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Botswana Botswana at a Glance: 2004-05

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Botswana Botswana at a Glance: 2004-05 Country Report Botswana Botswana at a glance: 2004-05 OVERVIEW The political scene will remain stable, with the ruling Botswana Democratic Party (BDP) maintaining its firm grip on power throughout the forecast period. It is expected easily to win the legislative election due in October 2004. Neither the BDP nor the president, Festus Mogae, will be threatened by any serious challenge from the opposition parties. In national accounts year 2003/04 (July- June) real GDP will rise by 7.4%, driven by a large jump in diamond output. In 2004/05 real GDP growth will fall to 3.5% as growth in the mining sector slows. In 2005/06 real GDP growth will rise to 4.1%, owing to a combination of robust mining activity and increased services and construction activity. The Economist Intelligence Unit expects average inflation to fall to 6.1% in 2004, helped by falling price pressures in South Africa. In 2005 inflation will fall slightly, to 5.8%, as the Bank of Botswana (the central bank) retains a tight monetary stance. The prospects for the rand will be reflected in the value of the pula, which we forecast will depreciate to P6.02:US$1 in 2004 and to P6.4:US$1 in 2005. The current-account surplus is forecast to widen in 2004 to 8.6% of GDP and to 9.2% of GDP in 2005 as a result of improvements in the transfers and incomes accounts. Key changes from last month Political outlook • Low voter turnout and antipathy towards the opposition's new alliance saw the BDP retain the Francistown East seat in a by-election. The opposition alliance’s challenge failed—it garnered fewer votes than the alliance's member parties gained individually at the 1999 October legislative election. Economic policy outlook • The central bank has cut the bank rate by 50 basis points, taking it to 14.75%— the rate had been unchanged since November 2002. Further cuts are expected in 2004, but the bank is expected to keep monetary policy tight in an effort to reduce domestic demand and lower inflation. Economic forecast • There has been no change to the economic forecast outlook. November 2003 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2003 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 1356-4021 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Botswana 1 Outlook for 2004-05 Political outlook Domestic politics The political scene will remain stable, with the ruling Botswana Democratic Party (BDP) maintaining its firm grip on power throughout the forecast period. It is expected to win an easy victory in the next legislative election, which is due in October 2004. Neither the BDP nor the president, Festus Mogae, will be threatened by any challenge from the relatively disorganised and ineffectual opposition parties, despite a recent electoral pact between some of them. Despite the external appearance of stability, all parties will be affected by internal disagreements in the run-up to the election and beyond. The overwhelming success of the vice-president, Ian Khama, in the vote for the chairmanship of the BDP at its congress in July has ruled out any challenge being made by his defeated rival, Ponatshego Kedikilwe, to Mr Mogae for the party presidency (and thus the party’s candidate for state president) at the BDP’s special congress in April 2004. Any challenge would end in another defeat for Mr Kedikilwe and he would be accused of undermining the party’s election prospects. Mr Kedikilwe will probably be content to remain in the BDP, but his loss of office will prompt most of his supporters to join the Khama- Mogae group, his influence having been seriously damaged. However, Mr Kedikilwe’s concerns about the dangers of dynastic and autocratic politics remain (Mr Khama is the son of Botswana’s first president, Seretse Khama). Having thwarted Mr Kedikilwe, Mr Mogae must continue to work with Mr Khama, who now has control over the BDP. This adds to his already strong public support base (some of Mr Khama’s supporters were elected to key positions in the BDP’s central committee at the congress). Mr Khama is unlikely to be sufficiently emboldened himself to challenge Mr Mogae in 2004, but in the past his loyalty to the president has been less than wholehearted. In 2005, following the election, he may seek increasingly to influence the direction of government policy as he prepares to succeed Mr Mogae in 2009. The September 2003 agreement between the main opposition party, the Botswana National Front (BNF), and two smaller parties to form an electoral pact remains to be tested. Along with the extent of disaffection towards the government, particularly among public-sector workers, combining forces should provide opportunities. However, with the creation of 17 additional constitu- encies earlier in 2003 that generally favour the BDP’s rural strongholds, as well as voters’ unwillingness to place much confidence in parties that have performed so poorly since the last election, renewed infighting appears to be more likely. International relations The situation in Zimbabwe will continue to affect Botswana. Relations will remain strained until the impasse over the disastrous rule of Zimbabwe’s president, Robert Mugabe, breaks. Botswana may increase its support for regional initiatives to resolve the economic and social crisis (although these are unlikely to have any effect). Relations with other regional neighbours will remain good. Botswana’s international standing, which is already high owing to Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 2 Botswana its efforts in the fight against HIV/AIDS, will benefit from the visit in July of the US president, George W Bush, who has pledged funds for, among other things, tackling HIV/AIDS and developing trade links. Economic policy outlook Policy trends The government will continue to pursue largely prudent economic policies in 2004-05. However, the election is influencing the implementation of difficult economic policy choices (such as privatisation), some of which will be delayed until after the election. The Ninth National Development Plan (NDP9; April 2003-March 2009) has assumed the policy framework of the outgoing NDP8 and in part mirrors the goals in the long-term policy document, Vision 2016. The main policy objectives of NDP9—which will be only partly successful owing to capacity constraints, a lack of skilled labour and overoptimistic goals—are economic diversification; employment creation and poverty alleviation; maintaining macroeconomic stability and financial discipline; and the develop- ment of the country’s human resources (which includes the fight against HIV/AIDS). Diversification of the economy away from diamond mining is crucial. However, the plethora of government agencies trying to attract foreign investment, bureaucracy and small market size will remain problems. The timetable for privatisations, other than that of Air Botswana (which is close to being sold), will remain unclear, as the Public Enterprises Evaluation and Privatisation Agency (PEEPA) will struggle to co-ordinate its efforts with parastatals and parent ministries. The government successfully launched three pula-denominated bonds in March, April and May (to help develop the capital market); a further issue was made in October and one in November 2003 has been scheduled. The government has announced that a foreign-currency denominated bond will be issued in 2004. Fiscal policy The finance minister, Baledzi Gaolathe, presented the budget for 2003/04 (April- March) to parliament on February 3rd. The budget projected that revenue and grants will rise to P17.54bn (US$3.13bn), 22% above the official revised estimate for 2002/03. Expenditure and net lending are expected to increase to P17.33bn, from P16.64bn in 2002/03.
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