Tricky economic outlook for Botswana

Koobonye Ramokopelwa - BG reporter
Tuesday, 24 January 2017
Tricky economic outlook for Botswana

Economists have expressed contradicting views on Botswana’s economic performance for the rest of the year. However, what is clearer about their opinions is that while the economy might exit troubled waters experienced in 2016, it will not expand by what has been projected by government. This will further put pressure on government which faces an expanded budget deficit, rising numbers of the jobless due to closure of mines as well as increased budget for social safety programmes.

Minister of Finance and Economic Development, Kenneth Matambo and his boss, President Ian Khama have forecast that the mineral-led economy will increase at a rate of 4, 1 and 4, 3 percent during their budget and state of the nation address speeches last year. In particular, treasury minister Matambo based his predictions on the recovery of the mining industry which had sunk the economy into a technical recession for the first half of last year. “At First National Bank Botswana (FNBB), we forecast a lower growth rate of 3.3 percent for 2017, slightly higher than our forecasted growth of around 2 percent in 2016 and much lower than the forecasts from the ministry of finance and economic development,” said FNBB research manager and economist, Baboloki Sebabole.

A cut in rate growth puts the landlocked-country in the spotlight as this means reduced revenues, budget deficits in the coming financial years as well as poor ratings from credit rating agencies such as Moody and S&P. Moreover, World Bank has already slashed the country’s growth forecast for 2017, citing weak commodity prices. The Washington-based company which offers credit to developing nations made the revelation in a yearly report, which also painted a gloomy picture for the Sub-Saharan region, which Botswana is part of.

The FNBB economist, who is a former finance lecturer at the University of Botswana (UB), has also forecast subdued economic expansion in the medium term. “We remain cautiously optimistic on medium-term growth prospects with our forecasted average growth rate of 3.8 percent to 2023 (compared to the Ministry of Finance and Economic Development’s forecast of 4.4 percent to fiscal year 22/23),” commented Sebabole. “We believe that attaining these growth rates would require an acceleration in FDI in Special Economic Zones and more efficient management and delivery of projects through much-anticipated public private partnerships (PPPs). Furthermore, subdued private sector employment prospects and the freeze on government headcount will also continue to constrain growth in household consumption, with consumers also pressured by high levels of debt,” he said.

Government has established Special Economic Zones Authority (SEZA) which will be responsible for establishing special economic zones around the country that will leverage on specific resources that are found in those regions. Investors in the region will be given preferential treatment when it comes to taxes, company registrations and other incentives. Head of Research at Motswedi Securities, Garry Juma said there are several factors which are going to make ‘the year tough for us’. Top in the list is the closure of BCL mine which had more than 5000 employees under its belt. The mine and its subsidiaries have been closed due to factors within and outside their sphere of control such as the weak commodity prices. BCL liquidator, Nigel Dixon Warren this week told reporters in Selibe Phikwe that there is no way the BCL mine could be saved from the dead. It will be sold by winter, either after being stripped or being sold as a whole. Suitors are already knocking on the office door of minister responsible for minerals, Sadique Kebonang with a view to acquire the assets of the closed mine and its subsidiaries. 

As a mineral-led economy, Botswana depends on minerals such as copper to survive. The closed mine basically means revenue from its copper and nickel exports have been reduced to zero.  “Challenges to growth in the current year may stem from base metal pressures (copper and nickel); low consumer spending; low business confidence and global demand dynamics,” added Sebabole.The domestic economy contracted by 0, 8 percent quarter on quarter for the period to September 2016. This is according to data released by Statistics Botswana two days before last Christmas. However, Sebabole is optimistic that the good times are here for the economy as diamonds, the biggest export revenue earner have bounced, possibly for good. “Diamond sector improved in 2016, with year-on-year sales increasing by over 30 percent and we expect the momentum to remain positive in line with global prospects of more stable currencies, recovery of major economies like the US – which will be supportive for diamond demand,” said Sebabole in response to Botswana Guardian questions on Wednesday.

Chief Executive of De Beers, Bruce Cleaver on Tuesday told site holders that for the industry to grow there must be increased collaboration by players. “We have made some good steps in this direction, with greater collaboration across the value chain to stimulate demand, to share industry insight and to support pipeline efficiency. But we must continue on this path and increase the impact of our combined efforts to grow industry value,” said Cleaver, who is in his second year of leading the world’s biggest diamond producer by value.

De Beers sells Botswana’s diamond abroad.  While Sebabole is optimistic of the diamond recovery, Juma is of the opinion that there is ‘too much uncertainty He cited the somewhat unpredictable relation with China, the world’s second biggest economy. “When bulls fight, it is the grass that suffers,” he explained. Elsewhere, there appears to be good news coming from the agricultural sector, which is likely to post improved output as a result of below average rains experienced in the past weeks. “Improvement in rainfalls might alleviate droughts,” stated Sebabole. Botswana has experienced droughts in recent years which necessitated bigger budgets for social safety programmes across most sectors of the economy.

Juma said that even if the agricultural sector will improve, ‘its contribution to GDP will still be little’. The sector contributed 1, 7 percent of total Gross Domestic Product in the three months to September 2016(Q3: 2016). The improvement in agriculture will lead to increased supply in grain, both Sebabole and Juma agree. Manufacturing- cited among sectors that can lead the economic diversification drive - has improved from 0,4 percent in the second quarter of 2016 to 1,7 percent in the quarter to September last year.
“Manufacturing has the potential to be boosted by several initiatives like AGOA, but will be dependent on accelerated implementation of policies that are favourable for the sector’s prospects to make it more competitive in real terms,” said Sebabole.

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