ECONOMIC REVIEW Fourth Quarter Oct - Dec 2020 in This Issue

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ECONOMIC REVIEW Fourth Quarter Oct - Dec 2020 in This Issue www.econsult.co.bw compiled by SETHUNYA SEJOE KITSO MOKHURUTSHE ECONOMIC REVIEW fourth quarter oct - dec 2020 in this issue ... SPECIAL FEATURE: KEY MACRO- COVID-19 ECONOMIC NEWS ECONOMIC ECONOMIC COMMENTARY 1 VARIABLES 3 HIGHLIGHTS 6 DATA 10 IMPACT 11 COMMENTARY Short-term recovery, but COVID exposes structural weaknesses and emphasizes the urgency of reforms As 2020 draws to a close, the depth of the impact of the COVID-19 pandemic on the local, regional, and international economies is be- coming clearer. Notwithstanding some recovery from the most se- vere negative economic impact in the second quarter of 2020, it is apparent that the duration of the pandemic will be much longer than originally anticipated, or at least hoped, and as a result some firms and industries will find it even more difficult to survive and recover. Our Feature this quarter goes back to the Special Issue of the Review on COVID produced in March 2020, and examines the economic im- pact nine months later relative to the projections made at that time. In health terms, the impact of COVID-19 in Botswana is still relatively low, as figures on COVID-related death rates in different countries show. However, the pandemic is still spreading, with an upsurge in early 2021, so it would be unwise to be complacent about the comparatively low impact to date. As in other countries, it is increasingly evident that the pandemic will only be contained once a vaccine is widely available and distributed. Although Botswana is a member of the World Health Organisation page 1 www.econsult.co.bw COMMENTARY COVAX initiative, which is intended to provide access to er prices (as cheaper imports are kept out by border clo- vaccines to cover at least 20% of the population, there is sures) and supply disruptions. still no news from the Ministry of Health and Wellness re- garding when vaccine roll-out will start in Botswana. Overall, however, COVID-19 has highlighted the structural weaknesses of the economy and the failure to achieve ad- In terms of economic impact, annual economic growth equate structural transformation beyond the development was -6.4% in the year to September 2020, and seems likely model based on diamonds, public spending, domestically- to be around -8% for the year as a whole; comparable with focused services and subsidised state-owned enterprises. the 7.7% contraction experienced in 2009 as a result of Once the macroeconomic driver of this model (diamonds) the global financial crisis. It is evident, however, that the is disrupted, large macroeconomic imbalances – in the fis- impact will be quite different across sectors of the econ- cal accounts and the balance of payments – emerge very omy. There has been a sharp contraction in the mining quickly. sector, with knock-on effects on the balance of payments and the government budget. Similarly, tourism has been The key development priorities to address this have been devastated, and perhaps of more concern, seems likely to laid out in the Mid-Term Review of the Eleventh National take much longer to recover than the diamond sector. Al- Development Plan (NDP 11) and the associated Econom- though much smaller than diamonds in terms of its share ic Recovery and Transformation Plan (ERTP), which are: of GDP, tourism employs many more people and encom- export-led growth; improving the efficiency of govern- passes a wide range of activities – transport, accommoda- ment spending; investing in infrastructure; human capital tion, and many support services - and probably has more development and improving economic resilience. Policy direct linkages to the rest of the economy. Although the initiatives will need to focus on these priorities in order to wage subsidy scheme was extended to the end of 2020 achieve the necessary economic transformation. for tourism enterprises, government may need to consider other extended support packages for the sector if it is to Indications are that the fiscal situation has become a survive what is potentially another year of lost business. lot tighter, with a large budget deficit anticipated in the Some other sectors – e.g. bars and restaurants, entertain- 2020/21 fiscal year. The 2021 Budget, to be released on 1st ment, brewing, and parts of retail – similarly have no end February, will provide details of fiscal projections for the in sight for COVID-related agony. second half of NDP 11 (2020/21 – 2022/23), and no doubt there will be details of fiscal adjustments to be adopted to On a positive note, the global diamond industry showed bring the fiscal position back on track. A likely increase in signs of strong recovery in the final quarter of 2020. There VAT has already been widely reported, along with other are reasonable expectations that this will be sustained into tax increases. Spending adjustments will also be required. 2021, although this is subject to a high degree of uncer- The urgency of structural change is now more apparent tainty. Perhaps another surprise is that the perennially un- than ever. This will not necessarily be easy, and some derperforming agricultural sector is one of the few sectors tough – and painful – decisions and actions will be need- to record positive growth so far in 2020. Agriculture may ed. But unlike the global financial crisis in 2008-9, the CO- have been helped by the protectionist measures imposed VID-19 crisis must not be wasted as an opportunity for during the pandemic to boost local production, although change. of course this comes at a cost to consumers through high- page 2 www.econsult.co.bw KEY ECONOMIC VARIABLES Annual GDP Growth Sectoral GDP Growth Annual GDP Growth Sectoral GDP Growth 30% Annual GDP Growth Sectoral GDP Growth 30% Annual GDP Growth Sectoral WaterSectoral & Elec. Annual GDP GDP Growth Growth 21.5%Q1 Annual GDP Growth Water & Elec. 21.5% 30%20% 30% 20% Annual GDP Growth GovernmentSectoral 2020GDP Growth Water & Electricity 8.5% 30% 10% Water & Elec.Government 21.5% 20% 20%10% Water & AgricultureElec. 21.5% Fin. & Bus. ServiceAgriculture 20% 0% Government 10% 10%0% Fin.Trans.Government & Bus. & Comm. Service Annual GDP Growth AgricultureFin. & Bus. ServiceSectoral GDP Growth 10% -10%30% Soc. & Pers. Services -10% AgricultureGovernment 0% 0% Soc. & Pers.Water Services & Elec. 21.5% 0% -20% Fin. & Bus. Service 20% Fin. & Bus.Trans. Service & TradeComm. -20% Trans.Government & Comm. -10% -10% Soc. & Pers. Services -10% -30%10% Soc. & Pers. ConstructionServicesTotal VA -30% AgricultureTotal VA -20% -20% Trans. & Comm. Manuf -20% -40% 0% Trans.Manufacturing & Comm. -40% Fin. & Bus. ServiceManuf -30% Total ConstructionVA -30% -30%-50%-10% Soc. &Total Pers.Total VA Services VA -50% Construction Trade -40% -20% Soc. & Pers.Manuf Services -40% -40% Trans.Manuf & Comm.Trade NMPS Mining GDP Construction Mining -21.9% -50% -30% Construction AgricultureTotal VA -50% -50% NMPS Mining GDP Mining -21.9% -20% -15% -10% -5% 0% 5% 10% G rowth-40% in annual GDP continued to decline during the third Trade MiningManuf-6.1% Growth in annual GDP continued to decline during the third Trade -20% -15% -10% -5% 0% 5% 10% quarter of 2020. Q3 2020 was the second consecutive quarter Construction -50%NMPS Mining GDP MiningMining -4% -2% 0%-21.9%-21.9%2% 4% 6% 8% NMPS Mining GDP quarter of 2020. Q3 2020 was the second consecutive quarter All sectors except Agriculture, General Government and Water to registerGrowth innegative annual GDP economicNMPS continued growth to declineMining. Real during annual theGDP third GDP quarter fell to All sectors exceptTrade Agriculture, General Government and Water & All sectors except-20%-20%-15% Agriculture,-15%-10%-10% -5% General-5% 0%0% Government5%5% 10%10% and Water GrowthG rowthin annualminusto in registerannualof GDP 2020.6.4% continued GDP negativeQ3in Q32020 continued 2020 was economic to, thedown decline secondto fromdecline growth consecutiveduring minus during. Real the 4.2% quarterannual thirdthe in thirdQ2 to GDP register2020. fell to & Electricity contracted contracted on anon annual an annual basis basisin Q3 2020.in Q3 The2020 largest. The Overall economic growthNMPS continuedMining its steadyGDP decline into & Electricity contractedMining on an annual-21.9% basis in Q3 2020. The quarterquarter of 2020.Theminus of 2020.negativeminingQ3 6.4% 2020 Q3 sectoreconomic in 2020was Q3 has2020the was growth. felt second ,the down the Real second brunt fromconsecutiveannual ofconsecutiveminus GDP the fell Covid 4.2% quarterto minus- in19quarter Q2 pandemic 6.4% 2020. in Inlargest linecontraction with contraction the was decline in was the ininmining theoverall mining sector economic sectorwhich whichrecorded growth recorded y-on-y in Q1 y- the first quarter of 2020. Real annual GDP growth fell to largest contraction-20% was in-15% the-10% mining-5% sector0% which5% 10%recorded y- to registerto register negativeandTheG Q3negativeits rowthmining 2020, associatedeconomic in sectordown economicannual fromlockdowns, growthhas GDP minus felt growth continued .the Real4.2% contracting brunt. Realannualin Q2to of annualdecline2020. the GDP even CovidThe GDPduring fell further mining- 19tofell the pandemic sector tofrom third All asectorsA ll sectorsongrowth- yexcept growth except of Agriculture, minusof Agriculture, mi nus21.9%, 21.9%, Generalfollowed General followed byGovernment Government the by Trade the Trade sector and and sector whichWater Water 2.6% in Q1 2020, down from 3.0% in Q4 2019 and 2020,on-y most growth sectors of mi nusrecorded 21.9%, lower followed or marginally by the Trade similar sector minus minus6.4% in6.4%yearand Q3quarterhas - itsonin2020 felt-Q3associatedyear ,ofthe2020 down growth2020. brunt, down fromlockdowns, Q3of rate the 2020 fromminus ofCOVID-19 minuswas minus contracting 4.2% the 18.6%pandemic second4.2% in Q2 in in even andtheconsecutive2020. Q2 itsprevious 2020.further associated quarterfrom & Electricity& a Electricity whichcontracted contracted contracted contracted by 12.7%. byon on12.7%. an Worryingly, an annual annual Worryingly, basisthe basis Hotels in thein Q3 Q3 andHotels 2020 2020 Restaurants .and .The The significantlyto register lower negative than economic the 4.4% growth recorded.
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