III. Economic Trends and Outlook

   Botswana's economic growth rate has slowed
substantially in the past two years.  During the 1980's,
economic growth was above ten percent per annum.  In
1992/93 the growth rate was two percent and economists
estimate the 1993/94 growth rate will remain constant.
Formal sector employment has decreased, yet the labor
force has increased.  More damaging, private sector
employment has decreased by nearly nine percent since
1991.  Despite increases in public sector employment,
unemployment in 1994 is expected to reach 20 percent.

   The money supply has likewise been badly affected.
Money Supply (M2) grew by a mere 9.8 percent in 1993.  In
1991 and 1992, M2 expanded by 38.8 and 14.3 percent
respectively.  The Central Bank reserves (M3) increased by
5.4 percent in 1993.  In 1991 and 1992, M3 expanded by
36.5 and 18 percent respectively.  However, despite
decreases in growth, Central Bank reserves remain at an
impressive USD 4.2 billion, providing 30 months of import
cover.

   The growth that did occur in 1993 was mostly in the
public sector.  Government employment grew at a rapid rate
of 16 percent.  Growth in agriculture, electricity and
water, transport and communications, and financial and
business services ranged between five and seven percent.

   To arrest this economic decline, the Government is
making deliberate attempts to improve the private sector.
For example, it has lowered the corporate tax rate from 40
percent to 35 percent.  Moreover, to show its commitment
to exchange control liberalization, Government has moved
to Article 8 status in the IMF Articles of Association.
Finally, wage and salary levels are being frozen to
encourage domestic and foreign direct investment.

    Despite the recent recession, Botswana's balance of
payments has remained positive.  A surplus of USD 370
million was realized in 1993.  Most of this surplus was
generated through the strong performance of the mining
sector, which, although not declining, has reached a
plateau.

   To diversify the economy and recover from recession,
the Government of Botswana is encouraging greater direct
investment.  However, the small local market, high cost of
services, such as electricity and water, land and housing
expenses, and shortages of skilled manpower constrain
local investment.  Moreover, the labor force suffers from
low productivity.  Nevertheless, Botswana's comparatively
low tax rates in the region and its well developed
infrastructure are factors in its favor.  Its significant
foreign exchange reserves facilitate currency
transactions.  Moreover, Botswana is politically and
socially stable, committed to a free market economy, and
very favorably disposed to foreign investment.