Supports Energy, SMEs, Private Capital and Fiscal Reforms
INSIDE AFRICA | ECONOMY
The African Development Bank Group has approved a $503.75 million loan to Botswana to support economic reforms aimed at attracting private investment, expanding businesses and creating jobs as a prolonged downturn in the diamond industry weighs on the economy.
The financing, equivalent to 6.62 billion Botswana pula, is one of the bank’s largest financing in the country. It comes as Botswana faces mounting pressure to find new sources of revenue and economic growth beyond its mining sector as weaker diamond markets demand has exposed the country’s risks and reliance on the industry for export earnings and government revenue.
Through the Economic Competitiveness and Transformation Support Program, the loan will support fiscal reforms, improve business environment and reforms to expand financing for micro, small and medium-sized enterprises. The program aims to increase non-mineral tax revenue to 11.8 percent of Gross Domestic Product in fiscal 2027/28 and lift private investment to 30 percent by 2028.
The financing also comes as higher energy costs due to the Middle East conflict has added another pressure point on households and businesses, increasing the urgency to contain fuel prices while strengthening Botswana’s energy security.
The World Bank reported Botswana’s economy contracted by 2.8% in 2024 and a further 0.7% in 2025, as the diamond market downturn weighed on economic activity. Public finances have also come under pressure as limited mineral revenue have reduced the resources available to fund government spending. Public debt rose from 22 percent of GDP in 2023 to nearly 40 percent in 2025, according to the bank’s latest economic assessment.
The International Monetary Fund has also warned that declining diamond revenues and persistent fiscal deficits are eroding the country’s financial buffers. Its 2025 Article IV assessment estimated that the fiscal deficit widened to 7.1% of GDP in fiscal 2024/25, with further pressure expected as mineral revenues weakened.
The two institutions have called for stronger domestic revenue collection, more efficient public spending and reforms that encourage private-sector-led growth. The World Bank has identified access to finance, business regulation, infrastructure and workforce skills as important constraints on Botswana’s ability to diversify.
To restore growth while building an economy less exposed to fluctuations in global diamond market, the government will have to translate its reform agenda into a broader pipeline of commercially viable projects and create a business friendly environment capable of attracting capital beyond mining, expand production and create jobs.
The AfDb program combines fiscal reforms with programs to expand financing for micro, small and medium-fixed enterprises and bring private developers into the energy sector.
“Botswana has clearly defined its priorities in National Development Plan 12 and Botswana’s Transformation Program. Our role is to help finance the adjustment, while protecting those least able to bear its costs,” said Moono Mupotola, the African Development Bank’s deputy director general for Southern Africa and country manager.
Energy Security Plus Private investment
Energy is one of the sectors where Botswana is seeking to draw in private investment while reducing the pressure of supply disruptions and rising costs.
Under the AfDB-backed program, the government plans to hold at least one competitive renewable energy auction, inviting private developers to build solar and wind capacity. A fully costed National Electrification Action Plan will support implementation of Botswana’s Mission 300 National Energy Compact, which aims to increase household electricity access from 79.5 percent in 2026 to universal access by 2030.
The initiative comes as African governments face the challenge of expanding electricity access without placing the entire cost of new infrastructure on public budgets. Mission 300, led by the World Bank Group and the AfDB, aims to connect 300 million people across Africa to electricity by 2030, with private investment expected to play a role in expanding generation and distribution.
Botswana has already seen private capital enter its power market. The 100-megawatt Mmadinare Solar Project, developed by Norway’s Scatec, began operating in 2025 and became the country’s first utility-scale independent power producer. The project received $38 million in financing from the International Finance Corporation and mobilized a further $42 million from South Africa’s Rand Merchant Bank.
The project provides a model for financing renewable energy infrastructure through partnerships between developers and financial institutions.
The AfDB-backed program also includes plans to expand the Francistown fuel depot’s storage capacity from 38 million liters to 98 million liters, strengthening fuel supply security as international energy markets remain vulnerable to disruption.
In the near term, the government is seeking to cushion consumers from rising fuel costs. A presidential directive issued earlier this year in April, suspended fuel, road and security-of-supply levies for six months. The intervention is expected to limit the increase in fuel prices for motorists to about 0.58 pula per liter and reduce inflation by 1.6 percentage points.
The government is also providing supplementary monthly payments for three months to an estimated 279,000 older people and other vulnerable beneficiaries, including disability grant recipients and households receiving destitute support.
Business Reforms Target Access to Finance, Land
Access to finance and secure land ownership are among the structural barriers facing businesses in Botswana, according to the IMF’s research on the country’s growth constraints.
The fund’s December 2025 study, drawing partly on the World Bank’s 2023 Enterprise Survey, identified limited access to finance, land-tenure challenges, governance concerns and infrastructure gaps among the obstacles facing businesses. These issues are particularly important for smaller businesses, which often lack the collateral and financing needed to grow.
The AfDB program seeks to address some of those constraints by targeting 3,292 active small and medium-sized enterprises and 3,935 direct jobs by fiscal 2027/28. Women-owned businesses are expected to account for 93% of supported enterprises, while young people’s share of jobs created is targeted to rise from 15% to 20%.
Another effort to expand access to capital is through land administration reforms, which are expected to provide secure titles to an additional 4,300 families within a year, raising the national total from 19,682 to about 24,000.
Secure property rights can make it easier for landowners to use their property as collateral when seeking access to credit, potentially widening access to credit for business development and investment. Although credit decisions will depend on lenders’ requirements and borrowers’ ability to pay debt.
The program also seeks to improve public procurement through full implementation of electronic procurement, which is expected to reduce procurement costs by between 5% and 15%, freeing up public resources for essential services and other spending priorities.
These reforms are part of a broader Botswana Economic Transformation Program, with a pipeline of 186 projects valued at 514 billion pula. The government’s longer-term target is to create 512,000 jobs by 2036.
Like most African countries, unemployment remains another challenge. According to the figures provided with the AfDB program, overall unemployment in the country stands at 21%, with youth unemployment at 28.9%. An estimated 37% of young people are not in education, employment or training.
This puts an urgency and raises the stake to translate these reforms into sustained private investment, stronger non-mineral revenues and create jobs.
Abdoulaye Coulibaly, the African Development Bank Group’s director for governance and economic reforms, said the program’s reforms have defined timelines and measurable targets, supported by technical assistance. “Adoption alone is not our goal; implementation is,” he said.
The financing arrives at a difficult point for Botswana’s public finances. The diamond sector has traditionally financed a substantial share of export earnings and government revenue, leaving the country exposed to changes in global demand.
The downturn has also weakened the government’s fiscal buffer to meet spending commitments. In August 2025, payment arrears to suppliers of medicines and medical equipment contributed to a public health emergency.
The AfDB operation is the first phase of a two-year program covering fiscal 2026/27 and 2027/28. It will be co-financed by the OPEC Fund for International Development, which is providing $170 million.
The new financing builds on earlier AfDB support in 2025. Under that program, value-added tax collections rose 15.5% to 14.397 billion pula, while Botswana’s business regulatory environment score reached 4.8 out of 6, exceeding the target of 4.7.
