Economists predict that the new Umbrella for Democratic Change (UDC) government will use its maiden budget speech next month to introduce pro-business reforms aimed at revitalising the struggling economy and addressing high unemployment.
Vice President and Finance Minister Ndaba Gaolathe is expected to adopt a business-friendly approach in the short term to drive private-sector growth and stimulate job creation.
Eroded savings accounts have limited the government’s spending capacity. Emmanuel Kwapong, Standard Chartered Bank’s Africa Economist, believes a repeat of the large 2024 stimulus package is unlikely. The FY26 budget, expected in February, will likely focus on significant reductions in government spending.
The FY25 budget was deemed overly expansionary, with the development budget more than doubling compared to FY23. As a result, Kwapong anticipates that capital spending will bear the brunt of the cuts. “The budget is also likely to prioritise measures to increase domestic revenue mobilisation,” he stated.
Gaolathe picked Dr. Tshokologo Alex Kganetsano, former Deputy Governor at the Bank of Botswana under his portfolio and his permanent secretary.
As Deputy Governor, Dr Kganetsano was in charge of various departments dealing with, among others, prudential supervision and payments oversight, banking and currency matters, finance, strategic planning, risk management, business continuity, business conduct and regulatory compliance, and corporate services management.
As Permanent Secretary his portfolio includes overall macroeconomic policy and financial policy development, leadership and direction on matters pertaining to public finance management, macroeconomic financial stability as well as provide strategic leadership to the Ministry of Finance Parastatals.
Dr. Kganetsano joins the Ministry of Finance at a time when the national development plan 12 is still to be finalised. The ministry said he is to shape and drive Botswana’s economic policies mobilising and managing financial and economic resources for the achievement of inclusive and sustainable socio-economic development, and overall national prosperity.
While the new government openly said they are proponents of an independent central bank, Dr Kganetsano is expected to bring some alignment, injecting strong technical capabilities and confidence in the market.
His input will feature in the upcoming budget as the new government battles balancing its promises with available funds.
Uncertainty in diamond markets is pushing the new government to explore other commodities and services.
Gaolathe has already approved changes to the exchange rate policy framework, which some observers see as part of an export-led strategy. According to the central bank, these changes aim to benefit local industries both domestically and internationally.
“This adjustment is expected to slow the pula’s appreciation against the South African rand, helping Botswana remain competitive with South Africa, a key trading partner,” explained Innocent Molalapata, Director of the Research and Financial Stability Department.
When the South African rand weakens against international currencies, the pula will still appreciate, but to a lesser extent than before. This is due to the revised weightings of 50 percent for the South African rand and 50 percent for the Special Drawing Rights (SDR).
Combined with the approval to maintain the current downward crawl rate of 1.51 percent, these changes aim to keep Botswana’s industries competitive against imports and in external markets, Molalapata noted.
Botswana has aspired to transition to an export-led economy for years, though diamonds—its main export—face structural and fundamental challenges.
Botswana’s exports fell by 17.9 percent, dropping from a revised value of P3,939.4 billion in September 2024 to P3,233.6 billion in October 2024. This decline is attributed to poor performance in the diamond market.
BoB Deputy Governor Dr. Kealeboga Masalila cautioned that even if negotiations between Botswana and De Beers yield favorable terms, diamond revenues will still depend on market conditions.
Masalila highlighted that Botswana has grown complacent in generating foreign currency through diamond exports, fostering the illusion that funds for imports will always be available.
According to Statistics Botswana’s International Merchandise Trade Statistics for October 2024, imports were valued at approximately P8.1 billion, marking a 1.3 percent increase from September 2024. Food, Beverages & Tobacco accounted for 15.9 percent of imports, followed by Diamonds (15.4 percent), Machinery & Electrical Equipment (15.2 percent), and Fuel (15.1 percent).
The Southern African Customs Union (SACU) was the primary source of imports, contributing 73.7 percent. At the country level, South Africa accounted for 61.6 percent of total imports (P5,043.7 billion).
We are an importing country, but that’s not sustainable, Masalila said. “Ultimately, what will we use to pay for these imports?”
He emphasised the importance of diversifying industries to export goods that compete in both external and domestic markets, thereby driving economic growth.
In October 2024, exports to the SACU region accounted for 18.9 percent (P610.1 million) of total exports. Machinery & Electrical Equipment, Salt & Soda Ash, and Meat & Meat Products were the main exports, contributing 38.1 percent (P232.4 million), 13.1 percent (P79.8 million), and 8 percent (P48.9 million), respectively. South Africa remained the largest recipient of exports, accounting for 17.1 percent (P554.3 million) of the total.
Recent policy changes are expected to facilitate increased trade between Botswana and South Africa, particularly as the new government rolls back protectionist measures like the ban on vegetable imports. Gaolathe stated in parliament that such bans harm the economy.
Temo Ntapu, Executive Director at the Export Development and Promotion Botswana Investment and Trade Centre, argued that import substitution industrialisation is a flawed economic development strategy. He explained that protecting local companies behind closed borders often prevents them from achieving the competitiveness needed to survive in open markets.
“Efficient industrialisation is essential for our economy to compete globally,” Ntapu said. “Protectionism creates an illusion of profitability, only for companies to incur heavy losses once protective barriers are removed.”
While the exchange rate adjustments lay the groundwork, the Bank of Botswana emphasised that improving productivity, enhancing efficiency, and implementing transformative policies are crucial to further boosting competitiveness.
“To achieve competitiveness, Botswana cannot rely solely on exchange rate changes,” Molalapata stated.
The Ministry of Finance has found that total factor productivity has been declining at an average rate of -2 percent. The World Bank recommends that Botswana achieve a 2 percent annual increase in productivity to reach high-income status.
“If we are honest, the evidence shows we are not productive,” Masalila remarked, citing inefficient use of agricultural funding as an example.
When comparing the funds allocated to agriculture with the output, the results show less value generated than the input, he said explaining that this indicates a loss of resources and inefficiency in resource utilisation.
Masalila also pointed out systemic inefficiencies in service delivery, sharing an example of a business suffering delays in obtaining essential services, leading to financial losses.
“You can walk into any government office or utility provider and experience delays for the simplest tasks. This is clear evidence of unproductive service delivery,” he said.
Kwapong believes accelerating state-owned enterprise (SOE) reforms to introduce competition into various sectors can drive economic growth. “Reducing SOE dependence on government transfers will ease pressure on public finances, creating room for social spending,” he added.
President Boko, in his manifesto, pledged to impose high-performance standards on local supply chains to inspire productivity across the economy. He envisions creating sustainable clusters of small and medium enterprises (SMMEs) and long-term entrepreneurs with access to international markets.
The 2025 budget, the first under the new administration, will be closely scrutinised for its clarity on the government’s policy direction.
