www.econsult.co.bw
compiled by KEITH JEFFERIS SETHUNYA SEJOE KITSO MOKHURUTSHE ECONOMIC REVIEW second quarter april-june 2019
in this issue ...
SPECIAL KEY NEWS MACRO- FEATURE: COMMENTARY ECONOMIC HIGHLIGHTS ECONOMIC EXPORT-LED 1 VARIABLES 4 7 DATA 10 GROWTH 11
COMMENTARY
Diamond market woes reinforce the need for export-led growth
Introduction The second quarter of 2019 has been a very mixed one in terms of economic performance, with the main feature being a marked deterioration in conditions in the global diamond industry, and poor performance by exporters in general. On the domestic front, data releases for the first quarter show some improvements, with reasonably robust economic growth, continued low inflation and interest rates, and some easing of pressure in the financial sector. If the weakness of the global diamond market continues, how- ever, this will show up in growth, export and government budget figures later in the year.
page 1 www.econsult.co.bw
Economic growth the period of diamond production will increase revenues Real GDP growth in the year to March 2019 was 4.4%, over the longer term. But while the investments are being very similar to the 4.5% recorded in 2018. Growth was financed – during the second half of NDP 11 – budgetary reasonably broad-based, across both the mining and non- constraints will be a major challenge, especially given the mining sectors of the economy, and was largely in line with spending commitments made by all political parties in the expectations. The main weakness was in the wholesale run-up to this year’s general election. Government will need sub-sector, which is dominated by diamond trading activi- to respond to this challenge by prioritising the competing ties, and where negative growth reflects a lower level of ac- demands on public spending, and cutting back spending tivity compared to 2018. Our estimate of real non-diamond on unproductive or low priority programmes, projects and private sector growth was resilient at 5.2%, year-on-year. institutions.
Diamond markets Monetary and Financial Conditions Sales of rough diamonds in the first quarter of 2019 were Inflation has remained at very low levels by historical stan- weaker than in 2018, and the trend appears to have inten- dards, and is still below the lower end of the BoB’s inflation sified even further in the second quarter of the year. Sales objective range of 3-6%, despite a slight increase during of rough diamonds through De Beers Global Sightholder the quarter. Low inflation reflects a lack of price pressures, Sales (DBGSS) in Gaborone were 17.5% down, by value including low food price inflation, although this is now be- on the same period in 2018. This reflects a number of influ- ginning to tick up due to low rainfall and poor harvests in ences, including weak final demand for diamond jewellery Southern Africa. To some extent, however, low inflation in the major markets (the USA and China), overstocking in may be artificial, as many regulated prices have not been the midstream (diamond cutters and polishers) and a lack increased as costs have risen, thereby requiring subsidies of profitability due to narrow margins between rough and that may not be sustainable. Inflation is likely to rise mod- polished prices, a lack of bank liquidity in India to finance estly over the next 12 months, as food prices increase, diamond stocks, and the continued downward pressure on some administered prices are adjusted, and as the impact prices of lower-value diamonds due to competition from of the recent 18% rise in minimum wages feeds through supplies of lab-grown diamonds. The weak market for to costs. There may also be demand-side pressures if the rough diamonds will in turn have an impact on the mining proposed substantial increase in public sector salaries is sector, and hence on economic growth, as major diamond implemented. mining companies – including Debswana – adjust produc- tion levels in line with demand. Alongside low inflation, policy interest rates have been kept low, and remain at the lowest ever levels in Botswana. In It also intensifies the fiscal challenges facing government. the banking sector, credit growth is weak, which may be Revenues have been in structural decline for several years, an indicator of slowing activity in the non-mining business relative to GDP, and weak diamond sales will make it dif- sector of the economy. More positively, arrears on out- ficult to achieve the 2019/20 revenue targets set out in the standing loans are declining. Furthermore, banking liquidity February 2019 Budget. Looking further ahead, some very is improving, but this mainly reflects the very slow growth large investments are required to extend the productive of bank lending during recent months. If the rate of growth lives of the major diamond mines at Jwaneng (Cut 9) and credit picks up, banking liquidity could soon become an Orapa (Cut 3). These investments will reduce government issue, and this would in turn push interest rates up, inde- mineral revenues in the short-run, although by extending pendently of monetary policy rates.
page 2 www.econsult.co.bw
External sector a “no-deal” Brexit, which would be disastrous for the UK Export performance was poor during the first quarter of and bad for the European Union; and potential hostilities 2019, with all categories of exports registering major de- in the Persian Gulf, with escalating tensions between the clines, according to data from Statistics Botswana. For USA and Iran, which could easily send global oil prices well diamonds, this is in line with known developments in the over $100 a barrel and trigger global inflation, recession global market, but it is surprising that export weakness has and tumbling financial markets. also been manifested across all other commodity groups; for instance, exports of beef, plastic products and vehicle A further concern, but this time a domestic one, is the parts were all down by 50% or more in Q1 2019 as com- government’s decision – now approved by Parliament – to pared to Q4 2018, as well as when compared to Q1 in increase the rate of transfer duty on property purchases 2018. This is of great concern, given the importance of by non-citizens from 5% to 30%. This is likely to under- export-led growth (see feature later in this Review). Closer mine the property market, with fewer transactions and monitoring of export performance over the coming months lower prices, as well as negatively affect the banking sys- will be necessary to determine whether this is a short-term tem and reduce the availability of mortgages. To give the problem or reflective of a deeper export malaise that needs government credit, they have softened some of the more policy attention. egregious elements of the original transfer duty proposals, following extensive consultations with the private sector. Outlook However, even though the proposed increase in the transfer Although 2019 has started reasonably well in terms of duty rate for foreigners – including foreign-owned compa- economic growth performance, there are some worrying nies - is likely to have an adverse impact on the economy clouds on the horizon. Already, we have seen a weaken- and deter much-needed inflows of foreign direct invest- ing of the global diamond market during 2019, which ment, the political environment of an election year made is unlikely to be reversed in the second half of the year. any further concessions impossible. The move emphasizes Outside of diamonds, there are many risks in the global (adversely) the distinction between Botswana and Mauri- economy. Amongst the big, negative risks are the prospect tius, where a new Property Development Scheme has been of an escalating trade war between the USA and China; described as “the latest in a series of initiatives geared at potential recession in the US – as indicated by the inverted opening up the economy to foreigners and providing them US treasury yield curve – and growth slowdown in China, with the opportunity of becoming property owners in an both of which would be made more likely by a trade war; enviable and stable country, if they so wish.”1
1 Intercontinental Trust Ltd, July 2019 Newsletter”.
page 3 www.econsult.co.bw
Annual GDP Growth KEY ECONOMICSectoral VARIABLES GDP Growth 30% Water & Elec. Trans. & Comm. 20% Annual GDP Growth Sectoral GDP Growth AnnualMiningAnnual GDP GDPGrowth Growth Sectoral SectoralGDP Growth GDP Growth 10% 30%30% Trade Water & Elec. Water & Elec. Fin. & Bus. Service 0% Trans. & Comm.Trans. & Comm. 20%20% Total VA Mining Mining -10% 10% 10%Soc. & Pers. Services Trade Trade -20% 0% Construction Fin. & Bus. Service 0% Fin. & Bus. Service Manuf Total VA -30% -10% Total VA -10% Government Soc. & Pers. Services -40% -20% Soc. & Pers. Services Agriculture Construction -20% Manuf Construction -50% -30% 0% 2% 4% 6% 8% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -30% Government Manuf -40% All sectors registered positive annual Agriculture Government NMPS Mining GDP -40% -50% growth rates in the first quarter of 2019. Bank credit growth0%Agriculture2% declined4% 6% significantly8% , from 8.1% in objective range of 3-6%. Inflation figures 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Real GDP growth has continued its relatively strong -50%Most sectors (excluding Trade and Water & January 2019 to 6.7% in0% April.2% This 4%was driven6% 8%by a remain low, in part because, it is too early 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018All2019 sectors registered positive annual performance into the first quarter of 2019, recording Electricity) experienced small changes (+/- sharp decline in the growth of credit to firms, which fell for them to reflect any upward pressure on NMPS Mining GDP growth rates in the first quarter of 2019. year-on-year growth of 4.4%. This is marginally down Real GDP0.2%) growth in growth has continued rates its as relatively compared strong to performance the fromAll sectors 10.2%All sectors registered in January register positive to 5.5% edannual positive in growthApril. annual This,rates wasin the, first prices from the recent 18% increase in the Real GDP growth has continued its relatively strong Most sectors (excluding Trade and Water & from the 4.5% growth in Q4 2018, but significantly into theprevious first quarter quarter. of 2019,NMPS Trade recording sectorMining year-on-yeargrowth rose GDPgrowth however,quartergrowth of partially2019. rates Most mitigated in sectors the first (excludingby anquarter increase Trade of and in2019 Water. & minimum wage. Inflation is also artificially performance into the first quarter of 2019, recording Electricity ) experienced small changes (+/- greater than the 3.8% growth registered during the ofReal 4.4%.from GDP This 3.2% growthis marginally in Q4 has 2018, down continued tofrom 5.2% the 4.5%inits Q1 relatively growth 2019. in Q4strong householdElectricity)Most experiencedcredit sectors growth (smallexcluding fromchanges 6.4% Trade(+/-0.2%) to 7.0%and in growth Waterduring rates the& low due to administered prices not being year2018,-on but-year significantly growth greaterof 4.4%. than This the is3.8% marginally growth registered down 0.2%)as in compared growth torates the previousas compared quarter. to Trade the sector growth rose same period last year. The mining sector has continued performanceThis was due into to anthe increase first quarter in the of growth 2019, recordingsame timeElectricity period.) experienced The sharp decline small in changes credit to ( firms+/- is raised and key commodities being fromduring the the 4.5% same growthperiod last in year. Q4 2018,The mining but sector significantly has continued previousconcerningfrom 3.2%quarter. in as Q4 itTrade 2018, could tosector be 5.2% a sign growthin Q1 of 2019. lower rose This business was due to an subsidized. The trimmed mean measure of to recover in 2019, registering y-on-y growth of 5.3%; toyear recoverof- theon in- yearWholesale2019, growth registering sub of -y-on-y sector4.4%. growth whichThis ofis rose5.3%;marginally to this is, downfrom increase 3.2%0.2%) in in Q4 the in 2018, growth growth to of 5.2% therates Wholesale in asQ1 compared 2019. sub-sector towhich the rose greater than the 3.8% growth registered during the activity and consequently lower private sector growth core inflation declined from 3.5% to 2.5% this is however, lower than the 7.4% growth recordedsame however,from periodminus thelower 3.0%last4.5% than year. in growththe Q1 The 7.4% 2019, mining in growth Q4 up sector2018,from recorded minus hasbut in continued significantlyQ4 2018. This towas minus previousdue 3.0% to an in quarter.Q1increase 2019, up in Trade fromthe growthminus sector 11.6% growth in the previous rose in the future. during the quarter whilst inflation in Q4 2018. The non-mining private sector (NMPS) toThe recover non-mining11.6% in in2019, privatethe registeringprevious sector (NMPS) quarter y-on recorded-y. growth Other y-on-y subof 5.3%-growth; of thequarter. Wholesale Other sub-sectors sub-sector that which performed rose well to (annual growth of greater than the 3.8% growth registered during the from 3.2% in Q4 2018, to 5.2% in Q1 2019. excluding administered prices increased recorded y-on-y growth of 4.7%, up from 4.3% in thethis ofsame is4.7%, sectorshowever, periodup from that lower last4.3% performed year. thanin the the Theprevious well 7.4% mining (annual quarter.growth sector Thegrowth recorded volatility has continued minus7% 3.0% orThis above) in wasQ1 were 2019, due Soda toup Ash, an from Retail increase minus Trade, Hotelsin the & growthRestaurants, of NMPS growth can be attributed to the fluctuations in the Posts & Telecommunications, Real Estate and Business Services. from 1.6% to 2%. We expect inflation to previous quarter. The volatility of NMPS growth can bein Q4 2018.of 7% Theor above) non-mining were privateSoda A sectorsh, Retail (NMPS) 11.6% in the previous quarter. Other sub- Wholesaleto recover sub-sector, in 2019, which registering includes diamond y-on trading-y growth activities. of 5.3%; of the Wholesale sub-sector which rose to rise above 3% in the coming months. attributed to the fluctuations in the Wholesale sub- recordedthisT rade,is yhowever,-on H-otelsy growth &lower R estaurants,of 4.7%, than upthe fromP 7.4%osts 4.3% & growth in the recorded sectors thatminus performed 3.0% in well Q1 (annual2019, up growth from minus sector, which includes diamond trading activities. Telecommunications, Real Estate and previousin Q4 quarter.2018. The The non volatility-mining of NMPSprivate growth sector can (NMPS) be of 7% or above)11.6% werein the S odaprevious Ash, R quarteretail . Other sub- attributedBusiness to the Services. fluctuations in the Wholesale sub- Trade, Hotels & Restaurants, Posts & recorded y-onInflation-y growth and ofForecast 4.7%, up from 4.3% in the sectors thatInflation performed by Category well (annual growth sector, which includes diamond trading activities. Telecommunications,Inflation Real Estate by category and Exchange Rates Annual Credit Growth previous quarter.Inflation The volatilityand Forecast of NMPS growth can be of 7% or above) were Soda Ash, Retail 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 45% 16% Business Services. attributed to the fluctuations in the Wholesale sub- 30% Trade, Hotels & Restaurants, Posts & 6.0 1.45 40% 14% Annual Credit Growth Inflation and Forecast sector45% , which includes diamond trading activities. 16% 20% Telecommunications, Real Estate and 1.40 7.0 35% 12% Business Services. 40% 14% 10% 1.35 10% 30% 35% Annual Credit Growth 12% Inflation and Forecast 8.0 1.30 45%8% 0% 16% 25% 10% 30% 1.25 6% 40% -10% 14% 9.0 20% 8% 25% 4% 1.20 %ofcredit tosector 6% 12%
35% USD per Pula
-20% Pula per Rand 15% 20% 2% 10.0 1.15 4% 10% %ofcredit tosector 30% 2012 2013 2014 2015 2016 2017 2018 2019 10% 15% 0% 2% 1.10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 8% 25% 11.0 5% 10% 0% Food6% Fuel 1.05 Upper Lower 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0% 5% 20% All Items Excl. Food, fuel & alcohol Actual Forecast 4% 12.0 1.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 %ofcredit tosector Upper Lower 0% 15% BWP per USD Annual headline inflation was 2.8% in June The main2%Actual drivers of inflation Forecast vary over time. Fuel ZAR per BWP Total Firms Households Annual headline2010 2011 inflation2012 was2013 2.8%2014 in June2015 2019,2016 0.5%2017 lower2018 than2019 The main drivers of inflation vary over time. Fuel prices tend to be 2019,10% 0.5% lower than in March. This is Annualprices headline tend to in beflation more was variable 2.8% thanin June other in March. This is lower Total than the Firms Bank of Botswana’sHouseholds objective more variable0% than other components of the CPI basket, and their The Pula depreciated against the rand and strengthened lower than the Bank of Botswana’s 2019,components 0.5% lower2008 of2009 than the2010 CPIin2011 March. basket,2012 2013 This2014 and2015 is their 2016 2017 weight2018 2019 in2020 the range of5% 3-6%. Inflation figures remain low, in part because, it is weight in the basket has been increasing. Fuel price inflation has against the USD during Q2 2019, reversing the trend that lowerbasket than has the been Bank increasing. of Botswana’s Fuel price inflation has too early for them to reflect any upward pressure on prices from been relatively high Upperduring 2018-19, even thoughLower fuel has been has been prevalent over previous quarters. The Pula 0% the recent 18% increase in the minimum wage. Inflation is also beensubsidised relatively through high theActual Nationalduring 2018Petroleum-19, Fund even Forecastand though international fuel 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 depreciated by 1.6% against the rand, ending Q2 2019 at artificially low due to administered prices not being raised and key hascost been increases subsidised have not throughbeen fully reflectedthe NPF in and the domestic pump Annual headline inflation was 2.8% in June ZAR1.331, down from ZAR1.353 at the end of Q1 2019. commodities being subsidized. Total The trimmed Firms mean measureHouseholds of core internationalprice. Fortunately, cost food increases price inflation have hasnot also been been fully low, which The Pula-US dollar exchange rate was 10.62 at the end of inflation declined from 3.5% to 2.5% during the quarter whilst reflectedhas helped2019, in to the keep0.5% domestic overall lower inflation thanpump low, in price. althoughMarch. Fortunately, with This the is regional Q2 2019, up from 10.79 at the end of Q1 2019, an inflation excluding administered prices increased from 1.6% to fooddrought pricelower in inflationSouthern than theAfrica, has Bank also food beenof price Botswana’s suinflationbdued, has which started has to increase. Other price increases have also been subdued, although appreciation of 1.6%. 2%. We expect inflation to rise above 3% in the coming months. helped to keep overall inflation low, although with the this is partly artificial, as many regulated other prices (e.g., water, regionalelectricity, drought BHC rentals) in Southern have not beenAfrica, allowed food to price reflect higher inflationcosts of productionhas started and tohence increase. have been Other subsidised, price in increasesa way that haveis not also sustainable been subdued, in the long term.although this is partly artificial, as many regulated other prices (e.g., water, page electricity,4 BHC rentals) have not been allowed to reflect higher costs of production and hence have Bank credit growth declined significantly, from 8.1% in objective range of 3-6%. Inflation figures January 2019 to 6.7% in April. This was driven by a remain low, in part because, it is too early sharp decline in the growth of credit to firms, which fell for them to reflect any upward pressure on from 10.2% in January to 5.5% in April. This, was, prices from the recent 18% increase in the however, partially mitigated by an increase in minimum wage. Inflation is also artificially household credit growth from 6.4% to 7.0% during the low due to administered prices not being same time period. The sharp decline in credit to firmsbeen is raised subsidised, and key commodities in a way that being is not sustainable in the concerning as it could be a sign of lower business long subsidized.term. The trimmed mean measure of activity and consequently lower private sector growth core inflation declined from 3.5% to 2.5% in the future. www.econsult.co.bwduring the quarter whilstStock inflation Markets De Beers Diamond Sales 900 150excluding administered prices increased KEY ECONOMIC VARIABLES from 1.6% to 2%. We expect inflation to 800 rise above 3% in the coming months. 140 700 subsidised, in a way that is not sustainable in the long term. Stock Markets Exchange Rates 600 130 Stock Markets De Beers Diamond SalesExchange Rates 500 Inflation by category 900 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 150 800 120 400 30% 6.0 1.45
140 US$million 700 300 20% 1.40 130 600 110 7.0 200 500 1.35 120 10% 400 100
Index, Jan 2010 = 100 = 2010 Jan Index, 100 8.0 1.30 US$million 110 0% 300 0 200 1.25 100 -10% 90 9.0 2013 2014 2015 2016 2017 2018 2019 100 1.20 Index, Jan 2010 = 100 = 2010 Jan Index, 90 0 USD per Pula -20% Pula per Rand 80 10.0 1.15 80 2013 2014 2015 2016 2017 2018 2019 The global market for diamonds continued to be 2012 2013 2014 2015 2016 2017 2018 2019 1.10 subdued during the second quarter of 2019. This has 70 The global market70 for11.0 diamonds continued to be Food Fuel subdued during the2012 second2013 quarter2014 of 2019.2015 2016 2017 20181.05 2019 been attributed to a challenging market 60 All Items Excl. Food, fuel & alcohol 2012 2013 2014 2015 2016 2017 2018 2019 This has been attributed12.0 toBSE a challenging DCI (BWP) market BSE DCI1.00 (USD) environment in China and higher than usual polished environment in China and higher than BWPusual per USD BSE DCI (BWP) BSE DCI (USD) MSCI EM diamond inventories in the midstream affecting the The mainMSCI drivers EM of inflation vary over time. Fuelpolished diamond inventories in the midstreamZAR per BWP prices tend to be more variable than other fifth sales cycle of the year. De Beers Global The Botswana Stock Exchange (BSE)’s Domestic affecting Thethe fifthThe Botswana salesPula depreciatedcycle Stockof the year. Exchangeagainst De the rand(BSE)’s and strengthenedDomestic Companies components of the CPI basket, and their weight in the The BotswanaCompanies Stock Index Exchange (DCI) weakened (BSE)’s duringDomestic the CompaniesBeers GlobalIndexThe Sightholderaga Pula (DCI)inst depreciated the weakened Sales USD (DBGSS) duringagainst Q2 duringthe 2019, rand the andreversing strengthenedsecond the quartertrend against that of 2019. Sightholder Sales (DBGSS) recorded sales valued at basket has been increasing. Fuel price inflationrecorded has sales valued at USD1,387 million Index (DCI)second weakened quarter during of 2019. the second The DCI quarter declined of 2019. by 3.3% The DCI thehas US beendollar prevalentduring Q2 2019,over previousreversing quarters.the trend that The has Pula been USD1,387 million during Q2 2019. This is 16.1% and 1.8%been in relatively both Pula high and USDduring terms 2018 respectively.-19, even thoughduring fuel Q2The 2019. DCI This declined is 16.1% lower by than3.3% the and 1.8% in both Pula and USD declined by 3.3% and 1.8% in Pula and USD terms respectively. prevalentdepreciated over previous by 1.6% quarters. against The the Pula rand, depreciated ending Q2 by 2019 1.6% at The localhas beenmarket subsidised (BSE) was throughoutperformed the NPF by and value of salestermsagainst recorded respectively. the inrand, Q2 2018,ending Thebut Q2 39.3% local2019 atmarket ZAR1.331, (BSE) down was from lower than the value of sales recorded in Q2 2018, The local market (BSE) was outperformed by international stock ZAR1.331, down from ZAR1.353 at the end of Q1 2019. internationalinternational stock marketscost increases with the have MSCI not World been fullyhigher thanZAR1.353 those reported at the during end of the Q1 previous2019. The Pula-US dollar exchange but 39.3% higher than those reported during the markets with the MSCI World Index appreciating by 3.3% and outperformedThe Pula-US dollar by international exchange rate was stock 10.62 markets at the end with of the Indexreflected appreciating in the by 3.3%domestic and the pump MSCI price. Emerging Fortunately, quarter, whichrate hadwas one10.62 less at sales the end cycle. of Q2These 2019, up from 10.79 at the end the MSCI Emerging Markets Index declining marginally by 0.3%. MSCIQ2 World 2019, up Index from 10.79appreciating at the end byof Q1 3.3% 2019, and an the MSCI previous quarter, which had one less sales cycle. Marketsfood Index price declining inflation marginally has also bybeen 0.3%. su bdued, whichare the has lowest of Q1 second 2019, quarteran appreciation sales registered of 1.6%. appreciation of 1.6%. These are the lowest second quarter sales registered helped to keep overall inflation low, althoughby with De Beers theEmerging since before Markets 2013. Index declining marginally by 0.3%. by De Beers since before 2013. been subsidised, in a way that is not sustainable in the regional drought in Southern Africa, food price inflation hasInternational started to increase. Trade Other price increases Arrears on Bank Lending long term. 30,000De Beers Diamond Sales International Trade have also been subdued, although this is partly10% Stock Markets artificial,25,000De Beers as many Diamond regulated other Sales prices (e.g., water,9% International Trade Arrears on Bank Lending electricity,20,000 BHC rentals) have not been allowed 8%to 900 7% 30,000 150 10% reflect15,000 higher costs of production and hence have6% 800 25,000 10,000 5% 9% 4% 8% 140 700 5,000 3% 20,000 7% %ofcredit tosector Trade BWP million 0 2% 600 1% 15,000 6% 130 -5,000 0% 10,000 5% 500 -10,000 2013 2014 2015 2016 2017 2018 2019 4% 2007200820092010201120122013201420152016201720182019 5,000 120 400 Business Households Total 3%
%ofcredit tosector US$million Trade BWP million 2% 300 Trade Balance Imports Exports Total arrears as a proportion0 of outstanding credit 1% 110 declined during the first quarter of 2019, reaching 200Total International trade activity decreased -5,000 0% their lowest level since 2016. Arrears fell from 6.9% during the first quarter of 2019, with both -10,000 100 of credit outstanding in Q4 2018 to 6.5% in Q1 2019. 2013 2014 2015 2016 2017 2018 2019
Index, Jan 2010 = 100 = 2010 Jan Index, 100 2007200820092010201120122013201420152016201720182019 0 Business Households Total 90 2013 2014 2015 2016 2017 2018 2019 Trade Balance Imports Exports Total arrears as a proportion of outstanding credit declined during the first quarter of 2019, reaching 80 TotalTotal International trade activitytrade decreasedactivity during decreased the first quarter TheThe global global market market for diamonds for continued diamonds to be subduedcontinued during the to be their lowest level since 2016. Arrears fell from 6.9% second quarter of 2019. This has been attributed to a challenging duringof 2019, the with first both quarter imports ofand 2019, exports with declining both across all subdued during the second quarter of 2019. This has of credit outstanding in Q4 2018 to 6.5% in Q1 2019. 70 market environment in China and higher than usual polished diamond importscategories. and Total exports exports were declining valued at P14.7across billion all in Q1 2019, 2012 2013 2014 2015 2016 2017 2018 2019 beeninventories attributed in the midstream to a affecting challenging the fifth salesmarket cycle of the down from P19.7 billion in Q4 2018, representing a decline of This was driven by a decline in both household and BSE DCI (BWP) BSE DCI (USD) environmentyear. De Beers Global in ChinaSightholder and Sales higher (DBGSS) than recorded usual sales polished25.4% in export value. This was driven by a 24% and 41% decline in the value of mineral and non-mineral exports respectively. The MSCI EM diamondvalued at USD1,387 inventories million during in theQ2 2019. midstream This is 16.1% affecting lower the than the value of sales recorded in Q2 2018, but 39.3% higher than value of total imports declined by 14.4%, down from P19.4 billion The Botswana Stock Exchange (BSE)’s Domestic Companies fifththose reportedsales cycleduring the of previous the year. quarter, De which Beers had one Global less sales in Q4 2018, to P16.7 billion in Q1 2019. The greater decline Index (DCI) weakened during the second quarter of 2019. Sightholdercycle. These are theSales lowest (DBGSS) second quarter recorded sales registered sales by valued De at in exports over imports has resulted in a trade deficit of P1.99 billion, compared to a trade surplus of P0.22 billion in Q4 2018. The DCI declined by 3.3% and 1.8% in both Pula and USD USD1,387Beers since before million 2013. during Q2 2019. This is 16.1% terms respectively. The local market (BSE) was lower than the value of sales recorded in Q2 2018, outperformed by international stock markets with the but 39.3% higher than those reported during the MSCI World Index appreciating by 3.3% and the MSCI previous quarter, which had one less sales cycle. Emerging Markets Index declining marginally by 0.3%. These are the lowest second quarter sales registered by De Beers since before 2013. page 5
International Trade Arrears on Bank Lending 30,000 10% 25,000 9% 20,000 8% 7% 15,000 6% 10,000 5% 4% 5,000 3% %ofcredit tosector Trade BWP million 0 2% 1% -5,000 0% -10,000 2013 2014 2015 2016 2017 2018 2019 2007200820092010201120122013201420152016201720182019 Business Households Total
Trade Balance Imports Exports Total arrears as a proportion of outstanding credit declined during the first quarter of 2019, reaching Total International trade activity decreased their lowest level since 2016. Arrears fell from 6.9% during the first quarter of 2019, with both of credit outstanding in Q4 2018 to 6.5% in Q1 2019. imports and exports declining across all This was driven by a decline in both household and been subsidised, in a way that is not sustainable in the long term. Stock Markets De Beers Diamond Sales 900 150 800
140 700 Annual GDP Growth Sectoral GDP Growth 600 30%130 Water & Elec. Trans. & Comm. 500 20% 120 Mining 400 10%
Trade US$million 300 0% Fin. & Bus. Service 110 Total VA 200 -10% Soc. & Pers. Services 100
Index, Jan 2010 = 100 = 2010 Jan Index, 100 -20% Construction 0 -30% Manuf 90 Government 2013 2014 2015 2016 2017 2018 2019 -40% Agriculture -50%80 0% 2% 4% 6% 8% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 The global market for diamonds continued to be subdued during the second quarter of 2019. This has 70 All sectors registered positive annual NMPS Mining GDP 2012 2013 2014 2015 2016 2017 2018 2019 growth rates in thebeen first attributedquarter of 2019 to. a challenging market Real GDP growthBSE has DCI continued (BWP) its relativelyBSE strongDCI (USD) Most sectors (excludingenvironment Trade and in Water China & and higher than usual polished Electricity) experienced small changes (+/- performance intoMSCI the EM first quarter of 2019, recording diamond inventories in the midstream affecting the year-on-year growth of 4.4%. This is marginally down 0.2%) in growth rates as compared to the Thefrom Botswana the 4.5% growth Stock in ExchangeQ4 2018, but (BSE)’s significantly Domestic Companiesprevious quarter. fifth Trade sales sector cycle growth of rose the year. De Beers Global Indexgreater (DCI) than theweakened 3.8% growth during registered the second during the quarter from of 2019. 3.2% in Q4 2018,Sightholder to 5.2% in S Q1ales 2019. (DBGSS) recorded sales valued at Thesame DCI period declined last year. by The 3.3% mining and sector 1.8% has in continued both Pula Thisand was USD due to anUSD1,387 increase in millionthe growth during Q2 2019. This is 16.1% termsto recover respectively. in 2019, registering The local y-on market-y growth (BSE) of 5.3% was; of the Wholesale lowersub-sector than which the rose value to of sales recorded in Q2 2018, this is however, lower than the 7.4% growth recorded minus 3.0% in Q1 2019, up from minus outperformedin Q4 2018. The non by- internationalmining private sector stock (NMPS) marketswww.econsult.co.bw with11.6% the in the previousbut 39.3%quarter . higherOther sub than- those reported during the MSCIrecorded World y-on -Indexy growth appreciating of 4.7%, up from by 4.3%3.3% in and the the sectorsMSCI that performedprevious well (annualquarter, growth which had one less sales cycle. KEYEmergingprevious ECONOMIC quarter. Markets The volatilityIndex VARIABLES declining of NMPS growth marginally can be by of0.3%. 7% or above) wereThese Soda are Ash, the Retail lowest second quarter sales registered attributed to the fluctuations in the Wholesale sub- Trade, Hotels & Rbyestaurants, De Beers Posts since & before 2013. sector, which includes diamond trading activities. Telecommunications, Real Estate and Annual Credit Growth Business Services. Arrears on Bank Lending Annual Credit Growth Inflation and Forecast 45% International Trade 16% Arrears on Bank Lending 30,000 40% 14% 10% 25,000 9% 35% 12% 20,000 8% 10% 30% 7% 15,000 8% 6% 25% 10,000 6% 5% 20% 4% 4% 5,000 3% 15% 2% %ofcredit tosector Trade BWP million 0 2% 10% 0% 1% -5,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5% 0% -10,000 Upper Lower 0% imports and exports declining across all This wasActual2013 driven2014 by a 2015decline Forecast2016 in both2017 househol2018 2019d and 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2007200820092010201120122013201420152016201720182019 categories. Total exports were valued at P14.7 Annualbusiness headline arrears. inflationBusiness Household was 2.8%Households in June arrears fellTotal from 5.5% in Total Firms Households 2019, 0.5% lower than in March. This is billion in Q1Trade 2019, Balance down fromImports P19.7 billionExports in Q4 Q4 2018 to 5.2% in Q1 2019. Business arrears categories. Total exports were valued at P14.7 lowerbusinessTotal than thearrears.arrears Bank ofasHousehold Botswana’s a proportion arrears of felloutstand from 5.5%ing credit in 2018, representing a decline of 25.4% in export experienced a more significant decline, falling from billionAnnual inbank Q1 credit 2019, growth down declined from significantly, P19.7 billion from 8.1%in Q4 in Q4 declined2018Total arrearsto 5.2% during as a in proportion Q1 the 2019. first of outstanding quarterBusiness credit of arrears 2019, declined reaching during value.TotalJanuary This International 2019 was to 6.7%driven in April. trade by Thisa 24%activity was drivenand decreased by41% a sharp decline decline 9.2% to 8.6% during the same period. A rise in 2018, representing a decline of 25.4% in export experiencedtheirthe first lowest quarter a more level of 2019, significant since reaching 2016. theirdecline, Arrearslowest fallinglevel fell since fromfrom 2016. 6.9% in theduringin the value growth the of offirst mineralcredit quarter to firms, and whichof non 2019, fell-mineral from with 10.2% both exports in January governmentArrears fell from & 6.9%parastatal of credit outstandingarrears partiallyin Q4 2018 tooffset 6.5% the value.to 5.5% This in April. was This driven was, byhowever, a 24% partially and 41%mitigated decline by an 9.2%of tocredit 8.6% outstanding during the same in Q4 period. 2018 toA rise 6.5% in in Q1 2019. respectively.imports and The exports value decliningof total imports across alldeclined declinein Q1 2019.in total This wasarrears driven duringby a decline the in bothquarter. household and inincrease the value in household of mineral credit growth and fromnon 6.4%-mineral to 7.0% exports during the governmentThisbusiness was arrears. driven& parastatal Household by a decline arrears fell inpartially from both 5.5% household offsetin Q4 2018 the to and by respectively.14.4%,same time down period. The fromThe value sharp P19.4 declineof total billion in growth imports in of Q4 credit declined 2018, to firms to decline5.2% in in total Q1 2019. arrears Business during arrears theexperienced quarter. a more significant P16.7is concerning billion inas itQ1 could 2019. be a sign The of greaterlower business decline activity in and decline, falling from 9.2% to 8.6% during the same period. A rise byconsequently 14.4%, do lowerwn private from sector P19.4 growth billion in the in future.Q4 2018, to exportsP16.7 overbillion imports in Q1 2019. has resultedThe greater in adecline trade in in government & parastatal arrears partially offset the decline in total arrears during the quarter. deficitexports of P1.99 over imports billion, hascompared resulted a in trade a trade a surplusdeficit of of P0.22 P1.99 billion billion, in compared Q4 2018. a trade a surplus of P0.22 billion in Q4 2018. BankBank Deposits,Deposits, Lending Lending & Liquidity & Electricity Bank Deposits,Liquidity Lending & 3,500 Electricity 90 80 Liquidity 3,500 90 80 3,000 30% 80 3,000 60,000 30% 70 60 2,500 70 2,500 60 60 20% 40,000 20% 2,000 50 40 2,000 50 P billion GWh 40 GWh P million 1,500 40 Percent 1,500 Percent
10% assets total %of 20,00020 10% assets total %of 30 30 1,0001,000 20 20 500500 0 0 0%0% 10 10
0 0 2011201120122012201320132014201420152015 20162016 20172017 20182018 2019 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Deposits Lending Excess Liquidity Generation Imports Generation % of total Deposits Lending Excess Liquidity Generation Imports Generation % of total
Bank liquidity improved marginally in April 2019. BankBank liquidity liquidity improved improved marginally marginally in April 2019. in ExcessApril liquidity2019. TotalTotalTotal consumption consumption consumption ofof electricityof electricity increased increased increased by 3.9% by 3.9%in by2018, 3.9%in in Excessrose from liquidity 7.2% of totalrose assets from in 7.2%January of to total 7.3% assetsin April. Thisin 2018,rising rising from from 3,772GWh 3,772GWh in 2017 to in 3,919GWh. 2017 to Electricity3,919GWh. imports Excess liquidity rose from 7.2% of total assets in 2018, rising from 3,772GWh in 2017 to 3,919GWh. Januarywas driven to by 7.3% a greater in increaseApril. This in bank was deposits driven as compared by a to Electricityrose from imports 752GWh rose in 2017 from to 1,189GWh 752GWh in in2018, 2017 representing to Januarybank lending. to 7.3% Bank in deposits April. in ThisApril were was valued driven at P71.1 by billion,a a significant increase of 58.1% in the importation of electricity. greater increase in bank deposits as compared to 1,189GWhElectricity in imports 2018, representing rose from 752GWha significant in 2017 to greaterup by increase1.1%, from inP70.3 bank billion deposits in January as while compared bank lending to 1,189GWhSimultaneously, in 2018, there was representing a 9.6% decline in electricitya significant generation bankrose by lending. 0.1%, from Bank P58.5 deposits billion to P58.6 in April billion were during valuedthe same increaseduring of the 58.1% year, as in generated the importation electricity fell of from electricity. 3,020GWh to bankaperiod.t P71.1lending. billion, Bank up deposits by 1.1%, infrom April P70.3 were billion valued in Simultaneously,increase2,730GWh. of As58.1% athere result, in wasthe the contribution a importation 9.6% decline of generated ofin electricity. electricity at P71.1January billion, while bankup by lending 1.1%, fromrose by P70.3 0.1%, billion from in electricitySimultaneously,to total generationelectricity consumptionthere during was declinedthe a 9.6%year, from declineas 80.1% generated in 2017in to JanuaryP58.5 whilebillion bankto P58.6 lending billion rose during by 0.1%,the same from electricityelectricity69.7% infell 2018.generation from However, 3,020GWh thisduring trend to didthe 2,730GWh. not year, continue as Asintogenerated a2019 P58.5period. billion to P58.6 billion during the same as the contribution of generated electricity rose to 80.4% during result,electricitythe the first contributionquarter. fell from 3,020GWh of generated to electricity2,730GWh. to As a period. totalresult, electricity the contribution consumption of declinedgenerated from electricity 80.1% in to 2017total to electricity 69.7% in 2018. consumption However, declinedthis trend from did not 80.1% in pagecontinue2017 6 to into 69.7% 2019 in as 2018. the contribution However, this of generated trend did not electricitcontinuey rose into to 2019 80.4% as during the contribution the first quarter. of generated electricity rose to 80.4% during the first quarter.
www.econsult.co.bw
NEWS HIGHLIGHTS
17/04/2019 Botswana Unveils 20ct. Okavango Diamond Company (ODC) has revealed a 20-carat polished Okavango Blue Diamond stone, which is the largest blue diamond to be mined in Botswana. (Rapaport News) The diamond was graded as fancy deep blue, with VVS2 clarity by the Gemological Institute of America (GIA). The stone was recovered from the Orapa mine, which belongs to Debswana, a joint venture between De Beers and the Government of Botswana.
20/04/2019 Khoemacau Copper- Cupric Canyon Capital and Khoemacau Copper Mines have announced the Silver project gets signing of a deal for funding worth USD565 million for the construction multi-million-dollar cash of the Khoemacau Copper-Silver Project. Cupric Canyon Capital states injection that the project funding package will be used for construction of the (Mining review) 3.6 million tonnes per annum (Mtpa) starter project at Khoemacau. The project is expected to cost USD397 million over a two-year construction period, with production expected to begin in the first half of 2021.
26/04/2019 XRT technology delivers Lucara Diamond Corporation has recovered a 1,758 carat diamond from another + 1 000 carat its Karowe mine located in Botswana. The diamond is the largest to diamond be mined at Karowe to date and is also one of the largest diamonds (Mining review) in recorded history. The unbroken 1,7th58 carat stone was recovered through Lucara's XRT circuit, which was commissioned in April 2015.
26/04/2019 New 10m tonne coal Botswana Railways has announced that it intends to begin the railway construction set construction of the Mmamabula-Lephalale railway line in the second for 2021 (Mmegi) half of 2021. The project is expected to directly create 3,000 jobs and provide a new export route to South Africa for the eastern Botswana coalfields.
20/05/2019 Lucara rakes in P487 For the first quarter of 2019, Lucara generated over P487 million in million revenue in Q1 revenue from its wholly-owned Botswana operation, Karowe mine. This 2019 represents an increase of well over 50 percent from the first quarter of (Weekend Post) 2018, which had registered just over P250 million. Lucara says 2019 Quarter 1 was characterized by a continuation of strong operating performance observed during the latter half of 2018.
20/05/2019 Income Tax amendment The 2018 amendment of the income tax regime has had a negative 2018: property impact on profits in the property industry. The Act imposes limits on the companies feel the heat deduction of net interest expense in calculating taxable income and will (Weekend Post) result property companies suffering income tax on their profits prior to their distribution as debenture interest.
21/05/2019 Botswana to invest The Bank of Botswana has given its sovereign wealth fund a broader diamond wealth more mandate. Previously, the Pula Fund could only invest in AA-rated issuers; widely the minimum credit rating has now been reduced to BBB. The Pula (Bloomberg) Fund, which currently holds about 70% of Botswana’s USD6.8 billion in foreign reserves, has previously been confined to investing in dollars, pounds, yen and euros. The central bank’s head of financial markets, Matthew Wright, has stated that the new guidelines have increased the number of eligible currencies to 17 and that, along with adding fixed- income assets, the central bank is also buying some stocks.
23/05/2019 Weaker Mining Fitch Solutions forecast a slow-down in Botswana’s real GDP growth And Construction to 3.9% and 4.1% in 2019 and 2020 respectively, down from 4.5% Prospects Weighing On in 2018. This is due to a projected decline in diamond production and Botswana's Growth below-trend construction sector growth. The firm expects stable growth (Fitch Solutions) in consumer-dependent sectors will help support economic growth. There are also risks of increased inflation due to the upward pressure on food prices caused by dry weather conditions across Southern Africa.
page 7 www.econsult.co.bw
NEWS HIGHLIGHTS
27/05/2019 De Beers sales decline De Beers has cut its production target for the year. The company as uncertainty creeps in projects to produce to 31 - 33 million carats this year, subject to trading (Weekend Post) conditions, down from last year’s 35 – 36 million carats. "Rough diamond sales during the first sales cycle of 2019 were lower than those for the equivalent period last year, reflecting higher than normal sales in the previous cycle (cycle 10 2018) and the slow movement of lower value rough diamonds through the pipeline,” according to Bruce Cleaver, De Beers Chief Executive Officer.
27/05/2019 Botswana cancels 100 Botswana Power Corporation (BPC) has cancelled the tender for 100 MW MW PV tender, plans of solar capacity that it had previously launched in May 2017. The now- new procurement cancelled tender had sought investors for the construction of two 50 exercise for June MW photovoltaic plants, as part of a joint venture (JV) with BPC. It will (PV – Magazine) be replaced by a new tender, which will be structured for independent power producers (IPPs) rather than a JV with BPC.
29/05/2019 Kalahari Energy Kalahari Energy Botswana, through its subsidiary Sekaname (Pty) Ltd, Botswana awarded has been granted Preferred Bidder Status by the Ministry of Mineral preferred bidder status Resources, Green Technology and Energy Security for the construction for the construction of a coal-bed methane (CBM)- fuelled, IPP-owned power plant. of a 97MW Coal Bed Methane (CBM) fuelled IPP-owned power station (Weekend Post)
7/06/2019 PEEPA privatising BMC. The Chief Executive Officer of the Public Enterprises Evaluation and (Sunday Standard) Privatisation Authority (PEEPA) has revealed that the government has started the process of privatising the Botswana Meat Commission (BMC) along with the Lobatse and Francistown abattoirs. Local law firm Minchin and Kelly, along with Deloitte Consulting, have been appointed as advisors to PEEPA for the BMC privatisation process, with a total advisory budget estimated at P8.7 million.
10/06/2019 Botswana gets P31.7 Botswana is among the Southern African Development Community million facility. (SADC) countries set to benefit from the European Union-funded Trade (Weekend Post) Related Facility to capacitate the implementation of the Southern African Development Community (SADC) Trade Protocol and the EU-SADC EPA. According to the Minister of Investment Trade and Industry (MITI), Ms Bogolo Kenewendo, Botswana has received approximately P31.7 million to improve the implementation of the various trade facilitation interventions aimed at improving the ease of doing business in the country. The facility comes at a time when Botswana is increasing efforts to diversify the economy and promote export-led growth.
20/06/2019 Gem Diamonds drops Gem Diamonds has entered into a binding agreement with Pro Civil for Ghaghoo and exits the sale of its 100% shareholding in the Ghaghoo diamond mine. The Botswana. purchase of the mine is expected to be complete before the end of 2019 (Mining Review) subject to regulatory approval. Ghaghoo mine has been closed, under care and maintenance, since March 2017.
24/06/2019 Botswana proposes The government of Botswana have expressed interest in buying shares Lucara Investment. in Lucara Diamond Corp which owns and operates the Karowe mine in (Rapaport News) Botswana. The diamond mine has been successful in extracting large rough stones including the 813 carat Constellation, the 1,109 carat Lesedi la Rona and the 1,758 carat Sewelo.
24/06/2019 Central Bank root for The Bank of Botswana has encouraged the government to develop the an expanded Pula debt domestic capital market, in particular, the deepening of the Pula debt market. market, to reduce the risks that come with external borrowing in differ- (Sunday Standard) ent currencies. According to the Bank’s 2018 Annual Report, total out- standing government debt stood at P25 billion, of which 58 percent is held by external creditors. The Bank notes that large holdings of external debt are associated with high risks, making the Government vulnerable to volatile and potentially increasing debt service costs.
page 8 www.econsult.co.bw
NEWS HIGHLIGHTS
24/06/2019 Tlou Energy gassed up. Tlou Energy Limited has reached yet another milestone in its gas-to- (Sunday Standard) power project, after reaching the critical stage of extracting gas from coal seams, a development that points to commercial viability of the gas project. According to the company, production testing has been successful with the Lesedi 3 well, reaching Critical Desorption Pressure (CDP), and progress with Lesedi 4 continues to be carefully monitored. Tlou Energy is focused on delivering gas-to-power solutions in Botswana by tapping CBM natural gas.
25/06/2019 Botswana Stock The Botswana Stock Exchange (BSE) plans to list its own stock on Exchange to list, the BSE within two years, a move that will see the government ceding State to cede control. control of the institution to private investors. The Chief Executive Officer (Bloomberg) of BSE, Mr Tsheole, stated that by listing on the stock exchange it would help the company improve on governance and transparency. The BSE is owned 80 percent by government with the remaining shareholding divided among four stockbroking firms.
25/06/2019 Government could The Bank of Botswana (BoB) has advised the Government to raise the hike P15 billion bond P15 billion ceiling on the note issuance programme for domestic bonds, limit, move to monthly and increase the frequency of auctions from quarterly to monthly as auctions. a way of triggering local capital market growth. It is stated that the (Mmegi) government’s traditional approach to raising debt, especially domestic debt, limits opportunities for enhanced infrastructure growth and creation of employment opportunities. Furthermore, the investment requirements as the country moves towards high-income status can be funded by tapping into the domestic capital market.
page 9 www.econsult.co.bw MACRO-ECONOMIC DATA
Key Economic Data unit 2013 2014 2015 2016 2017 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2
Annual Economic Growth GDP % 11.3 4.1 -1.7 4.3 2.9 3.8 4.9 5.0 4.5 4.4 .. Mining % 24.2 0.5 -19.6 -3.7 -11.1 -0.3 5.6 4.0 7.4 5.3 .. Non-mining private sector % 10.1 4.9 1.4 7.1 5.6 4.5 5.1 5.6 4.3 4.7 .. GDP current prices P mn 125,158 145,868 146,066 170,564 180,102 45,768 46,910 48,699 48,492 48,729 .. GDP 2006 prices P mn 84,081 87,569 86,083 89,787 92,398 23,478 24,058 24,126 24,851 24,485 ..
Money & Prices Inflation % 4.1 3.8 3.1 3.0 3.2 2.8 3.1 2.9 3.5 3.3 2.8 Prime lending rate % 9.0 9.0 7.5 7.0 6.5 6.5 6.5 6.5 6.5 6.5 6.5 BoBC 14-day % 3.06 3.07 0.97 0.84 1.45 1.47 1.47 1.52 1.52 1.60 1.60
Trade & Balance of Payments Exports - total goods P mn 66,404 76,261 63,484 80,336 61,093 13,795 18,900 14,833 19,667 14,672 .. Exports - diamonds P mn 55,367 65,328 52,730 70,781 54,384 12,345 17,253 12,991 17,822 13,519 .. Balance of payments P mn 1,340 11,404 - 57 2 843 61 - 958 3 742 -90 216 -1,986 ..
Foreign Exchange Exchange rate BWP per USD end 8.718 9.515 11.236 10.650 9.872 9.533 10.395 10.593 10.730 10.787 10.616 Exchange rate ZAR per BWP end 1.196 1.217 1.383 1.279 1.256 1.235 1.317 1.334 1.344 1.353 1.331 FX reserves $ mn 7,726 8,323 7,546 7,189 7,502 7,383 7,147 7,146 6,657 6,843 .. FX reserves P mn 67,772 79,111 84,881 76,804 73,693 70,582 74,297 75,781 71,427 73,505 ..
Financial Sector Deposits in banks P mn 48,512 51,492 59,961 62,438 63,581 62,495 64,838 68,517 69,271 71,640 .. Bank credit P mn 39,763 45,116 48,307 51,316 54,181 54,695 56,531 57,582 58,332 58,362 .. BSE index 9,053.4 9,501.6 10,602.3 9,727.7 8,860.1 8,589.6 8,402.7 7,837.3 7,853.5 7,885.6 7,622.5
Business Indicators Diamond production (a) '000 cts 23,134 24,658 20,732 20,880 22,961 5,885 6,360 5,825 6,307 6,081 .. Copper production (b) tonnes 49,448 46,721 23,050 16,878 1,239 135 547 625 155 .. .. Nickel production tonnes 22,848 14,958 16,789 13,120 0 0 0 0 0 .. .. Business confidence index 45% 52% 44% 43% 46% 58% ...... No. of companies formed 14,190 16,300 19,134 17,133 20,707 5,327 ...... Electricity consumption GWh 3,502 3,990 3,974 3,929 3,772 960 992 1,004 963 966 .. Crude oil (Brent) $/bar 109.95 55.27 36.61 54.96 66.73 69.02 77.44 82.72 50.57 67.93 67.52
Employment (formal) Government 130,175 129,918 130,220 129,216 129,009 129,118 130,817 132,386 133,238 .. Parastatals 18,838 18,790 19,411 19,008 19,444 19,491 19,566 19,773 19,830 .. Private sector 189,894 191,399 191,484 194,202 193,745 194,162 194,564 195,198 195,681 .. Total 338,907 340,107 341,115 342,426 342,198 342,771 344,947 347,357 348,749 .. 2018/19 2019/20 Govt Budget 2015/16 2016/17 2017/18 Revised Proposed Revenues P mn 47,420 57,398 56,411.05 58,229.40 60,198.63 Spending P mn 54,411 56,275 58,392.94 65,308.34 67,537.96 Balance P mn -6,991 1,123 -1,981.89 -7,078.94 -7,339.33 Public debt & guarantees P mn 35,058 36,954 34,339 35,920 Govt deposits at BoB P mn 33,916 29,819 30,094 21,559 GDP P mn 149,140 174,600 182,195 192,829.4 207,568
Revenues %GDP 31.8% 32.9% 31.0% 30.2% 29.0% Spending %GDP 36.5% 32.2% 32.0% 33.9% 32.5% Balance %GDP -4.7% 0.6% -1.1% -3.7% -3.5% Public debt & guarantees %GDP 23.5% 21.2% 18.8% 18.6% Govt deposits at BoB %GDP 22.7% 17.1% 16.5% 11.2%
Sources: Bank of Botswana; MFED; Statistics Botswana; Department of Mines; Registrar of Companies; BSE; Econsult Notes: (a) From 2013, figures include production from Lucara Diamonds (Karowe mine) and Debswana. From 2016, figures also include production from Gem Diamonds (Ghagoo) and Lerala mines, which ceased in February 2017 and April 2017 respectively (b) Copper production starting Q2 2017 for Mowana mine (c) Numbers in Italics reflect revisions from the previous review
page 10 www.econsult.co.bw
SPECIAL FEATURE
The Challenge of Export-Led Growth
Introduction Exports are necessary for a number of reasons. Most ob- Much has been said about the need for Botswana to pursue viously, exports are required in order to generate the for- export-led growth. This objective is a key part of Vision eign (exchange) currency earnings that are required to pay 2036, and is also central to National Development Plan 11 for imports. A country that doesn’t export sufficiently will (NDP 11). In this article we discuss why export-led growth eventually experience a balance of payments and/or a debt is so important, and how the challenges entailed in this crisis. strategy can be addressed. But the benefits of exporting go far beyond this. Export- ing (and importing) provides opportunities for countries to The Importance of Export-Led Growth specialise in the production of goods and services in which Botswana’s economic growth has been led by exports they have a comparative advantage. These “gains from throughout much of the country’s post-independence his- trade” are widely acknowledged as one of the most impor- tory, particularly during the period from the early 1970s to tant drivers of economic growth and higher real incomes the mid-2000s as the diamond industry expanded steadily. over the long term. In addition, trade enables countries to Indeed, the growth of diamond mining and exports was one benefit from economies of scale – especially important for of the main factors behind the rapid increase in incomes small economies where the size of the domestic market of- Theand expansionChallenge ofof publicExport services-Led Growth over this period. Diamond fers limited potential for this. Furthermore, exports provide Introductionexports underpinned budget and balance of payments sur- a key driver for innovation and productivity gains, which Muchpluses, has andbeen thesaid aboutaccumulation the need for of Botswana significant to pursue financial export -ledsav growth.- are This the most important long-term determinants of real in- objectiveings (in isthe a key Government part of Vision 2036,Investment and is also Account central to and National the Developmentfor- comes. Plan 11 (NDPeign 11).exchange In this article reserves, we discuss respectively). why export-led growth is so important, and how the challenges entailed in this strategy can be addressed. The challenge for Botswana is particularly acute because TheHowever, Importance diamond of Export exports-Led Growth have been declining in relative our main export – diamonds – has not been growing. While Botswana’sterms over economic the past growth two hasdecades, been led and by exports in 2018 throughout were equiva much -of thethe country’s economy has been diversifying steadily – diamond min- post-independence history, particularly during the period from the early 1970s to the mid- lent to 24% of GDP, compared to over 50% in the mid- ing accounted for only 16 % of value added (GDP at basic 2000s1980s as theand diamond 40% ofindustry GDP expanded in the earlysteadily 2000s.. Indeed, Thisthe growth is one of diamond mining and exports was one of the main factors behind the rapid increase in incomesprices) and in 2018, compared to 25% in 1994 – exports have reason for lower economic growth rates, a shift towards not; Botswana rough and polished diamonds accounted for expansionbalance of public payments services deficitsover this period.over theDiamond past exports decade, underpinned and budget and balance of payments surpluses, and the accumulation of significant financial savings73% of(in thetotal exports of goods and services in 2018, little hence declining foreign exchange reserves. Government Investment Account and the foreign exchange reserves, respectively).different to the figure 25 years earlier. But as the economy However, diamond exports have been declining in relative terms over the pastgrows, two decades the need, for imports will also grow, and hence new and in 2018 were equivalent to 24% of GDP, compared to over 50% in the midexport-1980s andproducts must be developed. One of the main struc- 40% of GDP in the early 2000s. This is one reason for lower economic growth turalrates, aproblems shift facing the Botswana economy is that the towards balance of payments deficitsFigure over 1: the past decade, and hence decliningeconomic foreign diversification that has occurred has been into exchangeDiamond reserves. exports as a percentage of GDP non-tradeable sectors, mostly services, that serve the do- Figure 1: Diamond exports as a percentage of GDP mestic economy rather than exports.
80%
70%
60%
50%
40%
30%
20%
10%
0%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: Statistics BotswanaBotswana Exports are necessary for a number of reasons. Most obviously, exports are required in order to generate the foreign (exchange) currency earnings that are required to pay for imports. A country that doesn’t export sufficiently will eventually experience a balance of payments and/or a debt crisis. But the benefits of exporting go far beyond this. Exporting (and importing) provides opportunities for countries to specialise in the production of goods and services in which page 11 they have a comparative advantage. These “gains from trade” are widely acknowledged as once of the most important drivers of economic growth and higher real incomes over the long term. In addition, trade enables countries to benefit from economies of scale – especially important for small economies where the size of the domestic market offers limited potential for this. Furthermore, exports provide a key driver for innovation and productivitythey gains, have which a comparative are the advantage. most important These “gains long from-term trade” determinants are widely acknowledged of real incomes. as once of the most important drivers of economic growth and higher real incomes over the The challengelong for term. Botswana In addition, is particularlytrade enables countriesacute because to benefit our from m economiesain expo rtof –scale diamonds – – has not been growing.especially While important the foreconomy small economies has been where diversifying the size of the steadily domestic – diamondmarket offers mining limited potential for this. Furthermore, exports provide a key driver for innovation and accounted for only 16 % of value added (GDP at basic prices) in 2018, compared to 25% in productivity gains, which are the most important long-term determinants of real incomes. 1994 – exports have not; Botswana rough and polished diamonds accounted for 73% of The challenge for Botswana is particularly acute because our main export – diamonds – has total exportsnot of been goods growing. and servicesWhile the ineconomy 2018, haslittle been different diversifying to steadilythe figure – diamond 25 years mining earlier. But as the economyaccounted grows, for theonly need16 % of for value imports addedwww.econsult.co.bw (GDPwill atalso basic grow, prices) and in 2018, hence compared new export to 25% productsin must be developed.1994SPECIAL – exports One FEATURE have of the not; main Botswana structural rough and pro polishedblems diamondsfacing the accounted Botswana for 73 economy% of is that the economictotal exports diversification of goods and thatservices has in occurred2018, little differenthas been to intheto figure non 25-tradeable years earlier. sectors, But as the economy grows, the need for imports will also grow, and hence new export products mostly services,must thatbe developed. serve the One domestic of the main economy structural proratherblems than facing exports. the Botswana economy is that the economic diversification that has occurred has been into non-tradeable sectors, mostly services, that serve the domestic economy rather than exports. Figure 2a: Figure 2b: Figure 2a: CompositionComposition of ofGDP, GDP, 2018 Figure 2b: CompositionComposition of Exports,of Exports, 2018 2018 Figure 2a: Composition of GDP, 2018 Figure 2b: Composition of Exports, 2018 Agriculture 2.2%
Social & personal Gold 0.7% services Polished 6.1% diamonds Machinery 13.6% & equipment 3.1% Govt Mining 16.0% 18.0% Meat etc 1.6%
Manufacturing Rough 5.7% diamonds 59.8% Services Finance & 15.8% business services 15.6% Construction 7.3%
Salt & soda ash Trade, etc 1.4% 21.2% Textiles 0.4% Transport & Water & electricity communications Vehicle parts 1% 6.7% 1.3% Other goods 2.6%
Source:Source: Statistics Statistics Botswana, Botswana,Bank of Botswana Bank of Botswana
In recent years there has been a lot of emphasis on import substitution as a source of In recent years there has been a lot of emphasis on im- International experience also shows that an export-led Source: Statisticsportgrowth, substitutionBotswana, with asmany Bank a source references of Botswana of growth, to with Botswana’s many refer “P70- growth billion strategy import is bill”, likely which to be couldmore successful or should than an encesbe replaced to Botswana’s with “P70 domestically billion import produced bill”, which goods could andinward-looking, services. import substituting one. The examples of In recent yearsor should there be replaced has been with domestically a lot of emphasisproduced goods on importNorth and substitutionSouth Korea provide as an a extreme source example of of the While there may be some scope for import substitution, in our view the potential is limited, growth, withand many services. references to Botswana’s “P70 billioncontrasts, import but more bill”, generally which the experiences could or of should(export- and it would be unwise to frame an economic developmentled) East Asian strategy economies around compared this approach,to those in (import- be replacedWhile with there domestically may be some scope produced for import substitution, goods and in services.substituting) Latin America provide clear evidence of this ourand view the the entire potential P70 is billionlimited, andimport it would bill befor unwise goods to and conclusion. services isOr a alternatively, misleading consider reference Singapore, point. which is While thereframe Formay example,an be economic some over development scope P18 billion for strategy ofimport this around represents substitution, this ap- diamondarguably in imports,the our single view mostwhich the successful are potential integral economy to is the in limited, the world proach,country’s and thestrategy entire P70 of developingbillion import billas afor diamond goods and trading over thehub past, and 50 henceyears. As cannot a thought be substitutedexperiment, imagine and it wouldservices be unwise is a misleading to frame reference an point. economic For example, development over how rich (or strategy poor) Singapore around would this have approach,been if it had P18by domesticbillion of this production represents diamond. Many remainingimports, which imports are insistedrepresent on being commoditi self-sufficientes that in foodcannot production, rather and the entireintegralphysically P70 to thebillion be country’s produced import strategy in Botswana,bill of developingfor goods or ascould a and dia only- servicesthan be produceddeveloping is a misleadingatspecialisations a much higher inreference increasingly cost than point.complex mond trading hub, and hence cannot be substituted by do- segments of manufacturing and services value chains, For example,mestic over production. P18 billion Many remaining of this imports represents represent com diamond- and importing imports, things which(like food) are that integralother countries to hadthe a modities that cannot physically be produced in Botswana, comparative advantage in and could produce much more country’s strategyor could only of be developing produced at a muchas a higher diamond cost than trading im- cheaply. hub, and hence cannot be substituted by domesticporting. production In reality, .the Many true potential remaining for imports imports that can represent commodities that cannot be substituted by domestic production is a small fraction Having said that, achieving successful export-led growth physically beof theproduced quoted P70 in billion Botswana, figure – probably or could no more only than bewill produced not be easy. atBotswana a much has higherstruggled costto develop than dy - ten percent – which would add only two percent to the namic export sectors outside of diamonds, with the only total output of the economy if produced locally rather than major success being the tourism sector. Most other non- imported, i.e. it would be insignificant. The small size of the diamond goods exports - copper-nickel, beef and other domestic economy will always provide a constraint on the manufactured goods – have experienced only slow growth, potential for import-substitution led growth. By contrast, or even declined. the potential for export-led growth is effectively unlimited, given the size of the regional and international economies. This applies to both the potential foreign exchange earning impact, as well as the employment impact.
page 12 importing. In reality, the true potential for imports that can be substituted by domestic production is a small fraction of the quoted P70 billion figure – probably no more than ten percent – which would add only two percent to the total output of the economy if produced locally rather than imported, i.e. it would be insignificant. The small size of the domestic economy will always provide a constraint on the potential for import-substitution led growth. By contrast, the potential for export-led growth is effectively unlimited, given the size of the regional and international economies. This applies to both the potential foreign exchange earning impact, as well as the employment impact. International experience also shows that an export-led growth strategy is likely to be more successful than an inward-looking, import substituting one. The examples of North and South Korea provide an extreme example of the contrasts, www.econsult.co.bwbut more generally the experiences of (export-led) East Asian economies compared to those in (import- substituting) Latin America provide clear evidence of this conclusion. Or alternatively, considerSPECIAL Singapore, whichFEATURE is arguably the single most successful economy in the world over the past 50 years. As a thought experiment, imagine how rich (or poor) Singapore would have been if it had insisted on being self-sufficient in food production, rather than developing specialisations in increasingly complex segments of manufacturing and services value chains, and importing things (like food) that other countries had a comparative advantage in and could produce much more cheaply. Having said that, achieving successful export-led growth will not be easy. Botswana has struggled to develop dynamic export sectors outside of diamonds, with the only major success being the tourism sector.Figure Most other3: non-diamond goods exports - copperAttracting-nickel, Foreign Direct Investment beef andExports other manufactured of Non-diamond goods – have goods experienced & services only slow growth, or even(FDI) declined. Figure 3 – Exports of Non-diamond exports of goods & services It is a well-established finding globally that foreign-owned firms tend to be more active exporters than locally-owned 30% firms. In Botswana, locally-owned firms are more depen- 25% dent on government procurement and less likely to be in- volved in exports than foreign-owned firms. In recent years, 20% Botswana’s efforts to attract FDI have largely failed, with
15% FDI inflows dropping to 0.6% of GDP in 2018, compared to an average of around 5% of GDP in the 2000s. Foreign 10% firms typically bring access to markets and supply chains, expertise in product design, technology and skills – i.e., 5% addressing many of the factors that are likely to act as bind- 0% ing constraints to export growth. They are also likely to be 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 larger in terms of employment and output. % of GDP % of non-mining GDP
Source: Statistics Botswana Trade agreements Source: Statistics Botswana Botswana has access to a range of regional and interna- Achieving modern export-led growth in Botswana tional trade agreements, including the Southern African As noted above, Botswana has experienced export-led growth in the past, but in the most Customs Union (SACU), Botswana-Zimbabwe Bilateral Achievingrecent one or two decadesmodern the economy export-led has not been growth led by diamond in sector , as production has plateaued (and hence declined in relative terms), and GDP growth has slowedTrade markedly. Agreement, the SADC Free Trade Area (FTA), the Botswana SADC-COMESA-EAC Tripartite Free Trade Area (TFTA), As noted above, Botswana has experienced export-led the new African Continental Free Trade Area (AfCFTA), growth in the past, but in the most recent one or two de- the SADC-EU Economic Partnership Agreement (EPA), and cades the economy has not been led by diamond sector, the US Africa Growth and Opportunity Act (AGOA). These as production has plateaued (and hence declined in relative trade agreements offer varying degrees of market access, terms), and GDP growth has slowed markedly. Achieving on different conditions. Most FTAs include tariff liberalisa- future export-led growth will be quite different to that ex- tion with the objective of zero tariffs on “substantially all perienced in the past, however, and poses very new chal- trade” (as per WTO rules). However, it is often the case that lenges that Botswana will need to address. tariffs are not the main barrier to trade, and other factors such as product competitiveness, transport costs, stan- The past era of export-led growth through diamonds was dards, and non-tariff barriers (NTBs) can be more impor- in some respects easy to achieve. Botswana was fortunate tant. Also, these agreements typically refer only to trade in enough to be blessed with very large, low cost diamond goods, not services. Hence it will be wise for Botswana to deposits, and put in place governance to ensure that this ensure that these other issues are addressed in negotiating good fortune was not wasted, as happened in many other and implementing these and other agreements. Also, it is mineral-rich countries. With De Beers dominating and man- important to remember that most trade agreements (the aging the global trade in rough diamonds, and Botswana main exception is AGOA) are reciprocal, and if Botswana being the largest diamond producer in the world, by value, expects improved access to other countries’ markets, the for many years, it was not difficult to find export markets. same access to Botswana must be granted to those coun- Export success was not dependent upon being highly com- tries. Protectionist trade policy, therefore, is not consistent petitive. with participation in regional and international trade agree- ments, or with export-led growth. Future export-led growth will be different. It will be based on selling goods and services to customers in different countries – in the region and elsewhere – who have a Product and market development choice as to where they buy those goods and services. Success in exporting requires an understanding of external Hence Botswana products will have to be competitive, and market demand, the characteristics of the products that chosen by international consumers because they are the will sell in those markets, meeting appropriate standards, as best value – in terms of price, design and quality – avail- well as being able to produce those products competitively. able. This in turn requires a focus on competitiveness, effi- It also requires access to the sales and marketing channels ciency and productivity that has not generally been central that enable consumers to acquire those goods and servic- to either the public or private sectors in Botswana – not by es. This includes both final demand for finished products design, but simply because has it not been necessary for and intermediate demand for components in value chains. survival. Examples of the former would include beef, clothing and tourism services, while the latter would include soda ash, There are several key components necessary for successful vehicle wiring harnesses and back-office business services. export-led growth in Botswana. Understanding markets enables the right products with the right characteristics to be produced at the right price; with-
page 13 www.econsult.co.bw
SPECIAL FEATURE
out such an understanding, and the willingness to incorpo- some local firms that are export successes, but as noted rate market requirements into product design and quality, above, most local firms are dependent upon the domes- exporting will be very difficult. It also provides opportuni- tic market. However, with the small size of the Botswana ties to move up the value chain, providing more specialised market, it is important that if firms wish to keep growing, products for higher value market segments. Successfully they develop the capacity to export. But this is not easy or penetrating external markets often also requires meeting straightforward; firms need training in export production, appropriate market or product standards, whether technical cross-border trading issues and trade finance, as well as un- standards (typically where there are health and safety is- derstanding markets and product requirements. Besides for- sues), Good Manufacturing Practice (for food & beverages, mal short training courses, emerging exporters could ben- cosmetics, pharmaceuticals etc.), HACCP (foodstuffs), Or- efit from mentoring by larger, established exporting firms. ganic standards (foodstuffs), and Fairtrade (food and other products). Incentives The government offers Botswana firms various support Problem-solving and Non-Tariff Barriers and incentives, some of which are available only to citizen- Discussions with existing exporters indicate that they face owned firms while others are for any firm based in Bo- a number of problems that constrain their growth and/or tswana. Such initiatives include subsidised finance from raise costs unnecessarily. These problems cover a broad Citizen Entrepreneurial Development Agency (CEDA), busi- range of issues both inside and outside of Botswana. Do- ness support from Local Enterprise Authority (LEA), and mestic examples include well-known concerns such as the price preferences for government procurement under the availability of work permits for employees with scarce skills, Economic Diversification Drive (EDD) scheme. The struc- slow approval of Environmental Impact Assessments (EIAs) ture of such preferences is not well focused on encourag- and other regulatory requirements, inefficiency in the provi- ing exports, and may often discourage exporting. EDD price sion of services that are essential for trade by government preferences are a good example, which reward Botswana- departments and parastatals, as well as delays at borders based firms for supplying government, with additional price (partly due to the fact that none of Botswana’s borders are incentives for smaller firms and those owned by disadvan- open 24 hours). taged groups (the youth, women, disabled). There can be very high profit margins involved in supplying Government. There are also concerns about Non-Tariff Barriers (NTBs) Furthermore, procurement processes are often perceived as imposed by countries that are destinations or transit routes not being particularly competitive or concerned about prod- for Botswana’s goods exports. Many of these NTBs (at uct quality, where sub-standard performance is tolerated. least as reported by exporters) appear to be inconsistent with the spirit, if not the letter, of various regional and bi- Although EDD was intended in the short-term to provide lateral trade agreements, and appear to be deliberately con- firms with a platform to achieve scale and then graduate to structed (or passively allowed) to disadvantage Botswana export markets, there is no evidence of this being achieved; exporters. And yet mechanisms for resolving NTB problems instead EDD has become a “procurement trap” with no under SACU and the SADC FTA do not appear to be effec- incentive to move beyond an undemanding and profitable tive. As noted above, trade agreements need to include ef- domestic (public sector) market to a highly competitive and fective mechanisms for dealing with NTBs, and this is one demanding – albeit much larger – export market. Perhaps thing that Botswana should be pushing for in trade negotia- the structure of EDD benefits need to be revised to incen- tions. As an example, the East African Community (EAC) tivise the desired shift towards exporting. Similarly, CEDA has a number of mechanisms for reporting NTBs (even in- and LEA support should be more focused on supporting cluding real-time reporting by SMS of NTBs encountered and encouraging graduation into exporting. en route by transport operators), as well as follow up and accountability mechanisms to improve the efficiency of Many firms have argued for a specific package of incentives dealing with NTBs. for exporters, in addition to concessions that many already benefit from, such as a reduced corporate tax rate of 15% Given the importance of domestic barriers and external for manufacturing firms or IFSC companies. Some further NTBs as a barrier to exporting, government and the private concessions will be made available to exporters once the sector need to establish forums (“exporters clubs”) where Special Economic Zones Authority (SEZA) incentives are these can be raised and resolved, if necessary through offi- finalised. Caution is required, however, as direct subsidies cial, government-to-government channels. Relevant entities for exporters may be inconsistent with WTO rules. There is need to be held accountable for resolving or responding to also a risk that too much may be given away in incentives the problems raised, in a timely manner. relative to the economic benefits that result, or that subsi- dies encourage excessive consumption of scarce resources, Exporter Training and Awareness such as water. Direct subsidies are also costly for govern- Although it is important to attract more FDI to increase ment. In our view, any incentives should be targeted on exports, it is also important to support more locally-owned encouraging labour-intensive export production. firms to enter and grow in export markets. There are already
page 14 www.econsult.co.bw
SPECIAL FEATURE
Infrastructure Current exchange rate policy aims at keeping the real effec- Exports can be supported by the provision of appropriate tive exchange rate (REER) of the Pula stable. The REER is a public infrastructure. This includes: key overall measure of competitiveness, and stability in the REER may help to promote exports. The problem, however, • making key border posts more efficient, through is that the deterioration in export performance in recent 24-hour opening and establishing “one-stop border years, along with persistently high unemployment, indi- posts”, where freight traffic has to only be cleared cates that the real exchange rate of the Pula is overvalued, once in each direction (at present it has to be cleared and therefore a policy of maintaining stability – at an over- twice); valued level – does not help export development at all. The • developing an airfreight transport hub, in collaboration conclusion, therefore, is that exchange rate policy should with a major international airline, to improve inward revert to a modest downward crawl of the Pula against and outward airfreight capacity and, hopefully, reduce the basket, and certainly that an upward crawl should be costs; avoided at all costs, in addition to adopting more appropri- • improving cross-border rail links, with a new east-west ate basket weights. link (through the Mmamabula coal fields to Lephalale in South Africa) and north-south link across the new Kazungula bridge over the Zambezi river to Zambia Conclusion The successful achievement of export-led (non-diamond) probably the most promising; growth is essential for Botswana’s continued economic • improving the reliability of internet services, especially prosperity – it is not an optional or “nice to have” strategy. the Government Data Network, so that transport doc- The implications of failure to achieve export-led growth are uments (e.g. for customs clearance) can be reliably severe – an eventual balance of payments crisis, the likeli- filed and transmitted electronically; more generally, hood of mounting debt and possible debt distress, down- Botswana could consider attracting all types of in- ward pressure on the value of the Pula, and continued high vestors by providing and guaranteeing access to “the unemployment. As the new National Employment Policy fastest, cheapest, internet in Africa”, which would be makes clear, export-led growth is of fundamental important a great selling point for the country and an effective in sustainable, large-scale job creation. Therefore, it requires tool to support new types of businesses. a concerted effort to make it work. • utilities are constantly an issue for firms, in terms of reliability and/or cost. Water will always be expensive As noted above, ensuring that exports can expand requires in an arid, water-stressed country like Botswana. For several elements to be put in place – the right firms, prod- electricity, many firms complain that power is expen- ucts, policies, market access, and minimal trade barriers. sive by regional standards; there would be merit in A common thread is the need for competitiveness, which conducting a detailed comparative study on electric- can be addressed at both the firm level and the policy level. ity tariffs to determine the facts, and in particular to A key challenge for government is to deal with factors un- examine whether there is a need to rebalance the way der its control that may reduce Botswana’s competitive- the power tariffs are applied to households and firms. ness, and its actions should be viewed through the lens of whether they improve or reduce competitiveness. Com- Exchange Rate petitiveness should be the overriding criteria to gauge all Exchange rate policy is the most important macro-econom- government policies and measures; “will this policy and/ ic policy with regard to export development, as it is a key or measure enhance or hinder the country’s competitive- determinant of Botswana’s overall competitiveness. We ness?”. This question should be applied systematically to have commented earlier (Economic Review, 2017Q2) that all government decisions; and all major policy frameworks exchange rate policy needs to be reviewed with respect to and systems and procedures in the economic, labour and how well it supports export diversification. In particular, the social areas, from macroeconomic policy to trade and sec- weights of the different components of the Pula currency toral policies, skills and labour market policies, should be basket (ZAR and SDR) are not appropriate for the develop- reviewed in the light of this one central criterion. By doing ment of non-diamond exports (specifically, the weight of this, costs of production can be reduced, barriers to achiev- the ZAR is too low, given the importance of regional export ing competitiveness can be removed, and Botswana firms markets). will be supported to successfully penetrate regional and international export markets.
PO Box 45016, Gaborone, Botswana tel [+267] 390 0575 The Econsult Economic Review is fax [+267] 390 0585 sponsored by BIFM, Botswana’s email [email protected] largest asset manager. All content [email protected] and commentary in the Review is [email protected] produced by Econsult and should not www.econsult.co.bw be attributed to BIFM.
page 15