The main features of Botswana's economy may be summarised as:
- The mining sector's dominance as an engine of growth:- Moyo (1983) asserts that the mineral-led growth has led to the development of an enclave sector with few linkages with the rest of the economy except via tax revenues. On the other hand, Nanunu and Nchindo (1983) hail it as the engine of growth of the country's economy.
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* Appendices containing an alphabetical list of variables and all of the equations in the model have been excluded from the present paper. Interested readers may obtain copies of these appendices by writing to OSSREA or to the author.
- Openenness: for a large part of the post independence period the proportion of imports to GDP had by far exceeded that in respect of exports. Botswana is perhaps the only country in the SADCC region with minimum import restrictions.
- The significance of foreign savings (net inflows) in financing trade deficits.
- The significant role of foreign direct investment and the accompanying substantial outflows of profits and dividends. But the net outflows have not resulted in a drain of foreign exchange in view of the fact that the foreign investment had been channelled into the export sector of the economy.
- The insignificant contribution of the agricultural sector. At the time of independence this sector contributed more than fifty percent of the GDP. At present, it accounts for less than five percent of GDP.
- The limited capacity of the mining and other growth sectors to absorb labour. The mining sector, as in other countries, operates with a high degree of capital intensity. Although it contributes more than fifty percent of GDP, it employs less than ten percent of the labour force in the formal sectors.
- On the monetary side, a rapid growth of commercial bank deposits over the years has not been matched by the growth of commercial bank lending, leading to a steady build up of excess liquidity in the commercial banks (Bank of Botswana Annual Report 1988). This has led to a situation where commercial banks have become increasingly reluctant to accept interest-bearing deposits from the public.
Among the latest measures to remedy the position in the financial market, the Bank of Botswana has introduced a number of policy measures designed to stimulate the demand for domestic credit by reducing the cost of borrowing. The Bank has undertaken to provide assurance of a minimum rate of return to all depositors who seek to place funds in interest-bearing accounts. The institution is also in the process of bringing interest rates gradually to levels which are consistent with the working of the market (making interest rates higher than the rate of inflation).
