 Total expenditure (M m) 1,736.5 2,052.7 2,341.4 2,438.4 2,786.7 of which: capital expenditure (% of total expenditure) 33.5 39.0 35.8 21.7 19.6 Balance (% of GNP) 2.9 3.1 1.3 –2.3 –5.3 Source: Central Bank of Lesotho, Quarterly Review.

Reference table 4 Money supply and credit (M m unless otherwise indicated; year-end) 1996 1997 1998 1999 2000 Currency in circulation 84.8 89.9 134.5 122.6 139.3 Demand deposits 548 672.5 836.9 821.3 873.7 Money (M1) 632.8 762.4 971.4 943.9 1013.1 % change, year on year 21.5 20.5 27.4 –2.8 7.3 Quasi-money 692.4 686.8 775.2 714.1 664.9 Money (M2) 1,325.2 1,449.2 1,746.6 1,658.0 1,678.0 % change, year on year 18.1 9.4 20.5 –5.1 1.2 Domestic credit –448.4 –982.0 –983.0 –9.8 250.7 of which: claims on central government –1,270.6 –1,852.2 –2,010.6 –944.1 –697.6 claims on public sector 141.3 123.3 225.5 105.3 79.2 claims on private sector 668.4 732.4 784.9 811.7 851.3 Net foreign assets 2,222.3 2,862.9 3,612.5 3,423.9 3,522.4 Source: IMF, International Financial Statistics.

Reference table 5 Gross domestic product

1995 1996 1997 1998 1999 Total (M m) At current prices 3,383.7 4,053.6 4,719.6 4,920.7 5,636.5 At constant (1995) prices 3,383.7 3,720.6 4,023.8 3,837.1 3,914.8 Real change (%) 4.4 10.0 8.1 –4.6 2.0 Per head (M) At current prices 1,752 2,058 2,349 2,395 2,684 At constant (1995) prices 1,752 1,889 2,002 1,867 1,865 Real change (%) 2.1 7.8 6.0 –6.8 –0.1 Source: Bureau of Statistics.

Reference table 6 Gross national product

1995 1996 1997 1998 1999 Total (M m) At current prices 4,794.7 5,737.6 6,531.7 6,509.6 7,166.7 At constant (1995) prices 4,794.7 5,243.5 5,525.8 4,987.2 4,901.7 Real change (%) 1.3 9.4 5.4 –9.7 –1.7 Per head (M) At current prices 2,483 2,913 3,251 3,168 3,413 At constant (1995) prices 2,483 2,662 2,750 2,427 2,335 Real change (%) –0.9 7.2 3.3 –11.7 –3.8 Source: Bureau of Statistics.

Reference table 7 Gross domestic product by sector (M m; current prices) 1995 1996 1997 1998 1999 Agriculture 524.4 661.1 686.2 787.2 873.9 Mining & quarrying 3.3 2.9 3.6 3.9 4.8 Manufacturing 469.3 585.0 683.9 775.6 850.8 Electricity & water 82.4 123.7 313.7 225.3 304.9 Building & construction 601.5 690.6 781.1 713.0 929.8 Wholesale & retail trade 274.0 325.7 394.3 408.1 425.4 Government & services 962.6 1,160.4 1,336.6 1,510.7 1,658.3 GDP at factor cost 2,944.5a 3,549.4 4,199.6 4,423.9 5,048.0 Net indirect taxes 439.2 504.2 520.1 496.8 588.5 GDP at market prices 3,383.7 4,053.6 4,719.6 4,920.7 5,636.5

a Does not sum at source. Source: Bureau of Statistics.

Reference table 8 Gross domestic product by expenditure (M m; current market prices) 1995 1996 1997 1998 1999 Private consumption 4,075.2 4,834.8 5,359.0 5,543.7 5,941.0 Public consumption 607.2 658.6 800.0 1,023.4 1,187.6 Gross fixed capital formation 2,071.2 2,360.2 2,593.5 2,411.0 2,651.0 Change in stocks –24.3 7.8 –47.1 –93.4 –56.8 Exports of goods & services 720.4 994.0 1,301.9 1,320.7 1,356.8 Imports of goods & services –4,066.1 –4,801.8 –5,287.7 –5,284.6 –5,443.2 GDP 3,383.7 4,053.6 4,719.6 4,920.7 5,636.5 Source: Bureau of Statistics.

Reference table 9 Migrant miners’ deferred pay and remittances

1996 1997 1998 1999 2000a Migrant miners ('000) 101 96 80 69 65 Average annual earnings (M) 19,186 21,193 24,678 27,657 n/a % change, year on year 14.2 10.5 16.4 12.1 n/a Total remittances (M m) 313 299 259 239 176 Deferred pay 185 170 162 147 112 Discretionary remittances 128 129 97 92 64 (% of total) 4143373836

a First three quarters only.

Source: Central Bank of Lesotho, Quarterly Review.

Reference table 10 Consumer prices (year-end; % change year on year in brackets) 1996 1997 1998 1999 2000 Consumer pricesa 95.6 103.1 112.5 120.1 127.8 (9.1) (7.8) (9.1) (6.8) (6.4) Food pricesa 94.9 102.8 114.1 120.0 126.6 (9.3) (8.3) (11.0) (5.2) (5.5)

a Apr 1997=100.

Source: Bureau of Statistics.

Reference table 11 Estimated livestock numbers (‘000) 1995 1996 1997 1998 1999 Cattle 580 590 585 580 571 Sheep 1,131 1,200 1,200 1,100 936 Goats 749 750 750 730 730 Pigs 66 70 70 65 79 Horses 113 114 114 114 88 Sources: UN Food and Agriculture Organisation, Production Yearbook; Central Bank of Lesotho.

Reference table 12 Commercial banking statistics (M m; year-end) 1995 1996 1997 1998 1999 Deposits with CBL 116.1 205.5 209.1 458.7 538.3 Net foreign assets 201.8 230.1 312.7 387.5 459.6 Credit 611.8 656.1 722.1 756.9 833.3 Private-sector deposits 901.8 1,060.8 1,160.7 1196.1 1090.4 Government deposits 37.5 43.7 48.2 76.7 652.8 Net capital & reserves 157.9 108.4 79.1 196.6 243.3 Source: Central Bank of Lesotho, Quarterly Review.

Reference table 13 Principal interest rates (%; period averages unless otherwise indicated) 1996 1997 1998 1999 2000 Discount rate (end-period) 17.00 15.60 19.50 19.00 15.00 Treasury-bill rate 13.89 14.83 15.47 12.45 9.06 Deposit rate 12.73 11.81 10.73 7.45 4.92 Lending rate 17.71 18.03 20.06 19.06 17.11 Source: IMF, International Financial Statistics.

Reference table 14 Foreign trade (M m) 1996 1997 1998 1999 2000a Exports fob 812.1 904.0 1,109.6 1,054.1 1,059.3 of which: food & live animals 34 46.2 44.2 43.1 38.4 crude materialsb 31.6 29.2 19.7 14.1 26.9 manufactured goods 611.1 671.9 821.2 793.1 815.6 Imports cif –4,303.0 –4,722.1 –4,699.2 –4,575.3 n/a Trade balance –3490.9 –3818.1 –3,589.6 –3,521.3 n/a

a EIU estimates based on data for first three quarters. b Mainly wool and mohair.

Sources: Central Bank of Lesotho, Quarterly Review; Annual Report.

Reference table 15 Origin of imports cifa (M m) 1995 1996 1997 1998 1999b SACU 3,605.2 4,439.9 4,687.0 4,612.2 4,009.1 Asia 244.5 229.2 394.9 372.2 711.4 EU 87.1 63.5 87.9 103.6 167.7 US 38.8 27.5 52.5 70.1 91.5 Total incl others 3,994.7 4,815.0 5,253.4 5,199.8 5,081.3

a Imports cif figures do not tally with figures given in reference table 14, at source. b Provisional.

Source: Central Bank of Lesotho, Annual Report.

Reference table 16 Destination of exports fob (M m) 1995 1996 1997 1998 1999 SACU 299.6 394.0 436.2 666.3 553.4 US 218.3 331.1 336.5 345.9 495.8 EU 53.7 74.1 82.0 7.2 2.0 Asia 1.4 0.4 0.4 2.0 0.2 Total incl others 580.6 812.1 904.0 1,109.6 1,054.1 Sources: Central Bank of Lesotho, Quarterly Review; Annual Report.

Reference table 17 Balance of payments, national estimates (M m unless otherwise indicated; revised provisional figures) 1995 1996 1997 1998 1999a Net goods, services & income –1,936 –2,155 –2,227 –2,256 –2,253 Goods: exports fob 581 812 904 1,110 1,054 Goods: imports fob –3,576 –4,303 –4,722 –4,699 –4,761 Labour income 1,213 1,390 1,473 1,410 1,474 % of imports 3432313031 Other net flows –153 –54 118 –76 –19 Net unrequited transfers 762 804 932 842 903 Private, net 13 12 10 16 12 Official, net 749 793 921 826 892 Current-account balance –1,174 –1,351 –1,296 –1,414 –1,350 Long-term capital, net 1,427 1,700 1,672 1,596 923 of which: LHWDP (special financing) 914 1,107 1,094 1,303 798 Overall balance incl errors and omissionsb 252 349 377 182 427

a Provisional estimates. b Including valuation adjustments.

Source: Central Bank of Lesotho, Quarterly Review.

Reference table 18 Balance of payments, IMF estimates (US$ m) 1995 1996 1997 1998 1999 Goods: exports 160.0 186.9 196.1 193.4 172.5 Goods: imports –985.2 –998.6 –1,024.4 –866.0 –779.2 Trade balance –825.2 –811.7 –828.3 –672.6 –606.7 Services: credit 39.0 42.6 86.9 53.6 43.7 Services: debit –61.1 –55.9 –67.6 –52.2 –50.1 Income: credit 471.6 453.0 447.4 357.7 325.0 Income: debit –157.4 –119.5 –110.0 –123.6 –80.6 Current transfers: credit 211.3 190.2 202.9 158.0 149.4 Current transfers: debit –1.2 –1.1 –0.5 –1.2 –1.6 Current-account balance –323.0 –302.5 –269.2 –280.2 –220.8

continued

1995 1996 1997 1998 1999 Net direct investment in Lesotho 275.3 287.5 268.1 264.8 163.3 Financial-account balance 349.1 350.6 323.7 316.1 135.8 Capital-account balance 43.7 45.5 44.5 22.9 18.0 Net errors & omissions 28.1 23.3 42.1 56.8 26.2 Overall balance 97.8 116.9 141.0 115.6 –40.8 Source: IMF, International Financial Statistics.

Reference table 19 Net official development assistancea (US$ m unless otherwise indicated) 1995 1996 1997 1998 1999 Bilateral 61.6 49.3 44.6 32.5 25.7 of which: Ireland 7.7 8.1 7.2 7.4 7.5 Germany 15.8 12.3 5.8 5.7 5.0 UK 9.7 8.0 7.4 8.7 4.4 Japan 1.8 7.9 5.7 3.6 2.7 Multilateral 52.1 51.2 39.9 34.9 6.6 of which: International Development Association 7.4 10.2 10.0 12.5 8.1 EC 21.4 23.3 18.8 12.9 1.4 UN Development Programme 3.1 3.7 5.6 2.5 1.3 African Development Fund 10.3 9.7 5.2 2.8 0.6 Totalb 113.5 104.0 91.6 66.2 31.1 of which: grants 95.3 75.9 67.6 51.0 35.0

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 20 External debt (US$ m unless otherwise indicated) 1995 1996 1997 1998 1999 Public & publicly guaranteed long-term debta 630.7 627.9 624.7 660.7 661.8 Official creditors 602.7 593.8 581.0 605.7 605.9 Multilateral 466.0 471.6 468.4 498.4 485.3 Bilateral 136.7 122.2 112.6 107.2 120.6 Private creditors 28.0 34.1 43.7 55.0 55.9 of which: commercial banks 14.9 22.8 33.4 44.5 47.3 Short-term debt 7.9 8.0 7.9 7.9 7.4 Use of IMF credit 38.4 33.8 27.5 23.6 17.1 Total external debt 677.0 669.7 659.6 692.1 686.4 Debt service 37.0 32.9 40.8 45.7 44.6

continued

1995 1996 1997 1998 1999 Ratios (%) Total external debt/GNP 51.2 50.3 46.6 59.4 61.8 Debt-service ratio, paidb 6.0 5.4 6.2 8.4 9.4 Short-term debt/total external debt 1.2 1.2 1.2 1.1 1.1 Concessional loansa/total long-term debt 69.3 69.4 69.1 69.9 68.8

a Maturity of over one year. b Total debt service as a proportion of exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 21 Disbursed public external debt outstanding (M m; year-end) 1995 1996 1997 1998a 1999a Suppliers’ credits 18.3 5.5 19.4 23.4 18.0 Financial institutions 107.8 70.8 144.1 247.1 244.6 Multilateral loans 1,555.8 1,907.6 1,883.9 2,540.2 2,519.5 Bilateral loans 179.6 299.7 266.0 365.4 340.8 Total 1,861.5 2,283.6 2,313.4 3,185.1 3,121.9

a Do not sum at source.

Source: Central Bank of Lesotho, Annual Report.

Reference table 22 Foreign reserves (US$ m; year-end) 1996 1997 1998 1999 2000 Foreign exchange 454.13 565.78 568.89 493.54 412.62 SDRs 1.33 1.20 1.22 1.17 0.66 Reserve position in the IMF 5.05 4.75 4.98 4.85 4.61 Total reserves excl gold 460.51 571.74 575.08 499.56 417.89 Source: IMF, International Financial Statistics.

Reference table 23 Exchange rates (M per unit of currency unless otherwise indicated; period averages) 1996 1997 1998 1999 2000 Nominal EER indexa 86.4 84.2 72.3 66.4 n/a Real EER indexa 91.1 93.8 85.2 83.4 n/a SDR (end-period) 6.733 6.567 8.251 8.447 9.861 US$ 4.299 4.608 5.528 6.109 6.939 UK£ 6.667 7.632 9.062 9.869 10.520 DM 2.841 2.653 3.092 3.335 7.532

a Effective exchange rate, 1995=100.

Source: IMF, International Financial Statistics.

Editors: Paul Gamble (editor); Angus Downie (consulting editor) Editorial closing date: April 18th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]