2009 Index of Economic Freedom

Quick Facts

Population:

• 1.9 million

GDP (PPP):

• $23.2 billion
• 3.6% growth
• 5.3% 5-year compound annual growth
• $12508 per capita

Unemployment:

• 7.5%

Inflation (CPI):

• 7.1%

FDI Inflow:

• $274.1 million

Botswana's economic freedom score is 69.7, making its economy the 34th freest in the 2009 Index. Its overall score is 1.5 points better than last year. Botswana is ranked 2nd out of 46 countries in the Sub-Saharan Africa region, and its overall score is well above the regional average.

Botswana is an economic regional leader and scores above the world average on eight of 10 economic freedoms. The country's competitiveness is founded on a sensible business regulatory environment, openness to foreign investment, and relatively flexible employment regulations. The financial sector is a regional leader with an independent central bank and little government intervention. The judiciary is independent, and the protection of property rights is strong.

The overall business climate is stable, superior for Africa, and a model for the region, but Botswana could improve its relatively weak scores in trade freedom and freedom from corruption. The Public Enterprise Evaluation and Privatization Agency was created to drive privatization, but it lacks effective legal authority, and progress has been limited.

Background Back to the top

Botswana is a politically stable multi-party democracy with a market-oriented economy that encourages private enterprise. Despite significant natural resources, it has avoided the perils of corruption and violence that often accompany such endowments. Botswana had one of the world’s highest average growth rates during the past four decades and possesses Africa’s highest sovereign credit rating. Despite efforts to diversify the economy, minerals (principally diamonds) accounted for 75 percent of exports in 2006 and 42 percent of GDP and 50 percent of government revenue in 2006–2007. Botswana has one of the world’s highest HIV/AIDS infection rates, and political turmoil in neighboring Zimbabwe and the influx of refugees from that country are ongoing concerns. The president of Botswana is elected by the National Assembly; current President Ian Khama assumed office in 2008 and will face national elections in 2009.

Business Freedom 71.2 Back to the top

The overall freedom to start, operate, and close a business is relatively well protected under Botswana's regulatory environment. Obtaining a business license takes less than the world average of 225 days. The government has established a one-stop shop for investors, and the process for closing a business is easy and straightforward.

Trade Freedom 69.0 Back to the top

Botswana's weighted average tariff rate was 10.5 percent in 2006. There are very few non-tariff barriers, but the government maintains import bans and restrictions on some products, a cumbersome standards regime, domestic bias in government procurement, and weak enforcement of intellectual property rights. Ten points were deducted from Botswana's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 75.1 Back to the top

Botswana's tax rates are among the lowest in Southern Africa. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT), a property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 35.2 percent.

Government Size 70.6 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 31.3 percent of GDP.

Monetary Freedom71.8 Back to the top

Inflation is relatively high, averaging 8.3 percent between 2005 and 2007. Most prices are set by the market, but the government maintains price policies for some agricultural and livestock goods and is able to influence prices through numerous state-owned enterprises and service providers. Ten points were deducted from Botswana's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom70.0 Back to the top

While generally open to foreign participation in its economy, Botswana reserves a number of sectors solely for citizen participation. Increased foreign investment plays a significant role in privatization of state-owned enterprises. Investment regulations are transparent, and bureaucratic procedures are streamlined and open, although somewhat slow. Investment returns such as profits and dividends, debt service, capital gains, returns on intellectual property, royalties, franchise fees, and service fees can be repatriated without limits. Foreign exchange is not difficult, and there are no restrictions on foreign exchange accounts or international transfers. The constitution prohibits the nationalization of private property.

Financial Freedom70.0 Back to the top

Botswana's competitive banking system is one of Africa's most advanced. Generally adhering to global standards in transparency of financial policies and banking supervision, the financial sector provides ample access to credit for entrepreneurs. In 2007, there were seven commercial banks, mostly foreign-owned. The government is involved in banking through state-owned financial institutions and a special financial incentives program that is aimed at increasing Botswana's status as a financial center. Credit is allocated on market terms, although the government provides subsidized loans. Reform of non-bank financial institutions has continued in recent years, notably through the establishment of a single financial regulatory agency providing more effective supervision. Insurance and pension funds have grown rapidly, and Botswana now boasts over 100 private pension funds and 32 insurance companies. The state owns the Botswana Motor Vehicle Insurance Fund, but private firms dominate the insurance sector. The Botswana Stock Exchange is small but growing.

Property Rights75.0 Back to the top

The constitution provides for an independent judiciary, and the government respects this in practice. The legal system is sufficient to conduct secure commercial dealings, although a serious and growing backlog of cases prevents timely trials. The protection of intellectual property rights has improved significantly.

Freedom From Corruption54.0 Back to the top

Corruption is perceived as present. Botswana ranks 38th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007 and is rated Africa's least corrupt country. It is ahead of many European and Asian countries and has a proven record of honest economic governance.

Labor Freedom70.0 Back to the top

Botswana's employment regulations are relatively flexible. The non-salary cost of employing a worker is very low, and dismissing a redundant employee can be almost costless. Employers are not required to make pension, health insurance, and unemployment insurance contributions.