The performance of sectors not related to mining will continue to grow below trend in the medium term, further putting pressure on the country which celebrates its Golden Jubilee at the end of this month (September). This is the message that is being sent out by Bank of Botswana in its latest mid-term Monetary Policy Statement issued to the market. According to the paper, uncertainty in the supply of water, electricity and poor agricultural performance will pull back the non-mining sector, which government has hoped to look to for growth on the backdrop of disappointing numbers from mining.
The agricultural sector, the country’s biggest sector during pre-colonial era is currently on its lowest ebb. This is because of sporadic rains and heat waves which have caused persistent droughts in recent years. In fact, President Ian Khama who this week handed over the SADC Chairmanship to King Mswati of Swaziland, has already declared the country drought-stricken. A number of drought relief programmes have been announced to mitigate hunger which is expected to hit mostly the non-working class and rural dwellers.
Before handing over the baton to Africa’ last absolute Monarch, Khama had also declared the Southern African region drought-hit. $2, 4 billion is needed to save the region’s millions of people from El Nino induced drought. The fact that Botswana’s non-mining sector will continue to grow at slow pace spells doom for an economy which is expected to grow by 4,2 percent this year. Perhaps sensing that the non-mining sector will grow at a sluggish pace, FNB Botswana, Chief Executive, Steven Bogatsu said his bank forecasts that the economy will leapfrog by 3,1 percent.
The banking sector, in which FNBB is a market leader, is struggling to grow sustainably as a result of low interest rates and poor general economic outlook. The diamond sector, the main economic driver, is faltering. Consumer confidence in major markets of diamond such as United States and Japan are down, hence lower sales for the world’s most precious stones. As for lower output in electricity and water, the two sectors are expected to stabilise in the coming years. For example, Morupule B power station is being expanded. Most of the major dams are now complete. However, sporadic rainfalls have led to unstable supply of water, especially in the South and Western parts of the landlocked country.
On the other hand, the construction sector is expected to pick up in the coming months. The renewed confidence in the sector will mainly come from the much-touted Economic Stimulus Programme (ESP). The ESP is short to medium term project that is expected to create jobs and diversify the economy. Bank of Botswana also announced in the same report that, the non-mining sector is down because of restrained growth in major trading partners. South Africa, Africa’s most advanced economy and Botswana’s biggest trading partner is experiencing its worst economic performance ever. The Jacob Zuma-led country is expected to grow by less than 1 percent this year. Most of South African companies have branches here. The fall in that country’s economy means possibility that the branches will scale down expansion in Botswana and in the process hurt sectors such as retail and banking.
A standoff between South Africa’s finance minister Pravin Gordhan and crime busting agency-The Hawks is also not helping the situation as the Rand has also declined considerably. In Botswana, as the Rand falls, small time traders who normally buy new and second-hand items from South Africa will likely benefit. As the South African economy falters, non-mining sectors such as manufacturing are also expected to decline.
The country sources most of its supplies from the region’s biggest economy. Meanwhile, the central bank said not all is lost. “However, gradual recovery is expected in the medium term in response to the projected loose monetary conditions,” said the BoB statement. In an attempt to jack up the economy, the central bank’s Monetary Policy Committee has reduced key lending rate to 5,5 percent from 6 percent. Even then, the bank is wary of disruptions in the supply of water and electricity which can have an adverse impact on the economy.