Let’s cut our cloth according to size

Recovery in the global market is the only solution to Botswana’s subdued economic growth. There is no way about it. Botswana’s revenue is largely dependent on diamond exports and to some extent customs and excise. Analysts this week explained that the performance of the global economy will largely influence future budgets, partly because there is little consumer spending to support local industries.

With the global economic climate still unclear the country can only hope for the worst. “The global economy is still uncertain with weak growth projected. We depend largely on money from outside to fund our budget,” a research analyst from IPRO Botswana told Botswana Guardian on Wednesday. Karabo Tladi’s pessimism on the global economy recovery is supported by latest economic forecasts from the World Bank.

Speaking to reporters in the US, World Bank Senior Vice President and Chief Economist Kaushik Basu predicted that the overall growth rate for the coming year would be 2.4 percent, saying the economic situation is better than it was at the start of 2012, but that slightly improved prospects would not translate into much improvement over the 2.3 percent growth that the world experienced in 2012.

The weak economic picture painted by World Bank is perhaps the reason why Finance minister Kenneth Matambo’s budget is characterised by a few new projects. Matambo made it clear during the budget presentation earlier this week that the sluggish global economy will have a huge impact on the country’s revenue generation going forward.

The results will be hard to bear. He explained that deferred projects would be funded when money is available, but he could not state exactly when. The delay of planned projects in the past three budgets, including the 2013/14 would likely persist, unless a major positive change in the global economy takes place, said Tladi.

Botswana depends on proceeds from diamond sales to the United States and European countries, which are also involved in economic turmoil that has been characterised by poor consumer spending. “Revenue from diamonds and SACU (Southern African Customs Union) is not guaranteed,” stated Tladi. Botswana’s share from the SACU revenue pool decreased from P7.9 billion in 2009/10 to P6.2 billion in 2010/11, representing a 22 percent decrease, according to Botswana Unified Revenue Services (BURS) latest annual report.

Matambo told parliament this week that diamonds receipts dropped by 22 percent in November 2012. Diamonds, which contribute a large percentage to the mining sector, have not fully recovered after the hard-hitting recession of 2008/9. The effects of poor international diamond sales have even forced some mining companies such as Debswana to cut production.

Matambo acknowledged challenges in the diamond sector, emphasising that subdued economic performance in the global economy will put further strain on government coffers. “For Botswana, it remains crucial to exercise restraint in government spending, focussing only on national priority areas and replenishing our reserves to levels that can sustain unforeseeable future shocks,” said the College of Williams educated economist.

The national reserves have declined due to poor diamond sales. At the end of December 2012, foreign exchange reserves amounted to P57, 7 billion, which is equivalent to 13 months of import cover of goods and services. The reserves have dipped by 4,3 percent as compared to the same period in 2011. Diversification away from diamonds has always remained a major challenge for the economy.

“What is lacking from Matambo’s speech is how diversification is going to be tackled,” said Thabane Nehemiah, a University of Botswana finance graduate and market analyst. Matambo, who had predicted a surplus for this year’s budget,announced that the non-mining sector must start leading the economy. On the ground, analysts are not so hopeful that this could be possible in the medium term.

Tladi blames the largely undiversified economy and subdued growth rate of the non-mining sector such as construction and manufacturing. “I don’t expect much from these sectors. They depend most on government spending,” argued Tladi. Few projects were introduced in the latest budget. Even tourism, which has been earmarked for diversification still shows signs of weakness. “Tourism is also based on US and EU tourists,” said Nehemiah.

However, some corporate leaders such as Chief Executive of Alexander Forbes Botswana Paul Masie are not in agreement that non-mining will collapse on reduced spending. “Not all companies in the non-mining sector depend on government spending,” argued Masie.  “A solution for sustained growth on non-mining sector is to develop export driven companies. We have a small population,” he said.

Meanwhile, government has projected a growth rate of 5,9 percent in 2013, down from the 6,1 percent projected for 2012. Analysts are largely skeptical that the country will be able to attain such growth, owing to declines in consumer confidence in the diamond markets. “US is still faced with problems,” said Tladi. Botswana, through De Beers’ marketing arm, sells most of her products in the US, which is the world’s biggest economy.

Last modified on Wednesday, 31 July 2013 16:12

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