Linah Mohohlo, governor of the Bank of Botswana, talks to Karina Robinson about fighting Aids and watching South Africa .
Botswana has $3277 per head of foreign exchange reserves, a mind-boggling statistic by African standards that highlights the continent’s most successful, albeit small, economy, with a population of only 1.8 million. Using a more common measure, a full 22 months of imports are covered by forex reserves of $5.9bn.
This is not just due to the country producing about one third of the world’s gem-quality diamonds but to a stellar management of the economy. Linah Mohohlo, governor of the Bank of Botswana is, however, exceedingly wary of accepting praise, behaviour typical of the world’s central bankers. “I would not want to accept that we are successful. We have many challenges. The rating agencies, in addition to the World Bank, say it is not all hunky dory. There are highly serious issues, like the HIV/AIDS pandemic, which caught us napping, and we have to solidify our financial resources,” she says.
No tampering with peg
Speaking in the usual plain hotel room prevalent in the Swiss ski resort of Davos during the World Economic Forum, she was equally cautious about changing the currency peg regime despite the appreciation of the pula, Botswana’s domestic currency. “It is a function of the weakness of the dollar. If we were to tamper with the currency regime, we would wake up one morning and one of the major currencies would have moved,’’ she conjectures. The pula is pegged against the South African rand and the Special Drawing Right, which incorporates a number of hard currencies.
“The reason we chose a basket is to support the government in its diversification of the economy, so we have to maintain a competitive currency, which is neither weak nor strong,” she added, pointing out that Botswana’s emerging economy is also very dependent on imports.
The pula’s name in Setswana means “water” or “rain”, evidence of what used to be considered most precious in its economy. Now, of course, Botswana is famous for its precious stones. Mining contributes 35% of gross domestic product and 45% of government revenues, according to rating agency Standard & Poor’s.
Diversification of the economy includes increasing revenues from tourism and a new offshore Financial Services Centre. But what can Botswana offer foreign financial services companies that neighbouring South Africa or Mauritius do not already provide?
Stable environment
“[Our Financial Services Centre] is meant to complement what else is available in the region, in South Africa, in Mauritius. We are competitive with respect to our tax structure; we have the highest credit rating in the region; we removed capital controls many years ago; we have good governance and appropriate institutions; the central bank is relatively independent and we have a long term track record of political and economic stability,” says the governor, who has an undergraduate degree from George Washington University and a graduate degree from the UK’s University of Exeter.
Ms Mohohlo’s character may encompass the same traits as the world’s central bankers but at least her outfits are atypical. At meetings she wore a natty hound’s tooth check suit; in the interview, since she was heading off to catch a plane home, she sported jeans with killer patent leather stiletto boots.
Nor did she arrive at her job the classic way. In fact, she joined in 1976 as the governor’s secretary a year after the Bank of Botswana was founded. Before, the country was incorporated in the South African central bank system. She typed out the legal document establishing the central bank based on the Bank of England’s Act by replacing mentions of “England” with “Botswana”. She then went on to complete her education at universities in the US and the UK and worked at the International Monetary Fund.
That financial bent runs in the family: her husband, now retired, worked for Barclays Bank and her two grown-up children are working at a bank and a brokerage house.
Ms Mohohlo does not resent South African dominance of her economy – 70% of imports come from its larger neighbour – noting that no country has been able to avoid dominance by a South African or a US [type] Big Brother.
An eye on South Africa
“You cannot lose sight of that importance. We have to look at what is happening in the dominant economy of the region. We have to watch what is happening in South Africa – in inflation, in what is going on – when we come out with our monetary statement,” she says.
Botswana, although the most successful small economy in Africa, shares some of the continent’s problems. It is estimated one-third of the population is HIV positive and the country has one of the highest infection rates in the world. In the longer term, the human cost of HIV/AIDS will affect the economy in many ways. In the shorter term, health spending is having an impact. The health care budget had tripled since fiscal 1999/2000 and will continue growing to fight AIDS – one of the main reasons 20 years’ of government surpluses turned into deficits in the past couple of years. Commentators expect the deficits to continue, albeit at a manageable level of under 2% of GDP.
“Fortunately, by the time we sought the assistance of the pharmaceutical industry, they saw we had been doing something ourselves, over and above [what was expected],” says Ms Mohohlo. “Every Botswanan does not have to walk more than 30 kilometres to a clinic. That has been useful in rolling out anti-retroviral drugs free of charge.” It is quite an achievement in a country roughly the size of France but with a population of less than two million (France has 60 million). Botswana also faces other problems prevalent in Africa: 50% of the population lives below the poverty line and there is 15% unemployment.
Ms Mohohlo is a member of the Commission for Africa, set up by British prime minister Tony Blair to take a fresh look at Africa’s past and present, and the international community’s role, and to agree clear recommendations for a better future. She takes issue with the view that the commission is a bunch of high-profile individuals meeting for talks that will lead nowhere. “Many of us would not have joined if we thought it was a talking-shop. It has come up with a view of augmenting existing initiatives [such as NEPAD, the New Economic Partnership for Africa’s Development] to help Africa come out of the doldrums.”
Managing vast reserves
One of her foremost challenges is to manage the bank’s huge reserves. “We do it internally in the central bank and we farm out to experienced fund managers whom we can learn from, and compete with. We established a long-term fund for future generations and invested in equities and long-dated fixed income. Fifty per cent [of the reserves] are managed in-house and 50% using external fund managers,” she says.
Ms Mohohlo is also careful with the bank’s funds. As she checked out of her hotel she queried the addition of a telephone call on the bill. In the UK, they say if you take care of the pence, the pounds will take care of themselves. In Botswana’s case, it is the billions.
