Botswana Lesotho

COUNTRY PROFILE 2002

Botswana Lesotho

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EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 1

Contents

Botswana 4 Basic data

5 Politics 5 Political development 7 Constitution, institutions and administration 8 Political forces 10 International relations and defence

12 Resources and infrastructure 12 Population 13 Education and health 15 Natural resources and the environment 16 Transport, communications and the Internet 17 Energy provision

18 The economy 18 Economic structure 20 Economic policy 25 Economic performance

26 Economic sectors 26 Agriculture, forestry and fishing 27 Mining and semi-processing 29 Manufacturing 30 Construction 31 Financial services 32 Other services

33 The external sector 33 Trade in goods 34 Invisibles and the current account 35 Capital flows and foreign debt 37 Foreign reserves and the exchange rate

38 Appendices 38 Regional organisations 38 Sources of information 40 Reference tables 40 Population 40 Transport statistics 41 Telecommunications 41 Gross domestic product 41 Sectoral origins of gross domestic product 42 Trend of gross domestic product by sector 42 Employment by sector 43 Average monthly earnings by sector 43 Minimum monthly wages 44 Recurrent expenditure for NDP8 44 Government finances 45 Money supply 45 Interest rates

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45 Consumer prices 46 Consumer price index 46 Livestock numbers 46 Production of principal crops 46 Mineral production by volume and value 47 Building plans approved 47 Botswana Stock Exchange, domestic shares 47 Foreign trade 48 Exports by destination 48 Imports by origin 48 Balance of payments, national estimates 49 Balance of payments, IMF estimates 49 External debt, World Bank estimates 50 Net official development assistance 50 Foreign reserves 50 Exchange rates

Lesotho

51 Basic data

52 Politics 52 Political development 55 Constitution, institutions and administration 57 Political forces 59 International relations and defence

61 Resources and infrastructure 61 Population 62 Education and health 63 Natural resources and the environment 63 Transport, communications and the Internet 64 Energy provision

66 The economy 66 Economic structure 67 Economic policy 70 Economic performance

72 Economic sectors 72 Agriculture, forestry and fishing 73 Mining and quarrying 73 Manufacturing 74 Construction 75 Financial services 76 Other services

77 The external sector 77 Trade in goods 78 Invisibles and the current account 79 Capital flows and foreign debt 80 Foreign reserves and the exchange rate

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81 Appendices 81 Regional organisations 86 Sources of information 88 Reference tables 88 Population 88 Government revenue and expenditure 89 Summary of recent fiscal trends 89 Money supply and credit 89 Gross domestic product 90 Gross national product 90 Gross domestic product by sector 90 Migrant miners’ deferred pay and remittances 90 Consumer prices 91 Estimated livestock numbers 91 Commercial banking statistics 91 Principal interest rates 91 Foreign trade 92 Composition of exports 92 Origin of imports cif 92 Destination of exports fob 92 Balance of payments, national estimates 95 Balance of payments, IMF estimates 95 Net official development assistance 95 External debt 95 Disbursed public external debt outstanding 95 Foreign reserves 95 Exchange rates

Botswana

Basic data

Land area 581,730 sq km

Population 1.7m (2001 population census, preliminary results)

Main towns Population (2001 population census, preliminary results)

Gaborone (capital) 185,891 Francistown 84,406 Selebi-Phikwe 50,012

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 2001: P5.84:US$1; exchange rate on February 27th 2002: P6.75:US$1

Time 2 hours ahead of GMT

Public holidays (2002) January 1st (New Year’s Day), January 2nd, March 29th (Good Friday), March 30th, April 1st (Easter Monday), May 1st (Labour Day), May 9th (Ascension Day), July 1st (Sir Seretse Khama Day), July 15th (President’s Day), September 30th (Botswana Day), 1st October, December 25th (Christmas Day) and December 26th (Boxing Day)

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Politics

The Botswana Democratic Party (BDP) came to power in 1965, leading the country to independence in 1966. Although the growing urban population has become frustrated with high unemployment and increasing income disparities, the BDP’s rural support network, together with disunity among the opposition groups, has ensured that its power base remains undiminished. The BDP, led by the 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.

Political development

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 and annexed 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 in British Bechuanaland. 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, being little more than a transport route to countries to the north and 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 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 favoured the creation of a multiracial democratic society in which traditional laws would retain a role without preventing the modernisation of the country. His policies included the transfer of tribal land rights to elected district committees, guarantees for white leasehold farmers, prudent macroeconomic management including the encouragement of foreign investment, and a stance towards the racist regimes in South Africa and Rhodesia (now Zimbabwe) that reflected Botswana’s strategic vulnerability. Although strong commercial links were developed with South Africa he refused to open diplomatic relations.

A rapidly changing region Mr Khama held office until his death in 1980. His vice-president, Quett Ketumile Masire, a co-founder of the BDP, succeeded him. He followed the same policies, but had to meet the challenge of developing relations with the newly independent Zimbabwe and Namibia and, subsequently, the post- apartheid government in South Africa. During this time Botswana took on a central role in the development of the Southern African Development Community (SADC). In March 1998 Mr Masire retired and his vice-president, Festus Mogae, took over as president. Mr Mogae chose Ian Khama, Sir Seretse Khama’s son, as his vice-president. Prudent economic policies were followed throughout.

Important recent events

March 1998: Quett Ketumile Masire retires as president 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 leave the BNF to form the Botswana Congress Party (BCP), which becomes the official parliamentary opposition.

October 1999: The BDP easily wins the general election. The BCP loses all but one of its seats and the BNF, with six seats, regains its position as the official opposition. In the post-election reshuffle Mr Mogae moves a key BDP faction leader, Pontashego Kedikilwe, from the Ministry of Finance and Development Planning to the Ministry of Education. Baledzi Gaolathe—a former bureaucrat from outside the BDP’s inner circle and, at the time, governor of the Bank of Botswana (the central bank) —replaces Mr Kedikilwe. Linah Mohohlo takes over from Mr Gaolathe to become Southern Africa’s first female central bank governor.

June 2000: Citing personal reasons, Mr Kedikilwe resigns from the cabinet, but remains BDP chairman.

August 2000: Following opposition from within the BDP, the president recalls Ian Khama from a controversial one-year sabbatical.

March 2001: Two international credit ratings agencies, Moody’s and Standard & Poor’s, award sovereign credit ratings to Botswana that make it by far the highest-rated country in Africa—Botswana has the same rating as Israel and Greece.

July 2001: Under pressure to preserve party unity, Ian Khama decides not to challenge Mr Kedikilwe for the position of BDP chairman at the party congress.

November 2001: Otsweletse Moupo is elected to succeed the long-standing BNF leader, Kenneth Koma. The run-up to the election is marred by factional infighting and Peter Woto, Mr Moupo’s opponent who is supported by Mr Koma, refuses to accept the result.

January 2002: Mr Mogae reshuffles the cabinet; Daniel Kwelagobe becomes minister of presidential affairs.

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Constitution, institutions and administration

A presidential democracy The constitution adopted at independence vests legislative power in a parliament—the National Assembly, which has 40 elected members—the president, the speaker, the attorney-general and four members nominated by the president. The National Assembly is elected for five years on the basis of universal adult suffrage and has 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 parliament. Minor constitutional amendments can be passed by a parliamentary vote. More substantive amendments require a two-thirds majority and major alterations must be put to a national referendum. 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. All elections use a first-past- the-post system.

Rights are protected The constitution provides for the protection of the fundamental rights and freedoms of the individual. An independent judiciary interprets and administers the constitution and other laws. Roman-Dutch law is the common law and criminal law is based mainly on English law. Customary law cases, mainly in rural areas, are heard by tribal courts associated with village kgotla (an assembly of elders), the traditional chiefs acting as court presidents. There is also a customary court of appeal. There has been criticism of the treatment of the minority indigenous Basarwa.

Security risk in Botswana

Armed conflict: Botswana has always followed a policy based on peaceful co-existence with its neighbours, and since the independence of Zimbabwe and Namibia and the end of apartheid in South Africa the risk of becoming embroiled in armed conflict has been remote. However, the risk of armed conflict breaking out in Zimbabwe and then spilling over Botswana’s borders— the original reason for the formation of the Botswana Defence Force (BDF) in the 1970s—is an increasing concern. All the political parties within Botswana operate within the democratic process. Foreign business can expect to function in Botswana without fear of disruption by armed conflict.

Unrest/demonstrations: Demonstrations carried out by political parties, trade unions, university students and other groups are common in Botswana and are generally orderly and peaceful. Even when this has not been the case, disturbances have been mild and have been easily dealt with by the police (although over-enthusiastic policing may have sometimes made the situation worse). Property is not generally threatened: acts of lawlessness are usually of a nuisance nature. Foreign businesses are unlikely to be singled out.

Violent crime: Although there is concern about the increase in violent crime in Botswana, this is from a relatively low base. Reasonable precautions should be taken. In particular, residential break-ins should be guarded against; corporate robberies are less common. Car-jackings were an increasing concern in the mid-1990s, but effective action by the police seems to have contained the problem. Street crime is also a potential hazard, especially in low-income

urban areas and in some of the larger villages. The risk of such crime is greater in areas close to the border with Zimbabwe, such as Francistown.

Organised crime: There is little organised crime in Botswana, but there is some involvement in networks that smuggle stolen vehicles from South Africa and there is concern that liberal foreign-exchange regulations could encourage money-laundering activities. Businesses operating in Botswana are unlikely to be adversely affected.

Kidnapping and extortion: The high-profile kidnapping for ransom of the grandson of an influential local businessman early in 2002 put the spotlight on this area; a similar incident, also involving a local businessman, occurred in 2001. The amateurism of the kidnappers (who were quickly apprehended) reflected the fact that such crime is rare. Foreigners are less likely to be at risk than wealthy locals, who quickly acquire prominence. Kidnapping for political reasons is unheard of.

Political forces

The BDP remains in firm The ruling BDP has a secure hold on power. In the 1999 general election it won control 33 of the 40 elected parliamentary seats. This was an improvement on the 27 seats the party won in 1994, but it was mainly a reflection of opposition weakness rather than strong BDP support. The BDP’s urban support is quite weak as rising unemployment and poverty are major issues; it is the party’s rural support base that ensures its continued success. Internally, the BDP has been divided between technocrats and those who favour a more populist policy stance. In a bid to avoid factional fighting over his successor, Sir Quett Ketumile Masire took steps to ensure that Festus Mogae replaced him. To neutralise the internal factions and secure his own power base, Mr Mogae chose Ian Khama, the son of Sir Seretse Khama, as his vice-president. However, this backfired as the party factions realigned on the basis of whether they were for or against Mr Khama as Mr Mogae’s successor.

Opposition groups fail to For most of the period since independence the main opposition party has been unite the Botswana National Front (BNF). The party is left leaning and gains most of its support from workers in urban areas, though a philosophy of embracing a wide range of opposition forces has attracted other pockets of support. However, this diversity has also led to infighting and the party suffered a major setback in 1998 when all but one of its MPs left to establish the Botswana Congress Party (BCP). Although the BCP subsequently failed to build significant support, the opposition paid the price for such disunity as the BDP was returned with an increased majority in the 1999 election.

In November 2001 Otsweletse Moupo replaced the ageing Kenneth Koma as leader of the BNF. Without Mr Koma, who dominated the party since its formation in the 1960s, the future of the BNF is unclear. Mr Moupo’s victory, although comprehensive, was the culmination of a bitter leadership contest that saw divisions being aired in public and the defeat of Peter Woto, Mr Koma’s preferred candidate.

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Other political parties, including those that fought the 1999 elections in a coalition, are in a very weak position. At best, they have been able to gain small concentrations of support among minority groups. Their prospects of political power will rest heavily on their ability to forge successful alliances. The prospects for this do not appear bright, especially since the BNF under Mr Moupo has stated that it has little immediate interest in forming such alliances. Because of the continued electoral dominance of the BDP, opposition parties have united in calling for the introduction of some form of proportional representation.

Election results

1989 1994 1999 Seats % of vote Seats % of vote Seats % of vote Elected seats Botswana Democratic Party (BDP)317527543357 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 050405 Nominated seats Botswana Democratic Party (BDP) 4 – 4 – 4 – Total 38 100 44 100 44 100 Source: Press reports.

Main political figures

Festus Mogae: The president since Sir Quett Ketumile Masire retired in March 1998. He was formerly the vice-president, minister of finance and development planning and governor of the central bank. Mr Mogae has struggled to unite the party around his leadership

Ian Khama: The son of Botswana’s first president, Sir Seretse Khama, and widely tipped as Mr Mogae’s successor. Shortly after resigning as head of the army he became vice-president in March 1998. He currently holds no ministerial portfolio but has general responsibility for co-ordinating government policy. In his short political career he has made many enemies in the BDP but remains important to the party in maintaining its traditional rural power base.

Ponatshego Kedikilwe: The chairman of the BDP. He resigned as minister of education in 2000, having been sidelined in cabinet. He is rumoured to harbour presidential ambitions and is the main rival to Mr Khama as successor to Mr Mogae. As a backbencher he has been vocal in his support for citizen empowerment programmes.

Daniel Kwelagobe: The most experienced serving cabinet minister, whose seniority was reinforced by his appointment in January 2002 as minister of presidential affairs and public administration. As the long-standing secretary- general of the BDP he retains an unrivalled grip on party structures. For many years he was seen as allied to Mr Kedikilwe but he is also close to Mr Khama.

Mompati Merafhe: The minister of foreign affairs and former commander of the Botswana Defence Force (BDF). His prominence in BDP politics has diminished in the face of the rivalry between Mr Kedikilwe and Mr Khama, but he remains a prominent figure internationally where he is widely respected in diplomatic circles. He chairs the Commonwealth Ministerial Action Group, which has been very involved in attempts at political mediation in Zimbabwe.

Baledzi Gaolathe: The minister of finance and development planning, where he was previously permanent secretary, and a former governor of the central bank. He is widely experienced and respected across all political parties.

Linah Mohohlo: Succeeded Mr Gaolathe as the governor of the central bank; she is internationally prominent as the only female central bank governor in Africa. In 2001 she was appointed by the UN secretary-general as an eminent person to serve on a panel overseeing the development of a UN agenda for Africa and in 2002 she was named the central banker of the year for the Africa and Middle East region, by The Banker magazine.

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 citizens in the economic development of the country.

Otsweletse Moupo: Elected in November 2001 to succeed Kenneth Koma as leader of the BNF. A lawyer with a reputation for sticking to orthodox Marxist principles, he has made it clear that unifying the BNF after the bitter election campaign is his main priority.

Kenneth Koma: A major figure in politics since independence. He suffered a major blow when Mr Moupo defeated his handpicked successor to become leader of the BNF. Nevertheless, despite his advancing years—he is in his late 70s—and ill health, he is unlikely to retreat into the background.

Molosiwa Selepeng: Permanent secretary to the president. During 2001 his position came under increasing public scrutiny in the wake of a series of controversial actions that were seen as demonstrating a high handed and autocratic approach to administration.

International relations and defence

A volatile region Trading links with South Africa have always been strong, but political relations warmed only after the demise of the apartheid regime. Even now there is some suspicion that South Africa’s African National Congress government is ambivalent towards Botswana for not taking a stronger stand against apartheid. Nevertheless, the two countries co-operate closely, sharing a similar standpoint on the main regional issues; non-intervention in the Democratic Republic of Congo, and a mediated settlement in Zimbabwe. Some minor divisions have occurred—such as on the use of the death penalty—but on the major issues of regional conflict resolution and economic development relations are good.

Since mid-2000 political unrest in Zimbabwe has dominated regional politics, raising the prospect of an influx of Zimbabwean refugees and threatening to undermine Botswana’s tourism sector, which had developed strong links with

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tourism in Zimbabwe. Concern that the political turmoil in Zimbabwe will damage domestic political stability in Botswana is unfounded; the political and land situations in the two countries are very different and civil institutions are much stronger in Botswana than in Zimbabwe. However, there has been some disappointment, both locally and internationally, that the government—and Mr Mogae in particular—has not been prepared to speak out more strongly in public against the excesses in Zimbabwe. A border dispute along the Chobe River with Namibia has died down, but bilateral relations were complicated by a secessionist flare-up in Namibia’s Caprivi strip in 1999 which caused a flow of refugees into Botswana. Potential tensions were eased in 2001 when a Botswana court refused to grant some of the secessionist leaders refugee status, ruling that they must return to Namibia to face criminal charges. There is also a risk of disputes with Namibia over the use of water resources from the Okavango River.

Working hard to retain International pressure groups have recently put Botswana in the spotlight. In international reputation 2001 Botswana mobilised a major diplomatic effort to meet the threat of the campaign against conflict diamonds and was very involved in the Kimberley process to meet UN requirements that the origin of diamonds should be subject to a system of certification. Botswana has had less success in dealing with allegations that it is mistreating the indigenous bushmen.

SADC secretariat is based in Botswana was a founding member of the Southern African Development Co- Botswana ordinating Conference, 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).

Military forces, 2001 (no. of troops unless otherwise indicated) Army 8,500 Air force 500 Police mobile unit 1,000 Defence budget (P m) 1,243 Source: International Institute for Strategic Studies, The Military Balance 2001/02.

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, at about 8%; in South Africa it is only 4.5%. Such high spending has been justified by the need to create a defence capability from scratch—the BDF was only formed in the 1970s. Successful contributions to peacekeeping operations in Africa and the need to respond to emergencies (such as floods) have also been used in support of high military spending. However, rapid military development has been a cause of regional tension, particularly in relation to the border dispute with Namibia. Although the good reputation of the BDF is a source of national pride, domestic support for such heavy spending is far from universal. The strong backing given to the BDF by the vice-president, Mr Khama, a former

commander of the force, has added to the impression that defence spending, the details of which are mostly kept secret, is not subject to normal budgetary discipline. Mr Khama’s position has also raised questions about the politicisation of the BDF; it is said that factions of the force loyal to the vice- president are seeking to undermine General Fisher. Nonetheless, although incidents of unrest in 2001 led to the arrest and court martial of several soldiers, the BDF remains a well-disciplined force and rumours of a possible mutiny have been much exaggerated.

Resources and infrastructure

Population

Population indicators, 2000

Population (m; mid-year) 1.6 Population growth rate (%) 1.9 Infant mortality (per 1,000 live births) 58.0 Crude death rate (per 1,000 population) 13.0 Child malnutrition (% of children under 5) 17.0 Life expectancy at birth (years) 39.0 Urbanisation (%) 50.0 Source: World Bank.

Population growth A national population census is conducted every ten years; the last count took is slowing place in August 2001. According to the preliminary results issued in September 2001, the population was 1.68m, an increase of 27% since the 1991 census. Annual population growth was 2.4%, compared with 3.5% during the previous inter-censal period. Average household size fell from 4.7 in 1991 to 3.9 in 2001. The slowdown in population growth was expected owing to a decline in fertility rates. The recorded rate was very close to the government’s forecast of 2.5% annual growth, which may seem surprising, as that forecast did not take into account the impact of HIV/AIDS. The full details of the population in 2001 have yet to be revealed, but one possibility is that increased migration into Botswana has compensated for increased deaths from AIDS. The urban population has increased rapidly and, counting larger villages as urban centres, now makes up at least 50% of the total. Although Gaborone expanded very rapidly from only 18,000 people in 1971 to 186,000 in 2001, it did not grow as fast as the government had anticipated—it had projected a population of 224,000 in 2001. This may have been because of problems with land acquisition; settlements close to the city, where land has been more readily available, showed very rapid population growth, averaging 7% per annum. (For historical figures on population growth, see Reference table 1.)

The majority of the Tswana groups dominate the population, some estimates putting the figure as population is Tswana high as 90%. However, this total includes some subgroups that have been increasingly vocal in arguing that they are culturally distinct from the Tswana.

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The largest non-Tswana group are the Kalanga, from the north-east of the country near the border with Zimbabwe. Other groups include the Basarwa (Bushmen), Herero (from Namibia), Whites (including some Afrikaner farmers in the north and east) and Asians. The national language is Setswana, but English is the official language for business, government and higher education, and is widely spoken. There are strong links with South Africa’s North-West Province where there are about 3m Tswana, constituting around 66% of the population of the province and 7% of South Africa’s population.

Population distribution, 2001 (population and housing census, provisional results) % change on No. of people % of total 1991 census Urban 866,680 52 43 Towns of which: Gaborone 185,891 11 39 Francistown 84,406 5 29 Selebi-Phikwe 50,012 3 26 Lobatse 29,747 2 14 Urban villages of which: Molepolole 54,124 3 47 Maun 43,952 3 64 Kanye 40,639 2 30 Serowe 42,283 3 40 Mahalapye 39,574 2 41 Mogoditshane 38,816 2 173 Mochudi 36,591 2 43 Rural 812,211 48 13 Total 1,678,891 100 27 Source: Central Statistics Office, Statistics Update.

Education and health

Education 1996 1997 1998 1999 2000 Primary schools Number 714 725 736 741 741 Enrolment 318,629 322,268 323,348 324,782 325,948 Teachers 12,977 11,617 11,950 12,292 11,864 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 263 272 265 270 270 Enrolment 116,076 143,604 148,195 158,128 160,576 Teachers 6,772 7,977 8,470 8,655 8,298 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 Source: Central Statistics Office, Statistical Bulletin.

One of the government’s most 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

Healthcare system Botswana has a well-developed, decentralised primary healthcare system. Diarrhoea, tuberculosis and pneumonia are the most frequent causes of hospital referrals. Malaria is rife in northern Botswana and it moves east and south in the rainy season. Bilharzia occurs in areas with year-round water, but few cases are reported.

Healthcare provision, 2001a No. Beds General hospitals 16 2,618 Primary hospitals 17 533 Clinics 232 421 Health centres 324 0 Mobile clinics 712 0 Total 1,301 3,572

No. Per 10,000 Doctors 393 2.3 Nurses 4,265 25.4

a Number of beds and health personnel are 1999 data.

Source: Central Statistics Office, Statistical Bulletin.

HIV/AIDS A UN report in June 2000 estimated the prevalence of HIV/AIDS in Botswana at 35.8% of those aged 15-49 years—the highest rate in the world. The government has disputed that the infection rate is so high but accepts the seriousness of the situation and has declared HIV/AIDS to be a national emergency. The potential consequences for the country are disastrous. They include a dramatic decrease in life expectancy, aggravated poverty and falling economic growth; the Botswana Institute for Development Policy Analysis predicts that, in the worst-case scenario, annual real GDP growth between 1996 and 2021 may fall from 3.9% to just 1.9%. There is a serious risk that the country’s limited supply of skilled labour will be overwhelmed unless the government makes it easier for sufficient labour resources to be imported. In December 2001 the number of registered orphans was 31,000, an increase of 27% compared with the previous year, and this may be an underestimate because owing to the stigma that continues to be attached to AIDS, families are reluctant to seek assistance from government welfare programmes.

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A National AIDS co-ordinating agency has been established and is chaired by the president, Festus Mogae, who is widely admired for his high-profile personal leadership of the campaign against the pandemic, which has compared favourably with the performance of other African leaders. A variety of programmes have been introduced, some with the support of donors and international pharmaceutical companies, and others drawing on the government’s financial resources. In November 2001 parliament authorised an additional P400m (US$70m) in AIDS-related expenditure until the end of the Eighth National Development Plan in March 2003. This is in addition to the funds already committed, including a programme to greatly expand the healthcare infrastructure. The Harvard AIDS Institute laboratory in Gaborone is the largest of its kind in Africa. Funded with grant support from the African Comprehensive HIV/AIDS Partnership (ACHAP)—a partnership between the pharmaceutical company Merck and the Bill and Melinda Gates Foundation—a programme distributing anti-retroviral drugs to AIDS sufferers is scheduled to be introduced in early 2002. Initially the programme will cover 19,000 people and is expected to expand to about 20,000 people per year. This is the first programme of its kind in Southern Africa.

HIV/AIDS infection rates (% of 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.

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 sand layers of the Kalahari Desert. (These can be up to 120 metres thick.)

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 and mineral exploitation is the backbone of the economy.

Transport, communications and the Internet

Roads Botswana’s road network is well developed; tarred roads of a good standard link all major population centres and neighbouring countries. 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 around 6% of total expenditure. The Trans-Kalahari highway, linking South Africa to Namibia through Botswana, was finished in 1998, raising hopes that the country’s central position in the region would be enhanced. However, a study conducted a year after the highway was opened revealed that traffic was only 46% of the anticipated volume, because of delays at border crossings, lack of facilities, high fees and less traffic than expected going through Walvis Bay port in Namibia. Although some of these problems have subsequently been addressed, ambitious plans to develop the southern town of Lobatse as a regional industrial base have failed to make progress. Plans to enhance the road link to Zambia by replacing the ferry at Kazungula with a bridge are under consideration.

Railways The country’s main railway line runs for 640 km from Zimbabwe to South Africa, via Francistown, Gaborone and Lobatse. There are spurs to the mining town of Selebi-Phikwe and the mines at Morupule and Sua Pan. Botswana Railways, a parastatal, operates the railway. The line carries the country’s bulk exports such as copper, nickel, beef, soda ash and salt, 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. Attempts to boost passenger numbers through the introduction of short commuter routes have not been successful, although there has been some success in the operation of container ports in Gaborone and Francistown. Although Botswana Railways has remained profitable, this has been because of healthy, non-operating income and in 2001 Botswana Railways embarked upon a restructuring exercise. A feasibility study has been commissioned into developing a new line that links Botswana and Zambia directly, but the viability of this needs to be demonstrated.

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 direct intercontinental flights are not available. There are also links with Namibia and Zimbabwe, and some new routes have been introduced to support the development of the tourist industry. The national airline, Air Botswana, is currently being prepared for privatisation, although the sale date has been

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pushed back from 2001 to 2002. As well as Air Botswana there are several small private air service operators, primarily serving the needs of the tourist industry in the north of the country. (See Reference table 2 for a breakdown of transport statistics.)

Telecommunications and Botswana’s telecommunications system is fully digital. Fibre-optic cables link the Internet 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—50% owned by France Telecom—and Mascom Wireless—partly owned by Portugal Telecom—both of which initially set up operations in the major urban centres but have now spread to cover much of the country. Demand for cellular services is very high, boosted by technical problems in the operations of the state-owned Botswana Telecommunications Corporation (BTC), which is being considered for privatisation. By the end of 2001 the number of cellular users outnumbered BTC customers by more than two to one. Levels of teledensity in the country are now approaching those that research suggests have positive effects on economic growth. Botswana Telecommunications Authority regulates the sector.

Ten Internet service providers had been licensed by mid-2001; these are accessed by users all over the country. Total Internet users were estimated at 33,000 in 2001, compared with 10,000 in 1999. Most leading private-sector companies and government agencies have their own websites. (See Reference table 3 for telecommunications data.)

Media Radio Botswana provides national broadcasting services in English and Setswana on two channels. The first commercial radio station, Ya Rona FM, was awarded a licence in May 1999, and has subsequently been followed by several others. Multichoice (Botswana) provides a range of television channels through digital satellite on a subscription basis. A national station, Botswana Television, was established in 2000 but, although the quality of broadcasts has been gradually improving, it has been dogged by allegations of government interference and personnel problems.

The only daily paper is the government-owned Botswana Daily News (Dikgang tsa Gompieno), but there are several weekly, privately-owned newspapers. These have not been afraid to criticise the government, which has retaliated by withdrawing advertising and threatening to introduce legislation that would curb the independence of the private press. Since December 2001 the same publishing company has had control over four of the five main weekly papers, which has raised further concerns about press freedom.

Energy provision

The generating capacity of the Botswana Power Corporation (BPC) was 132 mw in 1996 and about 40 mw was 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, and there are some small diesel generators in rural areas. Higher imports, which now provide about 60% of total supply, have enabled BPC to reduce greatly the real cost of electricity to consumers since the early 1990s. As the supply contracts with the South African company, Eskom, are shortly up for renewal, the option of expanding domestic production is being considered. The largest consumer is the mining industry, which takes up about 40% of the total, of which more than half is for the Bangmanwato Concessions Limited copper-nickel mine at Selebi-Phikwe. Sales to domestic and commercial users have risen rapidly in recent years. Through government funding, BPC is engaged in a major programme to extend the electricity grid into rural areas. All Botswana’s refined-oil needs are supplied from South Africa, except for a small supply to the western part of the country from Namibia.

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.

The economy

Economic structure

Main economic indicators, 2001

Real GDP growtha (%) 9.1 Consumer price inflation (av; %) 6.6 Populationa (m) 1.7 Current-account balancea (US$ m) 443 Total external debta (US$ m) 313 Average exchange rate (P:US$) 5.84

a Estimate.

Source: Economist Intelligence Unit.

Botswana’s economy has been built on the diamond-mining industry and this sector still dominates. It contributed 36% of GDP in the 2000/01 national accounts year (July-June), but its contribution has declined in recent years

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because of the expansion of the services sector, mainly government services and trade. 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 (of about 5%) during the 1990s, despite the high-profile closure of the Hyundai vehicle-assembly plant in 2000. Financial and business services accounted for around 10% of GDP in the 1990s and a modest increase in the contribution from this sector is 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, 2001

Botswana Lesotho South Africa Namibia Swaziland Zimbabwe GDP (US$ bn) 5.68 0.81 110.7 3.04 1.17 9.33 GDP per head (US$) 3,348 365 2,491 1,639 1,199 757 Real GDP growth (%) 4.3 2.6 2.0 3.0 1.2 –7.5 Consumer price inflation (av; %) 6.6 6.9 5.8 9.3 7.5 74.8 Merchandise exports fob (US$ m) 2,462 250 31,829 1,245 702 1,935 Merchandise imports fob (US$ m) 1,919 720 27,712 1,445 850 1,428 Current-account balance (US$ m) 443 –140 87 107 –60 –295 Source: Economist Intelligence Unit.

Employment and Although diamond mining is the main contributor to wealth, it is not labour expenditure intensive and accounts for less than 5% of total employment in the formal sector. Instead, nearly half of total employment in the formal sector is in the public sector (central and local government and parastatals). This concentration is high by any standard, and indicates Botswana’s lack of economic diversification. Unemployment fell during the 1990s, but it is still one of the greatest challenges facing the government; unemployment in 2000 was estimated at 15.6%, although this estimate takes no account of underemployment. Much of the growth in employment in the 1990s was the result of increased employment by government. More than 90,000 people are self-employed or work in the informal sector, including those engaged in traditional agriculture. At the end of the 1990s around 10,000 were employed as migrant workers in South African mines, compared with 17,000 at the start of the decade.

The dominant role of the government 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 about equally between public and private spending. (See Reference tables 7, 8 and 9 for data on employment, monthly earnings and minimum wages, respectively.)

Formal employment by sectora 1999 2000 2001 ’000 % ’000 % ’000 % Private sector 137.6 53.5 141.4 53.6 150.7 55.8 Central governmentb 84.9 33.0 85.7 32.7 85.4 31.6 Local government 19.1 7.8 18.8 7.2 21.0 7.8 Parastatals 15.5 6.0 16.5 6.3 13.2 4.9 Total 257.1 100.0 262.4 100.0 270.3 100.0

a As of September, except for 2001 which is March; excludes working proprietors and unpaid family workers and businesses with less than five employees. 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 the national development plans, the latest of which, the Eighth National Development Plan (NDP8), runs from April 1997 to March 2003. Much government activity in 2002 will be concerned with the preparation of NDP9. The main focus of economic policy is diversifying the economy and increasing employment opportunities; dealing with HIV/AIDS has also become a 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: 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. These are expected to form the central focus of NDP9.

Balancing incentives for foreign investors with demands for local empowerment

Citizen economic empowerment is assuming greater significance as a key development objective. As a result, government contracts are increasingly being directed towards citizen-owned businesses. The government insists that policies to support greater local participation in development, particularly the promotion of citizen-owned businesses, are complementary to its desire to promote foreign investment in the economy. However, some of the proponents of empowerment are expressing increasingly xenophobic comments, to the possible detriment of the country’s reputation for welcoming foreign involvement. Balancing local demands for empowerment with the desire to attract foreign direct investment will continue to be a major challenge in coming years.

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

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injections. In the 1990s these policies seemed to be successful in attracting larger businesses, 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—the Citizen Entrepreneur Development Agency (CEDA) was launched in 2001—and by introducing a bailout 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 major vehicle for promoting foreign investment is the Botswana Export Development and Investment Agency. This organises both inward and outward promotion missions, constructs factory shells, and operates a “one-stop-shop” for investors, assisting with obtaining the necessary licenses and permits (although there are still concerns about government inefficiency in this area).

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 almost every year since 1980, allowing the government to build up substantial savings. Nonetheless, high levels of capital spending have fuelled inflationary expansion in some sectors, particularly construction. The exchange rate has followed the rand closely (see Foreign reserves and the exchange rate) which, along with liberal capital and trade arrangements, has tended to result in a monetary policy which follows that of South Africa. However, in practice, the Bank of Botswana (BoB, the central bank) has enjoyed some independence, as crossborder capital movements have been limited. Since the early 1990s the BoB 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, because inflation is largely determined by prices in South Africa, this has been mainly reflected in growth in imports rather than price increases. Annual average inflation in Botswana has remained below 10% since 1996. Since 1998 monetary policy has been conducted within the framework of an annual monetary policy statement issued by the BoB. During the 1990s the emphasis was on keeping real interest rates in line with those prevailing in major international markets. The emphasis has increasingly shifted to controlling domestic inflation. An inflation objective of 4-6% was announced for the first time in the 2002 monetary policy statement. This is not a formal inflation target, but a range which the BoB thinks is compatible with maintaining the real effective exchange rate. (See Reference table 11 for historical data on government finances.)

Auctions of BoB certificates (in effect, Treasury bills) have been the central bank’s prime means of influencing interest rates and smoothing monetary fluctuations. At the end of 2001 the stock of outstanding BoB certificates was P5.2bn, of which the commercial banks held P2.4bn, compared with the total commercial bank credit of P5.6bn. Such extensive reliance on the BoB to control liquidity is expensive, and may be holding back the development of

the financial market; consequently the central bank is trying to encourage more issues of private paper. Currently, the Botswana Stock Exchange lists commercial paper issued by Botswana Telecommunications Corporation (BTC) and bonds issued by BTC, the Botswana Development Corporation, Botswana Building Society and Stanbic bank, but secondary market activity is very limited. As part of an attempt to improve short-term liquidity management, the BoB introduced repurchase agreements (repos) and reverse repos in early 1999. (See Reference table 12 for data on money supply and Reference table 13 for data on interest rates.)

Summary of government finances (fiscal years Apr-Mar; P m unless otherwise indicated; % of GDP in brackets) 2001/02 2002/03 Budget Revised estimates Budget % of total Revenue 13,557 13,347 15,411 – of which: mineral 7,953 7,463 8,492 55.1 customs 1,856 1735 1,541 10.0 other tax 1,786 2,135 2,984 19.4 Expenditure 14,084 13,433 17,030 – (48.8) (46.5) (53.1) – of which: general administration 2,007 2,028 2,506 14.7 defence 1,183 1,068 1,411 8.3 education 3,313 3,074 4,053 23.8 Overall balance –526 –85 –1,619 – (–1.8) (–0.2) (–5.0) – Source: Ministry of Finance and Development Planning

The 2002/03 budget

Value-added tax is on schedule to be introduced in July 2002 at a single rate of 10%. The government is to consider establishing a unified revenue collection authority. There will be no major tax changes.

A budget deficit of P1.6bn (US$250m) is projected for 2002/03. However, this is based on ambitious spending plans for the final year of NDP8, which are unlikely to be fulfilled. The depreciation of the pula will keep minerals revenue buoyant.

The award of favourable sovereign credit ratings in 2000 will be followed by the issue of benchmarked government bonds, probably in 2002.

Despite the tight budgetary situation, there will be an inflationary adjustment of 6% for civil service pay, effective from April 1st 2002.

Tax policy and regional Botswana’s main sources of government revenue are diamond earnings, income competition from the common customs pool of the Southern African Customs Union (SACU), and the income earned by the central bank on its investment of the country’s foreign-exchange reserves. Although the government is trying to diversify its sources of revenue, the relative unimportance of corporate tax gives

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it leeway to use low tax rates to encourage the investment needed to diversify the economy. To this end, corporate tax is capped at 25%, and there is a special 15% concession for some categories of manufacturing and financial services owing to Botswana’s status as an international financial services centre. Other countries in the region have also tried low tax policies (particularly Mauritius), but regional bodies such as SACU have expressed concern that this is giving rise to 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. Ultimately, Botswana must find more to sell about itself than its tax breaks; improving the infrastructure, increasing the availability of commercial land in Gaborone and building up international telecommunications are all important goals.

The introduction of value-added tax

Originally scheduled for 2001, value-added tax (VAT) will be introduced in July 2002. This will replace a sales tax that was gradually extended during the 1990s and that was inefficient in terms of both coverage and the cascading effects (where a good that has already been taxed is taxed again). Questions have been raised as to whether Botswana’s businesses will be able to manage the new tax, particularly given the government’s limited efforts in terms of public education, which was part of the reason why the introduction of the tax was delayed. Concerns have also been expressed as to the possible price raising effects of the tax. However, Botswana can learn from the experiences of other Southern African countries where VAT has already been introduced, and it is likely that, after some initial problems, the new tax will operate smoothly.

Privatisation is slow Although economic policy focuses on encouraging private-sector activity, the government has not been successful in rolling back its activities in various parastatals. A commitment was made to privatise Air Botswana in 1995 and a 1998 review recommended a more wide ranging privatisation programme. It also recommended the commercialisation of 65 public services, ranging from customs and excise to refuse collection. The report was updated in 2000, but progress remains slow. The privatisation of Air Botswana was due to take place in 2001, but has been delayed owing to a deterioration in industry specific and international economic conditions and no new date has been set. The government faces little pressure to proceed rapidly with the privatisation programme, as public finances are healthy and because parastatals have, for the most part, been operated reasonably efficiently. Therefore, the government is inclined towards caution, particularly as there has been domestic opposition to privatisation as it is feared that it will entail job losses. However, it seems likely that the establishment of the Public Enterprise Evaluation and Privatisation Agency in 2001 will inject some urgency into the privatisation programme. The government is keen to encourage domestic investment—not least for the new public-sector pension fund that was set up in 2001—and the way that the private cell phone companies have outshone BTC has been a clear demonstration of the potential efficiency gains that privatisation can bring. The major uncertainty is how the government will accommodate the demand for citizen empowerment in the privatisation programme.

Corruption in Sub-Saharan Africa

2000 2001 Country Scorea Scorea % change Rankingb Botswana 6.0 6.0 0.0 26 Namibia 5.4 5.4 0.0 30 South Africa 5.0 4.8 –4.0 38 Mauritius 4.7 4.5 –4.3 40 Ghana 3.5 3.4 –2.9 59 Malawi 4.1 3.2 –22.0 61 Senegal 3.5 2.9 –17.1 65 Zimbabwe 3.0 2.9 –3.3 65 Zambia 3.4 2.6 –23.5 75 Côte d'Ivoire 2.7 2.4 –11.1 77 Tanzania 2.5 2.2 –12.0 82 Kenya 2.1 2.0 –4.8 84 Cameroon 2.0 2.0 0.0 84 Uganda 2.3 1.9 –17.4 88 Nigeria 1.2 1.0 –16.7 90

a Where 1=most corrupt and 10=most transparent. b Out of 91 countries.

Source: Transparency International, Corruption Perceptions Index (various editions).

Corruption in Botswana

Compared with other countries in the region, corruption in Botswana is not a serious problem. In 2001 it was ranked 26 out of 91 countries rated by Transparency International (TI), the highest ranking for any of the African countries that were surveyed.

The government is determined to ensure that corruption does not flourish and in 1994 established the independent Directorate of Corruption and Economic Crime, which has a mandate to investigate corruption cases, implement preventative strategies and conduct public education. The director reports directly to the president, and the decision to prosecute rests with the attorney- general. High-profile cases have included the conviction for fraud of a former permanent secretary and the issuing of an arrest warrant for a former general manager of Air Botswana. The local press is also alert to instances of corruption and gives prominent coverage to corruption cases. Although corruption is not pervasive in Botswana, the recently formed local chapter of TI believes that the international rating understates its prevalence. It has pointed out that the measurement does not take into account some forms of corruption, such as political influence peddling.

Increasing prosperity and, in particular, the fact that there is a relatively well- paid civil service, combine to limit the risk of corruption developing as a serious problem in Botswana. However, the buoyant state of government finances acts as a strong temptation for attempts to influence the allocation of public funds. Abuse of support programmes such as the Financial Assistance Policy—a package of grants to encourage industrial development—was extensive and was not confined, as much media coverage would seem to

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suggest, to unscrupulous foreign investors. The allocation of land, which takes place mainly on an administered basis, is another area where there have been allegations that those with political influence have benefited unfairly. The large amount of resources currently being poured into combating HIV/AIDS may become an area where corrupt practices can flourish.

Economic performance

Real GDP grew strongly Between 1966 and 1991 Botswana recorded the highest average annual real until the early 1990s GDP growth rate in the world, at 6.1%; this pushed GDP per head up from US$660 in 1966 to over US$3,000. A fall in mining output and a slowdown in the construction industry led to a small recession in 1992/93 (July-June), but growth resumed quickly and has continued since—GDP per head in 2001 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 (see Mining) 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 2000/01 1996/97-2000/01 GDP 9.1 7.0 Source: Ministry of Finance and Development Planning, Annual Economic Report.

Inflation has been falling Botswana sources most of its imports from South Africa. As the pula is closely linked to the South African rand, local consumer price inflation is driven largely by changes in the consumer price index in South Africa. Following South African trends, and aided by a cut in civil service wages in real terms, inflation fell below 10% in 1997 for the first time since 1988. Inflation remained subdued until late 1998, when large civil service pay awards, a depreciation of the pula, and increases in private-sector credit pushed the rate up from its low for the year of 5.9% to reach 6.4% by year-end. Continued currency falls and rising oil prices caused average annual inflation of 7.8% in 1999 and 8.6% in 2000. During 2001, despite an increase in civil service pay averaging 20%, tight monetary policy and more benign international conditions caused inflation to fall—it averaged 5.8% during the final quarter of the year. The dramatic depreciation of the rand against the US dollar during the latter part of 2001 has led to concerns that inflationary pressures may increase again, although an appreciation of the pula against the rand should help mitigate this. In the 2002/03 budget speech, it was forecast that inflation will average 6.5-7% over the next two years; this is at the upper end of the range being targeted by the central bank, which is keen to build on its success in reducing inflation in 2001. (See Reference tables 14 and 15 for trends in consumer prices and the consumer price index.)

Inflation (av; % change) Annual average 2001 1997-2001 Consumer prices 6.6 7.7 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, 1999 and 2001. Relief programmes have ensured that drought has not led to famine. In fact, because of high levels of government assistance, farmers often find drought years more profitable than those with normal weather conditions, leading to pressure to make the programmes permanent.

Livestock—the backbone of Livestock, and in particular cattle, is the mainstay of Botswana’s traditional and agriculture modern agricultural 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 the levels achieved prior to this. (See Reference table 16 for historical data on livestock numbers.)

Beef processing accounts for around 80% of agricultural output, much of which is exported by the Botswana Meat Commission (BMC), which holds a monopoly on such exports. The most lucrative export market is the EU, which grants preferential access under the Contonou (formerly the Lomé) agreement. However, the BMC has generally not been able to fully utilise the quota owing to inadequate supply. A total of 168,753 cattle were slaughtered in 2001, the highest kill since the early 1990s, but still well below the capacity of the abattoirs—BMC’s abattoir in Lobatse is the largest in Africa. Drought, disease and new EU directives on identification and registration have all hampered the industry. Farmers have often been unwilling to sell their cattle to the BMC, preferring local butchers and abattoirs; the Commission, in turn, has complained that farmers are insufficiently commercial in their approach. The BSE scare in the EU has also hit demand, but this was offset by the European supply shortage caused by an outbreak of foot-and-mouth disease in the UK in early 2001. In early 2002, slaughtering at BMC abattoirs was suspended and cattle movements halted in the wake of a suspected outbreak of foot-and- mouth disease in the north-east of the country.

Although its importance to the economy has been in steady decline, the cattle industry retains great political clout. Cattle farmers receive significant financial support and generous tax treatment. Nevertheless, the government is aware of the need to commercialise the industry. Concerned about the performance of

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the BMC, it commissioned a review of its operations, including the status of its export monopoly, and decisions based on this are to be taken by mid-2002.

Food production falls short Food-crop production—mainly maize, sorghum, millet and beans—provides of consumption less 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 15,000-30,000 tonnes. (See Reference table 17 for data on production of principal crops.) The government has increasingly recognised that traditional methods of communal, arable agriculture can do little to alleviate rural poverty and parliament is scheduled to discuss the recommendations of a national masterplan for agricultural development in early 2002.

Forestry and fishing There are large areas of deciduous forest in the north-east and mopani trees are prevalent throughout the north. These are the habitat of the mopani worm, an edible caterpillar with potential for commercial exploitation. In Chobe district six forest areas have been designated reserves. 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 rate of economic growth and the country is now the second-largest African mining producer by value— South Africa is the largest. 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, 2000 (‘000 tonnes unless otherwise indicated) Diamonds (m carats) 24.6 Copper-nickel matte 45.5 Coal 946.9 Soda ash 191.0 Salt 184.7 Source: 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 De Beers Botswana Mining Company (now Debswana), an equal joint partnership between the international mining conglomerate, De Beers, and the Botswana government. Soon after, the Selebi-Phikwe copper-nickel mine, operating as Bangmanwato Concessions Limited, was opened. The small Letlhakane diamond mine, south- east of Orapa, was opened in 1977 and a third diamond mine was opened at Jwaneng in the south in 1982. The mining sector’s contribution to GDP rose

from only 1% in the 1971/72 fiscal year (April-March) to 32% in 1979/80 and peaked at 53% in 1988/89, before declining to 36% of GDP in 2000/01. (See Reference table 18 for mineral production by volume and value.)

Diamonds Diamonds are marketed exclusively by De Beers’ London-based Diamond Trading Company, 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 in the world after Australia, and is the largest in terms of the value of output. The introduction of a seven-day working week in January 1997 and a major new investment in treatment capacity at Orapa lifted output from 21.3m carats in 1999 to 24.6m carats in 2000. Exploration has continued and several new kimberlite pipes have been discovered in the north-west of the country. The new Damtshaa mine, near Orapa, will open in October 2002, but will be very small. Diamond production is expected to level out for the foreseeable future. Debswana has no plans to develop potential resources in the central Kalahari, partly because of allegations that the government is removing the indigenous bushmen to make way for mining developments.

Botswana has three diamond-cutting and polishing factories. The two largest are a subsidiary of Debswana at Serowe, in the Central district, and a plant in Molepolole (close to Gaborone) currently owned by the Israel-based Shacter & Namder Group. Both plants are suffering because of cheap Indian competition. Although Botswana is a major producer of diamonds, the high value/weight ratio gives it no real competitive advantage in related, downstream industries. In fact the local polishers do not even source rough diamonds from Botswana as they are not thought skilled enough to deal with high-quality local stones.

After two buoyant years, demand for diamonds slowed sharply in 2001, in tandem with the global economy. In response, De Beers imposed quotas on its suppliers of rough diamonds and these are still in place. It also reverted to its traditional role of maintaining price stability—despite its stated intention to move away from being the “buyer of last resort”. As a result, Botswana’s exports of diamonds fell sharply in 2001—in local currency terms they were 17% lower in the second half of the year than in the first half. In 2002 Debswana is only expected to be able to sell 88% of its capacity. However, full production will be maintained for the time being, as cost savings from reduced output are small; the excess stones produced will be stockpiled. The market is expected to recover in the short to medium term, but there are still downside risks, particularly competition from new producers entering the market and the possibility of a damaging campaign against conflict diamonds which will affect demand from legitimate suppliers such as Botswana.

Copper and nickel The copper-nickel mining operation at Selebi-Phikwe has never been commercially successful. It has suffered from technical problems and falling international prices and has frequently relied on emergency government funding. A recovery of nickel prices in 1999 allowed the repayment of an emergency loan, but when prices fell again in 2001 emergency funding resumed. The mine will probably continue to operate, owing to political pressures to protect the workforce of 5,000, particularly as the town is a

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marginal parliamentary constituency currently held by the ruling Botswana Democratic Party. Large debts to Anglo American, a major shareholder along with government, have gone unpaid for several years, and are unlikely to be cleared. In contrast, the Tati Nickel Mining Company, which has mined copper and nickel near Francistown since the mid 1990s, has been commercially successful. In 2000 it announced plans to double production at its Phoenix mine, while phasing out operations at its Selkirk plant. The expanded mine will use modern technology which improves recovery rates, but will no longer use the smelting facilities at Selebi-Phikwe, a further blow to the town.

Coal and soda ash Total proven reserves of bituminous coal are very large; there are resources of 17bn tonnes in coalfields in eastern Botswana. However, the coal is of low quality and apart from demand from the Morupule power station, domestic use is limited and prospects for developing export markets are remote because of high transport costs. The only operating coal mine is at Morupule, ownership of which was recently transferred from Anglo American to Debswana.

Botswana Ash (Botash) took over the mining of the Sua Pan brine deposits, north of Francistown, after Soda Ash Botswana pulled out because of strong competition in the South African market from American producers. 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 of soda ash in the first nine months of 2001 was 50% higher than in the same period in 2000 and the company is making a profit. It hopes to expand sales overseas despite continued strong competition.

Other minerals Although settlement in the Francistown area was originally driven by discoveries of gold, in recent years only a small amount has been mined on an intermittent basis (8 kg in 1999). However, gold output may be about to pick up, as in 2001 Gallery Gold, an Australian company, listed itself on the venture capital board of the Botswana Stock Exchange, and by early 2002 its share price had more than doubled owing to encouraging announcements regarding potential finds in the area. Indications are that there are exploitable reserves of around 1m ounces and, subject to more detailed survey work, a mining operation is scheduled to begin in 2003. Semi-precious stones, mainly pink carnelians and agates, are also 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. However, no applications for prospecting have been made.

Manufacturing

Manufacturing accounts for only about 5% of GDP, but employs about 10% of those in formal employment. The government sees manufacturing as crucial to employment growth and to helping diversify exports away from the mining

sector; within manufacturing itself there has been substantial diversification away from the once dominant beef export industry. In the decade to 2001 manufacturing growth averaged 5.3%. Because of the small size of the domestic market, manufacturing activity in Botswana depends to a large extent on the country’s access to the South African market through its membership of the Southern African Customs Union (SACU). During the 1990s, the establishment of an assembly plant for Hyundai cars encouraged expectations that a vehicle industry could be developed to service the region—vehicles were Botswana’s second-largest source of export revenue in 1994. However, production stopped in early 2000 when the South African group that ran the operation went into liquidation. Although it generated great disappointment, this failure was less important than the media made out: based on the assembly of kits, the plant provided little value added, and its failure was more to do with the dubious business activities of the company’s owners than an indication of the potential for manufacturing in Botswana.

High hopes for AGOA The government has tried to encourage the development of a textile industry and, although the industry has yet to be successfully established, the government has high hopes of benefiting from the Africa Growth and Opportunities Act (AGOA), which allows duty-free access for textiles, among other products, to the US market. This will be particularly beneficial if, as is expected, the US Congress grants Botswana a special dispensation, because of its small domestic resource base, to source raw materials from third countries. As of early 2002 five companies, all in the textiles sub-sector, had been issued with the necessary authorities to commence exports under AGOA. More generally, the Botswana Export Development and Investment Agency assists manufacturing and a concessionary rate of 15% company tax provides a further incentive for industry. However, a shortage of serviced land, high rents, utility and transport costs and relatively low labour productivity are barriers to expansion and local economists have continued to question Botswana’s potential to develop a sustainable competitive advantage in manufacturing.

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 cancelled all contracts after a corruption scandal. These contracts have been gradually resumed, and rapid growth in government spending since the mid 1990s has supported the sector. More recently, construction of private housing, commercial and retail developments has started to boom. In 2002 a major project to construct a financial services centre is scheduled to get under way which, at an estimated cost of P800m, will be the largest construction project ever in Botswana. Controversially, in 2001 the government established a fund to assist troubled citizen property developers, a scheme that was widely seen as a means to bail out those with good political connections. (See Reference table 19 for further data on building plans approved.)

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Financial services

The government 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 IFSC is based on a legal jurisdiction rather than a physical location, although it has stimulated interest in construction developments. The government has adopted a concessional 15% tax rate for firms in the industry, and has hired the consultants who assisted in setting up a successful IFSC in Dublin, Republic of Ireland. The Bank of Botswana (the central bank) supervises the activities of IFSC registered companies. It will be several years before the success of the project can be determined, although the authorities are cautiously optimistic and as of early 2002 ten IFSC companies were operational. In early 2002 concerns about access to necessary labour were removed when the government granted IFSC companies exemption from normal work permit regulations. Botswana’s international reputation is enhanced by its high sovereign credit rating, and as some banks are relocating from central Johannesburg the outlook for some success is positive.

Commercial banking Two of Botswana’s five main commercial banks are UK-based (Barclays and Standard Chartered), whereas Standard Bank Investment Corporation (Stanbic) and the First National Bank of Botswana are South African. The Bank of Baroda, which commenced operation in 2001, is Indian. 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. In late 2001 ABC Holdings, a Zimbabwean company with operations in the IFSC, took over the leasing company, ulc, and was granted a merchant banking license.

Non-bank financial Historically, the National Development Bank (NDB) has been one of the main institutions financiers of commercial agricultural projects in Botswana. However, since a radical overhaul of its operations in the mid-1990s, it has moved away from this sector, which comprised only 18% of its lending in 2000 (compared with 61% in 1991). The NDB has also operated schemes on an agency basis for the government, including the disbursal of funds under the Financial Assistance Policy (FAP) and, from mid 2001, provided the interim management of the newly established Citizen Entrepreneur Development Agency, which replaced FAP. The Botswana Building Society is the main provider of mortgages to households. The Botswana Savings Bank, which concentrates on rural areas using the post office network, 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— through 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. It made a loss in 1999 as provisioning for bad loans grew, a situation which was exacerbated by the collapse of the Hyundai plant, to which BDC was heavily exposed, but returned to profitability in 2000 and again in 2001.

Insurance Botswana’s insurance industry is growing rapidly. The country now has eleven insurance companies, with assets of P2.5bn (US$466m) at the end of 2000, an increase of 34% on the previous year. In 2002 legislation was being drafted to cover international insurance business in the IFSC.

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 the end of 2001 the domestic companies index (DCI) had 16 companies listed and a total market capitalisation of P8.91bn (US$1.31bn). Seven companies are listed on the foreign index and one on the newly established venture capital board. The BSE has recorded consistent growth since 1995, and in 2001 made major gains owing to the expected boost to demand caused by the establishment of a contributory pension scheme for civil servants, 30% of the assets of which must be invested locally. As a result the DCI rose by 69% during 2001 and more significant gains are predicted for 2002. The increased demand for local shares is expected to lead to further listings on the exchange. Liquidity is low (turnover is around 6% of market capitalisation, which is on a par with other stock markets in Africa) and the vast majority of shares are owned by institutional investors. The corporate bond market, though currently extremely lacking in liquidity, is also developing—six corporate bonds are currently listed on the BSE. The government hopes that privatisation and the securing of its portfolio of loans to parastatals and local authorities will further stimulate capital market development. (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. Botswana’s main tourist attraction is the unique wetland environment of the Okavango delta, as well as three national parks and five game reserves that feature abundant wildlife. The government also hopes to develop tourism based on cultural history. There are plans to establish an autonomous Tourism Board, which will include a tourism development fund, but these have yet to be approved by parliament. The development of tourism is increasingly sensitive owing to extensive foreign ownership in the sector; the issue of how best to promote citizen empowerment may hold back further growth in tourism.

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Regional troubles have After a slump in the early 1990s, the number of tourist visitors to Botswana affected the sector grew rapidly for several years. However, regional political troubles, particularly the situation in Zimbabwe, severely affected the industry—twin-centre holidays covering the two countries were an important source of revenue—and the September 2001 attacks on the US worsened prospects still further. As a result, the tourism industry has appealed for the government to provide a special package of financial assistance although, at the time of publication, this has not been forthcoming.

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.

Retail Large retail outlets serve Botswana’s main towns and, increasingly, the larger villages. Many South African retail chains are well represented, particularly in Gaborone. Two large regional shopping malls are scheduled to open in 2002, leading to fears of overcapacity, particularly because of competition from similar developments across the nearby South African border. According to estimates by Furniture Mart, a local furniture retail company, retail space per capita is twice as high in Botswana as in South Africa.

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 and the Africa Growth and Opportunities Act (AGOA). Primary exports, 2000 (P m; fob) Total 13,623 of which: diamonds 11,397 vehicles 270 copper-nickel 552 meat products 278 textiles 244 soda-ash 208 Source:. Bank of Botswana, Botswana Financial Statistics.

Trade surpluses are the Because of its substantial diamond export earnings, Botswana generally records 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, but fell in 2001 following the fall in global demand and the imposition of quotas by the DTC. Nevertheless, provisional estimates from the central bank show a trade surplus and this is expected to continue in coming years.

Exports The UK is the largest market for Botswana’s exports, followed by the rest of Europe (particularly Switzerland)—both markets consist mainly of diamond exports. SACU’s share of exports is about 7%, and this is the main market for Botswana’s non-traditional (that is, not beef) manufactures. Botswana’s exchange-rate policy is dominated by the need to maintain competitiveness in regional markets, particularly its manufactured exports to South Africa. It is expected that under AGOA the importance of the USA as an export market— currently about 1%—will increase significantly. (See Reference table 22 for a breakdown of main export destinations.)

Main trading partners, 2000 (P ‘000; exports on fob basis; imports on cif basis) Exports fob to: Imports cif from: UK 9,644 SACU 7,846 Others (Europe) 2,417 Others (Europe) 1,307 SACU 927 UK 442 Zimbabwe 541 Zimbabwe 367 Others (Africa) 126 US 174 US 82 Sources: Ministry of Finance and Development Planning, Annual Economic Report.

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 has usually been 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 machinery and electrical equipment has overtaken food. In 2000 machinery accounted for 22% of import spending, food 14% and vehicles 12%. 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, supplying goods associated with vehicle assembly, but because of the closure of the Hyundai vehicle assembly plant in 2000 this is no longer the case. (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 and imports goods with a much lower value/weight ratio, its services balance—

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mainly freight and insurance costs—has been negative since the 1980s. Since 2000 the deficit on the services account has widened further because of the costs of the greatly increased numbers of Batswana studying at higher education institutions outside the country. Despite a difficult few years, tourism earnings are now starting to boost service earnings. Income credits stem mainly from earnings on Botswana’s large foreign-exchange reserves and 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 because of high SACU revenue. The overall current-account balance has similarly remained positive, often strongly so. (See Reference table 24 for national estimates of the balance of payments and Reference table 25 for IMF estimates of the balance of payments.)

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

Over the last few years the financial account has gradually moved from surplus to deficit as the importance of portfolio investment has increased. The majority of foreign direct investment has been directed towards the mining sector, followed by manufacturing and finance. 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. Figures for investment in Botswana are distorted by the treatment of unpaid debts to the creditors of the financially troubled BCL copper-nickel mine, as these non- payments (including accrued interest) show up as inward investment flows.

Low foreign debt At end-1999 Botswana’s total external debt was US$462m, of which around 70% was owed to multilateral creditors (mainly the African Development Bank, the European Investment Bank and the World Bank). Bilateral official creditors accounted for almost all of the remainder. The government continues to

borrow externally on concessional terms, mainly to finance infrastructure projects, because this is more efficient than using its own foreign-exchange reserves (which totalled US$6.2bn in November 2001). However, because the country is relatively wealthy, the government is finding it increasingly difficult to borrow on such terms and repayments are exceeding new borrowings, allowing the debt stock to fall on an annual basis.

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.

Government may issue Although the government is unlikely to borrow much at commercial rates sovereign bond there are signs that its favourable sovereign credit ratings, awarded in March 2001 by two international agencies, Moody’s and Standard & Poor’s, may encourage some exploratory forays into international money markets. The government has indicated its intention of issuing a benchmark bond or bonds during 2002. On a regional comparative basis Botswana’s debt is small and its debt-service ratio was estimated at 2.4% in 2000; servicing it is not a problem. (See Reference table 26 for a breakdown of external debt.)

Sovereign credit ratings, 2002 (rating for long-term foreign-currency debt; as at February 25th) Moody’s ratinga Standard & Poor’s ratingb Botswana A2 A Brazil B1 BB– Cyprus A2 A Egypt Ba1 BBB– Israel A2 A– Kuwait Baa1 A Mauritius Baa2 n/a Slovenia A2 A South Africa Baa2 BBB–

a Moody’s ratings scale runs from Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1 down to C3 and measures the risk of government default on long-term foreign-currency sovereign debt; ratings of Baa3 and above are investment-grade. b Standard & Poor’s scale runs from AAA, AA+, AA, AA–, A+, A, A–, BBB+ to D; ratings of BBB– and above are investment grade.

Source: Moody’s Investors’ Service; Standard & Poor’s.

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Aid Since 1990 official aid receipts have been on a downward trend. 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 2001. Despite attaining middle-income status, Botswana continues to receive aid, reflecting donors’ responses to drought conditions and, increasingly, the HIV/AIDS pandemic. (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$5.9bn in at the end of 2001. This is equivalent to about 29 months of import cover. Much of the reserves are invested in foreign government securities—mainly US treasuries. (See Reference table 28 for data on foreign reserves.)

Exchange-rate policy For most of the time 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. During the 1990s the need to maintain competitiveness has been the overriding factor in exchange-rate management; on several occasions the authorities have devalued the pula against the SDR portion of the currency basket, to follow the rand downwards, though a small appreciation against the rand has occurred. Depreciations against other major currencies have revived the national debate on ending the link with the rand. However, in 2001 the authorities did not devalue the pula in response to the significant fall in the rand, and the pula appreciated sharply. The reorientation of monetary policy (see Economic policy) indicates that control of domestic inflation is being given a greater weight in policy considerations. (See Reference table 29 for historical data on exchange rates.)

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 Economic and financial data on Botswana come from three major sources. The Ministry of Finance and Development Planning publishes data mainly at the time of the annual budget speech (early February). As well as the budget documents, it produces the Annual Economic Report, which covers economic developments more broadly, and provides the first opportunity to see the most recent estimates for national accounts and employment statistics. The Bank of Botswana has prime responsibility for producing monetary and balance of payments data. Its Annual Report, usually published in early May, contains comprehensive statistical tables and accompanying analysis. The bank also produces the monthly Botswana Financial Statistics (BFS). This mainly covers the financial sector, but also includes sections on national accounts and government finance, and is the only source of sub-annual breakdowns of the government budget. Both the Annual Report and BFS are on the Bank’s website, where it recently started posting up-to-date economic and financial highlights.

The Central Statistics Office (CSO) produces a wide range of socio-economic data covering national accounts, employment, prices, population, education, health and transport among others. As well as producing regular updates in these areas it is responsible for conducting major socio-economic surveys. Its resources are sometimes stretched, meaning that production schedules are sometimes erratic: in particular its main Statistical Bulletin does not usually come out twice a year as scheduled. However, separate statistical briefs are produced that help the flow of information.

The quality of Botswana data is generally considered to be good and in accordance with international standards. Botswana has been participating in the IMF’s Data Dissemination System as a means to improve standards further. For balance of payment and national accounts data in particular there are long lags in moving from provisional to final estimates; to a large extent this reflects the care taken in preparing the data, although long delays in producing trade figures causes problems with balance-of-payments data. The main problems lie with timely and effective dissemination of some of the data.

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

Bank of Botswana, Botswana Financial Statistics (monthly) and Annual Report, Gaborone

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Botswana 39

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

Department of Minerals and Mines, Annual Report, Gaborone

Ministry of Finance and Development Planning, Annual Economic Report 2002, 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

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 and K Good, Realising Democracy in Botswana, Namibia and South Africa, Africa websites Institute, 1997

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

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

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

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

A Samatar, An African Miracle, Heinemann, 1994

Bank of Botswana: www.bankofbotswana.bw; contains economic data and policy statements

Botswana government: www.gov.bw; features latest news and contact information for government ministries

Botswana Institute for Development Policy Analysis: www.bidpa.bw; contains information of publications produced across all aspects of he economy and some free content

Botswana Online: www.botswana-online.com; includes links to most of the country’s main websites

Mmegi newspaper: www.mmegi.bw; website of the leading independent weekly newspaper

Botswana Stock Exchange: www.bse.bw; features latest prices and background on the BSE

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) 1996 1997 1998 1999 2000 Population 1.50 1.53 1.57 1.61 1.65 % change, year on year 2.7 2.0 2.6 2.5 2.5 Source: IMF, International Financial Statistics.

Reference table 2 Transport statistics (‘000 unless otherwise indicated) 1996 1997 1998 1999 2000 Road Vehicle registrations & renewals 94.8 99.2 114.0 131.8 139.2 of which: cars 27.3 28.8 37.6 44.4 48.2 trucks 12.0 12.5 6.8 7.7 8.0 Rail Passengers 619.0 502.8 371.4 336.1 524.1 Freight (‘000 tonnes) 1,832.1 2,432.1 2,783.0 2,501.0 2,102.5 of which: transit 491.6 883.0 1,172.3 773.0 372.8 Air Passengers (‘000) 368.7 366.7 404.1 427.4 453.5 Arrivals 184.5 183.2 201.3 214.4 227.9 Departures 184.1 183.5 202.7 213.0 225.6 Source: Central Statistics Office, Statistical Brief.

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Reference table 3 Telecommunications (years ending Mar 31st) 1997 1998 1999 2000 2001 Telephone lines 72,189 85,592 102,016 123,819 135,900 per 100 people 4.7 5.5 6.4 7.5 8.5 Payphones 1,028 1,943 2,449 2,999 2,893 National traffic (bn metered call units) 573.2 694.6 847 n/a n/a BTC net income (P m) 30.1 47.6 74.6 40.0 2.2 Return on equity (%) 12.2 15.7 19.6 9.1 0.5 Return on capital (%) 11.5 13.6 15.9 9.6 6.2 No. of staff 1,610 1,703 1,700 1,754 1,700 Revenue per employee (P ‘000) 157 182 227 318 345 No. of lines per BTC employee 45 50 60 71 77 Source: Botswana Telecommunications Corporation (BTC).

Reference table 4 Gross domestic producta 1996/97 1997/98 1998/99 1999/2000 2000/01 Total (P m) At current prices 17,740 20,163 21,524 25,363 28,876 At constant (1993/94) prices 12,704 13,729 14,296 15,451 16,859 Real change (%) 5.6 8.1 4.1 8.1 9.1 Per head (P) At current prices 11,615 12,879 13,413 15,420 17,113 At constant (1993/94) prices 8,318 8,769 8,908 9,394 9,992 Real change (%) 3.0 5.4 1.6 5.4 6.4 a Years ending Jun 30th; provisional.

Source: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

Reference table 5 Sectoral origins of gross domestic producta (current market prices) 1990/91 2000/01b P m % of total P m % of total Agriculture, forestry & fishing 332 4.6 716 2.5 Mining & quarrying 3,112 43.5 10,287 35.6 Manufacturing 354 5.0 1,368 4.7 Electricity & water 150.8 2.1 679 2.4 Construction 545 7.6 1,563 5.4 Trade, hotels & restaurants 511 7.1 2,734 9.5 Transport & communications 226 3.2 1089 3.8 Financial and business services 580 8.1 2,198 7.6 Government services 1,051 14.7 4,654 16.1 Social & personal services 284 4.0 1090 3.8 GDP at market pricesc 7,565 100.0 28,876 100.0

a Years ending Jun 30th. b Provisional figures. c Do not sum owing to various adjustments: financial intermediation services indirectly measures taxes on imports and taxes and subsidies on products/production. Source: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

Reference table 6 Trend of gross domestic product by sectora (% real change, year on year) 1996/97 1997/98 1998/99 1999/2000 2000/01 Agriculture, forestry & fishing –7.5 5.9 –7.6 –8.7 4.9 Mining & quarrying 5.8 9.5 –2.8 12.1 19.6 Manufacturing 3.7 5.4 5.7 3.5 1.6 Electricity & water 4.6 9.9 12.9 11.3 4.7 Construction 5.5 4.3 11.5 2.4 1.6 Trade, hotels & restaurants 13.9 4.7 5.6 6.2 7.0 Transport & communications 4.3 9.1 16.2 2.6 5.0 Financial & business services 1.2 9.7 9.0 4.3 2.9 Government services 8.3 9.3 6.3 6.0 6.6 Social & personal services 5.0 2.9 7.5 4.4 1.3 GDP at constant prices 5.6 8.1 4.1 8.1 9.1 non-mining, private sector 4.7 6.7 8.3 6.3 3.0 a Years ending Jun 30th; provisional.

Source: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

Reference table 7 Employment by sectora (‘000 unless otherwise indicated) 1997 1998 1999 2000 2001 Agriculture 3,800 4,000 5,400 5,800 6,000 Mining 8,600 8,600 8,300 7,900 8,200 Manufacturing 23,500 23,100 28,000 29,800 30,900 Water & electricity 2,600 2,700 2,700 2,900 2,900 Construction 19,400 25,100 27,500 27,300 28,500 Commerce 41,000 43,300 44,500 47,600 49,900 Transport 8,400 8,500 9,800 9,900 10,100 Financial & business services 15,600 15,800 17,200 18,300 19,200 Community 3,700 3,900 4,200 4,300 4,200 Education 4,400 4,700 5,600 6,200 6,500 Private & parastatal 131,100 139,700 153,100 160,200 163,900 Parastatal 13,100 13,500 15,500 13,900 13,200 Private 118,000 126,200 137,600 146,300 150,700 Central governmentb 77,900 83,100 84,900 84,500 85,400

a As of Sep, except 2001 which is as of March; excludes working proprietors and unpaid family workers. b Excludes Botswana Defence Force, and casual and temporary employees.

Sources: Central Statistics Office; Ministry of Finance and Development Planning, Annual Economic Report, 2002.

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Botswana 43

Reference table 8 Average monthly earnings by sectora (P) 1996 1997 1998 1999 2000 Botswana citizens Private & parastatal 815 871 1,067 1,243 1,378 Agriculture 267 291 346 383 470 Mining & quarrying 1,238 1,354 1,950 2,249 2,755 Manufacturing 617 633 632 785 783 Electricity & water 1,371 1,857 2,043 3,166 3,234 Construction 656 794 754 776 891 Commerce 604 623 940 1,726 n/a Transport & communications 1,251 1,255 1,725 2,318 2,673 Finance & business services 1,301 1,348 2,456 4,807 n/a Community & personal services 808 912 886 2,953 n/a Education 1,617 1,889 1,983 2,261 2,791 Local government 947 964 1,190 1,496 1,789 Central government 1,134 1,170 1,566 1,733 1,932 Non-citizens Private & parastatal 3,531 3,779 4,906 5,257 5,664 Local government 2,915 3,207 3,927 5,091 5,866 Central government 2,808 3,303 3,623 5,292 5,767

a Mar data 1996-98; Sep data for 1999 and 2000.

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

Reference table 9 Minimum monthly wagesa (P) 1997 1998 1999 2000 2001 Building & quarrying 159 175 190 205 225 Manufacturing 159 175 190 205 225 Wholesale 152 165 180 205 225 Retail 143 155 170 185 205 Hotels & catering 159 175 190 205 225 Motor trades & transport 159 175 190 205 225 Night-watchmen 135 150 165 180 200

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 Does not sum in source.

Source: Ministry of Finance and Development Planning, projections.

Reference table 11 Government finances (P m; fiscal years Apr-Mar) 1998/99 1999/2000 2000/01 2001/02a 2002/03b Revenue 7,678 11,963 14,115 13,347 15,411 of which: mineral taxes & royalties 3,187 6,687 8,368 7,463 8,492 customs pool 1,261 1,931 2,188 1,735 1,541 Bank of Botswana profits 1,217 1,200 1,167 1,086 1,150 Expenditure 9,065 10,427 11,536 13,433 17,030 of which: recurrent 6,265 7,048 8,383 9,613 11,642 capital 2,935 3,451 3,135 3,762 5,187 net lendingc –134 –181 –101 –42 47 Overall balance –1,388 1,536 2,579 –86 –1,620 a Revised estimates. b Budget estimates. c Mainly to parastatals via the Public Debt Service Fund.

Sources: Ministry of Finance and Development Planning.

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Botswana 45

Reference table 12 Money supply (P m unless otherwise indicated; year-end) 1997 1998 1999 2000 2001a Currency in circulation 276 353 404 427 502 Demand depositsb 693 968 1,129 1,087 1,459 M1 969 1,320 1,533 1,514 1,962 % change, year on year 9.4 36.2 16.1 –1.2 29.6 Call, savings, notice & time deposits 2,591 3,438 4,429 4,446 5,169 M2 3,560 4,759 5,962 5,960 7,131 % change, year on year 25 33.7 25.3 0.0 19.6 Bank of Botswana certificatesc 1,756 1,920 2,525 2,440 1,906 M3 5,316 6,679 8,486 8,400 10,037d % change, year on year 18.4 25.6 27.1 –1.0 19.5 Foreign currency deposits 482 939 1,096 1,186 1,599 M4 5,798 7,618 9,582 9,586 11,636 % change, year on year 21.2 31.4 25.8 0.0 21.4

a Oct data are latest available. b Half of interbranch deposits are deducted from demand deposits to account for items in transit. c Discounted value. d Does not sum in source.

Source: Bank of Botswana, Botswana Financial Statistics.

Reference table 13 Interest rates (%; year-end) 1997 1998 1999 2000 2001a Bank rate (Bank of Botswana) 12.5 12.5 13.3 14.3 14.3 Prime rate 14.0 14.0 14.8 15.8 15.8 Real prime lending rateb 5.8 7.1 7.3 6.7 9.4 3-month Bank of Botswana certificate 11.4 10.7 12 12.7 12.6 Real Bank of Botswana certificateb 3.3 4.0 3.3 3.9 6.4 Mortgage loans (Botswana Building Society) 14.5–15.0 13.5–14.0 13.5–14.0 14.5–15.0 14.5–15.0 Savings accounts (commercial bank) 7.6 7.1 7.3 8.7 8.5 12-month fixed rate (commercial bank) 9.9 9.1 10.4 10.7 10.7 a Oct data are latest available. b Deflated by consumer price inflation, three-month annualised rate.

Source: Bank of Botswana, Botswana Financial Statistics; Central Statistics Office, Consumer Price Statistics.

Reference table 14 Consumer prices (annual average) 1997 1998 1999 2000 2001 Index (1995=100) 119.9 127.7 137.7 149.5 159.4 % change, year on year 8.9 6.5 7.8 8.6 6.6 Source: Bank of Botswana.

Reference table 15 Consumer price index (Nov 1996=100; % change year on year in brackets) 1996 1997 1998 1999 2000 2001a Domestic tradeables 100.5 107.7 114.1 121.8 129.5 137.1 (10.9) (7.2) (5.9) (6.7) (6.3) (5.9) Imported tradeables 100.9 111.1 117.8 127.1 138.2 144.7 (8.6) (10.1) (6.0) (7.9) (8.8) (4.6) All tradeables 100.8 110 116.6 125.2 135.3 142.1 (9.4) (9.1) (6.0) (7.5) (7.9) (5.1) Non-tradeables 100.1 104.1 111.7 118.4 129.2 139.1 (9.0) (4.0) (7.3) (6.0) (9.1) (7.7)

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) 1997 1998 1999 2000 2001a Diamonds (m carats) 20.2 19.8 21.3 24.6 18.0 Copper-nickel matte 40.3 45.3 59.9 45.5 31.0 Coal 776.9 928.1 945.3 946.9 701.9 Soda ash 199.9 195.5 233.6 191.0 176.8 Salt 184.5 214.7 233.1 184.7 124.9 Gold (kg) 28 1 8 n/a n/a Semi-precious stones (tonnes) 54 38 84 n/a n/a

a Data up to September.

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

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Botswana 47

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

a Total does not sum in original.

Source: Central Statistics Office, Statistical Bulletin.

Reference table 20 Botswana Stock Exchange, domestic shares (end-period) 1997 1998 1999 2000 2001 No. of stocks quoted 12 14 15 15 16 Market indexa (Jun 1989=100) 706 947 1,399 1,454 2,455 Capitalisation (P m) 2,329 3,224 4,874 5,248 8,909 US$ m 614 724 1,052 979 1,310

a Domestic shares only; foreign shares were first quoted on Apr 1st 1997; seven South African companies were dual-listed at mid-February 2002.

Source: Bank of Botswana, Botswana Financial Statistics.

Reference table 21 Foreign trade (P m) 1996 1997 1998 1999 2000 Exports fob Diamonds 5,272 7,670 6,040 9,706 11,384 Vehicles 1,145 1,182 966 667 270 Copper-nickel matte 445 480 436 558 830 Meat products 206 231 298 223 264 Textiles 195 248 303 249 244 Soda-ash 69 110 98 107 98 Total incl others 8,133 10,390 8,697 12,228 13,834 Imports cif Food, beverages & tobacco 972 1,083 1,247 1,412 1,494 Fuel 366 465 433 495 523 Chemical & rubber products 587 749 843 941 1,033 Wood & paper products 420 512 653 819 817 Textiles & footwear 427 533 570 596 617 Metals & metal products 506 881 958 877 769 Machinery & electrical goods 924 1,453 2,019 2,142 2,356 Vehicles & transport equipment 809 1,648 1,546 1,374 1,314 Total incl others 5,720 8,256 9,513 10,164 10,613 Sources: Ministry of Finance and Development Planning, Annual Economic Report 2002.

Reference table 22 Exports by destination (%) 1996 1997 1998 1999 2000 South African Customs Union 18.3 14.3 17.2 10.4 6.7 Zimbabwe 3.1 3.7 2.9 2.4 3.9 Other Africa 0.6 1.1 1.3 1.1 0.9 UK 54.3 56.2 55.5 66.5 69.7 Other Europe 22.5 23.5 21.5 18.2 17.5 US 1.0 1.0 1.0 0.7 0.6 Others 0.3 0.2 0.6 0.7 0.7 Sources: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

Reference table 23 Imports by origin (%) 1996 1997 1998 1999 2000 South African Customs Union 78 72.5 74.8 76.6 73.9 Zimbabwe 5.7 4.5 3.9 3.9 3.5 Other Africa 0.4 0.5 0.6 0.3 0.3 UK 2.6 2.0 3.4 2.7 4.2 Other Europe 4.2 7.0 6.8 6.5 12.3 South Korea 4.4 9.5 4.8 2.6 0.2 US 1.3 1.1 1.4 1.8 1.6 Others 3.4 3.0 4.4 5.6 4.0 Sources: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

Reference table 24 Balance of payments, national estimatesa (P m) 1997 1998 1999 2000b 2001b Visible trade balance (adjusted) 3,269 328 3,629 4,603 4,149 Net services –841 –988 –721 –1,136 –1,173 Net income –529 505 –1,213 –1,792 –1,609 Net transfers 735 1,015 1,164 1,108 1,191 Current-account balance 2,634 860 2,859 2,782 2,558 Capital-account balance 62 134 95 194 105 Current- & capital-account balance 2,695 994 2,954 2,977 2,663 Financial-account balance 20 –855 –1,127 –1,021 –1,294 Net errors & omissions –398 118 2 –15 –345 Overall balance 2,318 257 1,829 1,941 1,024

a According to IMF Manual V. b Provisional.

Sources: Ministry of Finance and Development Planning, Annual Economic Report, 2002.

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Botswana 49

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 4736282421 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 7.1 1.4 4.3 Concessional long-term debt/long-term debt 48.3 52.5 51.6 57.4 58 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) 1996 1997 1998 1999 2000 Bilateral 67.9 55.8 73.1 41.1 23.5 of which: Germany 7.7 7.2 14.2 10.5 6.7 Japan 18 9.8 34.0 13.9 6.1 UK 4.7 6.5 5.2 4.8 3.7 Norway 6.6 7.3 4.2 2.7 2.7 US 7.0 9.0 3.8 3.6 1.0 Sweden 15.7 8.5 3.8 1.2 0.7 Multilateral 8.4 69.2 35.9 20.7 8.1 of which: EC 2.7 64.8 29.1 17.4 4.4 UN Development Programme –1.6 0.6 0.6 0.7 0.9 African Development Fund 3.1 1.5 4.6 –0.5 0.3 Totalb 74.6 121.6 106.4 60.9 30.7 of which: grants 67.1 82.1 77 60.1 36.3

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) 1996 1997 1998 1999 2000 Foreign exchange 5,027.7 5,675.0 5,940.7 6,229.2 6,317.2 SDRs 41.3 40.9 45.6 38.5 38.9 IMF reserve position 28.6 24.5 38.9 31.0 23.1 Total reserves excl gold 5,097.6 5,740.5 6,025.2 6,298.7 6,380.3 Source: IMF, International Financial Statistics; Bank of Botswana, Botswana Financial Statistics.

Reference table 29 Exchange rates (annual averages) 1996 1997 1998 1999 2000 2001 P:US$ 3.324 3.651 4.226 4.624 5.102 5.841 P:R 0.774 0.792 0.771 0.757 0.720 0.680 Sources: IMF, International Financial Statistics; Bank of Botswana, Botswana Financial Statistics.

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Lesotho 51

Lesotho

Basic data

Land area 30,344 sq km

Population 2.2m (2000 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 2001: M8.61:US$1. On February 27th 2002 the loti stood at M11.41:US$1

Time 2 hours ahead of GMT

Public holidays (2002) January 1st (New Year’s Day), March 11th (Moshoeshoe’s Day), March 29th (Good Friday), April 1st (Easter Monday), April 4th (Heroes’ Day), May 1st (Workers’ Day), May 9th (Ascension Day), July 17th (King’s birthday), October 4th (Independence Day), December 25th (Christmas Day), December 26th (Boxing Day), December 27th (public holiday)

Politics

Lesotho is a constitutional monarchy with an unstable democracy. Democracy was restored to the country in 1993 after being under military leadership from 1986. In the last legislative election, in May 1998, the Lesotho Congress for Democracy (LCD) won all but one of the seats contested. These results were contested and a regional intervention force was eventually needed to put down popular protest. Agreement on a new electoral model, which includes an element of proportional representation (PR), was finally secured in 2001 and a re-run of the 1998 election is expected around May 2002. The LCD is expected to retain its majority in parliament.

Political development

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 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. Relations between

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Lesotho 53

the king and the general deteriorated so much that King Moshoeshoe II was exiled in 1990. His eldest son, crowned as King Letsie III, replaced him.

The return 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 nomin- ate 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 agreed to a national dialogue with the opposition and reinstated Moshoeshoe as monarch in place of Letsie in January 1995. King Moshoeshoe’s reign was short lived, as he was killed in a car accident in January 1996, after which Letsie became king again.

The BCP then fell apart as a result of jockeying for position to succeed the ailing Mr Mokhehle. When the BCP leader’s term 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: Economist Intelligence Unit.

SADC intervention On September 17th 1998, the findings of the Langa Commission were released. Many administrative and practical problems with the 1998 election were reported, but not widespread fraud. The Commission’s call for a re-run of the election lead to an upsurge of popular protest and another apparent coup attempt. An intervention force made up of troops from South Africa and Botswana, under the auspices of the Southern African Development Community (SADC), eventually quashed this dissent, but 70 lives were lost, including a dozen South African soldiers, in the process.

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. However, it was delayed because of tension between the government, who was determined to demonstrate that it was in control of the country’s political agenda, and the IPA, which realised that once elections were held it would become redundant, losing access to generous entitlements.

Deadlock is broken in early This deadlock lasted until early 2001, when legislation was enacted allowing 2001 the IEC to determine the method of voter registration and, under pressure, the upper house agreed to a reduction in the number of seats elected by proportional representation to 40. The IEC announced that registration would take place during August and September 2001 using a combination of fingerprint recording and indelible ink, leaving too little time for a poll to be held during that year. Voter registration proceeded as scheduled, although slow progress initially meant that the period for registration had to be extended. While there were continued complaints about the government’s handling of the situation by the IPA, it had become a spent force and the opposition parties were more concerned with internal power struggles ahead of the election. The election is expected to take place in April or May 2002.

Important recent events

May 1998: The Lesotho Congress for Democracy (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.

EIU Country Profile 2002 © The Economist Intelligence Unit Limited 2002 Lesotho 55

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, under Justice Raymond Leon, to investigate the political disturbances of 1998 and to identify the perpetrators.

February-March 2001: Legislation on the electoral model finally passes through parliament and the Independent Electoral Commission (IEC) determines the method of voter registration.

August-September 2001: Voter registration takes place. After an extension of the registration period, 920,000 people register, slightly above the IEC’s target.

September 2001: Kelebone Maope resigns as deputy prime minister and, together with 25 other MPs, leaves the LCD to form a new party, the Lesotho People’s Congess.

October 2001: The Leon Commission submits its report to government, recommending a strengthening of institutions to ensure effective communication between social groups.

Constitution, institutions and administration

A constitutional monarchy Despite being suspended from 1970 to 1986 and rewritten by a National Constituent Assembly in 1990, the key elements of the 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 unrest of late 1998, the IPA was mandated to review the current Electoral Code, the IEC and the constitution, and bring about a new election by April 2000. The IPA has 24 members representing the 12 political parties at the time of its formation. 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 PR and those who support retaining the first-past-the-post system.

In October 1999 the IPA voted in favour of a system 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 allocated on a proportional basis. Other provisions included the retirement of members of the IEC who had been tainted by allegations surrounding the conduct of the 1998 elections. Despite ratification through a Memorandum of Agreement between the IPA and government, 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 at the insistence of government so that the elected members would have the two-thirds of votes necessary to change the constitution.

The legal system Lesotho’s legal system is based on Roman-Dutch law and is close to that practised in South Africa. The judiciary is independent 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 the IEC was created to supervise the 1998 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 a review by the IPA, the existing members of the IEC were removed in January 2000 and replacements were appointed that April. Recently the IEC has enhanced its credibility by successfully carrying out voter registration for the next election.

Security risk in Lesotho

Armed conflict: The potential for armed conflict within the country has been clearly demonstrated. While the unrest in 1998 culminated in fighting, owing to the intervention of a joint force of troops from South Africa and Botswana, it had begun with unrest in the Lesotho Defence Force (LDF). Historically, the LDF has been heavily involved in domestic politics and has also been prone to factional infighting. Efforts to increase troops’ profession- alism and remove unsuitable elements may have gone some way to reduce these risks, but there is still a serious concern that the LDF may continue to be a source of future instability.

Unrest/demonstration: Demonstrations in Lesotho can quickly get out of hand with the security forces unable, or in some cases unwilling, to restore order. Political leaders have frequently encouraged their supporters to resort to lawlessness. Serious incidents in both 1991 and 1998 have also shown how general discontent can quickly turn into aggression directed specifically at

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foreigners. Foreign-owned businesses—particularly those owned by Asians— have been major victims of destruction of property. With the government keen to develop the economy by attracting foreign investment it is likely that extra efforts will be made to protect such businesses in the future, but the underlying potential for unrest should be taken seriously.

Violent crime: Violent crime is a common phenomenon in Lesotho. Low levels of income and the exposure of many workers to the culture of violence that surrounds migrant labour in South Africa contribute to this. The carrying of firearms is commonplace, and the forced retirement of unruly elements of the LDF could increase the extent of uncontrolled lawlessness in the country. The political leadership has not always set a good example, and the shooting of the prime minister’s son in Maseru in early 2002 raised concerns that politically motivated killings may not be a thing of the past. There is a big problem with cattle rustling, both within the country and between Lesotho and South Africa; this is often violent, but generally confined to rural areas.

Organised crime: Lesotho’s location and small size provide little to attract organised crime. In the past it may have provided a safe haven for criminals operating in South Africa, but increased bilateral co-operation between the two countries will work against this.

Kidnapping: Kidnapping has been used for both political and economic purposes in Lesotho. Although there have been no high-profile examples in recent years, it is clear that sensible precautions need to be taken.

Political forces

The BNP held power for a Modern party politics began with the formation of the Basotho Congress Party long time (BCP) 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 Basotho National Party (BNP), led by Chief Jonathan, won the 1965 election with a narrow majority. 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 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. 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. 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. But 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.

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.

Kelebone Maope: Resigned as deputy prime minister in September 2001, and left the LCD with a significant number of MPs to form the Lesotho People’s Congress, of which he became interim leader.

Tom Thabane: Foreign minister and a powerful LCD insider.

Sephiri Motanyane: Minister of sports, culture and tourism and secretary- general of the LCD. A close ally of Mr Mosisili who, in his previous position as a minister in the prime minister’s office, was widely seen as leading the pressure on Mr Maope to leave the party.

Major-General Metsing Lekhanya: Leader, since March 1999, of the Basotho National Party (BNP). Experienced politician who was a former head of government and chairman of the ruling Military Council (1986-91). His involvement in the period of military rule means that he has many political enemies, including from within his own party.

Ts’eliso Makhakhe: Engaged in a struggle with Molapa Qhobela for the leadership of the Besotho Congress Party (BCP). A court ruling in January 2002 reinstated Mr Makhakhe as the party’s legitimate leader, although this may be challenged.

Molapa Qhobela: Controversially elected leader of the BCP at the party’s general meeting in January 2001. His victory was challenged on the grounds that he and his supporters were not legitimate party members.

Major-General Makhula Mosakeng: As head of the Lesotho Defence Force, he has overseen some reforms to the army since the 1998 unrest.

Billy Macaefa: Stood down as leader of the increasingly powerful Lesotho Clothing and Allied Workers Union (LECAWU) in October 2001 to concentrate on developing the newly formed Lesotho Workers Party (LWP) in the run up to the general 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 that 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 Ts’eliso Makhakhe, failed in its legal challenge to prevent the new party from forming the government and Mr Mokhehle from continuing as prime minister. In

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preparation for the 1998 election, the LCD held its first national conference, at which Mr Mokhehle declined a request to continue as leader. The deputy prime minister, Pakalitha Mosisili, was elected party leader, easily defeating his only challenger, Kelebone Maope.

Recently formed LPC is Domestic politics is largely personality based, and it is for this reason, rather main threat to LCD than disputes over policy, that each of the main parties has been subject to leadership challenges and severe internal divisions in recent years. By far the most important of these resulted in the split in the LCD, which led to the formation of the Lesotho People’s Congress (LPC) under the interim leadership of a former deputy prime minister, Mr Maope, in September 2001. This followed the LCD annual meeting in January 2001, where disputed results of the election to the National Executive Committee brought in to the open long-standing differences in the party. 26 MPs immediately joined the LPC, making it the LCD’s main challenger in the forthcoming election. While the LCD is still expected to win the election, a strong showing from the LPC leading to a vibrant opposition in parliament will strengthen democracy’s weak roots in Lesotho.

Neither the BNP nor the BCP are likely to mount much of a challenge at the elections. Both their leaders are more concerned with securing control of party structures in the run up to the elections, so that they can influence the choice of candidates likely to benefit from the introduction of an element of PR. Since the party’s annual conference in March 2001, Metsing Lekhanya, a former leader of the military regime, has strengthened his grip on the BNP. The struggle for control of the BCP has been particularly intense with two factions, led by Mr Makhakhe and Molapo Qhobela respectively, both resorting to the courts to pursue their leadership claims. In January 2002 the court ruled that Mr Qhobela’s election at the 2001 annual meeting was illegitimate, and Mr Makhakhe, who had himself been replaced by Mr Qhobela at a special meeting in 2000, resumed the leadership. However, this is unlikely to settle the matter.

The introduction of PR may further reinforce the fragmentary nature of Lesotho’s politics, as parliamentary seats are spread wider. As of early November 2001, 16 parties were registered with the IEC, with others reported to be in the process of registering. Of these parties the most important is probably the Lesotho Workers Party, formed in August 2001. Based on the highly politicised Lesotho Clothing and Allied Workers Union (LECAWU) and led by the charismatic Billy Macaefa—the former LECAWU secretary-general— it has a solid base of support. However, while the textiles sector is the main source of growth in the economy, this core constituency remains narrow in comparison to the population as a whole where the influence of organised labour is limited.

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 85% 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 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).

Political relations between the two countries have been difficult, but they improved markedly after the 1986 military coup. Diplomatic ties were officially established in 1992 and relations have tightened since the end of the apartheid government. 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 and the withdrawal of multiple-entry visas for Basotho travelling to and from South Africa. 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. The state visit to Lesotho in 2001 by Mr Mbeki as president was as a vote of support for the government, with the symbolic present of a cow to King Letsie seen as a sign of the improved relations between the countries. The visit also saw the establishment of a bilateral commission to support economic development in Lesotho. South Africa maintains a vested interest in supporting social development in Lesotho, recognising that recurring instability could spread over the border.

Lesotho and the SADC Lesotho has established diplomatic relations with over 70 countries and is an active member of the SADC. Lesotho decided to leave the Common Market for Eastern and Southern Africa (Comesa) at the end of 1997 to focus its attention on SADC. Lesotho has been a member of all the Lomé (now Cotonou) conventions between the EU and the African, Caribbean and Pacific (ACP) countries.

A small but active army Lesotho has a small standing army of about 2,000 regular troops, the Lesotho Defence Force (LDF). This includes one air squadron. About 10% of recurrent expenditure is allocated to defence and internal security. The army has trad- itionally 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, and the sentences they received are a lingering source of bitterness.

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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 likely to be introduced into the police and national security services. After Operation Maluti it was revealed that a further 500 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. Army morale has yet to recover from the SADC intervention.

Military forces, 2001

Army (no. of troops) 2,000 Defence spending (US$ m) 21 Source: International Institute for Strategic Studies, The Military Balance 2001/02.

Resources and infrastructure

Population

Population indicators, 2000

Population (m; mid-year) 2.2 Population growth rate (%) 2.2 Infant mortality (per 1,000 live births) 92.0 Child malnutrition (% of children under five) 16.0 Urbanisation (%) 27.0 Life expectancy at birth (years) 56.0 Source: World Bank.

The IMF estimate that the population of Lesotho was about 2.04m people in 2000. 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—it is estimated that around 2m Basotho are in South Africa. Lesotho’s population growth rate is estimated at 2.2% per year. Fertility rates are declining, although 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, at 82.3%, although the provision of education is barely able to keep up with demand. The availability of facilities has not improved recently 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 effective- ness 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 when the introduction of a policy of free primary education caused a 75% increase in first-year enrolment. The provision of vocational and technical post-secondary education has increased in recent years, but it is still insufficient. There is a very high pupil/teacher ratio, of around 70:1, which has not been helped by the policy of free primary education. 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. Pay levels have adversely affected morale among teachers, and in 2001 the Lesotho Teacher’s Trade Union called on its members to vote against the ruling Lesotho Congress for Democracy at the next election. 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 and again in 2002, following the worst drought in 20 years the previous agricultural season. Primary healthcare in rural areas is being improved, and, according to the UN Development Programme, about 80% of the population enjoy access to health services, compared with 57% for Sub-Saharan Africa as a whole.

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.

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HIV/AIDS The prevalence of HIV/AIDS has risen from almost no reported cases in 1992 to an estimated infection rate of 27% in 2001, with a 40% rate in Maseru, and the upward trend shows so no signs of abating. The government has acknowledged the seriousness of the situation and established the Lesotho AIDS Co- ordinating Authority. Non-governmental organisations have also launched programmes, but the lack of resources is a severe constraint. Stigma continues to surround the disease while the private sector has little real interest in committing resources given the ready availability of cheap labour.

Natural resources and the environment

Lesotho is a predominantly mountainous country, on a high plateau that 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 limited vegetative cover. As a result of pressures on the land from human and livestock activity, the country faces several major environmental problems: loss of topsoil, which is eroding agricultural productivity and 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, communications and the Internet

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 was sold to a Johannesburg-based charter company, Ross Air, in August 1997; but it 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. All scheduled flights to Lesotho are via South Africa.

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 Vodacom Lesotho (VCL), a joint venture between Lesotho Telecommunications Corporation (LTC) and South Africa’s Vodacom, has provided a cellular telephone service. 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, has had the right to a second cellular phone licence. Simultaneously, the government agreed to sell its stake in VCL. The Internet has made only slow inroads into Lesotho, reflecting low incomes and the small size of the potential market. Internet services have been provided from South Africa rather than domestic Internet service providers.

Media South Africa’s electronic and print media are widely available in Lesotho. There are 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 Ministry of Information 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. The government has been criticised for using its control of the state-owned media to exclude the views of opposition groups.

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 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, which in turn has boosted prospects for developing tourism in the interior of the country.

When the ‘Muela hydropower station, built during Phase 1 of the LHWDP, 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-

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supported study on the prospects for privatising the plant was undertaken in 2001. At the very least, the government is committed to running the plant as a commercial entity separate from the rest of the LHDA.

Energy balance, 2001 (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 & 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.

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, as part of the Lesotho Utilities Sector Reform Project, which is supported by the World Bank, the African Development Bank and the EU, 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.

The Lesotho Highlands Water Development Project (LHWDP)

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 is expected to be complete 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 inter- connecting 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. 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 LHWDP 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 agree-

ment from the Namibian government, which holds rights on the use of the Orange river, would also be required. Therefore, Phase 2, along with all subsequent phases, are open to major revision, and there are strong rumours that they may not go ahead. If all the phases do 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. 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. In February 2002 Acres International, a Canadian firm, was charged with two counts of bribery involving payments to Mr Sole, who, having lost a civil case in 2001, is facing criminal charges.

The economy

Economic structure

Main economic indicators, 2001

Real GDP growth (%) 2.6 Consumer price inflation (av; %) 6.9 Population (m) 2.04 Current-account balance (US$ m) –140 Total external debt (US$ m) 700 Average exchange rate (M:US$) 8.61 Source: Economist Intelligence Unit.

A poor but fast-growing Lesotho is one of the world’s poorest countries, with GDP per head estimated country at just US$365 in 2001. It remains heavily dependent on remittances from migrants working in South African mines, although 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, possibly, hydroelectric power to South Africa. That said, there are other 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 (LHWDP) ended.

Agricultural production lacks a solid commercial base and is erratic, with 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 to South Africa and the US; exports to the latter are expected to grow strongly owing to Lesotho’s qualification for export concessions under the Africa Growth and Opportunities Act (AGOA). Until recently, growth in construction has been double that of manufacturing. However, this growth was strongly related to the LHWDP. Rebuilding after the destruction in 1998 led to renewed growth in 1999, but this subsequently levelled off as the government experienced difficulties in implementing its planned capital expenditure programme.

Comparative economic indicators, 2001

Lesotho Botswana South Africa Namibia Swaziland Zimbabwe GDP (US$ bn) 0.81 5.68 110.7 3.04 1.17 9.33 GDP per head (US$) 365 3,348 2,491 1,639 1,199 757 Real GDP growth (%) 2.6 4.3 2.0 3.0 1.2 –7.5 Consumer price inflation (av; %) 6.9 6.6 5.8 9.3 7.5 74.8 Merchandise exports fob (US$ m) 250 2,462 31,829 1,245 702 1,935 Merchandise imports fob (US$ m) 720 1,919 27,712 1,445 850 1,428 Current-account balance (US$ m) –140 443 87 107 –60 –295

Source: Economist Intelligence Unit.

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 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 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. While 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 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 PRGF 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. The first IMF review of the PRGF was successfully completed in July 2001.

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, although this included exceptional factors, notably the cost of recapitalising Lesotho Bank. The programme agreed with the IMF targets a move to a modest budget surplus by 2003/04 (although excluding grants, equivalent to about 4% of GDP, the budget will still be in deficit). The government projects a budget surplus for 2001/02 equivalent to 2.2% of GDP, although this is mainly owing to a shortfall in capital spending.

A sales tax was introduced in 1982 and income tax administration was strengthened. The top rate of income tax was lowered to 35%, and a double- taxation agreement was signed with South Africa in 1996. A flat rate of corporate tax of 15%, also introduced in 1996, 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, this source of income is likely to decline considerably in the coming years because of the phased reduction of external tariffs under World Trade Organisation rules and in line with its free-trade agreements. In response to this, the government is committed to further strengthening tax administration, and in accordance with the IMF programme, the Lesotho Revenue Authority (LRA) was established in 2001. This amalgamated the tax, sales tax and customs and excise departments into an autonomous body that is intended to be self-financing. Private-sector representation on the LRA board should go some way to ensuring its autonomy. The introduction of value-added tax (VAT) was scheduled for April 2002, although this will now be delayed for up to six months. Over a full fiscal year, VAT coverage will increase revenue by 15% compared with the existing sales tax.

Summary of government finances, 2001/02 (revised projections M m; fiscal year Apr-Mar) Receipts 3,122.5 Revenue 2,864.9 Grants 257.6 Expenditure 2,969.0 Balance 153.5 Source: Ministry of Finance.

Civil service pay accounts for the majority of recurrent expenditure, although spending in this area has declined from around 50% of total recurrent expenditure in the mid-1990s to less than 40% of the total at present. A ceiling on public-sector pay is included in the IMF programme, and the small increase in 2001—only 2% after several years of pay freezes—led to much anger amongst civil servants. Increases in capital expenditure have been limited by fiscal constraints and by weaknesses in the government’s capacity to implement projects, which has caused donors to hold back on the release of grants. (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 CBL is taking measures to improve methods of bank supervision and to modernise the payments system. In 2001 the CBL made a decisive move away from direct controls to open market operations as the instrument of monetary policy when, in August, the first auction of Treasury bills—a performance benchmark under the IMF programme—took place. The CBL intends to encourage the development of a secondary market in T-bills and the full liberalisation of capital account transactions in order to attract foreign investment. (See Reference table 4 for data on money supply.)

Corruption in Lesotho

While Lesotho is a poor country, known for its fragile political stability and social disorder, corruption is not a major problem. This may be in part a function of the generally low incomes, meaning there is little left for redistribution through corrupt practices. This is not to say that corruption is not present, especially at the petty level where civil servants, who have been without significant pay increases for several years, supplement their incomes.

Despite this relatively benign assessment, the government is keen on enhancing its anti-corruption credentials. To this end great faith is being placed on successful prosecutions over the corruption scandal surrounding the award of contracts in the Lesotho Highlands Water Development Project. The former chief executive of the Lesotho Highlands Development Authority, Masupha Sole, has lost a civil case and was ordered to pay back M7.7m (US$894,000) in bribes received; criminal proceedings commenced in August 2001. Also implicated are a number of major international construction companies, who could be blacklisted from World Bank contracts if they are found guilty. Mr Sole’s lawyers have argued that he is being used to create an impression that the government is serious in combating corruption while other cases are being ignored.

Economic performance

Gross domestic product (% real change) Annual average 2000 2001a 1997-2001 GDP 2.7 2.6 2.2

a Projection.

Sources: Economist Intelligence Unit; 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 LHWDP, which also caused sharp fluctuations in the growth rate from year to year. Before work commenced on the LHWDP, the GDP/GNP ratio was about 50%; subsequently, the ratio has risen to around 80%. Real GDP growth averaged 2.2% per year in 1997-2001, although this was influenced heavily by a sharp contraction in the economy in 1998 caused by the post-election unrest. Growth in 2000 and 2001 has been led mainly by the rapid expansion of the manufacturing sector, owing to growth in the export of textiles, but is well below the target of 8-10% per year considered necessary by the government to reduce unemployment and poverty. (See Reference tables 5-7 for data on GNP and GDP.)

Miners’ remittances remain Migrant labour in South Africa is still the most important source of wage vital 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. The number employed in South African mines has fallen from a high of 127,000 in 1989 to only 63,000 in the second quarter of 2001, mainly because of the declining profitability of gold mines, which absorb about 80% of Basotho migrants. This long-term trend is unlikely to be reversed. In 2000 real GNP was 11.5% lower than in 1998 and it is clear

that the domestic economy must be the main source of future growth. (See Reference table 8 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. The 2002 budget speech reported that unemployment was in the range of 40-45%. The government has estimated that 40,000 jobs need to be created every year if unemployment is to be reduced significantly, and that this would require real GDP growth rates of 8-10%. In contrast, the programme agreed with the IMF in March 2001 targets real GDP growth of only 4% by 2003. Although the LHWDP helped to create employment, this was largely transient and 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. There is justifiable anticipation that major opportunities will arise in the US market, owing to the Africa Growth and Opportunities Act (AGOA). The government has estimated that a further 15,000 jobs could be created in the sector in the next few years, and is committed to providing the necessary infrastructure to enable the development of industrial facilities to support this. The government is the single largest employer, but is committed to curbing the growth of public-sector employment in the face of budgetary pressure. In 1999 growth in government employment was negative. Real income growth in the formal sector has been slow, and new manufacturing employment has been predominantly low-wage, low-skill jobs in the textiles, clothing and leather industries; concerns have been expressed about working conditions in this sector.

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. After a slight increase in 1999, when inflation averaged 8.7%, the rate fell to an average of 6.2% in 2000. Inflation increased again during 2001, averaging 6.9%, thanks largely to increases in the prices of foods, beverages and tobacco, which have a 43.5% weight in the consumer price index. Inflation in this sector is higher than in South Africa because of structural rigidities. While inflation in this subsector continued to accelerate, overall inflation fell towards the end of the year, but is likely to pick up again as the fall of the rand in late 2001 begins to impact on prices. (See Reference table 9 for data on the consumer price index.) Inflation (av; % change, year on year) Annual average 2001 1997-2001 Consumer prices 6.9 7.4 Source: Bureau of Statistics.

Economic sectors

Agriculture, forestry and fishing

Agriculture is in decline Agriculture was the source of livelihood for about 57% of the domestic labour force according to 1999 estimates. 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 unpredict- able 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. The destruction of farm equipment during the 1998 unrest has been a factor in this decline. A drought in 2000/01 caused a sharp deterioration in the harvest and a plea from the World Food Programme for emergency food aid.

Production of major crops, 2001/02a (‘000 tonnes) Maize 107.8 Wheat 44.6 Sorghum 38.3

a Estimates.

Source: Lesotho National Early Warning Unit.

A history of direct government involvement in production, marketing and processing of agricultural inputs and outputs has limited private-sector involvement in the commercial development of the sector. A programme of structural reforms has been in place since 1996 and 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 and flowers. An Agricultural Sector Adjustment Programme, assisted by the African Development Bank, commenced in early 2000, providing finance for imports of agricultural inputs and equipment and capacity building. However, progress has been slow. The programme for privatising agricultural parastatals has not made much headway either, with little interest being shown by the private sector. In 2001 the governments of Lesotho and India, together with the UN Food and Agriculture Organisations (FAO), signed an agricultural pact that promotes technical co-operation between developing countries.

Livestock Livestock provides a significant proportion of rural income. Much of Lesotho’s terrain is well suited to animal husbandry, although 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 2.6m, a slight increase from the previous year. At 37% of this total, sheep represent the largest number. (See Reference table 10 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 a South African mining company, De Beers, opened the Letseng-la- Terae open-cast mine. 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 falling world diamond prices meant that the 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. In June 2001 agreement was reached with MineGem, a Canadian company, to develop a new open-cast diamond mine at Liqhobong through a subsidiary, the Liqhobong Mining Development Company (LMDC), which will buy out the rights to the mine from a co-operative of Basotho miners. The government has a 25% stake in LMDC.

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 manufac- ture of bricks, high-quality ceramic ware and tiles.

Manufacturing

Textiles is main area of Manufacturing has increased its share of GDP at factor cost from 8% in 1980 to growth 16% in 2000. Most of this increase was due to the expansion of the textile, clothing, footwear and leather subsectors. The sector contracted in 1998 and 1999 after the political unrest, but growth in 2000 was strong, at 9%, and growth is estimated at 10% in 2001. 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. Manufacturing is targeted mainly at the export market, with exports of manufactures growing by 71% between 1995 and 1999 in US dollar terms. The US market has become particularly important owing to exports of clothing and footwear, and now accounts for nearly half of Lesotho’s total exports. This trend is expected to continue as the country benefits from the Africa Growth and Opportunities Act (AGOA), which allows duty-free access for African textile exports to the US market.

The Central Bank of Lesotho has estimated that the textile sector employed a total of 21,000 people in 1999. Of this, 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. Labour in the textile subsector is increasingly well organised, with the Lesotho Clothing and Allied Workers Union (Lecawu) being behind the launch of the Lesotho Workers Party in 2001. A strike, called by Lecawu for November 2001, was only averted when the Lesotho Exporters Association agreed to pay wage increases in excess of the statutory minimum wage, and there was concern that allegations of lawlessness by protesting workers could harm prospects for future investment. 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

Building and construction contributed 18% of GDP at factor cost in 2000; 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 Lesotho Highlands Water Development Project (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, which will offer some scope for increased construction activity. However, capital spending is heavily dependent on donor funding (accounting for 61% of capital expenditure in the budget for 2002/03) and the government has faced severe difficulties in meeting the conditions necessary for disbursement, further holding back spending on construction projects. While resolving this problem has been identified as a priority, little progress has so far been made.

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, including the introduction of a system of Treasury-bill auctions, which commenced in August 2001. This 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 4.1% of GDP at factor cost in 2000 compared with 5.5% in 1990. However, the programme of restructuring is expected to improve the sector’s performance. (See Reference table 11 for commercial banking statistics and Reference table 12 for details of the main interest rates.)

The CBL is actively trying to encourage more competition in the banking sector, particularly from South African banks, but potential investors remain put off by the legacy of the political events of 1998. The CBL’s biggest concern is that banks are not lending enough—the capital/deposits ratio is 14%, compared with up to 80% elsewhere in the region. However, even in the banks’ small loan portfolios there are still considerable non-performing loans. This is owing to a culture of non-repayment, which stems from historical reasons— politicians exploited Lesotho Bank and parastatals crowded out the private sector. Potential new entrants are also concerned about problems with commercial courts, which are under-resourced and have a huge case backlog.

Limited financial services It is generally recognised that the existing institutions do not provide sufficient for rural population 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 mid-2001 Nedbank (Lesotho) announced that it was in discussions with postal authorities to establish banking kiosks at rural post offices.

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 August 2001 the Lesotho Unit Trust, jointly operated by Standard Bank Unit Trusts (from South Africa) and the Lesotho-based PMB/Harley and Morris, was launched. The purpose of the unit trust is help Basotho gradually take ownership of the government’s remaining holdings in privatised enterprises— for this purpose the government will sell its shares to the trust at a 30% discount—and to encourage capital market development and a culture of long- term saving. The trust is monitored by the CBL.

Other services

Tourism Tourism, although 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. The unrest in 1998 caused a downturn in the number of visitors, 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. A Tourism Development Corporation will replace it, operating within 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. In November 2001 the government announced a joint venture with HSP Alpine Services of Austria to develop a ski resort on the mountain road to Mokhotlong; the government has committed funds to providing necessary infrastructure, and the first phase should be open in mid-2002.

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. The retail sector has still not fully recovered.

The external sector

Trade in goods

Foreign trade, 2000 (M m) Exports fob 1,468 Imports fob –5,051 Trade balance –3,582 Source: Central Bank of Lesotho.

Structural trade in deficit, Despite recent growth in exports, there is a strong structural imbalance in though exports are rising 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 13 for a breakdown of foreign trade statistics.)

Exports have increased rapidly since 1986, supported by growth in manufacturing exports following the establishment of new, export-oriented industry. The rate of growth has slowed since 1993 but it has still been rapid; manufactured exports increased 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—to such an extent that textiles and footwear exports have accounted for about 70% of total exports in recent years. Provided that social stability is maintained, prospects for further growth in this area appear good. The passage of the Africa Growth and Opportunity Act (AGOA) in 2000 will be beneficial to Lesotho. (See Reference table 14 for a breakdown of exports.)

Concern over The new export trade has helped to diversify Lesotho’s export markets, to the concentration of exports extent that South Africa is no longer the largest export destination. In 1985 exports to countries in the Southern African Customs Union (SACU) accounted for 87% of Lesotho’s total exports, but in 2000 this figure was only 39%. Exports to the US had risen to around 60% in 2000, and other markets were insignificant. Lesotho has benefited from Asian textile manufacturers’ relocating their operations to take advantage of the preferable terms Lesotho enjoys under AGOA, and to avoid the quota restrictions that apply to exports from some countries. There are opportunities for significant further expansion in the medium term, particularly as Lesotho has gained a reputation for efficient production in textiles. However, the slowdown in the US economy in 2001 drew attention to the narrow base—in terms of both products and markets—of Lesotho’s manufactured exports, prompting the Central Bank of Lesotho (CBL) to call on the government to take measures to further diversify the economy. Imports from Asia have also increased, because Asian manufacturers in Lesotho have bought significant amounts of raw materials from their home countries, particularly Taiwan, Hong Kong and Singapore. After a surge in the early 1990s, when it reached over 9% of the total, the share

of exports bound for the EU has declined to an insignificant level. (See Reference tables 15 and 16 for details on the origin of imports and destination of exports.)

Main trading partners, 2000 (M m) Exports fob to: Importsa cif from: SACU 640.6 SACU 4,741.0 North America 822.4 Asia 429.8 EU 1.7 EU 82.0 Asia 0.0 US 68.0

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 late 1980s, 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 Lesotho Highlands Water Development Project (LHWDP) began to trickle in during the 1996/97 fiscal year (April-March) and will grow in importance in the coming years. However, the Economist Intelligence Unit does not expect that such receipts will exceed the costs of imports associated with the project until 2002/03. According to the most recent IMF estimates, the current-account deficit stood at US$151m, or 22% of GDP, in 2000. However, the deficit is following a declining trend 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$41.5m in 2000, slightly up on the 1999 figure, but a continuation of the downward trend. Multilateral sources accounted for just under one-half of net receipts in 2000; the EC was the largest single donor, with a contribution of US$10.2m. Ireland was the largest bilateral donor, contributing US$8.6m in 1999, followed by the UK and Germany. 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, 2000a (US$ m) Bilateral 21.8 of which: Ireland 8.6 UK 4.5 Germany 3.2 Multilateral 20.9 of which: EC 10.2 International Development Association 5.3 African Development Bank 2.2 Total 41.5b

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 LHWDP 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 will 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 programme agreed with the IMF, 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 though there was rapid growth in the 1990s, it has not accounted for more than 10% of total investment. Private investment is also sensitive to the economic climate, and investor confidence was shaken badly by the unrest in 1998. This is indicated by the CBL’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, and there are indications that significant further investments in the textile industry are in the pipeline. The government’s capital spending programmes give priority to investment in infrastructure to support private-sector investment. However, investor confidence will remain fragile until an atmosphere of political 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 decline 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 Bilateral 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 2000 total reserves stood at US$418m, providing about eight months of import cover. As SACU payments, the main source of foreign exchange, are not made on a monthly basis, the movement in reserves on a month-to-month basis can be volatile. (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, the first half of 2000, and the last part of 2001. (See Reference table 23 for data on exchange rates.)

Appendices

Regional organisations

African Union The 37-year-old Organisation of African Unity (OAU), based in the Ethiopian (Organisation of African capital, Addis Ababa, has now been superseded by the African Union (AU). Unity) Following ratification of the constitutive act of the AU by Nigeria on April 26th 2001—completing the requirement that two-thirds of member states do so— the new body came into force on May 26th. The annual assembly of heads of state and government of the organisation was held in the Zambian capital, Lusaka, on July 2nd-11th 2001, formalising the formation of the AU, although there is to be a one-year transitional period to allow it to become fully operational. The formation of the AU had been agreed at the 36th annual assembly of the OAU, held in Togo in July 2000. The AU is expected to have an executive council of ministers and an assembly comprising the heads of member states. Ambitious plans have also been outlined for the eventual formation of a pan-African parliament, a Union Court of Justice, an African central bank, an African monetary fund and an African investment bank. It is unclear when member states will be in a position to begin serious implementation of these measures. Common defence, foreign and communications policies, based loosely on those of the EU, are also envisaged. The AU’s founding statements stopped short of ending the OAU’s principle of non-interference. This has been a major hindrance in the resolution of conflicts on the continent but is strongly supported by member governments.

The OAU was founded in Addis Ababa in May 1963 by 32 African nations to promote solidarity and higher living standards, to defend the sovereignty of member states, and to eliminate colonialism. Another 21 signatories joined subsequently, the last being South Africa in 1994. Morocco left in 1985, following the admittance of the disputed state of Western Sahara as a member in 1984. The OAU’s general secretariat had an annual budget of roughly US$31m, which the AU will inherit. As with the OAU, the foreign ministers of member states of the AU will 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 Zambian president, Frederick Chiluba, took over the chairmanship from President Gnassingbé Eyadéma of Togo in July 2001. The organisation’s secretary-general is Amara Essy, Côte d’Ivoire’s foreign minister for most of the 1990s, who replaced Salim Ahmed Salim in September 2001 but is mandated to serve only until May 2002.

The OAU held 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 external debt. The AU carries forward the aims of the OAU, which included 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 possibility of establishing a military force to observe and monitor cease- fires negotiated by the OAU has been considered. Although the OAU never reached an agreement to deploy peacekeeping forces, it did undertake observer missions—something the AU is expected to do also. Conflict resolution came to dominate the annual summit of OAU heads of state from the mid-1990s, with the crises in the Great Lakes, Democratic Republic of Congo (DRC), Somalia, Sierra Leone, and Ethiopia and Eritrea. From 1999 the OAU was involved in conflict mediation in Somalia, Ethiopia and Eritrea, Comoros, and the DRC where four member states—seven at the height of the fighting—are involved in the conflict. Although the OAU did not intervene during the genocide in Rwanda in 1994, it was the only international institution to quickly recognise the gravity of the crisis and to condemn events openly at an early stage. The OAU was criticised as being ineffectual—little real action resulted from its policy decisions—and for years it was hampered by severe budgetary difficulties. These problems are likely to continue and it is unclear how the AU’s institutions will be any more effective than those of the OAU.

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. It replaced the Southern African Development Co-ordination Conference (SADCC), which was 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 of the SADC 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 organisation has focused mainly on energy and trade issues. The member countries aim to link 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 agreement, the Cotonou 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 making the subregion a landmine-free zone and measures to combat drug- trafficking, have been delayed by disagreements over the civil war in the DRC. 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 South Africa opposed the intervention. South Africa has acted act as a mediator in the DRC conflict, which will continue to overshadow all SADC initiatives, although a peace process now seems to be gathering momentum.

The SADC has also tried to resolve domestic political crises in its own region. 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. More importantly, the SADC has been accused of being little more than a talking shop, having failed to present a coherent policy for dealing with the worsening political and economic situation in Zimbabwe in the run- up to the March 2002 presidential election (despite the obvious damage it has done to the region—both the fall in the South African rand in 2002 and negative investor sentiment towards the region are blamed on the situation in Zimbabwe). The crisis has also deepened the animosity between Zimbabwe’s president, Robert Mugabe, and the South African leadership, which threatens to undermine the SADC.

Despite its difficulties in presenting a united political front, the SADC has recently started to reform its institutions to further its other aim, regional economic integration. One measure has been the establishment of an integrated committee of ministers, comprising at least two ministers from each member state. This should accelerate the implementation of policy. In addition, the old allocation of development responsibilities to the different

members is being replaced by four directorates. A directorate for trade, industry, finance and investment was established in August 2001 and a directorate for infrastructure, food, agriculture and natural resources in January 2002. The two other directorates, infrastructure services, and social and human development and special programmes, should be in place by the end of 2002. The SADC’s organ on politics, defence and security, which had been headed by President Mugabe of Zimbabwe, has now been brought formally within the organisation’s structure with a new chairman every year.

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. Historically the union was administered by South Africa, and under it the customs union gathered excise duties on local production and customs duties on member states’ imports from outside the SACU area. These were 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 local industries. 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 since 1994, and a new agreement was agreed in October 2001. The problem with the old revenue- sharing formula was that it included an element of compensation, 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 the region’s industry in South Africa and for the loss of policy discretion. However, even after the end of apartheid and South Africa’s joining of the WTO, the BLNS states continue to benefit from the stabilisation and compensation elements of the SACU agreement, even though external trade barriers are being lifted. In addition, the compensation element is now greater 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 deal, which still has to be ratified by all the member states, is due to come into force in April 2002. As well as resolving the main problems with the old deal, the new formula aims to ensure that revenue flows to each country are stable and do not fall below current levels. This is critically important for countries like Lesotho and Swaziland, for which customs revenue constitutes at least half of total government income. The main features of the new arrangement are as follows.

• Customs and excise duties are treated separately, and customs duties are to be distributed pro rata to members according to their share of intra-SACU imports. South Africa is by far the largest supplier of intra-SACU imports, and will contribute about 80% of the customs pool and get back some 50%.

• Most (85%) of the excise pool will be distributed in proportion to the GDP of the five countries; and 15% will be allocated on the basis of income per head, as a form of development assistance: countries with lower income per head will receive more.

• South Africa collects R8.5bn (US$770m) in excise duties, compared with about R500m collected by the other countries. South Africa will contribute 95% of the excise pool and get back 80%.

• South Africa will manage the common excise revenue pool for the first two years. Finance ministers will agree excise rates.

• All decisions will be reached by consensus of the five ministers of finance or ministers of trade and industry. If no agreement is reached, a panel of experts will be set up to resolve the problem.

• A tariff board, consisting of a group of experts, will be set up to consider all tariff and anti-dumping applications.

It has also been proposed that an independent SACU secretariat should 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 would also allow further reforms to be adopted more quickly. The location of the headquarters of the secretariat has not been decided. Botswana and South Africa have ruled themselves out, but the other countries feel that they have a good case for hosting it.

Cotonou Convention A new convention offering a group of 77 African, Caribbean and Pacific (ACP) countries preferential trade and aid links with the EU 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 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 to promote good governance, combat corruption and try to prevent illegal immigration into the EU.

Under previous conventions, ACP products, whether agricultural or industrial, entered the EU duty-free, though 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 have the option of entering the EU generalised system of preferences (GSP). 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 twin 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 long-term development schemes being carried out either at national or at regional level, with additional support available in the event of a fall 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 Multilateral Monetary Agreement formalises the use of the same currency, Agreement (MMA) or parallel currencies, among members of the Common Monetary Area (CMA): Lesotho, Namibia, South Africa and Swaziland. The CMA allows for the unrestricted transfer of funds within the monetary area, a common capital market and similar exchange control regulations with the outside world. The effect of this is that the smaller members have no control over their external exchange rates and interest rates, which are determined in a unified market, the core of which is in South Africa.

Botswana took part in negotiations to form the Rand Monetary Area (RMA), the predecessor of the CMA, but in 1976 opted to pursue independent monetary and exchange-rate policies. The CMA replaced the RMA in 1986 with the signing of the Trilateral Monetary Agreement, and Namibia joined in 1992 shortly after independence. Lesotho, Namibia and Swaziland introduced their own national currencies after independence, (the loti, dollar and lilangeni, respectively), but their exchange rates remain fixed at parity with the rand. 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 delinking the 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 reflected the influence of the South African Reserve Bank.

Sources of information

National statistical sources The main source of regular data for Lesotho is the Central Bank of Lesotho. Its Quarterly Review, as well as reporting on monetary and financial data, includes other statistical tables and a variety of informative data. A similar range of tables, but with a focus on a longer time period, is included in the Bank’s Annual Report. The monthly Economic Review is also a useful source of information. The Bureau of Statistics also produces data on output and inflation. The Ministry of Finance provides information with the annual budget speech, the timing of which has been variable in recent years.

Data quality is generally adequate, although sometimes limited in coverage (inflation, for example, is only measured on a monthly basis in Maseru and the quarterly measure is confined to lowland towns). There are sometimes major revisions, which are not always well explained, and there is some concern that data used by the government for its financial year (April to March) are not

always co-ordinated with the calendar year estimates produced by other agencies. A programme has been agreed with the IMF that requires regular and reliable production of key indicators; technical support is being provided.

Bureau of Statistics, Monthly Statistical Bulletin and Annual Statistical Bulletin, Maseru

Central Bank of Lesotho, Economic Review (monthly), Quarterly Review and Annual Report, Maseru

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

Lesotho National Development Corporation, Annual Report, Maseru

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

Sechaba Consultants, Poverty and Livelihoods in Lesotho, 2000, Maseru

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

IMF, Lesotho: 2000 Article IV Consultation and Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (June 2001)

IMF, Lesotho: Statistical Annex, June 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)

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

F Ellenberger, History of the Basuto, Ancient and Modern, Morija Museum and Archives, 1992 (first published in 1912)

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

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

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

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

The Mirror (English-language newspaper), Maseru

Leselinya la Lesotho (Sesotho newspaper), Maseru

Moeletsi oa Basotho (Sesotho newspaper), Maseru

Mopheme (English-language newspaper), Maseru

Southern Star (English-language newspaper), Maseru

Central Bank of Lesotho: www.centralbank.org.ls; contains latest publications and statistics

Interim Political Authority: www.ipa.org.ls; features details on the electoral system and the 2002 polls

Lesotho National Development Corporation: www.lndc.org.ls; provides details of LNDC’s operations and assistance available to investors

Mopheme newspaper: www.lesoff.co.za/mopheme; features reports from one of the country’s leading independent newspapers

Official government website: http://www.lesotho.gov.ls/; contains latest news and links to ministries

Reference tables

Reference table 1 Population (estimates; m unless otherwise indicated) 1996 1997 1998 1999 2000 Population 1.97 2.11 2.06 2.02 2.04 % change, year on year 5.3 7.1 –2.3 –1.9 1.0 Source: IMF, International Financial Statistics. Reference table 2 Government revenue and expenditure (M m) 1996/97 1997/98 1998/99 1999/00 2000/01 Receipts 2,238.0 2,426.2 2,289.6 2,442.7 2,749.2 Revenue 2,034.6 2,247.8 2,169.6 2,312.7 2,623.6 Customs receipts (mainly SACU) 1,006.0 1,172.8 1,033.4 1,183.1 1,125.2 Income taxes 299.0 340.1 324.5 419.5 468.5 Sales tax 194.0 223.5 233.3 283.2 343.6 Other tax 54.9 58.6 99.1 2.9 3.4 Non-tax revenue 480.7 452.3 479.3 424.0 684.6 of which: water royalties 142.8 83.3 133.1 142.9 154.9 Grants 203.4 178.4 120.0 130.0 125.6 Expenditure 2,052.7 2,341.4 2,438.4 2,786.7 3,012.6 Recurrent 1,179.0 1,473.1 1,942.7 2,307.5 2,513.5 Personal emoluments 604.4 721.3 837.6 835.9 921.8 Interest payments 66.3 90.0 128.5 228.7 252.4 Subsidies & transfers 240.1 201.2 292.0 268.5 278.2 Other goods & services 268.2 460.6 684.6 974.4 1,061.1 Capital 873.7 868.3 495.7 479.2 499.1 Balance 185.3 84.3 –148.8 –344.0 –261.4a Financing Foreign drawings (net) 352.0 345.5 18.1 –70.9 –224.7 Domestic drawings (net) –537.3 –429.8 130.7 414.9 426.5 a Financing does not sum to balance in source. Source: Ministry of Finance.

Reference table 3 Summary of recent fiscal trends (M m unless otherwise indicated) 1997/98 1998/99 1999/00 2000/01 2001/02 Total receipts 2,425.7 2,289.6 2,442.7 2,719.8 3,122.5 of which: SACU receipts (% of total receipts) 48.3 45.1 48.4 41.4 46.1 Total expenditure 2,341.4 2,438.4 2,786.7 3,012.6 2,969.0 of which: capital expenditure (% of total expenditure) 35.8 21.7 19.6 15.0 21.1 Balance (% of GNP) 1.3 –2.3 –5.3 –2.5 –1.2 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 1,013.1 % 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 1996 1997 1998 1999 2000a Total (M m) At current prices 4,048.4 4,719.5 4,920.6 4,622.2 6,153.0 At constant (1995) prices 3,720.6 4,023.8 3,808.4 3,884.6 3,981.8 Real change (%) 10.0 8.1 –5.4 2.0 2.5 Per head (M) At current prices 2,055 2,348 2,389 2,201 2,874 At constant (1995) prices 1,889 2,002 1,849 1,850 1,860 Real change (%) 7.8 6.0 –7.7 0.1 0.5 Sources: Central Bank of Lesotho, Annual Report; Economist Intelligence Unit

Reference table 6 Gross national product 1996 1997 1998 1999 2000 Total (M m) At current prices 5,471.3 6,264.4 6,289.4 7,115.6 7,681.3 At constant (1995) prices 5,243.5 5,525.8 4,987.2 4,901.7 n/a Real change (%) 9.4 5.4 –9.7 –1.7 n/a Per head (M) At current prices 2,913 3,251 3,168 3,413 3,589 At constant (1995) prices 2,662 2,750 2,427 2,335 n/a Real change (%) 7.2 3.3 –11.7 –3.8 n/a Source: Central Bank of Lesotho, Annual Report.

Reference table 7 Gross domestic product by sector (M m; current prices) 1996 1997 1998 1999 2000 Agriculture 661.1 686.2 774.7 873.9 939.0 Mining & quarrying 2.9 3.6 3.8 4.8 5.2 Manufacturing 585.0 683.9 775.6 850.8 989.5 Electricity & water 123.7 313.7 225.3 304.9 336.7 Building & construction 690.6 781.1 713.0 929.8 1,002.2 Wholesale & retail trade 325.7 394.3 408.1 425.4 449.4 Government & services 1,155.2 1,336.5 1,500.3 1,644.1 1,781.1 GDP at factor cost 3,544.2 4,199.4 4,400.8 5,033.7 5,503.1 Net indirect taxes 504.2 520.1 496.8 588.5 649.9 GDP at market prices 4,048.4 4,719.5 4,897.6 5,622.2 6,153.0 Source: Central Bank of Lesotho, Annual Report.

Reference table 8 Migrant miners’ deferred pay and remittances 1997 1998 1999 2000 2001a Migrant miners (’000) 96 80 69 65 62 Average annual earnings (M) 21,193 24,678 27,657 30,131 32,411 % change, year on year 10.5 16.4 12.1 8.9 7.6 Total remittances (M m) 299 259 239 239 112 Deferred pay 170 162 147 151 65 Discretionary remittances 129 97 92 87 47 % of total 43 37 38 36 42

a First two quarters only.

Source: Central Bank of Lesotho, Quarterly Review.

Reference table 9 Consumer prices (year-end; Apr 1997=100; % change year on year in brackets) 1997 1998 1999 2000 2001 Consumer prices 103.1 112.5 120.1 127.8 136.7 (7.8) (9.1) (6.8) (6.4) (7.0) Food prices 102.8 114.1 120.0 126.6 137.5 (8.3) (11.0) (5.2) (5.5) (8.6) Source: Bureau of Statistics.

Reference table 10 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 11 Commercial banking statistics (M m; year-end) 1996 1997 1998 1999 2000 Deposits with CBL 205.5 209.1 458.7 538.3 458.2 Net foreign assets 230.1 312.7 387.5 459.6 469.1 Credit 656.1 722.1 756.9 833.3 847.3 Private-sector deposits 1,060.8 1,160.7 1,196.1 1,090.4 1,169.9 Government deposits 43.7 48.2 76.7 652.8 68.4 Net capital & reserves 108.4 79.1 196.6 243.3 962.7 Source: Central Bank of Lesotho, Annual Report.

Reference table 12 Principal interest rates (%; period averages unless otherwise indicated) 1997 1998 1999 2000 2001a Discount rate (end-period) 15.60 19.50 19.00 15.00 13.00 Treasury-bill rate 14.83 15.47 12.45 9.06 9.36 Deposit rate 11.81 10.73 7.45 4.92 4.86 Lending rate 18.03 20.06 19.06 17.11 16.58

a Year to November. Source: IMF, International Financial Statistics.

Reference table 13 Foreign trade (M m) 1996 1997 1998 1999 2000 Exports fob 812.1 904.0 1,109.6 1,054.1 1,468.4 of which: food & live animals 34.0 46.2 44.2 43.1 54.4 crude materialsa 31.6 29.2 19.7 14.1 33.7 manufactured goods 611.1 671.9 821.2 793.1 1,129.7 Imports fob –4,303.0 –4,722.1 –4,699.2 –4,575.3 –5,050.5 Trade balance –3,490.9 –3,818.1 –3,589.6 –3,521.3 –3,582.2

a Mainly wool and mohair. Sources: Central Bank of Lesotho, Quarterly Review; Annual Report.

Reference table 14 Composition of exports (M m) 1995 1996 1997 1998 1999 Clothing 284.1 368.8 403.4 415.4 612.5 Beverages & tobacco 1.6 0.5 0.1 38.7 73.4 Cereals 7.2 9.2 18.0 23.8 36.2 Wool 27.4 22.7 23.5 16.7 14.6 Furniture & parts 10.1 10.8 11.3 4.9 5.9 Chemicals & petroleum 7.4 24.7 16.6 6.6 5.8 Total (incl others)a 580.6 812.1 903.9 1,109.7 1,054.1

a Around 20% of exports were unclassified in 1998 and 1999. Source: IMF, Lesotho: Statistical Annex

Reference table 15 Origin of imports cif (M m) 1996 1997 1998 1999a 2000a SACU 4,439.9 4,687.0 4,612.2 4,734.0 4,741.0 Asia 229.2 394.9 372.2 372.4 429.8 EU 63.5 87.9 103.6 82.7 82.0 North America 27.5 52.5 70.1 50.0 68.0 Total incl others 4,815.0 5,253.4 5,199.8 5,287.8 5,373.3

a Provisional. Source: Central Bank of Lesotho, Annual Report.

Reference table 16 Destination of exports fob (M m) 1996 1997 1998 1999 2000 SACU 394.0 436.2 666.3 553.4 574.4 North America 331.1 336.5 345.9 495.8 888.6 EU 74.1 82.0 7.2 2.0 1.8 Asia 0.4 0.4 2.0 0.2 0.6 Total incl others 812.1 904.0 1,071.1 1,054.1 1,468.3 Source: Central Bank of Lesotho, Quarterly Review.

Reference table 17 Balance of payments, national estimates (M m unless otherwise indicated) 1996 1997 1998 1999 2000a Net goods, services & income –2,155 –2,227 –2,256 –2,253 –2,019 Goods: exports fob 812 904 1,110 1,054 1,468 Goods: imports fob –4,303 –4,722 –4,699 –4,761 –5,051 Labour income 1,390 1,473 1,410 1,474 1,554 % of imports 32 31 30 31 31 Other net flows –54 118 –76 –19 9 Net unrequited transfers 804 932 842 903 936 Private, net 12 10 16 12 16 Official, net 793 921 826 892 920 Current-account balance –1,351 –1,296 –1,414 –1,350 –1,083 Long-term capital, net 1,700 1,672 1,596 923 774 of which: LHWDP (special financing) 1,107 1,094 1,303 798 608 Overall balance incl errors & omissionsb 349 377 182 427 –309

a Provisional estimates. b Including valuation adjustments.

Source: Central Bank of Lesotho, Quarterly Review.

Reference table 18 Balance of payments, IMF estimates (US$ m) 1996 1997 1998 1999 2000 Goods: exports 186.9 196.1 193.4 172.5 211.1 Goods: imports –998.6 –1,024.4 –866.0 –779.2 –727.6 Trade balance –811.7 –828.3 –672.6 –606.7 –516.5 Services: credit 42.6 86.9 53.6 43.7 42.7 Services: debit –55.9 –67.6 –52.2 –50.1 –42.5 Income: credit 453.0 447.4 357.7 325.0 288.8 Income: debit –119.5 –110.0 –123.6 –80.6 –62.6 Current transfers: credit 190.2 202.9 158.0 149.4 139.8 Current transfers: debit –1.1 –0.5 –1.2 –1.6 –1.0 Current-account balance –302.5 –269.2 –280.2 –220.8 –151.4 Financial-account balance 350.6 323.7 316.1 135.8 85.2 of which: net direct investment in Lesotho 287.5 268.1 264.8 163.3 117.8 Capital-account balance 45.5 44.5 22.9 15.2 22.0 Net errors & omissions 23.3 42.1 56.8 29.0 62.1 Overall balance 116.9 141.0 115.6 –40.8 17.8 Source: IMF, International Financial Statistics.

Reference table 19 Net official development assistancea (US$ m unless otherwise indicated) 1996 1997 1998 1999 2000 Bilateral 49.3 44.6 32.5 25.7 21.8 of which: Ireland 8.1 7.2 7.4 7.5 8.6 Germany 12.3 5.8 5.7 5.0 3.2 UK 8.0 7.4 8.7 4.4 4.5 Japan 7.9 5.7 3.6 2.7 0.9 Multilateral 51.2 39.9 34.9 6.6 20.9 of which: International Development Association 10.2 10.0 12.5 8.1 5.3 EC 23.3 18.8 12.9 1.4 10.2 UN Development Programme 3.7 5.6 2.5 1.3 0.7 African Development Fund 9.7 5.2 2.8 0.6 2.2 Totalb 104.0 91.6 66.2 31.1 41.5 of which: grants 75.9 67.6 51.0 35.0 38.9

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 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) 1996 1997 1998 1999 2000 Suppliers’ credits 5.5 19.4 23.4 18.0 154.3 Financial institutions 70.8 144.1 247.1 244.6 357.5 Multilateral loans 1,907.6 1,883.9 2,549.2 2,518.5 3,181.7 Bilateral loans 299.7 266.0 365.4 340.8 626.1 Total 2,283.6 2,313.4 3,185.1 3,121.9 4,319.6 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) 1997 1998 1999 2000 2001 Nominal EER indexa 84.2 72.3 66.3 61.7 n/a Real EER indexa 93.8 85.2 83.4 78.0 n/a SDR (end-period) 6.567 8.251 8.447 9.861 15.240 US$ 4.608 5.528 6.109 6.939 8.610 ¤ 5.226 6.192 6.677 6.666 7.987

a Effective exchange rate, 1995=100.

Source: IMF, International Financial Statistics.

Editors: Paul Gamble (editor); Douglas Mason (consulting editor) Editorial closing date: March 1st 2002 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]