Botswana’s positive outlook for investor and consumer confidence

Botswana’s economy expanded at its fastest pace in the three months to December last year. This is according to fresh data from Statistics Botswana (SB)for the third quarter to December 2014.

However, the growth was not enough to inspire the diamond-rich economy to beat official forecasts or at least meet previous targets. In February last year, the Minister of Finance and Development Planning Kenneth Matambo told Parliament that the economy would leapfrog by 5,1 percent. However, full year economic data released by SB last Friday have proved him otherwise. A cocktail of factors are largely to blame for Botswana’s sluggish 4,4 percent growth that is way below what finance and development planning had initially forecast.

The figures are of GDP for both the three months to December and the rest of the year. Economic commentators this week told Botswana Guardian that the economy could have been much better last year had it not been for restrained growth in mining and perennial water and power shortages. It helps little that a key sub-sector in the non-mining sector, banking, is facing fresh challenges on liquidity and cannot be trusted with growth.

Mining still contributes the bulk of exports as well overall revenue. This explains why the rise and fall of this sector, especially diamonds, has a huge bearing on the economy. As predicted by analysts two weeks ago, the economy was always bound to miss its past year’s target. According to a statement from Statistician General Annah Majelantle, mining, transport and communications, trade and hotels are some of the sectors that led growth in the past year. In particular, mining recorded a growth of 4,5 percent. “The slow growth rate in the mining sector is attributed to (a) 6,6 percent increase in diamond production compared to a high increase of 12,2 percent in the previous year,” said Majelantle.

Research analyst at Motswedi Securities, Tlotlo Ramalepa, told Botswana Guardian on Wednesday that the diamond industry is mainly dependent on developed countries, pointing out that the face fiscal problems of Europe and the US had continued last year. “If you look at the entire report (GDP Q4), you will realise the mining sector pulled back growth,” said one economist at one of Botswana’s biggest fund managers.

Analysts point out that while more mines such as Gem Diamonds’ Ghaghoo Mine opened during the year under review, their output was not enough to boost the mining sector and that Debswana Mining Company remains the biggest producer of diamonds. The company’s MD, Balisi Bonyongo, was scheduled to address the media on the full-year production of the company yesterday (Thursday). Lower prices for commodity prices have also been blamed for the constrained growth in the mining sector for the better part of last year.

Utilities - electricity and water - have to be another sector that also dragged down the economy last year. The sector’s contribution to GDP dropped by 236 percent. “The decline is largely by the electricity sector which has been contributing negatively to the economy since the first quarter of 2012 due to a substantial increase in intermediate consumption,” said a statement from SB. Power generation declined by 20 percent in the year under review despite government’s assertion that Morupule B was running. In the same period, imports for electricity increased by 49 percent.

Botswana imports part of its electricity from Eskom in South Africa, which itself is faced with capacity challenges because demand has also outstripped supply in Botswana’s powerful neighbour. While electricity’s contribution has disappointed over the past few years, this week Botswana Power Corporation (BPC) announced it would be adjusting power prices upwards by as much as 10 percent beginning this month.

WHAT LIES AHEAD
While 2014 has proved a difficult period for the economy, some experts are optimistic that this year things will turn for the better because of recent economic and monetary policy developments. Economists argue low inflation (which is at an historic 2,8 percent), lower bank rates and a recent cash injection into the banking sector may pick output.
Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) slashed the key lending rate by 1 percent to 6,5 percent at its first meeting of the year. “A lower bank rate means the private sector can borrow money at a cheap rate to increase production. This can eventually create more employment,” said Ramalepa.

Unemployment in Botswana currently sits at 17 percent, a high rate compared to other economies. The relaxation of the primary reserve requirement from 10 percent to 5 percent has unlocked P2,3 billion to the banking sector. The decision is expected to boost banks’ loanable funds, in the process availing more money for production activities.  Economists at Econsult Botswana are confident the economy will grow by 5 percent. “This is premised on a positive outlook for diamond exports as the US economy continues to show buoyant growth,” said Keith Jefferies, Bogolo Kenewendo and Thabelo Nemaorani, all of Econsult.

Another factor that is expected to boost the consumer confidence - and ultimately the economy - of Botswana’s 100 000 plus public workers is the recent salary adjustment of 6 percent, which well above the inflation level. “The increase (in salaries) will result in more disposable incomes for public workers,” Ramalepa noted. “This can also mean extra money for saving.”
Consumers also keenly await the share float of the country’s biggest telecommunications company, BTCL. This week government confirmed it would act as an underwriter in the Initial Public Offer of the state-owned company. When its listing happens, 49 percent of its value will have been transferred into private hands, a move that has been welcomed by the public.

At private sector level, upcoming producers of power are looking forward to a tender that will court solar energy producers to contribute to the national power grid. The Trans-Kalahari Railway is another project that has ignited investor confidence. The governments of Namibia and Botswana will open bids for construction of the 1100 kilometre railway line in due course.

Last modified on Tuesday, 14 April 2015 17:00

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