Botswana is a land-locked country in Southern Africa, with a population of just over two million people, and known for its mining and natural resource base. Home to the headquarters of the Southern African Development Community (SADC), Botswana has been one of the fastest growing economies in the region. Following a dip in the demand for its resources, which reflected in poor GDP figures in 2008 and 2009 (-3.7 percent), the economy grew by 6.1 percent in 2011, and then by a more modest 3.7 percent in 2012. The lower growth rate was due to declines in the mining sector, which registered a negative growth of 8.1 percent in 2012, as well as the water and electricity sector. Domestic economic performance grew in real terms by 4.4 percent in 2014 compared to 9.3 percent in 2013 due to revision of national accounts date from 2012 onward and the inclusion of new mines in the GDP calculations. Botswana government has reduced the 2015 forecast economic growth from 4.9 percent to 2.6 percent. Despite the low projections in growth,
Botswana is a land-locked country in Southern Africa, with a population of just over two million people, and known for its mining and natural resource base. Home to the headquarters of the Southern African Development Community (SADC), Botswana has been one of the fastest growing economies in the region. Following a dip in the demand for its resources, which reflected in poor GDP figures in 2008 and 2009 (-3.7 percent), the economy grew by 6.1 percent in 2011, and then by a more modest 3.7 percent in 2012. The lower growth rate was due to declines in the mining sector, which registered a negative growth of 8.1 percent in 2012, as well as the water and electricity sector. Domestic economic performance grew in real terms by 4.4 percent in 2014 compared to 9.3 percent in 2013 due to revision of national accounts date from 2012 onward and the inclusion of new mines in the GDP calculations. Botswana government has reduced the 2015 forecast economic growth from 4.9 percent to 2.6 percent. Despite the low projections in growth, it is noteworthy that Botswana has never performed lower than the regional growth and therefore the revised estimates towards the next financial year will most likely show an upward trajectory by 200 points minimum.
A positive aspect of the 2014 growth is that, it was mainly driven by non-mining sectors such as Transport and Communications and Trade, Hotels & Restaurants. These sectors recorded growth rates of 7.4 percent, and 7.1 percent, respectively in 2014. The water and electricity sector on the other hand continued to underperform, due to the drought situation and persistent technical problems at Morupule B Power plant. The sector contracted by 18.5 percent in 2014, resulting in insufficient supply of water and electricity, and the adoption of power and water supply rationing in the country. It is clear that the challenges of power and water provision will remain in the medium to long term; hence Government is making concerted effort to address such. In the World Bank’s 2015 Doing Business Report, Botswana was ranked 74th out of 189 countries, the third highest in SADC after Mauritius (28) and South Africa (43). Starting a business, getting electricity and trading across borders are the weak elements of the business environment. The Ibrahim Index of African Governance ranked Botswana third (with a score of 76.2 percent compared to a ranking second (with a 77.6 percent score) in the previous year.
Botswana’s urbanisation rate (2.30 percent) is becoming increasingly visible as Gaborone grows in size. The government will embark on an Economic Stimulus Programme that will see it drawing down from its vast foreign reserves, which currently stands at US$8.740 billion. The funds will be used to develop infrastructure mainly; fast tracking of land servicing, with 37 000 plots to be catered for in the coming year; construction of 4 480 new housing units by the Botswana Housing Corporation; construction of an additional 1 664 teachers quarters and 534 nurses’ quarters. The package also includes construction of 144 classrooms and 92 school laboratories. New roads will be constructed, with bypasses for the A1 highway as well as bypasses for Francistown, Molepolole and Lobatse.
Access to finance
Access to finance in Botswana is relatively high by African standards, but considered low globally. This is especially so considering the country’s relatively high levels of GDP per capita (based on purchasing price parity of US$7 757.03 in 2014). Commercial banks in Botswana are small by international standards. However, they are competitive and rapidly growing. Currently, there are seven commercial banks, namely, Barclay Bank, Standard Chartered Bank, Stanbic Bank, First National Bank, Bank Gaborone, Bank of Baroda and Capital Bank. In addition there are three statutory banks namely National Development Bank, Botswana Savings Bank and Botswana Building Society. According to the third FinScope survey undertaken in Botswana in 2014, 67 percent of the population is financially served, using either formal and/or informal products, 50 percent of the population is formally banked and 24 percent is financially excluded. The year-on-year increase in commercial bank credit eased from 15.1 percent in December 2013 to 13.5 percent in December 2014, due to a significant slowdown in growth of lending to the household sector, from 24.2 percent to 10.7 percent. In contrast, the annual increase in business credit rose from 4.6 percent in 2013 to 17.2 percent in 2014. As at December 2014, the share of household credit in total private commercial bank credit was 56.4 percent compared to 57.7 percent in December 2013.
The lower growth in household credit was due to a significant slowing in the yearly increase in mortgages from 40.1 percent to 18.4 percent and in personal loans from 19.6 percent to 7.4 percent, in an environment of slow growth in incomes. At the same time, from the supply side, there was weak growth in loanable funds, which further suppressed credit growth through tighter lending conditions. The slowdown in the growth of mortgage lending appeared to be consistent with other indications that the market for residential property was weakening, especially for high value properties.
Total banking sector assets reached P68 billion in December 2014, which is an increase of 12.6 percent from P60.4 billion in December 2013. This expansion in assets was driven by growth of 13.6 percent in loans and advances from P38.8 billion in December 2013 to P44.1 billion at the end of 2014, while BoBC’s (Bank of Botswana Certificate) held by banks fell by 22.7 percent in the same period. Deposits by local banks held in foreign banks rose by 14 percent, while “other assets” increased by 3.6 percent. On the liabilities side, public deposits at commercial banks increased by 6.1 percent in the same period. A notable feature of commercial banks’ balance sheets is that funding is supported by wholesale business deposits (71.5 percent of total deposits), which sustains the net debtor position of households (accounting for 55.4 percent of total credit). The ratio of commercial bank assets to nominal GDP remained broadly stable at around 50 percent in both 2013 and 2014.
Assets and liabilities of the Botswana Building Society rose by 12.4 percent from P3 billion (US$293.8 million) in December 2013 to P3.4 billion (US$333million) in December 2014; this compares with the 9.9 percent increase in 2013. Loans and advances increased by 14.2 percent, while the Society’s cash and deposits grew by 4.5 percent. Total assets had expanded by 15.6 percent to P1.9 billion (US$ 186 million); this is considerably lower than the growth of 33.2 percent in 2013. This reflected slower growth in lending of 16.1 percent against 20.4 percent the previous year, together with a contraction in cash and deposits and other assets. The balance sheet of the Botswana Savings Bank grew by 9.7 percent in 2014 (14.6 percent in 2013) as lending increased by 20 percent (16.5 percent in 2013). Mobilisation of savings was also sustained, with deposits growing by 10.8 percent in 2014, albeit slower than 15.4 percent in 2013. For the Botswana Development Corporation, assets increased by 5.4 percent to P2.1 billion (US$205.6 million) in the year to December 2014 on the back of growth of 7.2 percent in investments in related companies, which offset the decline in bank deposits and loans, advances and leasing.
The financial institutions and government of Botswana have worked hard to ensure housing affordability in the development of relevant loan products. Government assists all Botswana citizens to purchase or develop properties by guaranteeing 25 percent of each loan delivered through the BBS. While financing a completed house is beyond the reach of most citizens, Standard Chartered Bank is now offering 100percent financing for mortgages in urban centres, small construction or housing micro loans offered by financiers can theoretically reach more people, who can then build incrementally. In this segment, the Ministry of Lands and Housing has introduced the Integrated Poverty Alleviation and Housing programme, which trains households to acquire productive skills in the construction industry so that they might address their own housing needs while also earning an income. An evaluation of the programme carried out at the end of 2011 found that while training in various construction skills had been successful, this has not translated into housing delivery.
Other housing loan providers include the National Development Bank, a state entity, which has introduced a self-build loan, lending as little as P50 000 (US$4 897) for building a new home, payable over a maximum of 25 years.
Botswana’s microfinance industry has increased the reach of finance services generally. This form of lending has also been associated with consumer spending, as well as with having money available for education and emergencies. Housing microfinance remains unchartered territory in Botswana, although some lenders are moving into this space, notably Select Africa. The challenge is convincing the authorities of the appropriateness of this type of lending for housing purposes. The Non-Bank Financial Institution Authority (NBFIRA) was recently reluctant to grant a microfinance institution accreditation to offer housing finance, given the high costs of microfinance.
Government policy offers low-moderate income households (those earning between P4 400-US$431 and P36 400-US$3 565) access to a house improvement loan through the Self Help Housing Agency (SHHA). A loan amount of up to P45 000 (US$4 407) is available, payable over 20 years at P187.50 a month, interest free. Repayment on this loan has not been good however there are roll out challenges due to insufficient funding. Government is currently experiencing a backlog in financing projects across the country. The SHHA scheme was also been extended to officers at entry point of middle management. In April 2014, the government issued Public Service Directive No. 8 of 2014 which among other benefits extended the SHHA scheme to public officers on salary scale up to D4 (US$1 500p/m). In April 2015 this year as part of its effort to improve homeownership, government, further, introduced a housing allowance for the employees in the civil service though at a paltry US$19.6 (BWP 200).
Botswana has one of the more active credit information sharing sectors in the SADC region. In 2013 the government of Botswana through World Bank support and FinMark undertook a study on the Credit Information Sharing and work is at advanced stage to appoint to set up a secretariat for that.
Botswana’s pensions industry is large with about 97 standalone registered pension funds and total assets accounting for about 60 percent of the country’s GDP. Pension funds’ assets grew by 11.9 percent from P58.7 billion (US$5.4 billion) in December 2013 to P59.4 billion (US$5.8 billion) in December 2014. Pension-backed loans are legally permissible; the industry is rather conservative and does not provide members with housing loans or allow third party loans secured by pensions. Some argue that the regulatory framework is not clear enough in dealing with pensions and that this has undermined the growth of this product.
According to the 2014 FinScope Botswana survey, 20 percent of adults in Botswana do not earn an income, while another third earn less than P500 (US$74) a month. In most urban households (49 percent) there is only one income earner; in 28 percent of households there are two income earners, and in 15 percent there are three or more income earners. Some eight percent of urban households and 13 percent of rural households have no income earners. Access to mortgages is constrained by household income.
The Botswana Housing Corporation (BHC) is a leading housing developer. BHC’s lowest cost housing product is a 84m2 house on a 354m² plot. This costs about P720 000 (US$70 519). BHC suggests that the minimum mortgage instalment for one of its houses is P6 400 (US$627), which means that a household would have to earn at least P12 000 (about US$1 175) a month. Government has put minimum salary take home at US$127.33 for singles and US$146.91 for married couples and any person falling below that threshold is imprisoned. This was put in place to avoid over indebtedness by household. The biggest development in the past two years ever since the Central Bank put a moratorium on bank charges has been that, banks now prefer to finance purchase of ready built structures as opposed to construction. That has led to a slowdown in mortgage uptake.
The supply of ready-built housing units in Botswana is low in all markets, and most people self-build for occupation. The BHC, the primary housing developer in Botswana, was established by an act of Parliament in 1971 to provide for the housing, office and other building needs of the Botswana government, local authorities and the general public. In April 2012, the BHC’s mandate was expanded so that it might operate as government’s single housing authority. As such, the BHC is now also responsible for the construction of housing units within the Self Help Housing Agency’s (SHHA’s) turnkey projects, as well as district housing.
The BHC has a large estate of flats and town houses, and a balanced mix of high, medium and low income houses spread throughout the country, with concentrations in Gaborone and Francistown. Although historically focused on developing housing for rental, it has recently begun to offer houses for sale as well (although according to their website, this scheme is currently suspended).
The outlook for the property market is generally positive. Property prices have risen steadily over the past few years, spurred on in part by the booming tourism industry, and showing resilience even in the face of recession. Secondary property markets are limited by the shortage of stock that can be mortgaged in primary markets. A useful indicator is the fact that only 18 percent of the buildings in the country are of durable material. This shortage is also reflected in the lack of adequate affordable rental housing stock, and the consistent reports of steep rises in rentals in urban areas.
In an effort to increase tenure security and support enhanced access to mortgage finance, the Ministry of Lands and Housing has undertaken a land registration system for properties not formally registered. According to the World Bank it takes about 15 days to register a property in Botswana in 2015 (versus 60 days for sub-Saharan Africa), and the process costs about 5.1 percent of the property value. Botswana is ranked 51st out of 189 countries globally in terms of this indicator, illustrating the relative efficiency of the country’s registration process.
Policy and regulation
The Botswana government has prioritised savings and credit for long-term investments such as housing. One area of reform identified is the land administration system. The lengthy process for conversion from tribal to common law land as required for mortgage lending has been cited as a problem. Regulations about land use management such as building permits and related procedures are also considered unduly onerous and bureaucratic, and need to be reformed.
While Botswana has a number of housing programmes under way (the SHHA, the Presidential Housing Appeal, the Housing Scheme for Poverty Eradication, the Botswana Housing Corporation, etc.) there is no underlying housing policy. In 2012/2013, a bill to revise the Town and Country Planning Act was introduced to decentralise town planning functions to the Districts. The bill was expected to reduce delays in the processing of planning applications. In 2013, the Development Control Code was also revised to assist in the management of land and activities thereon.
Botswana is a relatively stable, well-managed economy that has shown significant growth over the last few years. Finance for self-build housing still offers significant prospects for growth, due to this being the preferred method of building, even among the middle and higher income categories. Housing microfinance therefore has enormous potential. Mortgage lending has been increasing, and while there is limited demand given the country’s generally small urban areas, it also has potential for growth. The state has recognised the need to reform in many key areas such as land administration. If followed through, this can enhance access to, and affordability of, mortgages among the population. Developers willing to embark into real estate should be willing to bear the cost of servicing the land which happens to be the biggest constraint to land development. The issue of sewage is also a major concern, however the economic stimulus packages seeks to attend to all these constraints and therefore property development seems to be on its hay days of growth. The financial market is good with low interest rates and the demand for student accommodation and low cost housing is very high in urban areas due to the high levels of urbanization. The opening of new mines and industries across the country is also putting pressure on the supply.
Ministry of Finance & Development Planning, Budget Strategy Paper 2016/17 August 2015
Bank of Botswana, 2014 Annual Report (Main Report), 2015 and Part C Statistics
FinMark Trust Finscope 2014, 2015
Botswana Housing Corporation, BHC Fourth Quarter Report 2014, 2015
Bank of Botswana, Monetary Policy Statement 2015, March 3 2015,
Bank of Botswana, Statement of Financial Position, June 2015, 2015
World Economic Outlook, Uneven growth, Short and Long term, April 2015, International Monetary Fund, 2015
Doing business 2015, Economy Profile 2015 Botswana, World Bank 2014