BOTSWANA S st m tic Countr Di nostic UPDATE AT A CROSSROADS R i nitin Effici nt nd Inclusiv Growth BOTSWANA S st m tic Countr Di nostic UPDATE AT A CROSSROADS R i nitin Effici nt nd Inclusiv Growth © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Contents Acknowledgments    vii Abbreviations and Acronyms    ix EXECUTIVE SUMMARY    xi CHAPTER 1 COUNTRY CONTEXT — WHAT HAS CHANGED SINCE 2015?   1 Botswana’s growth success story   2 The 2015 Systematic Country Diagnostic in a nutshell   3 Macro performance after the 2015 SCD   4 Poverty and equity after the 2015 SCD    11 High exposure and vulnerability to natural shocks     18 Deteriorating public sector effectiveness and efficiency     20 CHAPTER 2 PROGRESS ON PRIORITY INTERVENTION AREAS    23 Partial progress on human capital, water and sanitation, and social protection     24 Limited progress on diversification and productivity     28 New energy and climate challenges     32 New cross-cutting priority intervention: Bridging public sector implementation gaps     34 CHAPTER 3 PRIORITIZATION FOR ACHIEVING MORE BALANCED DEVELOPMENT OUTCOMES: WHAT NEEDS TO CHANGE?    39 Aiming high: High-level outcomes    40 Prioritization process    41 Building on Botswana’s strengths to implement priority interventions    42 SCD Update framework with priority intervention areas and entry points    47 References    48 APPENDIX A  Critical data and knowledge gaps    50 APPENDIX B  Structural peers    51 APPENDIX C  Poverty projections    52 APPENDIX D  Summary of progress in tackling priority interventions    54 BOX BOX 2.1  Lessons learned from Botswana’s social protection during COVID-19    28 FIGURES FIGURE E.1  Botswana reached upper-middle- FIGURE 1.3  Priority challenges and income status in the early 1990s …    xi intervention areas identified in the FIGURE E.2  … and improved the living 2015 SCD   3 standards of its population    xi FIGURE 1.4  Economic growth is trending FIGURE E.3  Economic growth is trending down …   4 down    xii FIGURE 1.5  … in part because productivity FIGURE E.4  The poverty rate is too high for growth has stagnated   4 the country’s level of development …    xiii FIGURE 1.6  Botswana’s goal of reaching FIGURE E.5  … but poverty reduction has high-income status remains distant   5 slowed and is likely to have stagnated FIGURE 1.7  The economy is slowly recently    xiii diversifying into services, away from the FIGURE E.6  Inequality levels are among the mining sector   6 highest in the world …    xiii FIGURE 1.8  Services are the main source of FIGURE E.7  … and the Human Capital Index employment and job creation …   7 is low relative to the income level    xiii FIGURE 1.10  Export growth has faltered FIGURE E.8  Botswana’s goal of reaching since 2015 …   7 high-income status remains distant    xiv FIGURE 1.9  … but labor productivity in the FIGURE E.9  Reformulation of policy priority services sector is stagnating   7 intervention areas to achieve the twin goals FIGURE 1.11  … and the export basket in Botswana    xvi lacks diversification and economic FIGURE E.10  Most small and medium sophistication   7 enterprises lack access to funding from FIGURE 1.12  Botswana is rich in minerals outside sources    xvii that are critical in renewable energy technology …   9 FIGURE E.11  The expected productivity in adulthood of a child born today remains FIGURE 1.13  … and whose demand, and low    xvii prices, are rising   9 FIGURE E.12  Natural wealth represents FIGURE 1.14  External trade balances 10 percent of the country’s total capital …    xviii deteriorated …    10 FIGURE E.13  … but valuable natural FIGURE 1.15  … as did fiscal balances    10 resources, including water, are increasingly FIGURE 1.16  Poverty reduction has slowed under stress    xviii and is likely to have stagnated recently    11 FIGURE E.14  Public integrity indicators lag FIGURE 1.17  Botswana is poorer than most global and income group peers    xix of its structural peers    12 FIGURE E.15  Botswana is rich in minerals FIGURE 1.18  Rural households fared worse that are critical in renewable energy than urban households across the income technology …    xx distribution    13 FIGURE E.16  … and whose demand, and FIGURE 1.19  Inequality is among the highest prices, are rising    xx in the world    13 FIGURE 1.1  Strong growth allowed Botswana FIGURE 1.20  Multidimensional poverty to reach upper-middle-income status in the improved more than monetary poverty early 1990s …   2 alone    14 FIGURE 1.2  … and to improve the standards FIGURE 1.21  Expected years of schooling are of living of its population   2 fewer than in its structural peers    14 FIGURE 1.22  Regional poverty is diverging, FIGURE 1.27  Public integrity indicators lag increasing in the west and decreasing global and income group peers    20 in the east    15 FIGURE 2.1  The Human Capital Index is low FIGURE 1.23  Wage income is the main relative to the income level    24 contributor to inequality    16 FIGURE 2.2  Rural households have limited FIGURE 1.24  Lack of transition out of access to services    26 agriculture while employment in services FIGURE 2.3  Poverty declined in urban areas has grown    17 but increased in rural areas    31 FIGURE 1.25  Droughts are the second most FIGURE 2.4  Electricity imports are falling frequent climate risk …    19 but still comprise 26% of supply    33 FIGURE 1.26  … and, like floods, they FIGURE 2.5  Solar irradiation levels in the disproportionally affect poor people    19 southwest and wind resources in the northeast are high    34 TABLES TABLE E.1  Summary of progress on priority TABLE 3.1  SCD Update framework with intervention areas articulated in the entry points    47 2015 SCD    xv TABLE A4.1  Progress on priority intervention areas articulated in the 2015 SCD    54 vii Acknowledgments The Systematic Country Diagnostic (SCD) Update for Botswana is the result of a team effort by the Botswana country team of the World Bank Group. Members of the Global Practices and Themes, as well as the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), con- tributed to the preparation of the report. This report was led by Carolina Diaz-Bonilla, Javier Baez, and Thomas Buckley. The core team included Luis Alvaro Sanchez and Tshepho Candy Babatshi Gasha. The extended team is listed below by sector. The report was finalized under the collective guidance and leadership of Country Director Marie Francoise Marie-Nelly; Africa Region Chief Economist Andrew Dabalen; IFC Senior Manager Carlos Katsuya; MIGA Regional Head Nkemjika I. Onwuamaegbu; Manager (Operations) Asmeen Khan; Program Leaders Jacques Morisset, Elizabeth Ninan, and Bekele Debele; Practice Manager Pierella Paci; and Botswana Resident Representative Liang Wang. The report benefited from feedback provided at different stages by the follow- ing peer reviewers: Thomas Farole, Edouard Al-Dahdah, and Victor Sulla. Logistical assistance during the preparation of this report was ably provided by Lolo Tibone and Anna Mary Esterhuizen. The report was edited by Janine Thorne, and Piotr Ruczyński created the graphic design. Global Practice, Theme, or Institution Team member Agriculture and Food Hardwick Tchale, Ana Cristina Canales Gómez Digital Sara Ballan, Paul Seaden Education Elizabeth Ninan Energy and Extractives Nadia Taobane, Anas Benbarka Environment and Natural Resources Sarah Moyer Finance and Markets Michael Ehst, Marc Schrijver, Claudia Carlisle Meek Gender Bandita Sijapati, Samaneh Hemat, Stephanie Kuttner Governance Raymond Muhula, Patrick Kabuya Health, Nutrition, and Population Kenneth Munge Kabubei, Thulani Matsebula, Yi-Kyoung Lee IFC Nuzhat Anwar Jobs Ganesh Rasagam Macro-fiscal Tshepho Candy Babatshi Gasha, Benedicte Baduel MIGA Jessica Charles Wade, Olanrewaju Malik Kassim Poverty Carolina Diaz-Bonilla, Santiago Garriga, Javier Baez Social Protection and Labor Victoria Monchuk, Ugo Gentilini Transport Mesfin Wodajo Jijo, Edward Andrew Beukes Urban Eric Dickson Water Ndeye Awa Diagne, Diego Rodriguez ix Abbreviations and Acronyms BCWIS Botswana Core Welfare Indicators Survey BMC Botswana Meat Commission BMTHS Botswana Multi-Topic Household Survey FIES Food Insecurity Experience Scale GDP gross domestic product GNI gross national income HIES Household Income and Expenditure Survey ICT information and communication technology ICLS International Conference of Labour Statisticians IFC International Finance Corporation MIGA Multilateral Investment Guarantee Agency MSMEs micro-, small, and medium enterprises MW megawatt PEFA Public Expenditure and Financial Accountability PPP purchasing power parity QMTS Quarterly Multi-Topic Household Survey SACU Southern African Customs Union SCD Systematic Country Diagnostic SOE state-owned enterprise SWIFT Survey of Well-being via Instant and Frequent Tracking UNESCO United Nations Educational, Scientific, and Cultural Organization UNICEF United Nations Children’s Fund WHO World Health Organization All dollar amounts are US dollars unless otherwise indicated. The cutoff date for the data used in this report was December 2022, unless otherwise indicated. xi EXECUTIVE SUMMARY A growth success story: natural resource wealth and strong institutions transformed Botswana into a stable upper-middle-income country, raising living conditions … Botswana’s track record of strong growth and economic and political stability converted it from among the world’s poorest countries into a stable upper-middle-income country. The discovery of one of the world’s largest diamond deposits turned Botswana into one of the fastest-growing economies. Its gross national income (GNI) per capita grew five times faster than the global average after indepen- dence in 1966, and growth in its gross domestic product (GDP) averaged over 7 percent until the late 1990s (Figure E.1). The diamond export boom was both well managed and accompanied by policies that supported political stability, prudent macroeconomic and fiscal frameworks, and strong overall institutional quality. The country consistently ranked among the top African performers on many governance indicators and soon became an aspirational benchmark for others on the continent. The wealth from diamonds was used to lay the foundations of development, from investments in infrastructure and human development to the construction of the institutional framework. The pro- ceeds were used to fill many of the gaps in physical infrastructure, human capital, and public institutions that prevailed at the time of independence. The provision of these public goods was not easy, as Botswana is a large, sparsely populated, land-locked country with a relatively small population (2.3 million in 2022). Significant progress was made on many fronts. The road network was expanded from under 10 kilome- ters at independence to 32,564 kilometers in 2021. Basic services, such as electricity, water, and sanitation, were rolled out to a much larger share of the population. Coverage rates in water and electricity reached 92 percent and 72 percent in 2020, respectively, from about 68 percent and under 10 percent in the 1980s (Figure E.2).1 Universal enrollment in primary education was achieved around 1997, much earlier than in most African countries. Investments in health drove remarkable improvements in health outcomes, including life FIGURE E.1  Botswana reached upper-middle- FIGURE E.2  … and improved the living income status in the early 1990s … standards of its population 14,000 GNI per capita (US$), Atlas method High income Access to 12,000 electricity 10,000 8,000 People using at least basic drinking water 6,000 services 4,000 People using at least basic 2,000 sanitation services 0 0 20 40 60 80 100 19 8 19 0 19 2 94 19 6 20 8 20 0 2002 2004 2006 20 8 20 0 2012 2014 2016 20 18 20 0 22 9 9 8 9 0 9 0 1 2 Coverage (percentgae) 19 19 Low Income Lower middle income 1991 2000 2010 2020 Upper middle income Botswana Source: World Development Indicators (database), World Source: World Bank calculations. Bank, Washington, DC. 1.  All WDI data were drawn from https://databank.worldbank.org/source/world-development-indicators xii BOTSWANA Systematic Country Diagnostic Update expectancy, mortality rates, and nutrition. Finally, efforts to strengthen the government’s technical capac- ity, combined with the adoption of appropriate policies and regulations, helped the country build an effec- tive public administration. From success to challenge: … but the continued heavy reliance on diamonds and the large public sector make it increasingly difficult to deliver strong and inclusive growth. The current growth model, based on the extractive industries and an extensive public sector, is not structurally inclusive and is fast reaching the limit of its ability to sustain robust growth. Economic growth has been on a downward trend since 2010 and has become more volatile in recent years: GDP grew at an annual average rate of 3.2 percent in 2009 – 14 but slowed to 2.4 percent in 2015 – 21. GDP per capita growth similarly slowed from 1.2 percent to 0.4 percent. This is in stark contrast with 2002 – 08, when GDP growth averaged 5.1 percent and per capita growth 3.1 percent (Figure E.3). In fact, Botswana’s growth poten- tial decreased by around a percentage point between FIGURE E.3  Economic growth is trending down the 2000s and the 2010s, from 4.5 to 3.6 percent. The Average annual GDP and GDP per capita growth by period economic slowdown was due in part to a combina- 6 tion of economic shocks (including a recession in SCD Update 2015, droughts in 2015 and 2019, damaging floods in 5 period 2017, the 2020 COVID-19 pandemic, and higher food 4 and energy prices in 2022), sluggish productivity Percent 3 growth, and a systematic economic decline in South Africa, Botswana’s main trade partner. Although the 2 causes of these shocks were mostly external, beyond 1 the control of the Botswana authorities, the country’s 0 heavy reliance on minerals, the inability to create a broad economic base, a public sector with a large 02 04 06 08 10 12 14 16 18 20 20 20 20 20 20 20 20 20 20 20 footprint, and increasing vulnerability to adverse cli- GDP GDP per capita mate events have exacerbated its fiscal and external Source: World Bank calculations. vulnerabilities and weakened its drivers of growth.2 Poverty and inequality rates remain extremely high relative to Botswana’s income level. The rapid economic growth after independence lifted many Batswana out of poverty and helped them achieve higher income levels. However, the share of the population still in poverty is stubbornly high, well above the norm for an upper-middle-income country. At 13.5 percent, the estimated extreme poverty rate for 2019 (as per the international poverty line of $2.15, in purchasing power parity (PPP) terms) is over four times higher than predicted by Botswana’s GDP per capita (Figure E.4). The pace of poverty reduction slowed between 2010 and 2016, and estimates suggest it stagnated even further in recent years (Figure E.5). Botswana has one of the highest rates of inequality in the world, with a Gini coefficient (a standard measure of income or expenditure distribution) of 0.53 (Figure E.6). Human development indicators, including the Human Capital Index, are not consistent with the country’s level of development (Figure E.7). Although Botswana’s growth model has served the country well for decades, it is not structurally inclusive. The diamond industry, the backbone of the economy, contributes little to job creation, and its links to the broader economy are weak. The public sector is large and operates in sectors traditionally led by private actors, which stymies compe- tition, diversification, and job creation. Resources are increasingly shifting to nontradable services, where productivity is low. 2.  Botswana is deemed highly vulnerable to climate variability and change, given its heavy reliance on rain-fed agriculture and natural re- sources, high levels of (especially rural) poverty, and a low adaptive capacity to deal with these expected changes. Executive Summary xiii FIGURE E.4  The poverty rate is too high for the FIGURE E.5  … but poverty reduction has country’s level of development … slowed and is likely to have stagnated recently 80 32 Extreme poverty rate (percentage) 28 60 24 20 40 16 Percent 12 20 8 Botswana 0 4 6.5 7 7.5 8 8.5 9 9.5 10 10.5 LN (GDP per capita, PPP, US$) 0 Poverty Poverty Gap Poverty Headcount Severity Index Source: World Bank calculations using World Development Indicators (database), World Bank, Washington, DC. 2003 2009 2016 2022 Imputation Note: The chart only shows countries with PPP GDP per capita of less than $25,000. Source: World Bank calculations. FIGURE E.6  Inequality levels are among the FIGURE E.7  … and the Human Capital Index is highest in the world … low relative to the income level 0.7 1.0 0.9 0.6 Botswana Human Capital Index, 2020 0.8 0.5 0.7 Gini coefficient 0.4 0.6 0.3 0.5 0.2 0.4 Botswana 0.3 0.1 0.2 0 6 7 8 9 10 11 12 Ranking of 164 countries Natural logarithm GDP per capita, 2020 (PPP, US$) Source: World Bank calculations using pip.worldbank.org Source: World Bank calculations. Botswana will need a significant and sustained boost to achieve its goal of reaching high-income country status by 2036. With a GNI per capita of $6,940, Botswana is an upper-middle-income country.3 Assuming the threshold for high-income country status remains the same, Botswana’s GNI per capita would have to grow by 4.7 percent a year over the next 14 years (or GNI by 6.1 percent a year at current popula- tion growth rates4) for the country to reach high-income status by 2036 (Figure E.8). However, even before COVID, GNI per capita grew by only 3.1 percent between 2011 and 2019. Botswana would have to signifi- cantly increase this rate to join the high-income country club in the next 15 years. 3.  For fiscal 2023, upper-middle-income economies are defined as those with a GNI per capita of between $4,256 and $13,205, calculated using the World Bank Atlas method; high-income economies are those with a GNI per capita of $13,205 or more. 4.  The 2022 census shows the population growing at an annualized rate of 1.4% (Statistics Botswana 2022b). xiv BOTSWANA Systematic Country Diagnostic Update FIGURE E.8  Botswana’s goal of reaching high-income status remains distant 14,000 GNI per capita, Atlas method GNI per capita would have to increase by HIC threshold (US$13,205) 12,000 at least 4.7% per year in real terms for 10,000 Botswana to reach HIC status by 2036. (current US$) 8,000 6,000 4,000 UMIC threshold (US$4,256) 2,000 0 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 20 20 20 20 20 20 20 20 20 19 20 19 20 20 20 20 20 19 20 19 19 19 19 20 20 20 Botswana Scenario (4.7% p.a.) Scenario (2010–2019 average) Source: World Bank calculations. Note: HIC = high-income country; UMIC = upper-middle-income country. Time for a course correction: growing challenges, old and new, increase the need for Botswana to review its development agenda. Long-standing challenges, already diagnosed in the first Systematic Country Diagnostic (SCD) for Botswana, still constrain the country’s ability to maintain strong, stable, and inclusive growth. The first SCD, published in 2015, argued for shifting the current growth model to one progressively based on a com- petitive and outward-oriented private sector, supported by a slimmer and more efficient public sector, greater inclusion, and more effective management of natural resources. The 2015 SCD identified the following six broad priority areas to address the issues of low participation, low productivity, and low job creation in the private sector; weak individual and community assets; and unsustainable use of valuable, scarce natural resources: • Facilitating a competitive, export-oriented private sector by aligning incentives and improving connectivity • Increasing the returns to self-employment by raising the productivity of smallholders and microenterprises • Improving health and education outcomes by reducing the burden of disease and building and align- ing skills • Increasing access to water and sanitation • Reforming social protection to reduce fragmentation and improve targeting, efficiency, and linkages • Modernizing the public sector through improved technology, management, and systems of accountability. This SCD Update finds that although most issues raised in the 2015 SCD remain broadly relevant, new challenges have emerged, and some old ones have become more pressing. The SCD Update builds on the 2015 SCD and should be read in conjunction with it. Substantive analytical work since 2015 has deep- ened but not materially modified many findings of the 2015 SCD. In the interim, however, Botswana’s inter- nal economic environment has become more challenging, and new global and local trends (see below) have further exposed the country’s intrinsic vulnerabilities and hampered broad-based development. The SCD Update suggests the following five dimensions to define priority interventions for Botswana to change course and boost its increasingly modest performance: • Important new challenges, such as Botswana’s high exposure and vulnerability to climate risks, under- line the need to strengthen its resilience — to help it protect and deepen its development gains. • Chronic gaps between policy formulation and implementation, along with weaker accountability, increas- ingly undermine reforms; stymie progress across most economic, social, and governance sectors; and Executive Summary xv hamper the achievement of the twin goals of ending extreme poverty and increasing shared prosperity in a sustainable manner. • Raising productivity requires spatially efficient and inclusive urbanization and better regional connec- tivity, for both people and markets, to enable economies of scale and agglomeration. This is critical for a country with a small population — only 2.3 million — dispersed over a large area (582,000 square kilome- ters). Botswana is larger than France, for example, which had a population of 68 million in 2021. • A stronger, inclusive, and sustainable growth path needs to be anchored in the new global realities, such as green energy, the digital transformation, shifting global value chains, and financial innovation. These new realities bring new challenges but also offer novel opportunities. • This SCD Update provides additional and more granular analysis of (1) the priority actions needed for inclusive growth to gain traction, and (2) opportunities to create a more dynamic private sector by build- ing on comparative advantages, many of which are strongly linked to the green economy (such as eco- tourism, abundant renewable energy resources, and the extraction and processing of minerals used in green technologies). To steer away from the turbulence and generate inclusive growth, Botswana will have to tackle long-standing and emerging challenges across five priority intervention areas … Based on new developments and evidence, this SCD Update reassesses the key constraints identified in the 2015 SCD. It reformulates these into five broad areas and one cross-cutting theme, which are anchored to four longer-run, country-specific, high-level outcomes and, ultimately, the twin goals. The SCD Update finds that progress in addressing the most binding constraints identified in 2015 has generally been limited and uneven, in terms of both reforms and outcomes (Table E.1).5 It argues that to improve the well-being of its people, ensure higher standards of living, and ultimately eradicate extreme poverty, Botswana needs to attain four high-level out- comes over the next decade: (1) faster private sector job creation (through more robust and stable growth); (2) stronger human capital formation (to increase productivity and inclusion); (3) higher resilience to shocks; and (4) better public service delivery (by closing gaps between policy aspiration and implementation). It finds that the most binding constraints to achieving these outcomes can be addressed through six priority areas of interven- tion. Five of these are self-standing; the sixth is cross-cutting to reflect its economy-wide implications (Figure E.9). TABLE E.1  Summary of progress on priority intervention areas articulated in the 2015 SCD Priority area articulated Progress on outcomes Progress on implementing Pathway in the 2015 SCD since 2015 reforms since 2015 Facilitating a competitive, Limited progress since Limited progress on reforms export-oriented private 2015 SCD since 2015 SCD sector by aligning incentives Private and improving connectivity sector-led, job-intensive Increasing the returns to self- Limited progress on Limited progress on reforms growth employment by raising the outcomes and a reversal in productivity of smallholders poverty and microenterprises 5.  It is important to recognize the structural nature of many of these constraints: changes will only become evident in the long run. xvi BOTSWANA Systematic Country Diagnostic Update Priority area articulated Progress on outcomes Progress on implementing Pathway in the 2015 SCD since 2015 reforms since 2015 Improving health and Some progress on outcomes Limited progress on reforms education outcomes by in health and education in health and education reducing the disease burden and raising and aligning skills Strengthened individual and Ensuring improved access to Some progress on outcomes Some progress on reforms in community water and sanitation in water and sanitation water and sanitation assets and aligning skills Reforming social protection Some progress on outcomes Some progress on reforms in to reduce fragmentation and in social protection social protection improve targeting, efficiency, and linkages Modernizing the public sector Limited progress on Some progress on reforms through improved technology, outcomes in modernizing management, and systems of the public sector, and limited accountability progress on implementation Effective resource Mainstreaming the Limited progress on man- Some progress on reforms management management of scarce agement of scarce natural natural resources resources. New challenges gained urgency, such as ener- gy and climate shocks. Source: World Bank analysis. FIGURE E.9  Reformulation of policy priority intervention areas to achieve the twin goals in Botswana WBG Twin End Extreme Poverty and Boost Shared Prosperity in a Sustainable Way Goals HLO1: Accelerated HLO2: Strengthened High-Level HLO3: Higher HLO4: Improved public private-sector job human capital Outcomes resilience to shocks service delivery creation formation Develop a com- Increase human Improve resil- Sustainably man- petitive, ex- Raise produc- Priority capital for em- ience and ad- age scarce natural port-oriented tivity of small- Intervention ployment, pro- aptation to resources and build private sector, holders and Areas ductivity, and shocks and cli- on key comparative leveraging re- microenterprises inclusion mate impacts advantages gional integration Cross-Cutting Priority Close the gap between policy aspiration and implementation Intervention with efficient and accountable institutions Area Source: World Bank. Note: HLO = high-level outcome. The first priority intervention area is to “Develop a competitive, export-oriented private sector, leveraging regional integration”. The economy’s heavy dependence on diamonds and the public sector has entrenched inefficiencies, stymied private investment and competitiveness, and become fiscally unsus- tainable. It also hampers job creation and weakens equity and inclusion. Employment growth is insufficient to absorb the young and growing labor force, and the unemployment rate rose from 17.6 percent in 2015 Executive Summary xvii to 22.76 percent by 2022. Botswana needs to shift to a private sector-led growth model and reform state- owned enterprises, which will in turn enhance resource allocation, boost productivity, generate jobs, free up public resources, and ultimately stimulate growth. Given the small size of the economy, the private sec- tor needs to become more dynamic and outward-oriented to exploit regional or global comparative advan- tages in the export markets. Instead, many local firms focus inward, providing nontradable services and undertaking government contracts. The second priority intervention area, “Raise the productivity of smallholders and microenter- prises”, is critical for creating jobs for the large number of people with limited skills. Developing an outward-oriented competitive sector will take time. In the interim, the economy will continue to rely on the traditional sectors, such as farming, agricultural value chains, and nontradable services, to create jobs. However, many smallholders, micro- and small enterprises, and self-employed people in urban areas strug- gle to develop their businesses, create jobs, and enhance productivity, often because they lack access to finance and markets or do not have the right skills (Figure E.10). The third priority intervention area, “Increase human capital for employment, productivity, and inclusion” seeks to ensure that the population, especially disadvantaged groups, have the health and skills they need both to help grow the economy and to benefit from it. Botswana has invested heavily in education, health, water, and sanitation, significantly expanding access to these services to build the human capital of its people. But its human development outcomes remain well below what would be expected of a country with its income and characteristics, let alone one that aspires to high-income status. The Human Capital Index, for instance, shows that children born in Botswana are likely to achieve only 41 percent of their potential productivity by adulthood. This is low relative to the country’s peers; in fact, it approaches the average for low-income countries (Figure E.11). The interlinked challenges of water scarcity, limited waste- water treatment, the underprovision of sanitation services, and malnutrition continue to undermine peo- ple’s health, limit the development of their skills, and hinder their productive participation in the labor force. FIGURE E.10  Most small and medium FIGURE E.11  The expected productivity in enterprises lack access to funding from adulthood of a child born today remains low outside sources Botswana Access to funding by small and medium enterprises South Africa Namibia Development Mongolia financial Congo, Rep. institution 20 Lebanon Government programs Tunisia Georgia Commercial banks North Macedonia Multiple Costa Rica 55 13 Other Low income None Lower middle income High income 1 8 0 0.2 0.4 0.6 0.8 3 Human Capital Index Source: Human Capital Project (database), World Bank, Washington, DC. https://www.worldbank.org/en/ Source: ITC 2019. publication/human-capital. 6.  The official unemployment rate for Botswana in the fourth quarter of 2022 is 25.4 percent, applying the standard of the Nineteenth International Conference of Labour Statisticians (ICLS) to the 2019 – 22 Quarterly Multi-Topic Surveys (QMTS). This standard intro- duced a new classification for “forms of work”: own-use production work (e.g., subsistence farming) is now a separate indicator and no lon- ger counts towards employment or labor force participation. This change means that labor force statistics are no longer comparable with those of earlier years. To maintain comparability with official unemployment rates from 2002 to 2016, the previous ICLS standards were applied here, giving an unemployment rate of 22.7 percent in 2022. xviii BOTSWANA Systematic Country Diagnostic Update Considering Botswana’s growing economic and social vulnerabilities, the fourth priority intervention area aims to “Improve resilience and adaptation to shocks and climate impacts”. The prevailing global uncertainty and instability, combined with the increasing frequency and severity of natural shocks, ham- per growth and poverty reduction in Botswana. Agriculture employs almost 18 percent of the labor force,7 but the sector is highly dependent on rainfed agriculture and has limited adaptive capacity. This makes it more vulnerable to climate shocks, which threaten people’s livelihoods and increase the risk of poverty, as happened during the droughts of 2015/16. Addressing this challenge requires increasing the resilience of both the people and the economic system, which in turn means improving the efficiency of the social pro- tection system and adopting policies to mitigate the impact of climate change. With natural wealth possibly being the country’s main asset, the fifth priority area aims to “Sustainably manage scarce natural resources and build on key comparative advantages” (Figure E.12). Botswana’s long success has been based on the effective management and use of revenue from natural resources. However, the sustainable use of natural assets has become more challenging since the 2015 SCD. Resources such as water are highly constrained by weak pricing policies and competing demands from sectors such as tour- ism, agriculture, and mining (Figure E.13). Tourism is also overwhelmingly dependent on nature-based and biodiversity-driven activities, making it particularly vulnerable to environmental degradation. Also, despite Botswana’s significant solar and wind resources, it is yet to exploit its potential comparative advantages in reliable, cost-effective renewable energy. FIGURE E.12  Natural wealth represents FIGURE E.13  … but valuable natural resources, 10 percent of the country’s total capital … including water, are increasingly under stress Share of total wealth, 2018 Renewable internal freshwater resources per capita per year Produced 3 capital 5,000 10 Human capital 4,000 Cubic meters Natural 3,000 35 capital Net foreign 2,000 assets 1,000 0 19 1 65 19 9 19 3 19 7 81 19 5 89 19 3 20 7 20 1 05 20 9 20 3 20 7 21 6 0 9 7 1 8 7 9 1 6 0 19 19 19 19 20 GDP GDP per capita 51 Source: World Development Indicators (database), World Bank, Washington, DC. Based on AQUASTAT (database), FAO (Food and Agriculture Organization of the United Nations), Washington, DC, https://www.fao.org/land- Source: World Bank 2021. water/databases-and-software/aquastat/en/. And addressing the cross-cutting challenge of deteriorating public sector effectiveness and efficiency. The gradual but steady decline in the quality of public policy formulation, implementation, monitor- ing, and accountability undermines the effectiveness and efficiency of the public sector, which affects all other priority intervention areas. The SCD Update argues for addressing public sector weaknesses as a cross-cutting priority intervention, to improve growth, enhance the quality of services, and reduce income in- equality. To understand the reasons for the limited progress in dealing with the constraints identified in the 7.  Employment figures for 2022 cited here are adjusted to include subsistence farmers (Eighteenth ICLS standard). Executive Summary xix 2015 SCD (Table E.1 above), an assessment, including FIGURE E.14  Public integrity indicators lag in-country consultations, was conducted. The findings global and income group peers systematically point to weaknesses in the public sec- tor: policy design is often not aligned with policy ob- Index of Public jectives; spending is high, even by global standards, but Integrity returns are lower than expected; and there is little ac- countability for poor performance.8 This is compound- Budget Transparency ed by weak incentives to implement policy changes and correct course when needed, a lack of data to guide Admin policy making, and vested interests. From 2016 to 2022 Transparency Botswana’s score on the Bertelsman Transformation Index gradually worsened, with its Governance Index Online and Governance Performance scores declining by 0.23 Services and 0.21 points, respectively.9 Moreover, although 0 2 4 6 8 Botswana has long been a leader among African na- Index of Public Integrity (IPI) tions on most global governance indicators, on mea- and its Enabling Circumstances for Corruption sures of transparency and public integrity it lags well Botswana World avg. behind its global and income group peers (Figure E.14). Income Group avg. Regional avg. Questions about public sector management continue Source: Botswana Corruption Forecast (database), to grow, especially about the efficiency of public in- CorruptionRisk.org, http://www.corruptionrisk.org/ vestment and the quality of public procurement. country/?country=BWA#forecast. But how? Seizing emerging opportunities The fast-changing local and global context and Botswana’s existing comparative advantages cre- ate new opportunities for growth. However, it would not be straightforward to both stimulate private sector-led growth and help more people contribute to and benefit from growing prosperity. Botswana is a large, land-locked country with a small population and many skill gaps. Although the extractive indus- tries and the large public sector have allowed it to make significant progress, many people have been left behind. These challenges are compounded by multidimensional global and regional shifts, including increas- ing uncertainty, volatile commodity prices, high inflation and interest rates, changing global value chains, geopolitical transformation, and sustained low growth in South Africa. But other mega trends, such as the shift towards greener sources of growth, the digital revolution, financial innovation, and advances in bio- medicine and the pharmaceutical industry, offer fresh opportunities, including for regional and global mar- kets. The country has mostly exhausted the productivity gains stemming from the reallocation of resources across sectors and needs to enable more spatially efficient growth, especially in tradable services. Against this backdrop, this SCD identifies the following potential opportunities:10 • Natural attractions and wildlife can bring more visitors and strengthen forward and backward links with the broader economy, without overexploiting natural resources. • The country has large endowments of minerals such as copper, nickel, cobalt, and manganese, which are critical for green technologies and are in high demand (Figure E.15 and Figure E.16). 8.  IMF (2022) 9.  Data are drawn from the BTI Transformation Index: Botswana (database), BTI, https://bti-project.org/en/reports/country-dashboard/BWA. 10.  For details on these opportunities: tourism: IFC (2022); minerals for green technology: World Bank (2023b); beef: Syed and others (2022); and renewable energy: World Bank (2022a). A deeper analysis of the opportunities for and constraints on new drivers of growth will be provided in an upcoming World Bank Country Economic Memorandum. xx BOTSWANA Systematic Country Diagnostic Update • Botswana has comparative advantages in niche value chains, such as beef and livestock, which create potential export opportunities. Beef, for example, is primarily grazed on natural pastures without the use of artificial growth stimulants or hormones; this value chain is largely untapped. • Renewable energy resources are abundant and can provide affordable, reliable, and green electricity. Southwestern Botswana has one of the highest solar irradiation levels in the world, and the northeast of the country has good wind resources. FIGURE E.15  Botswana is rich in minerals that FIGURE E.16  … and whose demand, and prices, are critical in renewable energy technology … are rising 12,000 Carbon capture Energy storage Concentrated photovoltaic and storage Geothermal solar power 10,000 Hydro Wind Solar 8,000 US$/mt 6,000 Copper 4,000 Cobalt Manganese 2,000 Nickel 0 19 0 19 2 94 19 6 98 20 0 20 2 04 20 6 08 20 0 20 2 14 20 6 20 8 20 0 22 9 0 1 9 0 1 1 Source: World Bank 2020a. 9 0 1 2 20 20 19 19 20 20 Note: Criticality of four minerals used in renewable technologies. Source: World Bank 2020a. Harnessing these opportunities requires attracting and supporting private players (investors and skills), including — but not exclusively — those with an outward orientation toward regional and even- tually global value chains. Botswana needs investor-friendly policies to attract foreign direct investment to expand its economic base, along with policies that create a more favorable business environment. CHAPTER 1 COUNTRY CONTEXT  — WHAT HAS CHANGED SINCE 2015? 2 BOTSWANA Systematic Country Diagnostic Update BOTSWANA’S GROWTH SUCCESS STORY Botswana’s track record of strong growth and economic and political stability converted it from among the world’s poorest countries into a stable upper-middle-income country. The discovery of one of the world’s largest diamond deposits turned Botswana into one of the world’s fastest-growing economies. Its gross national income (GNI) per capita grew five times faster than the global average after independence in 1966, and growth in its gross domestic product (GDP) averaged over 7 percent until the late 1990s (Figure 1.1). The diamond export boom was both well managed and accompanied by policies that supported political stability, prudent macroeconomic and fiscal frameworks, and FIGURE 1.1  Strong growth allowed Botswana strong overall institutional quality. The country con- to reach upper-middle-income status sistently ranked among the top African performers in the early 1990s … on many governance indicators and soon became an 14,000 aspirational benchmark for others on the continent. 12,000 High income GNI per capita (US$), 10,000 The wealth from diamonds was used to lay the foun- Atlas method 8,000 dations of development, from investments in in- 6,000 frastructure and human development to the con- 4,000 struction of a public institutional framework. The 2,000 proceeds were used to fill many of the gaps in phys- 0 ical infrastructure, human capital, and public insti- tutions that prevailed at the time of independence. 19 8 19 0 19 2 19 4 19 6 20 98 2000 2002 2004 2006 20 8 2010 2012 2014 2016 20 18 2020 22 9 9 9 8 0 9 The provision of these public goods was not easy, as 19 Low Income Lower middle income Botswana is a large, sparsely populated, land-locked Upper middle income Botswana country with a relatively small population (2.3 million Source: World Bank calculations. in 2022). Significant progress was made on many fronts. The road network was expanded from under 10 kilo- meters at independence to 32,564 kilometers in 2021. Basic services, such as electricity, water, and sanitation, were rolled out to a much larger share of the population. Coverage rates in water and electricity reached 92 per- cent and 72 percent in 2020, respectively, from about 68 percent and under 10 percent in the 1980s (Figure 1.2). Universal enrollment in primary education was achieved around 1997, much earlier than in most African coun- tries. Investments in health drove remarkable improvements in health outcomes, including life expectancy, mor- tality rates, and nutrition. Finally, efforts to strengthen the government’s technical capacity, combined with the adoption of appropriate policies and regulations, helped the country build an effective public administration. FIGURE 1.2  … and to improve the standards of living of its population a. Access to basic services b. Health and education outcomes Access to Life expectancy electricity at birth (years) People using at least basic drinking Adult literacy water services rate (percent) People using at least basic Infant mortality sanitation services rate (per 1,000 live births) 0 20 40 60 80 100 0 20 40 60 80 100 Coverage (percentgae) 1991 2000 2010 2020 1980s 1990s 2000s Latest Sources: World Development Indicators 2023 (database), World Bank, Washington, DC., using data from the WHO/ UNICEF Joint Monitoring Programme for Water Supply, Sanitation and Hygiene (database), New York: WHO (World Health Organization) and UNICEF (United Nations Children’s Fund), https://washdata.org/; the UN Population Division, UNESCO, and the UN IGME (Inter-agency Group for Child Mortality Estimation) (database), UNICEF, WHO, and World Bank, Washington, DC, https://childmortality.org/about. Chapter 1  Country Context — What has Changed Since 2015 3 THE 2015 SYSTEMATIC COUNTRY DIAGNOSTIC IN A NUTSHELL The 2015 Systematic Country Diagnostic (SCD) argued that although the existing model had served Botswana well for decades, it has significant drawbacks, especially for sustaining broad-based growth. Despite stellar growth after independence, both poverty and inequality remained extremely high for a coun- try of Botswana’s income level. The SCD attributed this to its reliance on the massive public sector and the extractive industries (especially diamonds). The diamond industry contributes little to job creation, and its links to the broader economy are weak. The SCD proposed shifting to a growth model with higher employ- ment intensity, driven by a competitive and outward-oriented private sector, and supported by a slimmer and more efficient public sector. Given the small size of the economy, the private sector needs to become more dynamic and outward-oriented to exploit regional and global comparative advantages in the export markets. Instead, many local firms focus inward, providing nontradable services and securing government contracts. The analysis also showed that deficiencies in service delivery (coverage and quality), particular- ly in sectors vital to the formation of human capital (such as sanitation, electricity, and education), in the management of natural resources (for example, water and biodiversity), and in the efficiency and account- ability of the public sector pose critical bottlenecks to sustainable growth. The 2015 SCD identified a set of priority challenges and interventions for faster progress in elimi- nating poverty and boosting shared prosperity. It initially identified 30 broad development challeng- es, organized around three pathways: (1) establishing an environment for private sector-led, job-creating growth; (2) ensuring inclusion by strengthening individual and community assets; and (3) ensuring the sustainability of growth and inclusion through the effective management of resources. These challenges were reviewed and prioritized to identify the nine most binding constrains,11 for which six broad priority intervention areas were identified (Figure 1.3). The SCD noted three important considerations for these in- FIGURE 1.3  Priority challenges and intervention areas identified in the 2015 SCD Main challenges Priority interventions Pathways Goals High inequality High structural Facilitating a competitive, Business environment unemployment/ low job export-oriented private sector by aligning creation incentives and improving connectivity Factor and input costs Productivity Small, domestic private Increasing the returns to Private-sector-led, sector focused on self-employment by raising productivity jobs-intensive growth non-tradables of smallholders and microenterprises Poor outcomes on health Improving health and education Human capital Elimination and nutrition outcomes by reducing the disease of extreme Access to services poverty burden, and raising and aligning skills Social protection Low rural access to sanitation and electricity Strengthened Promotion Ensuring improved access to water individual and of shared and sanitation community assets prosperity Inadequate educational outcomes Reforming social protection to reduce Natural resources fragmentation and improve targeting, Water scarcity efficiency, and linkages Fiscal resources Public institutions Natural resource Modernizing the public sector through vulnerability Effective resource improved technology, management, and management systems of accountability Medium-term fiscal vulnerabilities Source: World Bank 2015. 11.  The following criteria were used for the prioritization exercise: (1) impact on the goal of eliminating extreme poverty; (2) impact on the goal of delivering sustainable welfare improvements to poorer people; (3) time horizon of impacts; (4) complementarities; and (5) the evidence base. 4 BOTSWANA Systematic Country Diagnostic Update terventions: first, achieving a new growth model takes time (10 – 20 years), and productivity in farming and informal off-farm activities will also have to grow to support livelihoods in rural and urban areas in the in- terim. Second, addressing constraints such as poor-quality education, skills mismatches, the high disease burden, and connectivity gaps, among others, are vital for raising the productivity and competitiveness of local firms. Finally, reforming the social protection system is key to ensuring that the Batswana who are un- able to participate in the structural change are not left behind. MACRO PERFORMANCE AFTER THE 2015 SCD Low growth and large shocks have weakened the economy Economic growth has been on a downward trend since 2010 and has become more volatile in recent years. GDP grew at an annual average rate of 3.2 percent in 2009 – 14 but slowed to 2.4 percent in 2015 – 21. Growth in GDP per capita similarly slowed from 1.2 percent to 0.4 percent. This is in stark contrast with 2002 – 08, when GDP growth averaged 5.1 percent and per capita growth 3.1 percent (Figure 1.4). Long- standing structural challenges have become increasingly binding, and Botswana’s growth potential decreased by around a percentage point between the 2000s and the 2010s, from 4.5 to 3.6 percent.12 Sluggish productivity growth is a significant factor in the economic slowdown. The capital stock, driven mainly by public spending, was the largest contributor to GDP growth (60.4 percent) in 2015 – 19 (Figure 1.5), followed by labor utilization (29 percent). Total factor productivity growth made a modest con- tribution (10.6 percent), only a third of its contribution in 2010 – 14. This means Botswana is increasingly seeing lower returns on public and private investments; in contrast, its structural peers, Namibia, Georgia, or Costa Rica, have seen much faster productivity growth. FIGURE 1.4  Economic growth is trending FIGURE 1.5  … in part because productivity down … growth has stagnated Average annual GDP and GDP per capita growth by period Contributions to growth 6 125 Share of real GDP growth (percent) SCD Update 5 period 100 4 75 Percent 3 50 2 25 1 0 −25 0 2000–2009 2010–2014 2015–2019 02 4 06 8 10 12 14 6 18 20 0 1 0 20 20 20 20 20 20 20 20 20 20 Capital Stock Labor GDP GDP per capita Total Factor Productivity Source: World Bank calculations. Source: World Bank calculations. The increasingly challenging internal and external environment since 2015 has exposed Botswana’s economic vulnerabilities. External shocks include a decline in the global demand for diamonds since late 2014, linked to the slowdown in China; this contributed to lower real prices for rough diamond exports, 12.  Based on an analysis of long-term growth that uses Hodrick-Prescott statistical techniques to filter out short-term fluctuations. Chapter 1  Country Context — What has Changed Since 2015 5 along with declining production.13 Exports of other minerals also collapsed because of lower international prices and the closure of the largest copper-nickel mine in 2016. These challenges were exacerbated by two major droughts, in 2015 and 2019, followed swiftly by the COVID-19 pandemic in 2020. The restrictions im- posed during the pandemic weakened both tourism and the external demand for diamonds, and GDP fell by 8.7 percent and GDP per capita by 10.6 percent. This series of shocks clearly exposed the overall vulner- ability of the economy stemming from the lack of economic diversification and rising vulnerability to cli- mate shocks.14 Growth bounced back by the end of 2021 and in 2022, aided by reopening of the economy, a recovery in diamond production, favorable terms of trade, and higher receipts from the Southern African Customs Union (SACU). On the financing side, foreign direct investment has remained stable but limited over the past few years, at about 0.7 percent of GDP. Botswana will need a significant and sustained boost to achieve its goal of reaching high-income country status by 2036. With a GNI per capita of $6,940, Botswana is an upper-middle-income country.15 Assuming the threshold for high-income country status remains the same, Botswana’s GNI per capita would have to grow at 4.7 percent a year over the next 14 years (or GNI at 6.1 percent a year at current popula- tion growth rates16) for the country to reach high-income status by 2036 (Figure 1.6). However, even before COVID, GNI per capita grew by only 3.1 percent between 2011 and 2019. Botswana would have to signifi- cantly increase this rate to join the high-income country club in the next 15 years. FIGURE 1.6  Botswana’s goal of reaching high-income status remains distant 14,000 HIC threshold (US$13,205) GNI per capita, Atlas method (current US$) 12,000 GNI per capita would have to increase by at least 4.7% per year in real terms for Botswana to reach HIC status by 2036. 10,000 8,000 6,000 4,000 UMIC threshold (US$4,256) 2,000 0 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 20 20 20 20 20 20 20 20 20 19 20 19 20 20 20 20 20 19 20 19 19 19 19 20 20 20 Botswana Scenario (4.7% p.a.) Scenario (2010–2019 average) Source: World Bank calculations. Note: HIC = high-income country; UMIC = upper-middle-income country. 13.  Since the global financial crisis, diamond proceeds have remained significantly below precrisis levels, as global demand weakened. These pressures intensified in 2014, reflecting increased competition from synthetic diamonds and higher production costs (as diamond mines become ever deeper). 14.  Botswana is considered highly vulnerable to climate variability and change, given its heavy reliance on rain-fed agriculture and natural resources, high levels of (especially rural) poverty, and a low adaptive capacity to deal with these expected changes. 15.  For fiscal 2023, upper-middle-income economies are defined as those with a GNI per capita between $4,256 and $13,205, calculated us- ing the World Bank Atlas method; high-income economies are those with a GNI per capita of $13,205 or more. 16.  The 2022 census shows the population growing at an annualized rate of 1.4% (Statistics Botswana 2022b). 6 BOTSWANA Systematic Country Diagnostic Update Structural factors and policies hinder diversification and productivity growth Botswana’s ongoing structural transformation is not conducive to productivity growth and innova- tion. In rural areas, agriculture is dominated by subsistence farming, and productivity in this sector is low. The urban population has been growing steadily, accounting for 68.7 percent of the total population by 2021. However, cities are relatively small, with low economic diversification and density, which means they can- not achieve economies of agglomeration and scale.17 The capital, Gaborone, has 210,000 inhabitants; as the economic hub of the country, it is home to government offices, ministries, and institutions, as well as dia- mond cutting and polishing operations and sorting and trading centers. Francistown, the second-largest city (90,000 inhabitants), is also dominated by the mining industry. The contribution of the mining sector to the economy of Botswana has been declining, with its share of value added falling from 39 to 21 percent between 2008 and 2021 (Figure 1.7). This space has largely been filled by micro- and small firms providing nontradable services to the small domestic market. Their productivity is low, and they cannot benefit from the potential competitiveness and innovation stimulated by external trade. The latest Global Competitiveness Index shows that relative to its structural peers, Botswana faces large competitiveness gaps in skills, the adoption of in- formation and communication technology (ICT), product markets, business dynamism, and infrastructure.18 FIGURE 1.7  The economy is slowly diversifying into services, away from the mining sector Value added by sector at constant prices, 2006–21 100 80 60 Percent 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Agriculture Mining Manufacturing and Utilities Const Whole-Retail Public Administration Other Services Net Taxes Source: World Bank calculations using Statistics Botswana (2023). Most employment is in services while employment growth is insufficient to absorb the young and growing labor force. Unemployment, which has long been high, is on an upward trend: the unemployment rate increased from about 17.619 percent in 2015 to 22.720 percent by the end of 2022 (using comparable unem- ployment measures). Young and educated people were most affected by higher unemployment. Employment in agriculture rebounded after the 2015/16 drought, and more workers were absorbed into low-productivity subsistence farming (Figure 1.8). But services remain the country’s largest employer, accounting for 535,000 of the 805,000 jobs in the economy in 2021 (66 percent, when subsistence farmers are included in total jobs). 17.  Botswana has two cities with more than 100,000 people, four with 50,000 or more, and 11 with 20,000 or more; it also has six towns with more than 10,000 people. 18.  For more details, see World Economic Forum (2019). 19.  The 2015/16 unemployment rate was revised to 17.6 in December 2018, down from the 17.7 percent reported in Statistics Botswana (2017). 20.  The official unemployment rate for Botswana in the fourth quarter of 2022 is 25.4 percent, applying the standard of the Nineteenth International Conference of Labour Statisticians (ICLS) to the 2019 – 22 Quarterly Multi-Topic Surveys (QMTS). This standard intro- duced a new classification for “forms of work”: own-use production work (e.g., subsistence farming) is now a separate indicator and no lon- ger counts towards employment or labor force participation. This change means that labor force statistics are no longer comparable with those of earlier years. To maintain comparability with official unemployment rates from 2002 to 2016, the previous ICLS standards were applied, giving an unemployment rate of 22.7 percent in 2022. Chapter 1  Country Context — What has Changed Since 2015 7 Industry has the highest labor productivity levels (proxied by value added per worker, Figure 1.9), but this is mainly in mining, where employment numbers are negligible.21 FIGURE 1.8  Services are the main source of FIGURE 1.9  … but labor productivity in the employment and job creation … services sector is stagnating Employment by Sector by Year Value Added per Worker by Sector 600 700 Constant 2016 prices (Pula) 500 600 Employment ('000) 500 400 400 300 300 200 200 100 100 0 0 Agriculture Industry Services Agriculture Industry Services 2009 2016 2019 2021 2009 2016 2019 2021 Source: World Bank calculations. Source: World Bank calculations. Apart from diamonds, Botswana is not capitalizing on opportunities in external markets, and the export basket remains undiversified. Diamonds account for about 90 percent of goods exports. In the ser- vices sector, nature-based luxury tourism attracted more than 330,000 international visitors in 2019 (21.3 per- cent of the total). Relative to other middle-income countries, such as Mauritius, Botswana’s exports are less able to penetrate foreign markets, and new exports struggle to survive in these markets despite preferen- tial trade treatments (such as the African Growth and Opportunity Act). Moreover, the value of exports has largely been on a downward trend since 2015 (Figure 1.10). Part of the reason is the lack of diversifica- tion and complexity (economic sophistication) of the export basket, which also implies that exports do not generate productivity gains and spillovers to the tradable sector. According to the Harvard Economic Complexity Index,22 Botswana ranks at the bottom (115th) of 133 countries in terms of the complexity of its exports, sliding 34 positions down the ranking in recent years (Figure 1.11). In general, the nonmining private sector lacks the levels of professionalism, skills development, and productivity seen in the diamond sector. FIGURE 1.10  Export growth has faltered since FIGURE 1.11  … and the export basket lacks 2015 … diversification and economic sophistication 40 High income Italy 30 Croatia Türkiye 20 Lebanon Percentage South Africa Tunisia 10 Botswana Namibia 0 Congo, Rep. Low income −10 Mongolia −1.5 −1.0 −0.5 0.0 0 0.5 1.0 1.5 −20 Score 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 Source: OEC (Observatory of Economic Complexity) Source: World Bank calculations. (database), OEC, https://oec.world/. 21.  When the mining sector is excluded from the calculation, productivity in industry approaches that of the service sector. 22.  Data are drawn from The Atlas of Economic Complexity (database), Harvard Kennedy School Growth Lab, Cambridge, MA, https:// atlas.cid.harvard.edu/countries/37/export-basket. 8 BOTSWANA Systematic Country Diagnostic Update Many current policies are not aligned with the country’s urgent need to enhance private sector growth and competitiveness. Five main policy aspects contribute to its disappointing performance out- side diamonds: • The state participates in markets in which other countries tend to promote competition. The Country Pri- vate Sector Diagnostic23 demonstrates that competition in sectors such as energy, beef, and transport is dampened by the large public sector footprint and the preferential treatment of some state-owned enterprises (SOEs). • Some industrial policies create distortions that discourage competitiveness and diversification. Subsidies to SOEs in water, electricity, and air transport create barriers for private sector firms attempting to enter these sectors, entrench inefficiencies, and hinder the reliable supply of these services. Similarly, tax con- cessions and import substitution policies to support declining activities have been costly but largely unsuccessful in attracting investment. More recently, the 2022 Public Procurement Act and the 2022 Economic Inclusion law included some anticompetitive provisions that favor specific firms and stifle export orientation.24 • Botswana’s trade policies within SACU strongly disincentivize exports. The trade policy regime aims to protect sectors such as poultry and dairy, but this results in higher prices for consumers, with low-in- come groups often disproportionally affected. Regional tariffs on key intermediate inputs are high; this not only reduces the competitiveness of local firms but also incentivizes them to sell their goods in the small domestic market rather than exporting them. Trade in the subregion is further hampered by uni- lateral nontariff barriers at the borders and excessive red tape. • Backbone services, which are vital for producing other goods and services, are costly. The high cost of intermediate services, such as finance, ICT, trucking, air and ground transport, and electricity, impose a heavy burden on firms, hinder efficiency, and discourage the entry of new firms. State monopolies, a lack of competition, and regulatory restrictions drive up prices and undermine the quality of services. The ICT sector is largely underdeveloped, prices and quality are uncompetitive, and its contribution to growth as a driver of innovation is limited. Similarly, poor air and ground connectivity hurts important sectors, especially tourism. • Policy implementation is sluggish and ineffective. The high reliance on — and remarkable success of —  the diamond industry has entrenched a lack of urgency in the implementation of new policies. Moreover, there is no political consensus about the future growth path, and policy makers are divided about whether to embrace protectionist or liberalization policies. Policies that could help drive private sector growth and productivity (including efforts to enhance the competitiveness of backbone services) have stalled, as have reform plans for several SOEs. Botswana’s many assets and opportunities offer a potential future growth path.25 First, the country’s natural beauty and wildlife can attract many more visitors, provided that the natural resources are not over- exploited. The high-end, luxury tourism sector is based on personal service and could be employment-in- tensive and generate broader economic links. Second, Botswana has large endowments of minerals such as 23.  The Country Private Sector Diagnostic (IFC 2022) outlines the negative impacts of Botswana’s state footprint on competition in key sectors. 24.  By law, about 35 service sectors are restricted to citizens of Botswana; such protectionism undermines the potential of international trade to improve domestic economic activity. 25.  For details on these opportunities: tourism: IFC (2022); minerals for green technology: World Bank (2023b) and Mapolelo and oth- ers (2023); beef: Syed and others (2022); and renewable energy: World Bank (2022a). A deeper analysis of the opportunities for and con- straints on new drivers of growth will be provided in an upcoming World Bank Country Economic Memorandum. Chapter 1  Country Context — What has Changed Since 2015 9 copper, nickel, cobalt, and manganese, which are critical for green technologies (such as for batteries) and are in high demand (Figure 1.12 and Figure 1.13); these could potentially be refined locally before export. Third, it has comparative advantages in niche value chains, such as beef and livestock, which create poten- tial export opportunities. Beef, for example, is primarily grazed in natural pastures without the use of arti- ficial growth stimulants or hormones; this value chain remains largely untapped. Finally, the abundant re- newable energy resources can be harnessed to provide affordable, reliable, and green electricity for both domestic use and neighboring countries. Southwestern Botswana has one of the highest solar irradiation levels in the world, and the northeast of the country has strong wind resources. Harnessing these opportu- nities requires attracting and supporting private players (investors and skills), including — but not exclusive- ly — those with an outward orientation toward regional and eventually global value chains. Botswana needs investor-friendly policies to attract foreign direct investment to expand its economic base, along with pol- icies that create a more favorable business environment. FIGURE 1.12  Botswana is rich in minerals that FIGURE 1.13  … and whose demand, and prices, are critical in renewable energy technology … are rising Copper price, 1990-2022 Carbon capture Energy storage Concentrated photovoltaic and storage Geothermal solar power 12,000 Hydro Wind Solar 10,000 8,000 Copper US$/mt 6,000 Cobalt 4,000 Manganese 2,000 Nickel 0 19 0 19 2 94 19 6 98 20 0 20 2 04 20 6 08 20 0 20 2 14 20 6 20 8 20 0 22 9 0 1 9 0 1 1 9 0 1 2 Source: World Bank 2020a. 20 20 19 19 20 20 Note: Criticality of four minerals shown for use in renewable technologies. Source: World Bank 2020a. Prudent policies ensured a suitable macro framework, but downside risks loom large Botswana’s long record of prudent economic management has helped stabilize the economy in vola- tile times. The authorities used countercyclical policies successfully, maintaining fiscal responsibility and ensuring the sustainability of public debt. They also managed the COVID-19 pandemic well from the start, and Botswana was relatively less affected than others in the region by its economic and health impacts. Key pandemic response measures included implementing mitigating actions in the education sector to provide for social distancing; establishing the COVID-19 Relief Fund to support workers, stabilize businesses, ensure the availability of strategic supplies, and restructure financial services; approving the Economic Recovery and Transformation Plan as an addendum of the Eleventh National Development Plan26 to support a short- term relief package; and creating the Industry Support Fund to provide soft loans to businesses to cushion the impact of the downturn. The government also rolled out an effective COVID-19 vaccination program.27 26.  For more details on the National Development Plans, see Government of Botswana (2017, 2020a, 2020b, 2023). 27.  Botswana faced supply-side constraints early in its vaccination program, but once these had been solved, the rate of vaccination picked up. Immunization rates soon exceeded those of its neighbors. See also IMF (2022). 10 BOTSWANA Systematic Country Diagnostic Update However, fiscal vulnerabilities and weak diversification hamper the much-needed fiscal consolida- tion in the medium term. The COVID-19 crisis highlighted the fragility of relying on public investment as the main driver of growth, along with a volatile and limited revenue base, and rigid spending. It also exposed the country’s vulnerability to fluctuating global commodity prices. COVID-19 widened both the current account and fiscal deficits, shrinking external reserves, and almost depleting the Government Investment Account.28 The balance of payments deteriorated, reflecting the country’s inability to diversify into compet- itive nonmining sectors (Figure 1.14). The nondiamond trade deficit is massive, with nondiamond exports of goods of only P8.0 billion (USD 680 million) in 2021, as against nondiamond goods imports of P56.4 bil- lion (USD 4.8 billion). This underscores the urgency of boosting nondiamond exports to reduce Botswana’s extreme dependence on diamonds for foreign exchange. The fluctuating diamond revenue and growing expenditure needs have resulted in consecutive bud- get deficits, underscoring the need for urgent reforms to ensure fiscal sustainability. The government’s ongoing efforts to stimulate growth and employment through fiscal expansion (higher public sector wages, employment and social spending, and investments) have led to large fiscal deficits and a persistent draw- down in buffers. This undermined fiscal consolidation efforts and had kept spending high even before the COVID-19 pandemic. Fiscal savings have come under significant pressure, with budget deficits since fiscal 2016; in fiscal 2021, the budget deficit reached 9.5 percent of GDP (Figure 1.15). The budget was (almost) balanced in fiscal 2022, but the 2023 budget again envisages a deficit, given the high public sector wage bill. Overall, domestic resource mobilization has been weak and inefficient, and thus unable to finance the coun- try’s developmental and transformative agenda in full. FIGURE 1.14  External trade balances FIGURE 1.15  … as did fiscal balances deteriorated … Fiscal sector (2000–20), Balance of payments (2015–21) 60 60 Percent of GDP using domestic currency data 50 50 40 40 30 30 Percent of GDP 20 20 10 10 0 0 −10 −10 −20 −20 20 01 20 03 20 05 20 07 20 9 20 11 20 13 20 5 20 17 20 19 1 /2 /1 /0 / / / / / / / / 10 16 20 14 12 18 00 06 04 02 08 5 16 17 18 19 20 21 22 1 20 20 20 20 20 20 20 20 20 Exports Imports Current account balance Revenue Expenditure Net lending/borrowing Source: World Bank calculation using Ministry of Finance data. Source: World Bank calculation using Central Bank data. 28.  The fiscal position started to improve in 2022, buoyed by the rebound in Batswana diamond exports as countries banned Russian dia- monds following the Russia's invasion of Ukraine. Chapter 1  Country Context — What has Changed Since 2015 11 POVERTY AND EQUITY AFTER THE 2015 SCD Progress has slowed, and inclusion remains limited Poverty reduction has been slower and only weakly linked to economic growth. The 2015 SCD showed that the share of the population living below the official poverty line fell rapidly from 30.6 to 19.3 percent between 2003 and 2009 (Figure 1.16). Progress has slowed since then, in line with the economic slowdown and increasing volatility. Still, the poverty rate declined to 16.1 percent in 2016, representing over 330,000 Batswana living in poverty.29,30 The depth and severity of poverty also declined, implying that the poorest among the poor were slightly better off in 2016; however, the rate of this decline was also slower than in the past.31 Worryingly, the ability of economic growth to lead to poverty reduction declined by 84 percent in the last available survey, as the elasticity of GDP to poverty fell from -3.8 in 2003 – 09 to -0.6 in 2009 – 16. Projections up to 2022, using different methodologies, suggest that the pace of poverty reduction has slowed even further due to the weaker labor market (Figure 1.16). FIGURE 1.16  Poverty reduction has slowed and is likely to have stagnated recently Poverty trends and projections 35 30 25 Percent 20 15 10 09 16 17 20 8 20 9-Q3 20 4 20 Q1 20 4 4 4 03 -Q -Q -Q 20 -Q 1 20 20 20 20 - 20 20 21 22 19 1 20 Official Limited Model (Quarterly) Full Model (Quarterly) Elasticity (Annual) Sources: 2003 HIES (Central Statistics Office 2004), 2009 BCWIS, and 2016 BMTHS (Statistics Botswana 2013, 2018); 2017 – 22 projections based on QMTS and national accounts data. Note: Projection methodologies include “limited” and “full” quarterly models using survey-to-survey imputations and annualized elasticity projections. See appendix C for details. By 2016 Botswana had lost its position as one of Africa’s top performers on the shared prosperity in- dicator, and its poverty rate remains high relative to its peers. Consumption per capita among the poor- est 40 percent of the population grew by only 1.2 percent annualized in 2009 – 16, down from 5 percent in 29.  An update to Botswana’s official poverty measurement methodology (undertaken jointly by Statistics Botswana and the World Bank) yields a poverty rate of 16.1 instead of 16.3 percent for 2015/16. 30.  The poverty analytics are based on the 2002/03 Household Income and Expenditure Survey (HIES) (June 2002 – August 2003; Central Statistics Office 2004), the 2009/10 Botswana Core Welfare Indicators Survey (BCWIS) (April 2009 – March 2010; Statistics Botswana 2013), and the 2015/16 Botswana Multi-Topic Household Survey (BMTHS) (November 2015 – December 2016; Statistics Botswana 2018). For ease of reference, this document uses the year in which a survey covered the most months as its date; hence, the 2003 HIES, the 2009 BCWIS, and the 2016 BMTHS. 31.  These measures correspond to the poverty gap and the Poverty Severity Index (the square of the poverty gap). 12 BOTSWANA Systematic Country Diagnostic Update 2003 – 09. Even among the top 60 percent of the population, real consumption per capita declined.32,33 In terms of the global poverty line for upper-middle-income countries ($6.85 per day, 2017 PPP), poverty in- creased by 3.1 percentage points in this period, to reach 63.5 percent in 2016. Botswana’s estimated figure for 2019 in terms of the international poverty line ($2.15 PPP) is more than four times higher than its GDP per capita would predict (Figure 1.17). Among its structural peers, its rate of poverty at the international line far exceeds those of Gabon, Georgia, Lebanon, Mongolia, and Tunisia and approaches rates in South Africa and Namibia; only the Republic of Congo is significantly poorer.34 FIGURE 1.17  Botswana is poorer than most of its structural peers $2.15 per day poverty line, 2017 PPP 80 70 60 Extreme poverty rate (percentage) 50 40 30 20 10 Botswana 0 6.5 7 7.5 8 8.5 9 9.5 10 10.5 LN (GDP per capita, PPP, US$) Source: World Bank calculations, using World Development Indicators (database), World Bank, Washington, DC. Note: The chart only shows countries with PPP GDP per capita of less than $25,000. Between 2009 and 2016 average consumption in rural areas declined, rural poverty increased, and the urban-rural gap widened. In this period, poverty in cities and towns decreased from 8.0 to 3.3 per- cent and in urban villages from 19.9 to 13.7 percent. However, poverty in rural villages increased from 24.4 to 26.8 percent, leaving rural poverty rates two and a half times higher than in urban areas. Whereas 2009 had seen consumption growth in rural areas across all income deciles, and faster than in urban areas, out- put volatility and drought in 2016 led to lower consumption for all but the poorest 15 percent of the popu- lation in rural areas (Figure 1.18). In contrast, urban areas saw higher consumption per capita for all but the top 20 percent of the urban population. 32.  Shared prosperity, which measures the extent to which economic growth is inclusive, is expressed as the annualized growth rate in the average consumption per capita of the poorest 40 percent of the population. 33.  Real consumption by the top 60 percent of the population fell between 2009 and 2016, resulting in a 1.8 percent annualized consump- tion per capita decline for the country overall. These results use the official welfare aggregate and differ slightly from the World Bank’s Global Database of Shared Prosperity, which has estimates of 0.42 and 3.3 percent for the poorest 40 percent of people and the country overall, respectively. 34.  An exercise to determine Botswana’s structural peers (see appendix B) used 20 different indicators from the World Development Indicators database. Eight countries proved robust to different combinations of indicators: Gabon, Georgia, Lebanon, Mongolia, Namibia, the Republic of Congo, South Africa, and Tunisia. Chapter 1  Country Context — What has Changed Since 2015 13 FIGURE 1.18  Rural households fared worse than urban households across the income distribution a. Rural growth incidence curve b. Urban growth incidence curve 10 4 8 Annualized Growth Rate (percent) Annualized Growth Rate (percent) 2 6 0 4 2 −2 0 −4 −2 −6 −4 −6 −8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Percentile Percentile 2009-2002 2015-2009 Sources: 2003 HIES (Central Statistics Office 2004), 2009 BCWIS, and 2016 BMTHS (Statistics Botswana 2013, 2018). Although inequality also decreased, Botswana is still exceptionally unequal by international stan- dards, which dampens its growth potential. Consumption inequality, measured by the Gini coeffi- cient, declined from 60.5 percent in 2009 to 54.9 percent in 2016 (using official figures). This primarily re- flected pro-poor growth in urban areas, especially cities and towns, where the coefficient declined from 59.9 to 48.7 percent. Inequality remains high in ru- ral areas, at 53.3 percent in 2016, with urban villag- FIGURE 1.19  Inequality is among the highest es at 51.1 percent. Also, the decline in inequality re- in the world flects significantly lower consumption among richer 0.7 households rather than higher consumption among poorer ones. Botswana remains among the top 10 0.6 Botswana most unequal countries in the world (Figure 1.19). 0.5 Among its structural and regional peers, only South Gini coefficient Africa and Namibia have higher rates of inequality. 0.4 International experience suggests that Botswana would find it hard to reach an inclusive growth path 0.3 and high-income status without addressing these levels of inequality and poverty. 0.2 0.1 A broader multidimensional measure of poverty suggests faster improvements between 2009 and 0 2016, but rural-urban gaps remain. The World Bank’s Ranking of 164 countries Multidimensional Poverty Measure35 for Botswana de- Source: Poverty and Inequality Platform (database), World clined from 31.8 percent in 2009 to 21.1 percent in 2016, Bank, Washington, DC, https://pip.worldbank.org/home. more than for monetary poverty alone (Figure 1.20). Deprivation rates are highest for sanitation and electricity, but access to electricity improved significantly in this period. Education also showed improvements, although starting from better levels. Access to water was high in both 2009 and 2016, with very low deprivation rates of 4.3 and 3.7 percent, respectively. Despite 35.  The World Bank’s Multidimensional Poverty Measure is an index that reflects the percentage of households deprived along three di- mensions of well-being: monetary poverty, education, and basic infrastructure services. By seeking to understand poverty beyond mone- tary deprivations, the index provides a more complete picture of well-being. 14 BOTSWANA Systematic Country Diagnostic Update such improvements, rural deprivation rates are high overall, especially relative to urban areas. For exam- ple, in 2016, 64.8 percent of rural households had no access to electricity, more than three times the share of urban households (20 percent) without such access (see section 2.1). Likewise, 65 percent of rural house- holds could not access improved sanitation, as against only 45 percent of urban households. In terms of ed- ucation outcomes, 16 percent of rural households had at least one adult with less than complete primary education, as had only 3.8 percent of urban households. Despite Botswana’s considerable progress, its Human Development outcomes remain well below the levels expected for a country of its income and characteristics. Botswana’s maternal and under-five mor- tality rates are not commensurate with its level of investment in the health sector and its classification as an upper-middle-income country. Malnutrition rates approach those of much poorer African countries. In terms of education, many students drop out at the end of their junior secondary education, and the gross enrollment rate at senior secondary level is only 62 percent. Moreover, despite generous public spending, the quality of education is low. Botswana performs poorly in regional and international assessments, with chil- dren from the poorest households faring worse than those from wealthier ones. The Human Capital Index, which measures the expected productivity in adulthood of a child born today, stood at 0.41 in 2020 (Figure 2.1 below), unchanged since 2018, although it had increased from 0.37 in 2010.36 Children in Botswana can expect only 8.1 years of schooling, corresponding to 5.1 years of schooling after adjusting for the quality of education; this nears the average for low-income countries (Figure 1.21).37,38 FIGURE 1.20  Multidimensional poverty FIGURE 1.21  Expected years of schooling are improved more than monetary poverty alone fewer than in its structural peers Multidimensional Poverty Measure 2009 – 16 and Expected years of schooling deprivation by dimension Botswana MPM South Africa Namibia Electricity Mongolia Sanitation Congo, Rep. Lebanon Water Tunisia Georgia Adult Education North Macedonia Child Education Costa Rica Low income Poverty Lower middle income 0 10 20 30 40 50 60 High income Percent 0 2 4 6 8 10 12 14 2009 2016 Expected Years of Schooling Source: Multidimensional Poverty Measure: World Bank Sources: World Bank calculations and Human Capital calculation, using 2009 BCWIS and 2016 BMTHS Project (database), World Bank, Washington, DC. https:// (Statistics Botswana 2013, 2018). www.worldbank.org/en/publication/human-capital. 36.  The Human Capital Index is a function of education and health, which are important for people’s productivity. It ranges between 0 and 1, where 1 indicates the benchmark of complete education and full health. 37.  Expected years of schooling are calculated as the sum of age-specific enrollment rates between ages four and seventeen. Age-specific enrollment rates are approximated using enrollment rates at different levels: preprimary enrollment rates approximate the age-specific en- rollment rates for four- and five-year-olds; the primary rate those for six- to eleven-year-olds; the lower-secondary rate those for twelve- to fourteen-year-olds; and the upper-secondary rate those for fifteen- to seventeen-year-olds. 38.  For more information on learning deprivation in Botswana, see also World Bank and UNESCO Institute for Statistics (2022). Chapter 1  Country Context — What has Changed Since 2015 15 Poverty became more concentrated in rural areas, but education levels improved Who are the poor? Poverty is increasingly more concentrated in rural areas and continues to be highest among chil- dren, large families, female-headed households, and people with lower levels of education. Although the share of Batswana living in rural areas declined from 43.0 to 34.9 percent between 2009 and 2016, the share of poor people living in rural areas increased from 56.2 to 58.2 percent. Poverty increased in the re- mote North-West, Ghanzi, and Kgalagadi districts but fell in and around cities to the south- and northeast (Figure 1.22). The share of poor people living in female-headed households declined from 58.1 to 56.8 per- cent, whereas the share with secondary or higher education increased from 14.6 to 20.4 percent as educa- tion improved for both the poor and non-poor. Households with low levels of education faced poverty rates of 21 percent on average, down from 24 percent in 2009, whereas those with secondary or tertiary educa- tion had much lower rates of poverty (13 and 2 percent, respectively). The poverty rate for under-five-year- olds remained the highest at 24 percent, albeit down from 27 percent in 2009; people of working age had the lowest poverty rate (12 percent). The poverty rate also increased with household size, from 8 percent for households of four people to 34 percent for households with seven or more people. FIGURE 1.22  Regional poverty is diverging, increasing in the west and decreasing in the east a. Poverty 2009/10 (official line) b. Poverty 2015/16 (official line) Percent: Percent: 33–39 33–39 28–33 28–33 23–28 23–28 18–23 18–23 13–18 13–18 8–13 8–13 3–8 3–8 0–3 0–3 Source: World Bank calculations, using 2009 BCWIS and 2016 BMTHS (Statistics Botswana 2013, 2018). What drives poverty and inequality? The main driver of higher rural poverty between 2009 and 2016 was the significant decline in the share of employed adults in rural households. This outweighed the beneficial impacts of factors such as lower inequality, higher labor and nonlabor incomes, and demographic changes (that led to a lower share of chil- dren and elderly people in the household). Among urban households, in contrast, lower inequality had a stronger (but still opposite) impact on poverty than the decline in mean consumption. In addition, among the components of household income, labor income was the main driver (at 80 percent) of poverty reduc- tion, with non-labor income and a higher share of adults in the household also contributing.39 39.  See the 2023 Botswana Poverty Assessment (World Bank 2023 forthcoming) for more details. 16 BOTSWANA Systematic Country Diagnostic Update Although income from employment is central to reducing poverty and inequality, social protection programs play a vital role. Botswana has 29 social protection programs across nine ministries. Without transfers from these programs, the poverty rate of 16 percent in 2016 would have been almost 24 percent, and the poverty gap would have increased from 4.6 to 9.5 percent.40 Removing just the 13 social assistance programs would increase the poverty headcount from 16 to 22.8 percent (almost 30 percent higher). Key among these are the old-age pension, which reaches more than 126,000 people (about 5.5 percent of the population in fiscal 2020), and the primary school feeding program, which reaches about 269,000 children.41 Labor market factors were the largest contributors to inequality in 2016, whereas demographics and education had been the largest contributors in 2009. Labor market indicators contributed 35.6 percent to inequality in 2016, up from 20.3 percent in 2009, followed by demographics (27.9 percent in 2016), education (25.9 percent), and location (10.6 percent).42 In other SACU countries differences in educational attainment were the most important driver of overall inequality. For Botswana, the large contribution of labor market indicators to inequality reflects differences in occupation type (such as senior managers, professionals, and clerks, suggesting differences in skills and abilities) and to some extent, labor force participation.43 An in- crease in tertiary education among adults in Botswana may have helped reduce the contribution of tertiary education to inequality relative to that of the labor market. Demographic factors contributed less to inequali- ty, suggesting the “demographic dividend” (more household members of working age and fewer dependents) became more even across households. Lastly, unlike in other SACU countries, location increased in impor- tance as a source of inequality in 2016, driven by the divergence in inequality across regions in Botswana. Among the sources of income, wage inequality is the main driver of inequality in Botswana, more so than in the rest of SACU. Wage income contributed 85 percent to inequality (as against the 72.3 percent av- erage for SACU), even in rural areas, with business income (8.7 percent), social protection transfers (4.7 per- cent), and remittances (1.5 percent) all having a much FIGURE 1.23  Wage income is the main smaller role (Figure 1.23).44 A marginal increase in ex- contributor to inequality isting social transfers and remittances, and to some extent also business income, has an equalizing effect Wage Income on overall incomes.45 Wage income, on the other hand, Business Income has the largest marginal effect on inequality (chang- Social Protection ing the Gini coefficient by 5.2 percent) and increas- Transfers es inequality particularly in rural areas (8.3 percent). Remittances These results suggest that beyond continued improve- 0 20 40 60 80 100 ments in educational attainment and dependency ra- Percent tios, reducing inequality will require policies that re- National Share Rural Share duce differences in wage incomes, for example, by Source: World Bank calculations based on Sulla and others strengthening skills and abilities and by reducing wage (2022) differences between the public and private sectors. 40.  For more detail on Botswana’s social protection programs, see World Bank (2022c). 41.  In contrast, the tertiary sponsorships program attracts the highest expenditure (1.13 percent of GDP), far more than the primary school feeding program (0.38 percent); however, its impact on poverty is limited because students from poor households are less likely to reach tertiary education. 42.  See Sulla and others (2022). This decomposition of inequality is based on a technique proposed by Fields (2003). 43.  Occupational differences accounted for the largest share of total inequality (29 percent) and exacerbated the inequality-inducing ef- fects of high returns to tertiary education (a 24 percent share of total inequality). 44.  See Sulla and others (2022). This decomposition of inequality by income sources follows Lerman and Yitzhaki (1985) and Stark and others (1986). For Botswana, four income sources were considered: wage or labor incomes, business income (profits and agricultural in- come), social transfers, and remittances. These estimates differ slightly from those reported in the regional report, because the methodolo- gy used here considers survey weights. 45.  In the case of rural households, the effect of a marginal increase in remittances on inequality is 3.6 times larger than the effect of so- cial protection transfers, despite its relatively smaller share of total rural inequality. Chapter 1  Country Context — What has Changed Since 2015 17 Employment remains key for reducing poverty and inequality Reducing poverty and inequality requires much higher rates of formal and informal employment. The economy needs to create jobs at least as quickly as the labor force grows, but this remains a challenge. In 2003 – 09, when poverty fell rapidly, employment grew faster than the labor force (3.9 percent against 2.7 percent, respectively). In 2009 – 16, the growth of both employment and the labor force slowed, but the slowdown in employment growth was relatively faster (annualized 1.8 percent, as against 2 percent for the labor force). This meant that the pace of job creation did not match the growing supply of labor; unsurpris- ingly, the pace of poverty reduction also slowed. Data for 2016 – 21 show that this trend has continued. With the economy unable to absorb the growing labor force for the last decade, unemployment increased steadi- ly from 17.1 percent in 2009 to 17.6 percent in 2016, and then to 22.7 percent in the last quarter of 2022. This rate is higher than in all other upper-middle-income countries, except for South Africa. In parts of Botswana where relatively fewer people found work, such as rural areas, poverty worsened. But cities and towns also saw higher unemployment, as more people entered the labor force while employment rates remained flat. Botswana ranks in the bottom 30 percent of countries worldwide in terms of employment, leaving many people unemployed and discouraged. Job creation is limited by bottlenecks in the demand for la- bor, and labor supply constraints result in skills mismatches. It is also difficult for people to start their own businesses and become self-employed. Among employed people in 2021, 15.4 percent were classified as nonfarm self-employed, 12.2 percent as farm self-employed, 18.9 percent as wage workers in central or lo- cal government, 38.6 percent as private wage workers (including private households), 2.6 percent as para- statal workers, and 6.4 percent as Ipelegeng public workers.46 Over the last 20 years people do not seem to have transitioned out of agriculture into private wage work; instead, almost 18 percent remain employed in agriculture (Figure 1.24). In fact, data for 2021 suggest strong increases in nonsubsistence agricultural farm- ing since 2016. One reason could be the import substitution policies for food implemented in 2021, which helped increase the demand for domestic agricultural output and reallocated resources towards the sector with the lowest productivity in the economy. FIGURE 1.24  Lack of transition out of agriculture while employment in services has grown a. Employment by sector b. Share of employment by sector 1000 100 Number employed ('000) 800 80 600 60 Percent 400 40 200 20 0 0 03 9 16 4 4 4 03 9 6 4 Q4 4 Q -Q Q Q Q 0 0 1 20 20 20 20 20 20 9- 1- 9- - 1- 20 20 2 2 1 1 20 20 20 20 20 20 Agriculture Mining Manufacturing and Utilities Construction Whole-Retail Public Administration Education Rest of Services Source: World Bank calculations, using 2009 BCWIS and 2016 BMTHS (Statistics Botswana 2013, 2018), and QMTS (Statistics Botswana 2019a, 2019b; 2020a, 2020b; 2021; 2022c). Note: QMTS employment figures are adjusted to include subsistence farmers (Eighteenth ICLS standard). 46.  The rest include nongovernmental organizations (0.6 percent) and other unknown wage employees (5.3 percent). Ipelegeng is a work- fare program for adults 18 years or older and is limited to only one-month employment. 18 BOTSWANA Systematic Country Diagnostic Update Gender inequality Women do not have equal access to economic opportunities and productive resources. In 2021 only 59 percent of women participated in the labor force, as against 69 percent of men (using labor market defini- tions comparable over time); the unemployment rate for women is 25.3 percent, as against only 19.7 percent for men. This is compounded by gender bias, which segregates women into less-profitable economic activi- ties; even in the same sectors as men, women are paid less. Female-headed households were disproportion- ally poor – in 2016 they represented 51.6 percent of households but 56.8 percent of poor households. Women account for about 39 percent of the agricultural workforce, but they are more likely to have only informal ag- ricultural businesses. Men dominate the livestock sector (which provides 60 percent of agricultural value add- ed, mainly beef) and own more cattle, sheep, and goats, whereas women own more chickens. Similarly, despite owning more arable land, women harvest less than their male counterparts, largely because they lack access to inputs. In terms of wage employment, men are 40 percent more likely to be wage workers. Women are also 58 percent more likely to be unpaid family workers.47 Overall, women continue to face significant challeng- es in the business environment, including a lack of access to finance, assets, skills, training, and networks.48 The COVID-19 pandemic and lockdowns had a particularly negative effect on women. Of the 67,000 people who lost jobs or businesses in 2020, 58 percent were women. Among the only 4 percent of these new- ly unemployed people who had found other jobs by the last quarter 2020, 70 percent were male. Overall, around 19,000 people found some form of employment during the pandemic, of which close to 77 percent were women; 72 percent were in public administration or education. About 17,000 of these were employ- ees (rather than self-employed people), of whom over 35 percent were hired by Ipelegeng, a short-term un- employment relief program. HIGH EXPOSURE AND VULNERABILITY TO NATURAL SHOCKS Growing global uncertainty and instability, combined with the increasing frequency and sever- ity of natural shocks, expose significant macro- and socioeconomic vulnerabilities in Botswana, an issue acknowledged but not stressed enough in the 2015 SCD. The 2015 recession, for instance, showed that the economy’s heavy reliance on minerals and the public sector makes it more vulnerable to external shocks, generating large macro and fiscal imbalances. Global and national mobility restrictions imposed during the COVID-19 pandemic weakened the demand for diamonds and created havoc in the tourism sec- tor. The country is also highly vulnerable to climate variability and related events, given its high dependence on rainfed agriculture and natural resources. Botswana ranked 94th out of 181 countries in terms of climate risks on the 2020 Notre Dame Global Adaptation Initiative Index, which assesses a country’s vulnerability to climate change and its readiness to improve resilience.49 The higher frequency and intensity of extreme droughts and floods threaten crops, livestock, and food security, and burden urban infrastructure (includ- ing through higher rural-to-urban migration), capital assets, and people. Floods are the most frequent natural disaster in Botswana, comprising 55 percent of all recorded events since 1965 (Figure 1.25). The number and severity of floods have increased dramatically in the last two decades, possibly because of climate change. The Central District, the most populous part of the country, faces the highest risk of floods. Ngamiland, the popular tourist destination that houses the Okavango Delta, 47.  In addition, in their traditional role as primary caregivers, women are responsible for caring for ill family members, often at the ex- pense of taking advantage of economic, education, or training opportunities. 48.  See, for example, the Botswana Gender Landscape (World Bank 2023a). 49.  Data are drawn from the Country Index (database), ND-GAIN (Notre Dame Global Adaption Initiative), Notre Dame, IN, https:// gain.nd.edu/our-work/country-index/. Chapter 1  Country Context — What has Changed Since 2015 19 is also prone to floods. Estimates from the United FIGURE 1.25  Droughts are the second most Nations Office for Disaster Risk Reduction show that, frequent climate risk … on average, about $50 million of Botswana’s GDP Flood (nearly 0.3 percent) is potentially affected by floods every year.50 The total built-up area exposed to flood- Drought ing has increased steadily since 1990, suggesting that urban expansion has continued without regard for Storm flood exposure, above all in Francistown. Floods are Insect infestation also the leading cause of recorded deaths attributed to natural disasters. In terms of asset and economic 0 10 20 30 40 50 60 Percent losses, the sectors most vulnerable to floods are agri- culture, transportation, and housing. Source: World Bank calculations. Some parts of the country, particularly the southern and eastern regions, face high and increasing ex- posure to droughts. Droughts are the second most common natural disaster in Botswana, and about 37 per- cent of the population live in areas with low levels of effective precipitation. The probability of droughts occur- ring is projected to increase by 45 percent, and expected changes in the climate are likely to more than double the share of the population affected by droughts, to about 78 percent. Rising temperatures are likely to mean more intense heatwaves and higher rates of evapotranspiration. The agricultural sector is the most vulnera- ble to droughts, with about 40 percent of livestock and all crops (except for maize and sorghum) affected.51 Natural disasters impede and may even reverse the reduction in poverty and inequality, as they are more likely to affect the poorest villages. For example, the severe drought of 2015/16 affected most vil- lages, but it was more intense in the poorer villages where subsistence farmers live. This may help explain why the number of people working in small-scale agriculture declined steeply in that period. With both sub- sistence and nonsubsistence farmers unable to make up the lost consumption via other sources of income, poverty in rural areas increased. More broadly, an analysis of rainfall shocks — defined as positive or nega- tive deviations from village-specific historical patterns — for various years in 2009 – 19 show that poorer vil- lages are systematically more likely to experience excessive or deficient rainfall (Figure 1.26). The effects of droughts go beyond the vulnerability of subsistence farmers, however; for example, Botswana’s vital tour- ism sector depends on water-based wildlife. FIGURE 1.26  … and, like floods, they disproportionally affect poor people 0.4 Decile: R² = 0.04 0.3 1 Annual rainfall shocks (2015/16) 2 0.2 3 0.1 4 5 0 Stronger negative 6 −0.1 rainfall shocks 7 −0.2 8 9 −0.3 10 −0.4 Poorest villages −0.5 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Village poverty rates (2009/10) Sources: World Bank calculations; World Bank 2023 (forthcoming). 50.  For details on Botswana’s disaster risks, see UNDRR and CIMA (2019). 51.  See UNDRR and CIMA (2019) and World Bank (2021a) for the climate risk assessment. 20 BOTSWANA Systematic Country Diagnostic Update DETERIORATING PUBLIC SECTOR EFFECTIVENESS AND EFFICIENCY A gradual but steady decline in the quality of public policy formulation, implementation, monitoring, and accountability is undermining the effectiveness and efficiency of the public sector, which affects both the quality of services and standards of living. Botswana’s impressive economic performance in the past was attributed in part to the quality of its public sector. More recently, however, the gap between pol- icy formulation and implementation has widened. Spending is high, even by global standards, but returns are lower than expected, and there is little accountability for poor performance.52 This is compounded by weak incentives to implement policy changes and correct course when needed, a lack of data to guide policy making, and vested interests. From 2016 to 2022 Botswana’s score on the Bertelsman Transformation Index gradually worsened, with its Governance Index and Governance Performance scores declining by 0.23 and 0.21 points, respectively.53 Botswana remains a leader among its regional peers on most global governance indicators, but on measures of the enabling circumstances for corruption, including administrative trans- parency, online services, and budget transparency, it lags well behind its global and income group peers (Figure 1.27).54 There is a clear intent to move for- FIGURE 1.27  Public integrity indicators lag ward: Vision 203655 promised that the public sector global and income group peers would offer first-class services (effectiveness) and do more with less (efficiency). However, this am- Index of bitious goal is far from being realized. The Public Public Integrity Procurement and Asset Disposal Board, long seen as a credible institution, has endured allegations of Budget Transparency corruption, with losing bidders lodging lawsuits ac- cusing the Board of collusion. Recent procurement reforms offer an opportunity for transformation, if Admin Transparency implemented fully. A lack of implementation capac- ity in the public service and most of the SOEs has Online been a major challenge. Due to procurement delays Services and weak project management capacity, ministries 0 2 4 6 8 consistently underspend funding allocated per year, Index of Public Integrity (IPI) requiring a new appropriation process to be able to and its Enabling Circumstances for Corruption continue with capital projects the following year. This undermines project completion timelines and Botswana World avg. Income Group avg. Regional avg. overall quality of public investment, while increas- ing overall costs.56 Significant inefficiencies in infra- Source: Botswana Corruption Forecast (database), CorruptionRisk.org, http://www.corruptionrisk.org/ structure spending require improvements in project country/?country=BWA#forecast appraisal, management, and monitoring. 52.  IMF 2022 53.  Data are drawn from the BTI Transformation Index: Botswana (database), BTI, https://bti-project.org/en/reports/ country-dashboard/BWA. 54.  For example, on the Index of Public Integrity, Botswana ranks sixth in Africa but 85th out of 114 globally and 27th out of 29 upper-mid- dle-income countries. 55.  Vision 2036 was launched in 2016; see Government of Botswana (2016). 56.  Government of Botswana (2023) and PEFA (2020). CHAPTER 2 PROGRESS ON PRIORITY INTERVENTION AREAS 24 BOTSWANA Systematic Country Diagnostic Update The Botswana 2015 SCD identified seven broad priority areas for intervention to address the goals of sustainable poverty elimination and shared prosperity (Figure 1.3). Since then, progress on these pri- ority intervention areas has been mixed, with some areas seeing partial progress and others limited or no progress. This SCD Update assesses progress both on outcomes and on the underlying reforms, especially for priority areas with a long-term outlook. It concludes that although many priority areas identified in the 2015 SCD remain valid, some challenges have become more pressing, including energy security and cli- mate shocks. Botswana needs to review its priorities to address its increasingly modest performance and the chronic public sector implementation gaps.57 PARTIAL PROGRESS ON HUMAN CAPITAL, WATER AND SANITATION, AND SOCIAL PROTECTION Improving health and education outcomes Botswana has made partial progress on the priority intervention on improving health and education outcomes by reducing the disease burden and raising and aligning skills. Developing a new growth model requires substantial improvements in human capital, through education and health, to increase the productivity of the labor force. The 2015 SCD highlighted the need to reduce child malnutrition and the im- pact of disease (especially HIV) on skills acquisition, and to increase women’s participation in income-earn- ing activities. It also emphasized improving the quality of education and aligning skills with labor market needs, especially for young people. Overall, Botswana’s human development outcomes remain low relative to its level of income and development (Figure 2.1). FIGURE 2.1  The Human Capital Index is low relative to the income level 1.0 0.9 Human Capital Index, 2020 0.8 0.7 0.6 Mongolia Georgia 0.5 Tunisia Lebanon Namibia Gabon Congo South Africa 0.4 Botswana 0.3 0.2 6 7 8 9 10 11 12 Natural logarithm GDP per capita, 2020 (PPP, US$) Sources: World Bank calculations and Human Capital Project (database), World Bank, Washington, DC. https://www. worldbank.org/en/publication/human-capital. Partial and mixed progress on health outcomes: Botswana has made some progress in addressing key causes of morbidity and mortality. Child survival rates (to age five) rose from 95 to 96.4 percent, and adult survival rates (from age 15 to 60) rose from 63.5 to 79.9 percent between 2010 and 2020. Botswana was also 57.  For a discussion on the prioritization process, see chapter 3. Chapter 2  Progress on Priority Intervention Areas 25 the first high-burden country to bring mother-to-child transmission of HIV below 5 percent, and it has achieved an HIV case rate of fewer than 500 per 100,000 live births.58 As of 2022, Botswana has reached the UNAIDS 95-95-95 targets.59 Despite such progress, serious challenges persist. The incidence of tuber- culosis remains one of the highest globally, and maternal and under-five mortality rates are relatively high for Botswana’s level of development and health spending.60 Modelled data suggest that levels of stunting (22 percent among children under five in 2020) have been relatively unchanged over the last two decades.61 Lastly, the burden of noncommunicable diseases is significant. Estimated death rates from cancers and car- diovascular disease remain above 100 and 250 per 100,000 of the population, respectively. Limited progress on health reforms: Total current expenditure on health was about 6 percent of GDP in 2019, with total spending increasing in real terms by 8.6 percent between fiscal 2014 and 2019. Around 83 percent of recurrent health expenditure is allocated to clinical services, despite the policy intent of the Ministry of Health and Wellness to focus more on prevention and primary health care. The proposed (pre- dominantly tax-funded) national health fund is yet to be created. Botswana also needs to implement strate- gic purchasing of health services to help it transition to a health financing system that optimizes efficiency, quality, and equity and better reflects its pluralistic delivery model (including public, private for-profit, pri- vate nonprofit, and traditional medicine practices). Partial progress on education outcomes: Botswana has made considerable progress in increasing access to early childhood care and education services, with 43 percent of five-year-old children enrolled in prepri- mary schools in 2018, up from 20 percent in 2013. In 2016, household data showed that about 30 percent of three- to five-year-olds were enrolled in community-based preschool centers run by private providers. Most children complete primary and junior secondary education; however, many drop out after junior secondary education, and the gross enrollment rate at senior secondary level is only 62 percent. Moreover, the qual- ity of education remains low. The country’s students are among the worst performers on the three rounds of the international assessment program carried out by the Southern and Eastern Africa Consortium for Monitoring Educational Quality.62 Children from low-income households perform particularly poorly. The difference in score between the average and the poorest quartile of students was only 17 points in Swaziland, 19 in Lesotho, and 39 in Namibia, yet it was a high 68 points in Botswana, not far behind the 72 points in South Africa. Although no international assessment has been conducted since 2015, student performance on national examinations (the Primary School Leaving Examination, the Junior Certificate Examination, and the Botswana General Certificate of Secondary Education) has been unchanged in recent years. Limited progress on education reforms: Public spending on education is relatively high (at 7.1 percent of GDP or 22.2 percent of the government budget), but much of this is allocated to tertiary education. Spending per student in tertiary education is six times as much as spending at the primary level and primarily ben- efits students from the top two income quintiles. At the secondary level, there is a shortage of classrooms and learning materials, and teachers receive very limited in-service training. The ttechnical and vocational education and training system is fragmented and suffers from a lack of coordination and limited organi- zational capacities. The quality and relevance of training are a source of concern, and there is often a mis- match between the skills trainees acquire and the demands of the labor market. An important cause of these 58.  For more detail on Botswana’s progress in terms of health and HIV, see World Bank (2020) and UNAIDS (2021). 59.  The 95-95-95 targets stand for 95 percent of all people living with HIV to be aware of their status, 95 percent of those aware of their status to be on antiretroviral treatment (ART), and 95 percent of those on ART to achieve viral load suppression. 60.  Although the ongoing census and strengthened vital statistics systems will support better measurement of maternal and under-five mortality rates, examining the drivers of these outcomes would benefit from dedicated assessments, including an update of the demo- graphic and health survey of 2017. 61.  World Bank, using April 2021 country-level models from UNICEF, WHO, and World Bank (2021). 62.  For more information, see http://www.sacmeq.org/?q=sacmeq-members/botswana/sacmeq-reports. 26 BOTSWANA Systematic Country Diagnostic Update challenges is the 2017 reorganization of Botswana’s education system, which resulted in a complex and frag- mented organizational structure.63 The reorganization was reverted in 2022 with now a single Ministry of Education and Skills Development. Improving access to water and sanitation Partial progress has been made on ensuring improved access to water and sanitation. A semi-arid country, Botswana is one of four Southern African nations expected to be highly water-stressed by 2040.64 Vital industries like agriculture, mining, and tourism all depend on an adequate water supply,65 but ground- water is overexploited, and saline intrusion is a re- FIGURE 2.2  Rural households have limited current problem in many regions of the country. The access to services 2015 SCD highlighted the need for substantial invest- Deprivation in access to services: Rural vs urban, 2016 ments to increase access to water to meet the (pos- sibly faster) growth in water demand.66 Increasing Electricity climate variability adds to the challenge, as shown Sanitation by the 2015 drought, in which cereal crop produc- tion declined by 70 percent and livestock mortali- Water ty rose by 20 percent. The 2015 SCD also empha- Adult Education sized the importance of addressing major disparities in access to sanitation to improve people’s liveli- Child Education hoods and lower the incidence of disease and mal- 0 10 20 30 40 50 60 70 nutrition. Access to sanitation increased significant- Coverage (percentage) ly (from 34 to 48 percent) between 2009 and 2016. Rural Urban Nevertheless, these levels are well below the aver- Source: World Bank calculations, using 2016 BMTHS age for upper-middle-income countries, and access (Statistics Botswana 2018). in rural areas remains very low (Figure 2.2). In con- trast, access to improved drinking water was high, at 96.3 percent in 2016, although it did not quite reach the government’s commitment to “universal access by 2016”. Around 91 percent of households receive water from a piped network, in line with the country’s structural peers. However, in many areas, water supply is limited to eight hours per day, three days a week; thus, many households with a piped connection revert to alternative sources, such as mobile water tanks. Some progress was made on reforms. The National Water Master Plan Update of 2018 aims to enhance the utilization of internal surface and groundwater resources and optimize existing infrastructure, includ- ing through a significant increase in treated wastewater reuse, groundwater recharge, demand management, and loss reductions, along with the proposed large-scale transboundary water transfer schemes (the Chobe- Zambezi transfer and the Lesotho-Botswana transfer). The Water Utilities Corporation performs relatively well, but it could be more efficient with better cost recovery and investments in resilience.67 Mobilizing pri- 63.  The functions of the Ministry of Education and Skills Development were rearranged, with two new ministries — the Ministry of Basic Education and the Ministry of Tertiary Education, Research and Technology — assuming most of the functions of the former ministry. Skills development, however, was moved to the Ministry of Employment, Labour Productivity and Skills Development. For more detail on the basic education system, see World Bank (2019a). 64.  The Water Resources Institute suggests that water stress levels for Botswana, Namibia, South Africa, and Lesotho could reach 40 – 80 percent by 2040. See Maddocks and others (2015). 65.  The livestock subsector accounts for 66 percent of agricultural water use. Mining’s water consumption share ranks third, after agricul- ture and domestic consumption. 66.  The annual water supply-demand gap is estimated at 20 million cubic meters in 2020 and could potentially increase to 114 million cubic meters per year by 2035 unless immediate action is taken (National Water Master Plan Update of 2018, Government of Botswana, 2018). 67.  In 2017, nonrevenue water was 39 percent and the collection rate stood at 79 percent (Government of Botswana, 2018). Chapter 2  Progress on Priority Intervention Areas 27 vate capital and expertise could help Botswana tackle many challenges in the water and sanitation sector. Promising areas for private investment include wastewater treatment and water recycling services, per- formance-based contracts for the reduction of nonrevenue water, improved collections, energy efficiency, groundwater exploitation and management, and water savings performance contracts for large users. Reforming social protection Partial but noteworthy progress has been made in Reforming social protection to reduce fragmenta- tion and improve targeting, efficiency, and linkages. The 2015 SCD highlighted that although Botswana’s social protection systems have been effective in reducing the level and depth of poverty, they could be much more efficient and better targeted to poor households. In particular, the report stressed the need for bet- ter links between social protection programs and interventions in health, education, and active labor mar- ket programs to limit the intergenerational transmission of poverty. It also emphasized the need to reform social protection, including “adopting technologies and processes to improve targeting efficiency, consoli- dating the fragmented programs and introducing a single household-level grant as ‘last resort’ protection, introducing conditional interventions to promote behavioral changes, and more effectively linking social protection with public works and active labor market programs”. Progress on outcomes has continued, as social protection programs contribute significantly to the reduc- tion of poverty and inequality. A large share of the population benefits from social protection programs, with more than half (54 percent) of the beneficiaries in the poorest 40 percent of people, and 79 percent of poor people benefiting from at least one social protection program. Botswana responded to the COVID- 19 pandemic better than many African countries by providing food relief programs,68 continuing existing essential social services and social protection programs, partially maintaining its Ipelegeng public works program, launching an Emergency Operations Center to provide essential supplies, and enhancing efforts to move to digital payments (see Box 2.1 for lessons learned on social protection responses to the COVID- 19 pandemic). However, the country’s social protection system includes multiple cash, food distribution and in-kind transfer programs, which are not well coordinated. In fiscal 2018, Botswana spent 3.6 percent of GDP on at least 29 social protection programs across nine ministries (including 2.6 percent of GDP spent on noncontributory social assistance). Although more than half of the population benefits from social assis- tance programs, around 21 percent of poor people do not have access to any such programs. There is also significant overlap between the three areas of social protection benefits received by members of the same household (social insurance, social assistance, and labor market/employment programs). Partial progress has been achieved on reforms. The government has started to reform the administra- tion of social assistance but will need to broaden and deepen these reforms. The National Social Protection Framework approved by the Cabinet in 2020 aims to establish a comprehensive and well-coordinated social protection system. Recognizing the challenges in the delivery of social protection, the government took im- portant steps towards developing a social registry, although this is still in an early phase.69 It is also devel- oping and pilot testing a proxy means test, a better methodology for determining eligibility for the pover- ty-focused programs in the social registry. Moving towards a fully harmonized social assistance targeting 68.  As of March 2021, Botswana’s COVID-19 Food Relief Programme had allocated P431 million ($37.3 million) to food baskets for 429,555 households or 67.7 percent of the population (1.59 million individuals). The Orphan Care Programme continued to be delivered even during lockdown, but with some disruption and delays. For school feeding, Botswana changed from on-site meals to take-home food par- cels, in line with World Food Programme guidelines. 69.  The implementation of the social registry started in four districts, with beneficiary data digitized for the five key programs. By March 2023, the government had uploaded beneficiary data to the registry for all 13 programs implemented by the Ministry of Local Government and Rural Development. Moving from the current database towards a fuller, unified, single registry also requires the addition of beneficiary data from programs not implemented by this ministry, along with data on nonbeneficiaries who are poor, vulnerable, or at risk of shocks. 28 BOTSWANA Systematic Country Diagnostic Update system requires more broadly determining eligibility and using the proxy means tests for identifying poor households and beneficiaries for other programs. Beyond these reforms, the government could further im- prove the poverty impact of its programs by using the social registry and harmonized targeting method- ology to consolidate small programs with the Destitute Persons Program and put in place a targeted and more comprehensive grant program for poor households. It also needs to improve links to health, educa- tion, and labor market services to enhance human capital development. For example, it could strengthen links between cash transfers and services, building on the social registry, or improve links between safe- ty net programs through social intermediation and case management by social workers. This would be a “cash plus” approach.70 BOX 2.1  Lessons learned from Botswana’s social protection during COVID-19 Governments across Southern Africa responded to the additional need. Moreover, the Ipelegeng workfare COVID-19 in a mix of similar and contrasting ways. program was also disrupted by the lockdowns. Many introduced emergency social protection mea- Unlike in South Africa, Lesotho, and Namibia, sures, but these varied in terms of reach, generosi- Botswana did not supplement its existing cash trans- ty, and modality. The Government of Botswana’s social fer programs or introduce a new emergency cash protection response reflected its long acknowledg- transfer scheme (except, on a very small scale, for in- ment of responsibility for mitigating poverty and re- formal business owners). Although the pandemic did sponding to disasters—through feeding schemes rath- reinvigorate the discussion of social protection policy er than cash transfers—as well as its concern for the reforms, overall, it did not affect either the direction or welfare of the urban middle- and working classes. the pace of social protection reform in the country. After imposing the lockdown, the government in- Botswana’s social protection system remains con- troduced temporary but substantial wage subsidies, servative and grounded in the idea that assistance which benefited a minority of people in formal, pri- from the state should be linked, wherever possible, vate sector employment. It also distributed substan- to the goal of people achieving self-reliance through tial food baskets to poorer people, the majority of the productive work, thereby fulfilling their responsibili- population. This wide and impressively prompt distri- ties to the wider society. These norms and values ren- bution of food parcels contrasted starkly with the fail- dered the government unable to respond more fully to ure of neighboring South Africa to distribute food after the shock of the COVID-19 lockdown. Rather than ex- its lockdown. This achievement was offset, however, pand its social protection system in novel ways, it pre- by the suspension of some existing feeding schemes. ferred to ease the lockdown to ensure a quick return to Overall, the volume of food distributed did not meet “normality”. Source: Gronbach and others (Forthcoming). LIMITED PROGRESS ON DIVERSIFICATION AND PRODUCTIVITY Facilitating a competitive, export-oriented private sector The diversification of the economy has yet to gain traction, and Botswana still relies heavily on dia- monds, as progress on facilitating a competitive, export-oriented private sector has been limited. Developing a competitive private sector that generates broad-based employment — a key priority identified in the 2015 SCD and confirmed in this SCD Update as critical for faster and more inclusive growth — can take decades. The 2015 SCD focused on two issues on the private sector development agenda: “establishing the incentives to support an outward-oriented private sector” and “improving connectivity”. The former high- lighted “trade, competition, and immigration policies that ensure access to competitively priced inputs and 70.  Several program-level recommendations are included in World Bank (2022c), such as rethinking tertiary sponsorships and scholar- ships; transforming the Destitute Persons Program; reconfiguring the Ipelegeng public works program; rethinking the feeding programs; planning social care services for a growing elderly population; and ensuring that the BMTHS captures all the benefits of the Destitute Persons Program. Chapter 2  Progress on Priority Intervention Areas 29 skills, and incentives to compete in tradable sectors”. The latter highlighted “a focus more on soft than hard infrastructure, including (1) improving national and regional trade facilitation to support integration into regional and global value chains; (2) improving air connectivity to open up opportunities in key sectors; and (3) improving the speed, quality, and cost-effectiveness of ICT infrastructure (especially broadband)”. Limited progress has been made on efforts to establish incentives and improve connectivity for a competitive private sector since the 2015 SCD. Progress on outcomes and reforms was also limited, as discussed below. Progress has been mixed on private sector outcomes for foreign direct investment, road quality, and trade logistics. The private sector has yet to attract significant foreign direct investment outside the ex- tractive sector, in both relative and absolute terms. With diamonds representing 90 percent of exports, few of Botswana’s current export products provide an obvious platform for further diversification. In terms of road quality, Botswana is well connected internally, with a rural access index of 79 percent; this compares favor- ably with its income group peers (71 percent).71 On trade logistics, Botswana’s 2016 Logistics Performance Index stood at 3.045 and ranked 57th globally, as against the regional average of 2.449 and an income group average of 2.721. This represents a significant improvement on the 2014 score of 2.493 and ranking of 120th reported in the 2015 SCD.72 In addition, as anticipated in the 2015 SCD, the flagship 923-meter Kazungula road and rail bridge project connecting Botswana with Zambia across the Zambezi River has been complet- ed and opened to traffic. Despite these improvements, as a landlocked country, Botswana’s ability to move goods and people beyond its borders depends largely on the transport and logistics systems of its neigh- bors.73 Its high trade imbalances with these neighbors also contribute to high transport costs for truckers, as outbound trucks are often empty. Botswana’s air infrastructure is insufficient to support export growth. Air transport infrastructure re- mains limited, with a lack of long-haul connections and restrictions on scheduled domestic and internation- al air transport services. Limited air connectivity, both regional and long-haul, critically inhibits Botswana’s ability to access new markets and destinations in the tourism sector. Botswana ranks 119th out of 140 countries in the openness of bilateral Air Service Agreements in the 2019 World Economic Forum Travel and Tourism Competitiveness Index, and it ranks 103rd for air transport infrastructure. Air Botswana — the loss-making state-owned airline — has a fleet of only three airplanes, operates a limited international route network, and faces significant barriers to developing new flight routes.74 On key digital indicators, Botswana fares at least as well as its neighbors but lags its global peers, rank- ing 71st out of 79 on the Global Connectivity Index.75 Botswana’s landlocked status means that it depends on its neighbors for access to undersea cables, and the related costs are passed on to consumers. Another structural barrier is the small, dispersed population; network gaps persist in rural areas, and many villages are not connected. These factors contribute to the slow adoption of digital technologies, with mobile broad- band subscriptions relatively low (49 percent), the quality of connectivity poor (often only suitable for basic applications), and services relatively expensive. Internet speeds have stagnated for almost a decade, with a particularly negative effect on the business services sector, which requires high-speed connections. Although Botswana has a well-articulated National Broadband Strategy, inadequate coordination and a lack of implementation mechanisms have limited its impact. 71.  For more information, see Sustainable Mobility for All (SUM4ALL), https://www.sum4all.org/. 72.  For more information, see https://lpi.worldbank.org/. 73.  Bottlenecks such as poorly maintained or missing cross-border road and rail links, inefficient customs and other agencies at borders, and the poor performance of neighboring seaports hamper Botswana’s efforts to diversify into other revenue sources. 74.  The regional inbound market is dominated by expensive charter flights, and the lack of direct, long-haul flights means that long-haul tourists must travel to Botswana via Johannesburg, Windhoek, Victoria Falls, or other gateway locations. 75.  Data are drawn from the Botswana Country Profile GCI (database), Huawei GCI (Global Connectivity Index), Shenzhen, https:// www.huawei.com/minisite/gci/en/country-profile-bw.html. 30 BOTSWANA Systematic Country Diagnostic Update Progress on implementing reforms to strengthen the private sector has also been limited. Policies have favored declining activities, import substitution, manufacturing, and agriculture, instead of emerging activities, exports, and services. In 2015 the government adopted a reform action plan to improve its rank- ings in the annual Doing Business exercise. However, although some reforms have been undertaken, im- plementation has generally lagged. According to the 2019 Global Competitiveness Index, Botswana ranks 91st out of 141 economies, down from 85th in 2017. For the tourism sector, the country’s ranking dropped seven places to 92nd on the World Economic Forum Travel and Tourism Competitive Index between 2017 and 2019. There is a consensus that the implementation of reforms is hindered by the limited capacity of government agencies, cumbersome processes for approving legal reforms, and weak overall intergovern- mental coordination. As noted in section 1.3.2, the implementation of potentially beneficial policies to in- crease private sector participation in nonmineral exports and transformative sectors has dragged over the years. For example, most of the Special Economic Zones have remained in the planning stage since their conception in 2015. The government also adopted new legislation and maintained old strategies that discourage foreign direct investment. Examples include: (1) the Economic Diversification Drive Strategy of 2010, which pro- motes local procurement and the use of preference margins to encourage local production and consump- tion; (2) the Transfer Duty Act of 2019, which introduced a punitive 500 percent hike (from 5 to 30 percent) in transfer duty on the purchase or lease of fixed property by noncitizens; (2) the new Public Procurement Act of 2021, which includes anticompetitive elements, such as a Localization Policy, a Reservation Policy, and Preferences under Public Procurement, which restricts over 30 service sectors to local citizens; and (4) the 2022 Economic Inclusion Law, which requires foreign companies to outsource at least 50 percent of their services or projects to citizen-owned companies. There is little to no prioritization of the National Trade Policy as an overarching policy in the diversification drive, and policies, programs, and legislation designed to drive much-needed growth are fragmented. Hence, to a large extent, the binding constraints identified by the 2015 SCD — an undiversified, low-pro- ductivity, and inward-oriented private sector — remain valid today. The diversification agenda has yet to gain traction because progress on core pillars of competitiveness has been slow. Also, the enablers of private sector development are lacking, including electricity, logistics, water, skills, access to finance, and digital connectivity. Important cross-cutting constraints include: (1) the large SOE presence and lack of competition in commercial sectors; (2) gaps in infrastructure, access to finance, and skills, which constrain employment and productivity growth; and (3) the unrealized opportunity to facilitate trade in environ- mental goods and services to support economic diversification and resilience. These increasingly translate into weak job creation and sluggish earnings, with a widening wage gap. Raising the productivity of smallholders and microenterprises Progress on increasing the returns to self-employment by raising the productivity of smallholders and microenterprises has also been limited. Developing a competitive private sector that can generate broad-based employment will take time, which means a large share of the population will continue to rely on (crop and animal) farming, remain outside the formal labor market, or be in the formal labor market but not earn sufficient incomes. The 2015 SCD therefore focused on improving productivity and increas- ing agricultural incomes as “key to developing a more vibrant rural economy, which will in turn create non- farm employment opportunities”. The agenda focuses on “establishing the right incentives for smallholders to adopt technologies and methods to improve yields and mitigate risks and strengthen the extension sys- tem”. The 2015 SCD also highlighted the need for interventions to create a more dynamic (urban and rural) microenterprise sector. It emphasized both self-employment and the development of small and medium Chapter 2  Progress on Priority Intervention Areas 31 enterprises, along with productivity improvements through capacity building and access to services. Botswana has seen limited progress and in some cases a reversal in outcomes for the agricultural sector. The 2015 SCD highlighted the lack of sustainability of smallholder agriculture and its vulnerability to droughts and flooding. Many poor people rely on subsistence agriculture, and smallholder communal or traditional farming remains the primary production system in rural areas, with nearly 97 percent of farms classi- fied as smallholdings. Agriculture is mostly rainfed FIGURE 2.3  Poverty declined in urban areas and thus vulnerable to droughts. During the severe but increased in rural areas drought of 2015/16, poverty in rural areas rose, as Poverty trends by strata noted, because both subsistence and nonsubsistence 50 farmers were unable to make up the lost consumption via other sources of income (Figure 2.3). This under- 40 lines the importance of efficient water management Percent and irrigation policy, and of making agricultural live- 30 lihoods more resilient, given the heavy reliance on 20 subsistence agriculture in poor areas. 10 Labor productivity in agriculture remains low, and off-farm employment has stagnated in part 0 National Cities and Urban Rural because of limited access to credit. Productivity in Towns Villages Villages agriculture (proxied by value added per worker) was 2003 2009 2016 estimated at 22,000 pula (USD 2,000) per worker in 2021. In contrast, in the services sector, productivi- Sources: 2003 HIES (Central Statistics Office 2004), 2009 ty is nine times higher (driven primarily by real es- BCWIS, and 2016 BMTHS (Statistics Botswana 2013, 2018). tate, ICT, and finance), and in industry, it is 24 times higher (driven largely by mining). Despite the highlighted need for a more dynamic microenterprise sector in both rural and urban areas, the share of nonfarm self-employment has not changed much over the last 20 years, averaging about 15.4 percent. Participation in the nonfarm informal sector does not create a pathway to formal sector employment, and the sector is unable to absorb excess labor in a context of rising unem- ployment. Micro-, small, and medium enterprises (MSMEs) still struggle to access finance: the IFC Country Private Sector Diagnostic estimates the MSME financing gap at 19 percent of GDP. It suggests that enhanc- ing the growth and productivity of MSMEs also requires support to build skills and entrepreneurial capac- ity, enhance management capabilities, and increase the adoption of new technologies. Productivity in the livestock sector is low, with high cattle mortality, vulnerability to climate shocks, and policy and institutional misalignment. Cattle mortality is high because of disease, drought, and loss, mainly through theft. The system is highly vulnerable to climate shocks, particularly droughts, during which critical inputs, such as fodder and water, are at best seasonal and often not accessible at all. This is com- pounded by the dualistic structure of the agricultural sector, where a small number of large-scale, highly productive commercial farms have access to profitable value chains, and smallholder farmers on commu- nal lands remain unproductive. Extension and livestock-related services tend to be assigned based on pro- ductivity, which leaves the small-scale sector even less equipped to adopt good animal husbandry practices. Progress on reforms is also limited. Botswana’s beef industry is relatively well-organized, meets the quality requirements and sanitary and phytosanitary standards set by high-end markets, and has implemented good animal identification and traceability systems.76 Reform priorities include adding small-scale farmers to the 76.  For a discussion of sustainable livestock value chains, see Syed and others (2022). 32 BOTSWANA Systematic Country Diagnostic Update traceability system to strengthen trust among trading partners, improving the monitoring and surveillance of diseases, and supporting genetic improvement programs to increase productivity. Productivity improve- ments also hinge on better management strategies for breeding and livestock systems and natural resources, particularly water and rangeland. These in turn require parallel regulatory and institutional actions, such as finalizing the Botswana Meat Commission (BMC) Transition Act, amending the Botswana Livestock and Meat Industries Act, and establishing the Botswana Meat Industry Regulatory Authority. This would improve the enabling environment by establishing a clear regulatory framework with defined roles and responsibilities and increasing the competitiveness of the sector by reducing the market share of the state-owned BMC. In terms of microenterprises, the government needs to implement its National Entrepreneurship Policy to coor- dinate regulatory reforms, digitize small and medium enterprises, and crowd in early-stage finance. The lat- ter is fragmented and would benefit from a coordinated approach to financing entrepreneurship. In addition, authoritative data on the informal sector are lacking, making it difficult to inform effective policy making. NEW ENERGY AND CLIMATE CHALLENGES Mainstreaming the management of scarce natural resources Some progress has been made in mainstreaming the management of scarce natural resources, but growing energy and climate risks pose new challenges. Addressing these issues is vital for the other priority intervention areas to deliver rapid and sustainable progress on the twin goals. A principal fac- tor in Botswana’s long success has been the effective management and conversion of wealth from natural resources, which has supported sustainable growth and livelihoods. Botswana’s Vision 2036 aspires to the sustainable and optimal use of its natural resources to transform the economy and improve livelihoods. The 2015 SCD discussed in detail the importance of minerals, water, energy, and biodiversity in Botswana. Progress in the water sector and limited progress in the livestock sector were discussed above. In terms of energy, the 2015 SCD argued that Botswana had adequate interventions in place to address its energy chal- lenges, and it expected substantial new capacity to become operational in the next decade. However, prog- ress has been slower, as explained below, and since then, global commitments to cleaner energy have become more important. Climate shocks have also aggravated existing vulnerabilities and undermined water secu- rity in this highly water-stressed country. Botswana is therefore considering more ambitious plans to mit- igate and increase its resilience to climate shocks. Natural resource management amid energy and climate shocks Both growth and poverty reduction are at risk from droughts, flooding, and energy shortages, which threaten the agricultural, industrial, and tourism sectors. Climate shocks have increased in recent years, with severe droughts and flooding mostly affecting the rural population and impeding efforts to reduce poverty and inequality. Climate shocks are a particular threat to livelihoods because almost 18 per- cent of employment is concentrated in the agricultural sector, the sector is highly dependent on rainfall and natural resources, and its adaptive capacity is low. Likewise, tourism is also overwhelmingly dependent on nature-based and biodiversity-driven activities; to address this pressing issue, Botswana’s Ministry of Environment and Tourism developed a National Adaptation Plan Framework in 2020.77 The World Bank’s Climate Risk Country Profile highlights the importance of sustainable adaptation and resilience mea- sures in Botswana, and the government’s Economic Recovery and Transformation Plan also discusses the 77.  Government of Botswana (2020b). For a discussion of tourism policies in Botswana, see World Bank (2019b). Chapter 2  Progress on Priority Intervention Areas 33 importance of renewable energy.78 However, the implementation of these plans is hampered by research, data, information, and institutional gaps. Energy supply and distribution are increasingly challenging. The 2015 SCD highlighted that despite the scale of Botswana’s coal and solar resources, reliable, cost-effective energy had not become a source of comparative advantage. Rather, Botswana faced electricity crises and had to rely on imports for more than 90 percent of its electricity needs. The SCD expected substantial new capacity to come on stream by 2018 and into 2025, with Botswana potentially becoming a significant exporter of power to the region. Instead, despite significant improvement, major challenges remain. The country continues to rely on do- mestic coal-fired generation from the Morupule A (132 MW) and Morupule B (600 MW) power plants. However, the latter has never operated at full capac- FIGURE 2.4  Electricity imports are falling but ity and experienced average plant availability of just still comprise 26% of supply 32 percent in 2021, as it underwent remedial works. Electricity production and sourcing As a result, Botswana continued to rely on imports 4,500 from South Africa and the Southern African Power 4,000 Pool, which still account for one-quarter of total sup- 3,500 ply. Operational issues at Morupule and the cost 3,000 of imported electricity burden both the Botswana Power Corporation and the government’s fiscal bal- 2,500 GWh ance. Consumer electricity tariffs are below the cost 2,000 of supply, although the size of the subsidy has de- 1,500 clined steadily over the past few years. Even with the 1,000 remedial work completed on Morupule, new power 500 generation capacity, preferably lower-cost solar and 0 wind capacity, will be needed to meet the growing 12 13 14 15 20 21 16 22 17 18 demand, ensure energy security, and reduce elec- 19 20 20 20 20 20 20 20 20 20 20 tricity imports (Figure 2.4). 20 Generation Import Progress on access to electricity has slowed. At Source: Statistics Botswana, 2022a. 65 percent, national electrification is low by inter- national standards and relative to Botswana’s per capita income. The National Energy Policy adopted by Parliament in April 2021 set out a strategy to ensure universal access by 2040, but progress in increasing access has slowed since the COVID pandemic. Disparities in access to electricity between urban and rural areas are significant. Between 2010 and 2020, access to electricity in rural areas saw only a modest increase (from 25.3 to 26.4 percent); in urban areas, access is substantially higher (90.7 percent in 2020). A 0.005 $/ kWh levy on electricity customers is used to connect low-income households to the grid, but the levy is not sufficient to fund universal access. Meanwhile, Botswana has yet to mainstream offgrid solutions. Significant shifts in the global energy context have important implications for Botswana. In 2022, 83 percent of the additions to global electricity generation capacity were renewable energy. The cost of solar photovoltaic and onshore wind continued its downward trend, with their global weighted average lev- elized cost of electricity falling by a further 63 percent and 45 percent respectively since 2015 (IRENA 2023). Southwestern Botswana has one of the highest solar irradiation levels in the world, and most of the coun- try has excellent solar potential. There is also a significant wind resource in the northeast of the country (Figure 2.5). Wind speeds typically reach their maximum after sunset and can therefore be complementary to solar resources. Botswana could leverage its abundant domestic renewable energy resources to provide 78.  See World Bank (2021a) and Government of Botswana (2020a). 34 BOTSWANA Systematic Country Diagnostic Update FIGURE 2.5  Solar irradiation levels in the southwest and wind resources in the northeast are high a. Solar resources b. Wind resources Long term average of daily Mean Wind Speed /yearly sum, (m/s): period 1994-2018 10+ (kWh/m²) Daily sum: Yearly sum: 5.6 2,045 5.8 2,118 6.0 2,191 6.2 2,264 6.4 2,337 0 Sources: World Bank Solar Atlas, World Bank Wind Atlas. affordable, reliable, and green electricity to domestic users and potentially to its neighbors. This could improve its competitiveness and maximize the associated socioeconomic benefits for its people. Indeed, a forthcoming World Bank assessment suggests that in a context of high regional demand, Botswana’s renew- able energy capacity could reach 3,970 MW by 2040, with supportive investment in transboundary power lines. This would vastly exceed domestic demand and enable Botswana to become a regional leader in the supply of renewable energy. Increasing its reliance on renewable energy would be consistent with Botswana’s climate policy goals and enhance the competitiveness of vital industries, especially diamonds. Through its Nationally Determined Contribution, Botswana committed to “an overall emissions reduction of 15 percent [below the “business-as-usual” scenario] by 2030, taking 2010 as the base year”. Transitioning away from coal- fired power toward renewable electricity is at the core of the country’s decarbonization strategy and will also benefit air quality. However, this is hampered by simultaneous plans to expand coal-fired power; the need for regulatory reform on renewable energy; and the need for financing, especially private capital. Meanwhile, in view of the rising global demand for sustainable jewelry, many diamond mining, processing, and vendor companies have already adopted ambitious goals to reduce their carbon footprint by switch- ing to renewable electricity. For example, diamond mining company De Beers, which has a considerable presence in Botswana through the joint venture Debswana Diamond Company Limited, adopted a target of achieving carbon neutrality in its operations and supply chains by 2030 (De Beers 2021). Still, the min- ing industry remains a major consumer of power, accounting for 21 percent of power demand in Botswana. Overall, as noted, power generation in Botswana has a high carbon footprint, given its reliance on thermal coal power stations. NEW CROSS-CUTTING PRIORITY INTERVENTION: BRIDGING PUBLIC SECTOR IMPLEMENTATION GAPS Modernizing the public sector Public sector effectiveness and efficiency remain a challenge, despite partial progress in some narrow elements of the modernizing the public sector through improved technology, management, and sys- tems of accountability priority area. The public sector is the largest employer in Botswana, with 27 per- cent of total employment (as against a global average of 17 percent) and 47 percent of formal employment Chapter 2  Progress on Priority Intervention Areas 35 (38 percent globally).79 As highlighted in the 2015 SCD, “Delivering on any of the interventions requires a substantial, if not leading, role from the public sector. Improving public investment management, project management, and program delivery through adopting modern technologies, systems, and processes, and putting in place systematic and meaningful processes for monitoring and accountability will be fundamen- tal …” However, it deemed public sector modernization to have the lowest implementation potential among the seven priorities, given the lack of capacity and political will, along with the relative difficulty of effect- ing change. The 2015 SCD also noted that the government lacked a settled position on both the reasons for the problem and its potential solutions. As an example of progress on outcomes, Botswana is digitizing the public sector, which improved its ranking on the UN e-Government index from 127th (out of 193 countries) in 2018 to 115th in 2020. But the country’s performance remains below the regional average, and online service delivery is particularly weak (World Bank 2022b). It also started digitizing internal public processes and external services, but many plat- forms are used for back-office purposes and emulate the manual processes they are replacing; some still include paper-based steps. As an example of partial progress on reforms, the government aims to ramp up its digital transformation efforts. It launched the SmartBots initiative in 2020 and created a dedicated Ministry of Communications, Knowledge, and Technology in 2022.80 Public sector transformation is an intrinsic goal of the SmartBots strategy, and the adoption of digital platforms is recognized as crucial for more efficient and effective service delivery. However, despite some progress, overall implementation of the strategy has been relatively limited. Botswana is still rated well in terms of governance, but questions about its public sector management are growing. As an example of progress on outcomes, the global governance indicators (such as the Ibrahim Index of African Governance and Transparency International’s Corruption Perceptions Index) continue to rank Botswana among the best in Africa. The government maintains effective checks and balances, and institutions remain robust, inclusive, and transparent. Yet, as noted in the 2015 SCD, public sector manage- ment is perceived as a source of potential weakness, notably because of capacity and skills constraints. To address these concerns, the government had prioritized reforms, but their implementation has yet to gen- erate significant progress. Public investment efficiency and the quality of public procurement have been highlighted as key concerns, as discussed below. Bridging public sector implementation gaps Because implementation gaps reduce the effectiveness and efficiency of the public sector, affecting all other priority intervention areas, the SCD Update argues for setting it as a cross-cutting priority intervention. Although the government’s attempted reforms demonstrate an awareness of the need for change, implementation of these reforms is usually lacking, for reasons such as weak accountability and the politicization of the public service. Across the priority intervention areas, progress in addressing the con- straints identified in the 2015 SCD has been limited, and progress on development outcomes has likewise been slow. These poor outcomes are not from a lack of spending: for example, public sector investment is high, including by global standards. Therefore, compared to the last SCD, more attention needs to be paid to bridging implementation gaps in the public sector. 79.  Worldwide Bureaucracy Indicators dataset (version 3.0). August 2022. https://www.worldbank.org/en/data/interactive/2019/05/21/ worldwide-bureaucracy-indicators-dashboard#2 80.  The SmartBots digital strategy is an ambitious action plan aimed to prepare Botswana for the Fourth Industrial Revolution (4IR). https://smartbots.gov.bw/home 36 BOTSWANA Systematic Country Diagnostic Update The government has been central to the success of resource-rich Botswana, but it is constrained by inadequate implementation capability and low levels of productivity. The performance management of public officials is weak and accountability for nonperformance limited. Implementation of reforms in the private sector seems to be hindered by limited capacity in government agencies, cumbersome processes for approving legal reforms, and weak intergovernmental coordination. The government has announced reform initiatives but has yet to make much progress. For instance, the Directorate of Public Service Management plans to introduce a civil servant performance management system. In the 2021/22 Budget Speech, the Minister of Finance announced that half the vacant positions in the public sector would be abolished and requested a review of and recommendations for resizing the public sector as part of overarching public sec- tor reforms. However, these have yet to be implemented and could face significant resistance from the civil service and SOEs. Botswana’s public investment management system had long been seen as exemplary in terms of disci- pline, efficiency, and productivity, but its performance has been eroded. Poor project planning, delays, procurement challenges, contractual disputes, cost overruns, and corruption in major projects have exposed significant weaknesses in public investment management. An assessment of public investment management in Botswana by the International Monetary Fund81 and the Public Expenditure and Financial Accountability (PEFA) report of 2020 show that the efficiency of public investment management is low relative to coun- tries with similar levels of public capital stock per capita or the average in emerging markets and the world.82 About one-third of investment spending does not result in the level or quality of infrastructure of countries that manage their resources efficiently. The capital budgeting system is relatively strong on planning, bud- get comprehensiveness, protection of investment, availability of funding, and fiscal rules but lags in crucial aspects of project appraisal, selection, management, management of public-private partnerships, and com- pany regulations. The government is taking action to address these shortcomings, including the implemen- tation of the second Public Financial Management Reform Programme (2021 – 27) (an example of progress on reforms) informed by the findings in the 2020 PEFA report. The Public Finance Management Act of 2011 has been revised to provide for much-needed reforms in public investment management and public debt management (including nonmonetary guarantees to public-private partnerships), and to strengthen a cul- ture of discipline and accountability. These reforms will take time to bear fruit. The new Public Procurement Act of 2021 complies with good practice, but shortcomings in the pro- curement system have manifested in the performance of infrastructure projects. A World Bank review of major capital projects revealed issues across the procurement process, including projects running over budget, delays in construction, and problems with the quality and completion of the finished works. Notable issues include inadequate budgeting; compressed schedules; management churn and fragmentation; inad- equate design requirements; and a lack of independent review of projects. As an example of progress on reforms, the government enacted the 2021 Public Procurement Act, which is aligned with good international practice and separates regulatory and oversight functions from execution functions. The Act also strength- ens its applicability at central and local levels, including to SOEs and public-private partnerships; the com- position and functions of decentralized procuring entities and their accounting officers; the range of pro- curement methods; the mechanism for complaints and dispute resolution; the standardization of bidding documents; the use of e-procurement; and the designation of central agencies for common-use items. The government is developing and issuing the accompanying implementing regulations. Given the government’s dominant role in large parts of the economy, particularly through its ownership 81.  IMF (2017); see also IMF (2022). 82.  Some areas that received an “A” score in the PEFA assessment included information on commitment ceilings, internal control of pay- roll, procurement monitoring, public access to procurement information, segregation of duties, compliance with payment rules and proce- dures, and internal audit coverage. See PEFA (2020). Chapter 2  Progress on Priority Intervention Areas 37 of SOEs, further improvement in sectoral governance and delivery capabilities is needed. Botswana’s SOEs are large, accounting for about 6 percent of total formal employment, and their revenues exceed 27 per- cent of GDP. Although initiatives to privatize SOEs have been proposed, these have been implemented only in part. The legal framework governing SOEs is fragmented, and multiple laws have conflicting and outdated requirements, which undermines the viability, compliance, and accountability of SOEs. The ownership and oversight of SOEs are decentralized, with ministries having authority to establish SOEs and appoint their boards. In 2019 the Botswana Accountancy Oversight Authority (IFC 2022, 28) announced that many SOEs were not in compliance with basic reporting requirements, and some audits had been deemed ineffective. The Cabinet Subcommittee on SOEs recently recommended reforms to improve SOE mandates, share- holder oversight, accountability, and transparency. Priorities include: (1) harmonizing and updating the legal frameworks of SOE; (2) developing a Botswana Corporate Governance code and requiring all SOEs to comply with the code; and (3) strengthening the systems and capacity of oversight institutions, and reor- ganizing board remuneration and appointment principles into a transparent framework. The government, through the leadership of the National Planning Commission, is implementing reforms to strengthen monitoring and evaluation of projects and programs. The new system will focus more on outcomes and integrate results into strategic planning, budgeting, and public service man- agement. Existing weaknesses in monitoring and evaluation make it difficult for the government to under- stand whether projects are meeting their objectives, and if not, why. It has adopted important measures to strengthen the national capacity for monitoring and evaluation, most recently by adopting the Performance Monitoring and Evaluation Policy in October 2020. The policy lays the foundation for the design and imple- mentation of a comprehensive monitoring and evaluation system in Botswana. As part of renewed efforts to strengthen evidence-based policymaking, some key statistics (for instance, on the labor force) are being produced more frequently.83 The government is also pursuing the decentralization of key public services to local authorities. This is expected to enhance ownership and accountability within local authorities and to bring services closer to the people. In addition, certain functions carried out by central ministries will be moved to implementing ministries and departments. Some powers will be devolved to accounting officers to enhance their ability to make rapid decisions and so improve their effectiveness and accountability. To create a conducive envi- ronment for this process, the government has committed to reviewing existing policies, rules, systems, and processes during fiscal 2023 to remove any barriers to reform. 83.  As noted, Statistics Botswana has implemented a series of quarterly multi-topic household surveys that focus on more recent labor force indicators. It also conducted the 2022 Population and Housing Census (Statistics Botswana 2022b), for which preliminary results have been published. This new round of household and census data will make it easier to monitor the performance and impact of some government policies and programs. CHAPTER 3 PRIORITIZATION FOR ACHIEVING MORE BALANCED DEVELOPMENT OUTCOMES: WHAT NEEDS TO CHANGE? 40 BOTSWANA Systematic Country Diagnostic Update AIMING HIGH: HIGH-LEVEL OUTCOMES Botswana’s development outcomes have not changed substantially since 2015, and progress has been elusive. Economic growth has slowed and become more volatile, making the goal of reaching and sustain- ing high-income status much more challenging. Poverty reduction likewise slowed between 2010 and 2016, and estimates suggest further stagnation in recent years. Similarly, although inequality declined between 2010 and 2016, growing wage gaps suggest it may have stopped falling or even worsened in recent years. Botswana remains one of the most unequal countries in the world and, relative to other upper-middle-in- come countries, has one of the highest poverty rates. Most of the priorities identified in the 2015 SCD remain relevant; however, some have grown in impor- tance, and the country faces increasingly modest performance and chronic implementation gaps. This SCD Update adjusts the priorities identified in 2015 to take account of these changes and defines priority interventions for Botswana to accelerate progress. The revised priorities in large part reflect the realities of a fast-changing local and global context characterized by growing challenges and risks but also offer- ing fresh opportunities. Increasing climate shocks in the form of higher temperatures, more erratic rain- fall patterns, and more frequent and severe droughts and floods are among the most notable of these chal- lenges. Other multidimensional shifts include increasing international uncertainty, volatile commodity prices, high inflation and interest rates, the revamping of global value chains, geopolitical transformation, and protracted conflicts. At the regional level, South Africa, Botswana’s main economic partner, has lost its growth momentum. It has systematically underperformed other middle-income economies for the last 15 years, gradually ceding its leading role on the continent. In fact, Botswana’s declining growth trend mir- rors that of South Africa. Other mega trends, such as the energy transformation, greener sources of growth, the digital revolution, artificial intelligence, and advances in biomedicine and the pharmaceutical indus- try, are evolving fast. They add to the challenges but also offer novel opportunities to build on Botswana’s potential comparative advantages, for example in renewable energy, exports of battery minerals (such as copper, nickel, cobalt, and manganese), livestock value chains, and ecotourism. Based on this analysis, the SCD Update identifies four country-specific, high-level outcomes, ulti- mate desired changes that can only be achieved in the long run and reflect a sustained improvement in the well-being of Botswana’s people, in particular its poorest and most vulnerable people. At its core, the pur- pose of an SCD is to identify the binding constraints to achieving the twin goals, along with policy prior- ities for alleviating those binding constraints. High-level outcomes have clear links to the SCD priorities. The four high-level outcomes are: • High-level outcome 1: Accelerated private-sector job creation. Attaining strong, stable, and inclusive growth that generates more and better jobs and raises people’s standard of living requires a change in the current structure of growth. The growth model needs to move beyond the extractive industries to a more competitive and outward-oriented private sector. A dynamic private sector in a small domestic economy requires growing export markets in sectors that can exploit regional or global comparative advantages. The supply of jobs must be consistent with the profile of the labor force, complemented by more attention to the supporting environment for skills development and to improving the qualifications of the labor force. • High-level outcome 2: Strengthened human capital formation. A new growth model will require substantial improvements in human capital, through education and health, to increase the productivity of the labor force. Intergenerational improvements in health and education also help people break the cycle of poverty, although building human capital is a long-term undertaking. Botswana’s human devel- opment outcomes are very low relative to its income level. Social assistance plays a critical role and can potentially link poor children with education, health, and nutrition services. Chapter 3  Prioritization for Achieving More Balanced Development Outcomes: What Needs to Change 41 • High-level outcome 3: Increased resilience to shocks. Botswana continues to be vulnerable to cli- mate-related shocks, such as droughts, floods, and fire, which threaten crops, livestock, rural livelihoods, and food security, and contribute to forced displacements and the perpetuation of poverty. Such shocks also place a big burden on urban infrastructure and contribute to urban population pressures; these pres- sures need to be managed, as urban expansion continues without regard to flood exposure. Improving water management, water security, wastewater treatment, and access to sanitation is critical, as are sys- tems for financing disaster preparedness and response. Shock-responsive social assistance systems can protect vulnerable households and build their resilience to climate, health, economic, or other shocks. • High-level outcome 4: Improved public service delivery. Public service outcomes are increasingly at odds with the country’s level of investment and development. Botswana has witnessed a steady decline in the quality of the public sector, with a corresponding widening of the gap between policy formula- tion and implementation. Although it still leads its regional peers in most measures of public sector qual- ity, and despite a clear intent to move forward, a lack of implementation capacity and misallocation of resources have been major challenges. Improving access to public services will require a greater focus on the performance and quality of public service delivery. PRIORITIZATION PROCESS The SCD Update largely builds on the prioritization methodology used in the 2015 SCD to screen the most binding challenges (old and new) and define priority policy objectives. The 2015 SCD evaluated 30 challenges and opportunities against seven criteria.84 The reprioritization is informed by new knowledge from recent analytical work and internal and external consultations. Such new evidence and the evolving coun- try context were used to reassess the urgency of the constraints. The assessment of the potential impact of addressing these challenges was done separately for poverty and shared prosperity. The urgency of accelerat- ing the reduction of inequality — closely linked to higher consumption by the poorest 40 percent of people — is an important reason for this distinction, especially as inequality remains so high by global standards. The identified development challenges were validated in consultations on changes since the last SCD, including whether the identified policy areas remained relevant, and the proposed high-level outcomes were appropriate. External consultations included a broad group of stakeholders through a series of sessions with government agencies, academics, civil society, the private sector, and development partners. The government session gen- erated useful feedback and an endorsement of the analyses and policy areas. Government participants agreed that the implementation gaps linked to governance challenges represent a critical cross-cutting constraint. They also cited a lack of coherence between stated policy goals (such as increased foreign direct investment) and specific actions (imposition of tariffs or the non-issuance of residence permits to investors). Other issues cited included the importance of improving the effectiveness of investments in human capital (especially in education), reducing the public sector’s large footprint in the economy, and regional integration. Overall, the consultations revealed widespread consensus on the relevance of the proposed high-level objectives. As noted, the SCD Update finds that although most issues raised in the 2015 SCD remain broadly relevant, new challenges have emerged, and some old ones have become more pressing. Against this backdrop, the SCD Update adjusts the priorities along several dimensions and defines priority interven- tions for Botswana to address its increasingly modest performance. Priorities related to developing a com- 84.  The seven criteria were: (1) impacts on the goal of eliminating extreme poverty; (2) impacts on the goal of sustainably enhancing the welfare of the poorest 40 percent; (3) complementarities, or the extent to which addressing the various constraints reinforces the effects of other reforms; (4) the time horizon for impact; (5) the extent to which the identification of the priority challenges is supported by timely and high-quality data and analytics; (6) the stage of the reform process — whether it requires starting reforms from scratch or consolidating interventions that are already moving in the right direction; and (7) implementation potential or whether the country has the institutional capacity and political will to implement the priority interventions. 42 BOTSWANA Systematic Country Diagnostic Update petitive, export-oriented economy, raising the productivity of smallholders, and increasing human capital have been maintained but adjusted to reflect emerging challenges. Raising productivity calls for a stronger emphasis on smart and inclusive urbanization and regional connectivity to enable economies of scale and agglomeration, which are essential for a country with a relatively small population (2.3 million) spread over an area (582,000 square kilometers) larger than that of France. Given the growing climate risks, a new pri- ority related to adaptation and resilience has been added. Finally, recognizing that chronic gaps between policy formulation and implementation have increasingly undermined reforms and stymied progress across most economic, social, and governance sectors, this has been highlighted as a critical cross-cutting priority. The revised priority interventions and entry points for reforms are set out in Table 3.1 and discussed below. BUILDING ON BOTSWANA’S STRENGTHS TO IMPLEMENT PRIORITY INTERVENTIONS The policy constraints identified in the 2015 SCD remain broadly valid, but as shown below, they need fine-tuning to become more specific in terms of both diagnostics and policy requirements, with due consider- ation of new analytical work, progress in implementing reforms, and changes in the operating environment. PRIORITY 1: Develop a competitive, export-oriented private sector, leveraging regional integration The process of economic diversification has been slow, both because it takes a long time to transform an economy and because limited progress has been made in strengthening the foundations of a more com- petitive and export-oriented economy. The delayed implementation of structural reforms for growth and transformation has deepened the stark divide between formal and informal employment, which in turn contributed to inequality. New jobs are increasingly concentrated in the informal sector, where productiv- ity is low. It has also contributed to lower competitiveness and stymied the much-needed transformation of the economy toward an export- and private-sector led growth model. The analysis in the Country Private Sector Diagnostic sharpened the findings of the 2015 SCD. It remains necessary to support an outward-ori- ented private sector, including trade, competition, and immigration policies that ensure access to compet- itively priced inputs and skills, and incentives to compete in tradable sectors. Potential entry points are: • Improve competition in the economy. The government owns at least 50 percent of about 20 firms in 16 sectors, including in areas typically served by the private sector, such as real estate, wholesale trade, accommodation, travel agencies, crop and animal production, and manufacturing of food products. The excessive public sector footprint creates barriers to entry, discourages diversification, and results in large economic inefficiencies, including for consumers. Improving competitiveness also requires ade- quate foreign investment rules to facilitate inflows that generate good jobs aligned with the needs of the labor market. Restrictions on foreign investors hinder the commercialization of some services. Botswana needs a pro-competition regulatory environment and to embed competitive principles in industrial pol- icies, to help generate more jobs. • Facilitate external trade in goods and services. Some tariff and nontariff trade barriers undermine pref- erential access agreements, as well as imports of environmental goods and services, raising the costs of imported inputs for the country’s exports. Botswana has developed an improved animal identifi- cation and traceability system, along with well-developed systems for tracking animal disease status, which provide the basis for controlling foot and mouth disease and obtaining access to the markets of the European Union. Chapter 3  Prioritization for Achieving More Balanced Development Outcomes: What Needs to Change 43 • Improving connectivity remains vital, given Botswana’s position as a landlocked country. Increasing mar- ket access and lowering costs will require a focus on soft infrastructure, including: (1) improving national and regional trade facilitation to support integration into regional and global value chains; (2) improv- ing air connectivity; and (3) improving the speed, quality, and cost-effectiveness of ICT infrastructure (especially broadband). • Expand energy access and leverage the potential for renewable energy generation to increase self-reliance and exports. Although Botswana has significantly expanded access to energy, at 65 percent, national elec- trification is low relative to the country’s income level. Botswana could leverage its abundant renewable energy resources to provide affordable, reliable, and green electricity for domestic use and with support- ing investment, even export to the region. PRIORITY 2: Raise productivity of smallholders and microenterprises The 2015 SCD recognized that developing an outward-oriented competitive sector would take time, and the formal labor market would not provide sufficient income-earning opportunities for all Batswana. The need to increase the opportunities for and returns to self-employment by raising the productivity of small- holders and microenterprises remains relevant. The 2015 SCD emphasized the need to establish the right incentives for smallholders to adopt more appropriate technologies and methods to improve yields, mitigate risks, and strengthen the extension system. Outside of agriculture, it called for a more dynamic microen- terprise sector, in both rural and urban areas, focusing on entry into self-employment and the MSME sec- tor and on improving the productivity of the sector through capacity building and access to affordable and reliable production support services. Based on the policy recommendations of the Country Private Sector Diagnostic and other inputs, the following entry points are relevant: • Improve access to finance. The MSME financing gap is estimated at 19 percent of GDP, with only 8 per- cent of smaller firms receiving funds from a commercial bank between 2014 and 2017 and just 45 per- cent accessing outside funding. • Strengthen skills training and qualifications and productive economic inclusion programs. Despite high levels of secondary education, skills mismatches limit productivity growth and employment. Upgrading the qual- ity of skills (including business skills and socio-emotional competencies) can improve the investment envi- ronment and help reduce the wage differentials that contribute to inequality. The technical and vocational education and training system is fragmented and suffers from a lack of coordination and limited organiza- tional capacities. Technologies to help rural workers both learn and earn more could help raise productivity. • Improve standards and certification of domestic products and services to enhance competitiveness in exter- nal markets. Very few companies are certified to national and international standards, particularly among small and medium enterprises — over 75 percent are not certified to any quality, sustainability, or other standard. Although the beef sector does meet quality requirements and standards for sanitary and phy- tosanitary measures, repeated droughts deplete the supply of animals. Better knowledge of and adoption of good animal husbandry practices will improve compliance and competitiveness, expanding access to profitable opportunities for small-scale producers. • Create scale for strong market access via cross-country co-investments and harmonized support services. Lacking the scale to access large markets, Botswana’s livestock smallholders may benefit from collabo- ration with countries such as Namibia, for instance on veterinary services, traceability, transboundary animal disease surveillance and control, and research and development. 44 BOTSWANA Systematic Country Diagnostic Update Other entry points that would help increase the productivity of smallholders and microenterprises, such as climate-smart agriculture and digital technologies, are discussed in the other priority sections. PRIORITY 3: Increase human capital for employment, productivity, and inclusion Education. The 2015 SCD emphasized the need to raise the quality of education, with a specific focus on aligning skills with labor market needs to help Batswana, especially young people, participate productively in the economy. The SCD Update suggests the following entry points: • Improve the allocation of resources in the education and training subsectors to be more pro-poor. Public spending is high at 7.1 percent of GDP (22.2 percent of the government budget), but much of this is allo- cated to tertiary education, which primarily benefits students from the top two income quintiles. To become a high-income country, Botswana will need to continue to invest in higher education, but the allocation of funds should better target poorer communities, focusing on preschool, primary, and sec- ondary education. Priorities include increasing the coverage of preschool education, and at the second- ary level, addressing the shortage of classrooms and learning materials; giving teachers adequate in-ser- vice training; improving retention by providing students with clearer paths to further education; and fine-tuning education testing systems to track progress and facilitate corrective action. Health. The 2015 SCD highlighted the need to address health barriers to skills acquisition and labor mar- ket participation, in particular childhood malnutrition and the impact of disease (especially HIV) on wom- en’s participation in income-earning activities. The Update emphasizes the following: • Strengthen the quality of health service delivery, implement strategic purchasing of health services, and redouble efforts to meet global nutrition targets. Enhancing the quality of care is vital for reducing the evolving epide- miological burden, particularly the growing incidence of noncommunicable diseases. Addressing the stag- nation in key indicators, such as neonatal mortality, also requires better essential health services, including ante-, peri-, and neonatal care. The implementation of strategic purchasing reforms in the health service is vital for Botswana to transition to a health financing system that better reflects its pluralistic delivery of health care. Insufficient data make it difficult to track malnutrition trends, such as stunting and wasting, as well as key contributors to childhood nutrition, such as low birth weight and adequate complementary feed- ing. Hence, investing in data collection and using data to make informed public health policies are critical. Water and sanitation. Although access to water is relatively high, service levels and quality lag national aspirations, and a significant share of the population is still not connected to water and sanitation networks. • Undertake priority investments to improve water service quality and increase access to sanitation. Mobilizing private capital and expertise can help expand services, improve service quality, create jobs, and increase resilience to climate change. It can also offer other opportunities, such as performance-based contracts for the reduction of nonrevenue water, improved collections, energy efficiency, and water savings per- formance contracts for large users. Social protection. The 2015 SCD argued that Botswana had the unique opportunity to eliminate extreme poverty within the following five to seven years, anchored partly in social assistance. Although this was not achieved, the opportunity remains. The country’s significant allocation to social assistance is relatively progressive, despite some errors of exclusion (around 20 percent of poor people are excluded) and inclu- sion (sizable resources are allocated to richer people). Botswana can make rapid progress by building on work already underway: Chapter 3  Prioritization for Achieving More Balanced Development Outcomes: What Needs to Change 45 • Reform social assistance programs to improve targeting, efficiency, and progressivity. Botswana has embarked on reforms to strengthen the administration of social assistance, but these need to be broadened and deepened. The government took important steps towards the development of a social registry, although this is still at an early stage. Combining the social registry with a harmonized targeting approach could help the government configure an efficient social protection system that improves the allocative effi- ciency between social assistance programs, reduces poverty, and enhances human development outcomes. PRIORITY 4: Improve resilience and adaptation to shocks and climate impacts Growing global uncertainty and instability, combined with the increasing frequency and severity of natural shocks, have exposed significant macro and socioeconomic vulnerabilities in Botswana, an issue acknowl- edged but not stressed enough in the 2015 SCD. Experience since then has underscored the importance of building resilience through reforms to increase the shock responsiveness of social protection systems, for instance through stronger disaster risk management frameworks that include financing frameworks to man- age the cost of preparing for and responding to these events. Entry points include: • Develop productive and shock-responsive social protection systems to mitigate climate shocks, disaster vul- nerability, and inequity in human capital. Although Botswana responded better to the COVID-19 pan- demic than many other African countries, the pandemic exposed significant gaps in the shock respon- siveness and resilience of its social protection system. A functional, unified social registry would be an important first step in building the flexibility of the system by pre-identifying at-risk households and having their details already in the registry in the event of a shock. • Strengthen and implement disaster risk management frameworks to protect key public infrastructure. A comprehensive framework will help identify, assess, and mitigate potential risks and guide risk reduc- tion investments, such as early warning systems, resilient infrastructure, and land-use planning. • Enhance fiscal sustainability and resilience to disasters. Implementing risk financing mechanisms, such as disaster insurance, catastrophe bonds, or contingency funds, can help manage the financial burden of such shocks by providing funds for post-disaster recovery and reconstruction and reducing the reli- ance on ad hoc budget allocations. PRIORITY 5: Sustainably manage scarce natural resources and build on key comparative advantages The sustainable use of the natural asset base has become more challenging since the 2015 SCD. Natural resources, such as water, are highly constrained by weak pricing policies and competing demands from sec- tors such as tourism, agriculture, and mining. Water, in particular, is central to Botswana’s economic growth and the competitiveness of its key economic sectors. Entry points for reforms are: • Improve the utilization of surface and groundwater resources and improve the efficiency of the Water Utilities Corporation. Reforms should target a significant increase in the reuse of treated wastewater, groundwa- ter recharge, demand management and loss reductions, and large-scale transboundary water transfer schemes (the Chobe-Zambezi transfer and the Lesotho-Botswana transfer). They should optimize exist- ing infrastructure to reduce the water demand gap. Addressing high rates of nonrevenue water and low billing collection rates is also critical. 46 BOTSWANA Systematic Country Diagnostic Update • Develop a climate change policy to provide the legislative framework for developing and implementing pri- ority interventions. Botswana’s natural resources will remain at the heart of the country’s success, but they are highly constrained, fragile, and face many competing demands. Putting in place effective sys- tems for planning that take clear account of (often irreversible) effects on critical resources will be vital for maintaining sustainability in the medium run. • Prioritize interventions that maximize sustainable resource management and climate resilience objectives, particularly among low-income households. Primary challenges center around water resource availability, changing precipitation patterns, and increasing population demands. Communities in semi-arid areas face food insecurity and unstable livelihoods, being vulnerable to unsustainable agroecological systems, crop failure, and unproductive rangelands. Measures should contribute to food security, job creation, and the protection of carbon sinks, for example through climate-smart agriculture, forest management, biodiversity protection, community-based natural resource management, river basin management, and investments in sustainable energy. • Transition away from coal-fired power toward renewable electricity to advance the decarbonization strat- egy and improve air quality, while also making the remaining coal-fired power cleaner. The government should accelerate its plans to increase the domestic power supply by using more renewable sources. Implementing these plans will require both mobilizing private sector support and financing and intro- ducing complementary regulatory changes. CROSS-CUTTING: Close the gap between policy aspiration and implementation with efficient and accountable institutions The 2015 SCD showed that the public sector had been more efficient in state-building and broad service delivery but became less so when the role of government shifted to more specific, targeted service deliv- ery. It highlighted issues of capacity (limited “human resources available for increasingly complex, sophis- ticated, and highly specific technical tasks”), failure to adopt modern technologies and approaches, a lack of monitoring and evaluation of projects and programs, and weak statistical capacity. The SCD Update sug- gests the following entry points: • Strengthen performance-based management practices and monitoring and evaluation systems. Botswana has seen a steady decline in the quality of the public sector, with a corresponding widening of the gap between policy formulation and implementation. Addressing this requires strengthening performance management of public officials and increasing accountability. • Improve regulatory and oversight functions based on objective and credible standards. • Leverage progress in digital investments to improve efficiency, quality, and transparency of service deliv- ery. The government should redouble efforts to adopt digital platforms, which are key to improving the efficiency and effectiveness of service delivery to citizens and businesses. • Improve the governance of SOEs, introduce measures to enhance accountability for performance, and liq- uidate nonperforming SOEs. Priorities include: (1) harmonizing and updating the legal frameworks for SOEs; (2) developing a Botswana Corporate Governance code and requiring all SOEs to comply with the code; and (3) strengthening the systems and capacity of oversight institutions, and reorganizing board remuneration and appointment principles into a transparent framework. Chapter 3  Prioritization for Achieving More Balanced Development Outcomes: What Needs to Change 47 SCD UPDATE FRAMEWORK WITH PRIORITY INTERVENTION AREAS AND ENTRY POINTS TABLE 3.1  SCD Update framework with entry points WBG Twin End Extreme Poverty and Boost Shared Prosperity in a Sustainable Way Goals HLO1: Accelerated HLO2: Strengthened HLO3: Higher HLO4: Improved public High-Level private-sector job human capital resilience to shocks service delivery Outcomes creation formation Develop a com- Raise produc- Increase human Improve resil- Sustainably man- petitive, ex- tivity of small- capital for em- ience and ad- age scarce natural Priority port-oriented holders and ployment, pro- aptation to resources and build Intervention private sector, microenterprises ductivity, and shocks and cli- on key comparative Areas leveraging re- inclusion mate impacts advantages gional integration Cross-Cutting Priority Close the gap between policy aspiration and implementation Intervention with efficient and accountable institutions Area Entry Points Improve compe- Improve access Improve the allo- Develop pro- Improve utiliza- tition in the econ- to finance cation of resourc- ductive and tion of surface and omy, including es across educa- shock respon- groundwater re- Strengthen skills pro-competition tion and training sive social pro- sources and improve training/qualifi- industrial policies sub-sectors to be tection systems the efficiency of cations and pro- to facilitate more more pro-poor to address cli- the Water Utilities ductive eco- job generation mate shocks, Corporation nomic inclusion Strengthen qual- disaster vulner- Facilitate out- programs ity of health ser- Put together a Cli- ability and hu- ward-oriented vice delivery, im- mate Change Policy Improve stan- man capital trade and foreign plement strategic to provide the leg- dards and cer- inequities investment purchasing of islative framework tifications of health services, Strength- to develop and im- Improve connec- domestic prod- and redouble ef- en and imple- plement priority tivity (urban, dig- ucts and ser- forts to meet ment disaster interventions. ital, transport vices to enhance global nutrition risk manage- network, region- competitive- Prioritize interven- targets ment frame- al integration) to ness in external tions that maximize works to pro- facilitate agglom- markets. Undertake prior- sustainable resource tect key public eration and mar- ity investments management and Create scale infrastructure ket scale to improve wa- climate resilience for strong mar- ter service quality Enhance fiscal objectives, particu- Expand energy ket access via and increase ac- sustainability larly for low-income access and lever- cross-country cess to sanitation and resilience households age potential for co-investments to disasters increased renew- and harmonized Reform social as- Transition away able energy gen- support services sistance pro- from coal-fired eration to enable grams to im- power toward re- exports. prove targeting, newable electrici- efficiency, and ty, while making re- progressivity maining coal-fired power cleaner. Strengthen performance-based management practices and monitoring and evaluation systems Improve regulatory and oversight functions based on objective and credible standards Leverage progress in digital investments to improve efficiency, quality, and transparency of service delivery Improve governance of SOEs, introduce measures to enhance accountability for performance, and liquidate non-performing SOEs 48 BOTSWANA Systematic Country Diagnostic Update References Central Statistics Office (Botswana). 2004. Household Income and ITC (International Trade Centre). 2019. Promoting SME Competitiveness Expenditure Survey 2002/03. Gaborone: Central Statistics in Botswana- A bottom-up approach to economic diversification. Ge- Office. https://www.statsbots.org.bw/sites/default/files/ neva: ITC. https://intracen.org/file/botswanasmefinallowrespdf. Household%20Income%20And%20Expenditure%20 Lerman, Robert and Shlomo Yitzhaki. 1985. “Income Inequality Survey%202002.pdf. 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World Bank. https://documents1.worldbank.org/curated/ https://documents1.worldbank.org/curated/ en/653831510568517947/pdf/121264-WP-PUBLIC-MSMERe- en/591711545170814297/pdf/97499-WP-P149557-OUO-9- portFINAL.pdf Box391480B-ACS.pdf. 50 BOTSWANA Systematic Country Diagnostic Update APPENDIX A  CRITICAL DATA AND KNOWLEDGE GAPS Knowledge gaps Description From 2015 SCD Informal economy Remains a knowledge gap Relative cost of capital, access to finance, and Done. IFC. 2022. Country Private Sector Diagnostic; World Bank, contribution of the financial sector 2017. MSME Finance Gap. Childhood malnutrition: causes and impacts Remains. Insufficient data make it difficult to track malnutrition trends, such as stunting and wasting, as well as key contributors to childhood nutrition, such as low birth weight and adequate complementary feeding. Climate change impacts Done. World Bank. 2020. Climate Risk Country Profile: Botswana. Planning, procurement, and public Done. IMF. 2017. Botswana: Public Investment Management management: underlying factors of declining Assessment. Technical Assistance Report. public sector effectiveness New Urbanization impacts How is increasing urbanization affecting existing infrastructure and services and creating challenges such as access to land, the spread of informal settlements, unemployment, inequality, and environmental degradation? Knowledge gap on political economy drivers What is the reason for the decline in public sector efficiency? of change Botswana has had policy continuity, is business friendly, invested in knowledge, and has hired external people. What prevents the move to action? What are the barriers to action? Growing anecdotal evidence of increasing corruption. Skills training system (formal and informal) What is the size of the informal sector? How many businesses are informal? What systems exist for skills training for formal and informal businesses? 51 APPENDIX B  STRUCTURAL PEERS To put Botswana’s performance into perspective, this SCD Update features a set of structural peers. These structural peers were selected based on an assessment of different combinations of indicators from the World Development Indicators database, using a tool created for benchmarking. Eight countries proved robust to different combinations of indicators: Gabon, Georgia, Lebanon, Mongolia, Namibia, the Republic of Congo, South Africa, and Tunisia. The set of 20 indicators from the World Development Indicators database chosen for circa year 2015, plus or minus three years, included: 1. The labor force participation rate (% of total population ages 15 – 64) 2. The Gini coefficient 3. GDP per capita, PPP (current international $) 4. Industry (including construction), value added (% of GDP) 5. Manufacturing, value added (% of GDP) 6. Imports of goods and services (% of GDP) 7. Gross fixed capital formation (% of GDP) 8. Exports of goods and services (% of GDP) 9. General government final consumption expenditure (% of GDP) 10. Vulnerable employment, total (% of total employment) (modeled estimate of the International Labour Organization) 11. Mortality rate, under-five (per 1,000 live births) 12. Rural population (% of total population) 13. Economically active population in agriculture (number) 14. Employment in agriculture (% of total employment) (modeled estimate of the International Labour Organization) 15. Access to electricity, rural (% of rural population) 16. Arable land (hectares per person) 17. Population, total 18. Total natural resources rents (% of GDP) 19. Survey mean consumption or income per capita, total population (2011 PPP $ per day) 20. Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population). 52 BOTSWANA Systematic Country Diagnostic Update APPENDIX C  POVERTY PROJECTIONS Like most countries in Sub-Saharan Africa, Botswana does not conduct frequent surveys to track poverty trends. In fact, in the last 20 years, only three such surveys were conducted: the 2002/03 Household Income and Expenditure Survey (HIES), the 2009/10 Botswana Core Welfare Indicators Survey (BCWIS), and the 2015/16 Botswana Multi-Topic Household Survey (BMTHS).85 However, in 2019 Botswana began to field the Quarterly Multi-Topic Survey (QMTS), a labor force survey with additional modules, which had been collected six times by 2022.86 On its own, the QMTS cannot pro- vide information on monetary poverty and inequality. To help fill the poverty data gaps, the World Bank and Statistics Botswana applied survey-to-survey imputations to the QMTS, using a methodology called Survey of Well-being via Instant and Frequent Tracking (SWIFT).87 The SWIFT methodology combines machine learning and multiple imputations techniques to project household expenditure and impute pov- erty statistics in surveys without such data. The BMTHS 2015/16, a year-long survey with data for all four quarters, was used in its entirety as the train- ing data for the SWIFT models. The variable set used for the modeling was limited to what could be harmo- nized between the BMTHS 2015/16 and the six QMTS datasets, such as household demographics, dwelling characteristics, sources of household income, education, and labor market information. Overall, four types of models or methodologies were used to project poverty up to 2022: 1. Limited SWIFT model (quarterly). The limited model was developed using the SWIFT survey-to-sur- vey imputation methodology, with the BMTHS 2015/16 as the training data, and applied to all six available QMTS datasets. The name of this model reflects the limited set of variables common to all quarters of the QMTS and the 2015/16 BMTHS, such as demographics, education, and labor mar- ket variables. 2. Full SWIFT model (quarterly). The QMTS for the third and fourth quarters of 2019, the first quarter of 2020, and the fourth quarter of 2022 collected two additional modules with questions on house- hold dwelling conditions and sources of household income, which could also be harmonized to the BMTHS 2015/16 survey. The name of the model reflects this larger set of variables, which strength- ened the projection model. However, it could only be applied to four quarters. 3. Full+FIES SWIFT model (quarterly). The QMTS for the fourth quarter of 2022 collected the same information as the 2019 surveys but added a set of food security questions to estimate Food Insecurity Experience Scale (FIES) indicators. These variables represent quickly changing poverty correlates that usually strengthen poverty projection models. The results, however, were not very different. 85.  The dates of these surveys were as follows: 2002/03 HIES: June 2002 – August 2003 (Central Statistics Office 2004), 2009/10 BCWIS: April 2009 – March 2010 (Statistics Botswana 2013), and the 2015/16 BMTHS: November 2015 – December 2016 (Statistics Botswana 2018). As noted, for ease of reference, the rest of document uses the year in which a survey covered the most months as its date; hence, the 2003 HIES, the 2009 BCWIS, and the 2016 BMTHS. 86.  The six QMTS dates were Quarters 3 and 4 of 2019, Quarters 1 and 4 of 2020, Quarter 4 of 2021, and Quarter 4 of 2022 (Statistics Botswana 2019a, 2019b; 2020a, 2020b; 2021; 2022c). 87.  For background on SWIFT, see Yoshida and others (2015). Appendix C  Poverty projections 53 4. Elasticity (annual). A simple, non-SWIFT methodology was also used to estimate annual poverty pro- jections for 2017 – 22 using a growth-poverty elasticity. The elasticity estimate is based on the official poverty estimates and GDP growth data for 2009 and 2016 and is applied to later years using actual or projected GDP data, assuming a passthrough rate of 0.87. All the models show a similar slowdown in poverty reduction since 2016. 54 BOTSWANA Systematic Country Diagnostic Update APPENDIX D  SUMMARY OF PROGRESS IN TACKLING PRIORITY INTERVENTIONS The table below summarizes the progress made in tackling the priority intervention areas presented in the 2015 SCD. TABLE A4.1  Progress on priority intervention areas articulated in the 2015 SCD Priority area articulated in Progress on outcomes Progress on implementing reforms Pathway the 2015 SCD since 2015 since 2015 Facilitating a Limited progress since 2015 SCD. The Limited progress on reforms since competitive, private sector failed to attract signifi- 2015 SCD. Policies have favored de- export-ori- cant foreign direct investment beyond clining activities over emerging ones, ented private extractives. Few export products provide import substitution over exports, and sector by align- a potential platform for diversification. manufacturing and agriculture over ser- ing incentives Roads are well interconnected. The lo- vices. Some reforms implemented on and improving gistics Performance Index has improved; simplifying paying taxes and trading connectivity however, air infrastructure remains un- across borders, but indicators on ease of favorable for supporting export growth, creating and growing a business have de- and key digital indicators are lagging. teriorated. Botswana also declined on GDP growth has slowed and become the Global Competitiveness Index and in more volatile. the Tourism Competitive Index (largest Private-sector-led, jobs-intensive growth decline in SACU). Most Special Econom- ic Zones have been in the planning stage since their 2015 conception. Increasing Limited progress on outcomes and a re- Limited progress on reforms. In the beef the returns to versal in poverty. Nearly 97% of farms industry, Botswana is yet to adopt a per- self-employ- are communal or traditional smallhold- formance-based rating system to ensure ment by raising ings. Rural poverty increased during a financing for small and medium produc- productivity of deep drought in 2015/16. Agricultur- ers and needs to promote private finance smallholders al labor productivity remains extremely along the supply chain. Increased adop- and microen- low and far below industry and services, tion of good animal husbandry practices terprises and off-farm employment has stagnat- will improve compliance and competi- ed. The MSME financing gap is estimated tiveness, expanding access to profitable at 19% of GDP. Ensuring the growth and opportunities for small-scale producers. productivity of MSMEs requires sup- Government needs to enact the Botswa- port to build skills and entrepreneurial na Meat Commission Transition Act (to capacity, enhance management capabil- allow competitors to the SOE), amend ities, and increase the adoption of new the Botswana Livestock and Meat In- technologies. dustries Act, and establish the Botswana Meat Industry Regulator Act. In terms of microenterprises, it needs to implement its National Entrepreneurship Policy to coordinate regulatory reforms, digi- tize small and medium enterprises, and crowd-in early-stage finance (which is fragmented and would benefit from a co- ordinated approach). Appendix D  Summary of progress in tackling priority interventions 55 Priority area articulated in Progress on outcomes Progress on implementing reforms Pathway the 2015 SCD since 2015 since 2015 Improving Some progress on outcomes in health Limited progress on reforms in health health and and education. and education. education out- Health: Survival rates to age 5 and from Health: High public spending (6% GDP in comes by age 15 to 60 have increased. Botswana is 2019); 83% of recurrent expenditure is al- reducing the the first high-burden country to reduce located to clinical services, which is not disease burden, mother-to-child transmission of HIV be- aligned with the policy intention of the and raising and low 5%, and it achieved an HIV case rate Ministry to move toward prevention and aligning skills below 500 per 100,000 live births. But primary health care. A national health serious challenges persist: tuberculo- fund that would be predominantly tax sis incidence remains one of the highest; funded has been proposed but not yet neonatal mortality rate is relatively implemented. Strategic health service unchanged; rates of maternal and un- purchasing reforms are critical for transi- der-five mortality are high, despite high tioning to a health financing system that health sector investment and country’s better reflects Botswana’s pluralistic de- income level; and modelled data show livery of health care services and improve stunting (22%) relatively unchanged over efficiency, quality, and equity of health the last two decades. Quality of service services. delivery is unacceptably low for some key Education: Public spending is high (7.1% health services. of GDP, 22.2% of budget), but a large Education: Considerable progress in share is allocated to tertiary educa- increasing access to early childhood ed- tion, with per-student spending 6 times ucation; most children complete primary higher than at primary level, and main- Strengthened individual and community assets and junior secondary education. Howev- ly benefiting top two income quintiles. er, many drop out after junior secondary At secondary level, problems include a level; and the senior secondary gross en- shortage of classrooms and learning ma- rollment rate is only 62%. Quality remains terials, and limited training for teachers. low, and performance on internation- The technical and vocational educa- al assessments is poor, especially by tion and training system is fragmented low-income children. and lacks coordination and organization- al capacities. Concerns about quality and relevance of training remain, with a mis- match between skills trainees acquire and labor market demands. A 2017 re- organization of the education system resulted in a complex and fragmented or- ganizational structure. Ensuring im- Some progress on outcomes in water Some progress on reforms in water and proved access and sanitation. sanitation. National Water Master Plan to water and Update (2018) targets better utilization Improved drinking water: Access in sanitation of internal surface and groundwater re- 2016 of 96.3%, just short of govern- sources and optimization of existing ment’s “commitment to universal access infrastructure, including significant in- by 2016”; 91% of households receive wa- crease in treated wastewater reuse, ter from a piped network, in line with groundwater recharge, and demand structural peers. However, water sup- management and loss reductions, and ply is limited to 8 hours per day, 3 days the proposed large-scale transboundary a week in many areas, requiring alterna- water transfer schemes. The Water Util- tive sources, such as mobile water tanks. ities Corporation performs relatively well Annual water supply-demand gap is es- but efficiency could be further improved, timated at 20 Mm3 (2020) and could with better cost recovery and invest- potentially increase to 114 Mm3 a year by ments in resilience. The Water Utilities 2035, unless immediate action is taken. Corporation’s revenue does not cover its Access to sanitation: Significant in- operating costs, which leaves no funds crease from 34 to 48% between 2009 for new investment. In 2017, nonrevenue and 2016, with the largest increases water was 39% and the collection rate among poor (from 14 to 31%). Neverthe- stood at 79%. Government operating and less, levels are well below the average for capital subsidies are neither consistently upper-middle-income countries, and ma- received nor sufficient. jor gaps exist between urban and rural areas, with rural access still very low. 56 BOTSWANA Systematic Country Diagnostic Update Priority area articulated in Progress on outcomes Progress on implementing reforms Pathway the 2015 SCD since 2015 since 2015 Reforming so- Some progress on outcomes in social Some progress on reforms in so- cial protection protection. Significant poverty impact, cial protection. Reforms to strengthen to reduce frag- as poverty would have been almost 8 the administration of social assistance Strengthened individual and community assets (cont.) mentation and points higher in 2015/16 without social started but need to be broadened and improve target- protection. Large share of the popula- deepened. The 2020 National Social ing, efficiency, tion benefits: 54% of beneficiaries are Protection Framework establishes a and linkages among the bottom 40% of population, comprehensive and well-coordinated so- and 79% of poor people benefit from at cial protection system. Important early least one program. Old age pensions and steps taken to implement a social regis- primary school feeding programs have try, to strengthen delivery, and to pilot the largest impact on poverty, given a proxy means test to improve eligibili- their large coverage; the Destitute Per- ty determination. Further improvements sons Program has the most progressive in poverty impact are possible by using distribution (83% in bottom two quin- the social registry and harmonized tar- tiles). Social protection programs helped geting methodology to consolidate small to protect poor people during COVID, es- programs with the Destitute Persons pecially through food handouts, although Program and put in place a targeted, targeted cash transfer programs were more comprehensive grant program for not scaled up. However, social protec- poor households. System still needs to tion system includes multiple cash and improve links to health, education, and food distribution programs, which are labor market services, to enhance human not well coordinated, and overlaps with- capital development and productive out- in households are significant. In 2017/18, comes through a “cash plus” approach. Botswana spent 3.6% of GDP on at least Lastly, the pandemic did not affect either 29 programs across nine ministries. the direction or pace of social protection reform in Botswana. Modernizing Limited progress on outcomes in mod- Partial progress on reforms. The gov- the public sec- ernizing the public sector and on ernment aims to ramp up digital tor through implementation. Progress on digitizing transformation efforts, including the improved the public sector, as reflected in im- 2020 SmartBots initiative and the 2022 technology, proved UN e-Government index ranking, creation of the Ministry of Communi- management, yet performance still below the aver- cations, Knowledge, and Technology. and systems of age for Southern Africa and particularly Public sector transformation is the in- accountability weak in online service delivery. Start- trinsic goal of the SmartBots strategy, ed digitizing internal public processes and adoption of digital platforms is key and external services, yet many plat- to more efficient and effective service forms used for back-office purposes and delivery. However, despite some prog- Effective resource management emulate manual processes they are re- ress, the overall implementation of the placing. Still among the highest in Africa strategy is limited. On public investment on global governance indicators. Main- management, government is implement- tains effective checks and balances, and ing a second Road Map (2021 – 27) of institutions remain robust, inclusive, and public financial management reforms, transparent. Yet, public sector manage- informed by 2020 PEFA report, and re- ment perceived as source of potential vising the Public Financial Management weakness, notably capacity and skills Act of 2011 to reform public investment constraints. Government prioritized re- management and public debt manage- forms in this area, but implementation ment, and strengthen accountability. It yet to generate significant progress. Pub- will take time for these reforms to bear lic investment efficiency and the quality fruit. The new Public Procurement Act of public procurement are key concerns. of 2021 is aligned with good interna- Public investment management system tional practice and separates regulatory used to be exemplary (in discipline, effi- and oversight functions from execution ciency, productivity), but performance functions. has eroded. Public sector implementation gaps reduce public sector effectiveness and efficiency, affecting all other priority intervention areas; SCD Update argues for converting it into a cross-cutting pri- ority intervention. Appendix D  Summary of progress in tackling priority interventions 57 Priority area articulated in Progress on outcomes Progress on implementing reforms Pathway the 2015 SCD since 2015 since 2015 Mainstreaming Limited progress on management of Some progress on reforms. Ministry the man- scarce natural resources, but new chal- of Environment, Natural Resources agement of lenges are increasingly urgent, including Conservation and Tourism developed scarce natural energy and climate shocks. Botswana’s comprehensive National Adaptation Plan resources natural resources include minerals, wa- Framework (2020). World Bank Climate ter, energy, and biodiversity. Some prog- Risk Country Profile highlights impor- Effective resource management (cont.) ress has been made on outcomes and tance of sustainable adaptation and re- reforms in water sector, and limited silience measures in Botswana, and progress on smallholder productivity, as government’s June 2020 Economic noted elsewhere. In energy, the 2015 SCD Recovery and Transformation Plan dis- deemed Botswana to be adequately pre- cusses the importance of renewable en- pared for energy challenges and expect- ergy. However, large research, data, in- ed substantial new capacity to come on formation, and institutional gaps remain. stream. Instead, acute shortages of en- The National Energy Policy adopted in ergy (despite plans to switch to renew- April 2021 sets out a high-level strate- able sources of energy) have made ener- gy to ensure universal access to electric- gy into a more urgent challenge. Climate ity by 2040, but progress has slowed, shocks have aggravated existing vulnera- especially during COVID. Through its bilities and affected water security in this Nationally Determined Contribution, the highly water-stressed country. Botswana government committed to achieving an is putting forth plans to increase resil- overall emissions reduction of 15% be- ience to climate shocks. Growth and pov- low the “business-as-usual” scenario by erty reduction are at risk from droughts, 2030, taking 2010 as the base year. flooding, and energy shortages, which threaten the agricultural, industrial, and tourism sectors. Source: World Bank analysis.