Going into 2015, market analysts anticipate a slight growth in the country’s economy to at least 5 percent, which concurs with the government’s projections in the 2015/16 budget strategy paper.
The strategy paper had anticipated that going into 2014 and 2015, domestic economy would grow by 5.2 percent and 5.0 percent respectively driven by the recovery in diamond production. However, the main risk feared by the government was poor performance of mineral exports as it happened in the first quarter of 2014. Econsult economist, Bogolo Kenewendo has said there is some uncertainty generated by instability in oil prices. When oil prices stabilise to profit level for Organisation of Petroleum Exporting Countries (OPEC) countries, the general global economy will have a good 2015 outlook. The US is anticipated to grow above last year’s 2 percent boasting exports from emerging markets including Botswana.
In this case, Kenewendo is optimistic that, “the diamond industry would benefit from this positive growth and ripple to the domestic economy through government expenditure. Lower fuel prices reduce the cost of doing business and boost business activity. Should these conditions hold, 2015 will be a little better than 2014 with expected growth rates around 5 percent, a slight growth from last year’s expected 4.6 percent.” Stockbrokers Botswana analysts have observed that as mining continues to register diminishing economic returns, another balanced budget for 2015 is expected, as government moves to create a buffer to counter any exogenous shocks on the horizon.
Based on Debswana’s projected diamond production figures, Botswana, the world’s biggest diamond producer is expected to produce 22 million carats in 2014. The analysts Tshepo Setlhare, Kennedy Kgomanyane and Mooketsi Poane last week indicated in their 2015 outlook research that this is a far cry from the mines’ peak production of 34 million carats in 2007. Evidently they view this as symptomatic of the glut in the precious stones market. However demand is expected to pick in 2015. Diamond revenue, which accounts for 30 percent of Botswana’s GDP and 65 percent of Botswana’s foreign exchange receipts, is expected to be flat year-to-year at P15 billion for 2014, according to their analysis. “Consumers should be able to pick up the slack in the economy due to increased access to credit and the expansive rollout of numerous social welfare and agricultural programmes such as Integrated Support Programme for Arable Agriculture Development (ISPAAD) and Livestock Management and Infrastructure Development (LIMID) throughout the country.
Consequently we expect the prospect of positive gains in the economy to be anchored on the back of the agricultural sector, which if they do come to fruition should likely trickle down to the rest of the economy,” reveals the analysis. Karabo Tladi, an investment analyst at Blackthread Capital expects the local economy to record GDP growth of around 5-6 percent in 2015. “The stock market recorded an improvement of 4.95 percent over the course of 2014. Going into 2015 I expect the market to perform relatively better than 2014 on the back of improvement of the local economy.
New listings (IPOs) expected in 2015 will also support market growth.” On the international front, the International Monetary Fund had forecast a 4.1 percent real GDP growth for 2014 and 4.4 percent in 2015, which is below what the local economists and the government have put on the slate. International researchers, Business Monitor International projections for 2015 first quarter were that real GDP growth will be 4.5 percent in 2014 and 2015, a downwards revision from its previous forecast of 5.2 percent. The research indicated that falling diamond exports, diminishing base effects and ongoing power issues will constrain real GDP growth, adding that Botswana will post a diminishing budget surplus amid rising spending and slowing revenue growth. “We forecast a surplus equivalent to 0.8 percent of GDP in fiscal year 2014/15, falling to 0.1 percent of GDP in 2016/17.
We predict that Botswana’s current account surplus will narrow from 7.0 percent in 2014 to 5.9 percent in 2015. Having declined in 2014 we forecast that both goods imports and exports will return to growth in 2015,” reads the analysis. According to the African Development Bank, the sound performance of the non-mining sectors is laudable as it suggests promising steps towards economic diversification. The bank said, short-term prospects are robust with economic growth expected to remain at around 5 percent per annum through to 2015, mainly premised on downstream manufacturing due to the recent relocation of De Beers’ diamond-sorting and sales activity from London to Gaborone, as well as the attraction of a range of complementary activities.
Despite its middle-income status, Botswana continues to grapple with significant social challenges including unequal distribution of wealth, high levels of poverty, unemployment and HIV/AIDS prevalence. Compounding these challenges is the attendant over-dependence on the mining sector, in particular diamonds. While the government has a reputation for prudent management of mining revenues and also boasts a good governance record and stable democracy, the need for diversification remains critical.
Additional;Meanwhile, national priorities for the 2015/16 budget will among others be improving project implementation. Currently there are major projects that are still ongoing such as the Phase 2 of the Morupule B power project. The plant however is still facing uncertainties with the current four units which have been completed but continue to breakdown leaving the country in blackouts. Sir Seretse Khama International Airport cannot be spared out. The project which was aimed to attract the 2010 World Cup is to date struggling to finish, and its initial contractors, Chinese’Synohydro have since been blacklisted and the contract awarded to Stefanutti Stocks to complete the project by March/April 2015 at a cost of P140million.
Tonota- Francistown Road - the 30 km mega road initial cost of P900 million is feared to balloon further especially as a result of delays. However, the Department of Roads recently announced a temporary closure of the road with effect from January 12th 2015, for five months. Closure of section of the A1 road in Francistown from the BMC circle to Bokowe junction in Tonota is to allow for construction works to continue in the ongoing rehabilitation of the Tonota - Francistown road. The project is said to be nearly 70 percent complete, with construction of the first-ever interchange expected to have started by March 2015.
Permanent Secretary in the Ministry of Infrastructure Science and Technology, Dikagiso Mokotedi told BG Business this week that the Francistown Stadium which has also been delayed is due for completion in June 2015. “The earliest part is the pitch area which is to be complete by April 2015. Airports and stadiums have been the most problematic, but for now I can safely say they are on track and completion will be this year,” he said. Also on the roll to contribute positively to the economy is the growth in mineral resource discoveries in the country. Gem Diamonds Limited opened the Ghaghoo diamond mine in Botswana last year, the first underground diamond mine in the country and the company’s second major producing diamond mine.
Also in 2014, it was revealed that Rio Tinto Group (RIO), the world’s second-biggest mining company, also discovered huge deposits of iron ore in the southern part of Botswana. Future output from Rio Tinto’s find and Tsodilo Resources Ltd’s Xaudum project in Ngamiland has the potential to surpass production from Botswana’s diamond-mining industry. After posting small surpluses in financial year 2012/13 and 2013/14, the government projects a surplus of 1 percent of GDP in 2014/15, with total expenditure and net lending rising 8.5 percent to a projected at 35.9 percent of GDP. Revenues are expected to be robust (up 10.5 percent), buoyed by higher minerals revenue (up 15 percent) and continued strong revenues from the SACU customs pool (up 16.7 percent). The medium-term fiscal framework, however, sees a shift toward greater emphasis on expanding domestic revenue base, reducing heavy reliance on SACU transfers, which reached a peak of almost 35 percent of revenue (12.6 percent of GDP) in 2012/13.
SA is looking at benefiting more from SACU revenue as she has been pushing for a revision to the SACU revenue sharing formula. In its 2013/14 report, BURS said Botswana received P14.2billion from the SACU revenue pool. This is an increase from P8.4billion received in the prior year. Meanwhile, Debswana’s production for the year 2013 totalled 22.7million carats, compared to 20.2million carats in 2012 as a result of improved throughputs. The company’s revenue rose from P21.2 million in 2013 to P26.7million in 2014.