www.econsult.co.bw compiled by SETHUNYA KEGAKGAMETSE KITSO MOKHURUTSHE ECONOMIC REVIEW second quarter april-june 2021 in this issue ...

UPDATING AND KEY MACRO- REBASING ECONOMIC NEWS ECONOMIC NATIONAL COMMENTARY 1 VARIABLES 4 HIGHLIGHTS 8 DATA 12 ACCOUNTS 13

COMMENTARY

Economic Challenges Deepen in Q1 2021: National Accounts Rebased to 2016

Introduction The persistent COVID-19 pandemic continued to intensify the economic challenges faced by Botswana. Annual economic growth contracted further during the first quar- ter of 2021, recording a larger slowdown than that recorded during the global financial crisis in 2008/09. Moreover, the revisions to the national accounts data released in July 2021 show that the economy recorded a larger contraction in 2020 than was originally estimated, due to technical adjustments made to the national accounts. However, eco- nomic recovery is still expected in 2021, attributable to the improvement in the global demand for diamonds and improvements in the rollout of COVID-19 vaccines locally and globally.

National accounts rebasing and GDP growth The recently-released national accounts for Botswana showed that real GDP (in con- stant prices) has been rebased from the old 2006 base year to a new 2016 base year, for the period from 2014 to Q1 2021. The rebase was necessary to bring about greater accuracy in the measurement of GDP and economic growth, as Botswana national accounts were last rebased in 2012. This means that national accounts are up to date with the latest economic developments, structural changes and international method- ologies used in the compilation of national accounts.

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COMMENTARY

On an annual basis, real GDP growth continued to wors- The rebound of the global diamond market from the en as a result of the impact of COVID-19 pandemic. Real COVID-19 crisis is important for Botswana and it will pro- GDP contracted by 8.6% year-on-year in Q1 2021. Based vide a boost to export earnings, the external account bal- on the new data, the economy contracted more in 2020 ance, and government revenues. than was originally estimated, but growth was higher in 2016 and 2017. Year-on-year real GDP contracted by 8.5% Tourism in 2020 rather than the 7.9% originally reported. Similarly, Tourism is one of the sectors that has been affected by the real GDP recorded in 2016 and 2017 was 7.0% and 4.0% pandemic. The period with which the sector will recover respectively, from the originally estimated growth rates of from the crisis is very uncertain and it is continuously in- 4.3% and 2.9% respectively. The decline in real GDP during terrupted by policy measures that restrict movement as a the year to March 2021 was anticipated, as it covers a full preventative measure to reduce the spread of the virus, 12 month period reflecting the impact of COVID-19. as well as travellers’ trust regarding their safety during the pandemic. Government support for the sector is vital On a positive note, however, if we just consider the first to support the survival of tourism industries and to avoid quarter of 2021, the encouraging result is that GDP was job losses. A lot will need to be done to revive the sec- marginally higher (by 0.7%) than it had been in Q1 of tor and bring it back to “normality”. This entails regaining 2020, notwithstanding the continuing impact of COVID-19. customer’s trust, promoting domestic tourism to cushion Growth in many services sectors, including diamond trad- the interruptions in international tourism especially during ing, offset the weak performance of diamond mining, tour- pandemics like the coronavirus, and providing govern- ism and manufacturing. ment support. In Botswana, the accommodation and food services sector has had the deepest and most prolonged Global diamond market contraction of any economic sector. Continued domestic As always, the global market for diamonds is of great travel restrictions will inhibit the extent to which domestic importance for Botswana. After a poor performance in tourism can compensate for the loss of international tour- 2020 because of the COVID-19 pandemic, which led to a ists. sharp decline in global demand for diamonds and overall decline in international diamond activity, diamond sales International trade activity had a good start in 2021 and this continued throughout Trade data for the first quarter of 2021 shows that inter- the first half of the year. Recovery has been supported by national trade activity has continued to recover from the the implementation of fiscal stimulus across many coun- effects of the COVID-19 pandemic. There were significant tries in the world as well as the rollout of COVID-19 vac- increases in exports to the value of P24.1 billion in Q1 cines in some countries. All industry segments continue 2021, representing an increase of 38.4% when compared to report positive sales, while demand has been driven by to Q4 2020. The sharp increase in exports was driven by the two key markets of the United States and China. The diamond exports, which rose by 45% during the quarter diamond industry has also benefited from the prolonged as the global demand for diamonds improved during the slowdown of spending on travel and tourism due to move- period. Imports were valued at P22.8 billion, indicating a ment restrictions, and the diversion of some spending to marginal decrease of 1.4% between Q1 2021 and Q4 2020. consumer demand for diamond jewellery. This resulted in a trade surplus of P1.3 billion in Q1, the first quarterly surplus since 2018. However, subsequent Similarly, De Beers Group has reported strong sales dur- trade data for April and May 2021 are less positive, and ing H1 2021 when compared to sales in the same period indicate a likely substantial trade deficit in Q2. last year. De Beers Global Sightholder Sales (DBGSS) increased sales by 178% between the two periods, from There have also been two major events during Q2 2021; USD906 million in H1 2020 to USD2.5 billion in H1 2021. the opening of the Kazungula bridge and the launch of The rebound is attributable to increased production and the revised African Growth and Opportunity Act (AGOA) sales volumes as well as higher rough diamond prices. National Response Strategy for Botswana, both of which During the half year, production across Botswana’s mines will increase trade activity. The Kazungula bridge provides increased by 43%, from 7.5 million carats to 10.7 million, a one-stop border post and links regional markets as a carats while the average price per carat increased by 13% north-south corridor. Almost P9 million in revenues was to USD135 per carat in H1 2021 from USD119 per carat. collected during the first full month of operation (June), which indicates that the bridge could become a useful

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COMMENTARY

source of government revenues in the future, mainly from Financial sector toll fees and transport permits from the additional freight Commercial banks continued to exercise caution with re- traffic generated by the bridge – although the bridge’s gards to extending credit to the market, due to uncertain- running costs and additional road maintenance expenses ties regarding the COVID-19 pandemic. Bank credit growth must be factored in. is historically low and slowed to an annual 2.8% in April 2021, notwithstanding an improvement in credit growth On the AGOA strategy, it is anticipated that the revised to both households and firms. Credit to parastatals fell, strategy will increase Botswana exports to the United although it is not clear whether it was manly driven by States markets. Sectors that have the potential to increase supply or demand. Arrears on bank lending fell marginally exports, create employment opportunities and contribute during the first quarter of 2021 indicating that both firms to an export-led growth have been prioritised. These in- and households have not begun defaulting on loans at an clude Agriculture, Textiles and Apparel, Meat and Meat increased rate. Overall, the banking sector environment is Products, Handicrafts, Jewellery and Semi-precious healthy with adequate liquidity. stones, Horticulture and Agro-processing and Indigenous products. Since the commencement of AGOA in 2000, Bo- Outlook tswana has mainly exported textiles & clothing and furni- Data on the recent economic developments provide a de- ture. It is hoped that the inclusion of other industries in the cidedly mixed picture, with some positive developments revised AGOA will boost Botswana exports and increase with regard to economic growth, trade performance and export earnings. banking, offset by negative developments with regard to inflation, hopefully temporarily. COVID-19 continues to Macroeconomic policy environment cause significant economic and social disruption, with an Annual inflation increased sharply during the second upsurge in infections and deaths in recent weeks. Vaccina- quarter of 2021. The inflation rate increased to 8.2% in tion rollout is continuing, and Botswana has been doing so June 2021, rising above the upper bound of the Bank of at a faster pace that most countries in sub-Saharan Africa, Botswana’s medium-term inflation objective range of but by July only around 15% of adults had received at least 3-6%. This is the first-time inflation rate has gone above one dose. At this stage, the impact of the pandemic both the objective range since May 2013. The increase in annual locally and globally is set to continue for some time. inflation reflects upward adustments in utility prices, VAT, fuel prices and BHC rentals. Inflation is forecast to remain The broader socio-economic impact of the pandemic may, above the upper bound of the objective range in 2021 and of course, be hidden by a lack of up-to-date data, with no return within the range in H1 2022. Despite the increase recent data on poverty levels, or household incomes or in annual inflation, the Bank of Botswana maintained the expenditures. The quarterly labour market survey that had Bank Rate at 3.75%, reaffirming their accommodative been providing useful information on critical labour mar- monetary policy stance. ket trends has only published one set of results recently (for Q4 2020), and, perhaps surprisingly, there is no indica- tion of when more results can be expected. There are fears that household budgets are under increasing stress due to reduced incomes, job losses and healthcare expenses, which will only mount over time, with no clear end in sight.

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KEY ECONOMIC VARIABLES

Annual GDP Growth Sectoral GDP Growth 15% AnnualAnnualAnnual GDP GDP GDP GrowthAnnual Growth Growth GDP Growth Sectoral GDP Growth 15%10%15% 15% SectoralSectoralSectoral GDP GDP GrowthGDP GrowthGrowth Annual GDP Growth Water & Elec. 20.4% 10% Public Admin &Water Def & Elec. 10%5%10%15% Water Water&Sectoral Elec. & Elec. GDP Growth 20.4% Public AdminICT & Def 20.4%20.4% 5%Annual GDP Growth Public PublicAdmin Admin & Def & Def 5%0% 5%10% WaterFin., Ins.& Elec. & Pen ICT 15% ICT SectoralICT GDP20.4% Growth 0% PublicHH Admin & Soc. & Def Fin.,Work Ins. & Pen 0%-5% 0%5% Fin., Ins.Fin., &HH PenIns. & &Soc. Pen Work 10% -5% WholesaleWaterICT & Ret & Elec. HH & Soc.HH & WorkWholesale Soc. Work & Ret 20.4% 0% Fin.,Public Ins.Education & PenAdmin & Def -5%-10% -5%5% -10% WholesaleWholesale & Ret &Education Ret HHProf., & Soc. Sci., WorkProf., & Tech Sci., & ICTTech -5% WholesaleEducation & RetEducation -10%-15%-10%0% -15% AgricultureFin., Ins.Agriculture & Pen Prof., Sci.,Prof.,Education & Sci.,Tech & Tech -10% RealHH &Estate Soc.Real Work Estate -15%-20%-15%-5% -20% Prof., Sci.,AgricultureWholesale & TechAgricultureTransp. & & RetStor. -15% Transp.Agriculture & Stor. -10% -25% Real EstateRealEducation EstateOther -20%-25%-20% Real EstateOther -20% Transp.Prof.,Transp. & Stor. AdminSci., & &Stor. & Tech Supp. -15% -30% Transp.Admin & Stor.& Supp.AgricultureTotal VA -25%-30%-25% Other Other -25% OtherTotalDiamondReal VA Estate Trad. -20% Admin Admin && Supp. Supp. Construction& Supp. -30% -30% DiamondTransp. Trad. & Stor. 2016-30% 2017 2018 2019NMPS 2020Mining 2021GDP TotalTotal VAManufacturing VATotal VA -25% ConstructionOther Diamond Diamond Trad. Trad. Trad.Mining -27.8% 2016 2016 2017 2017NMPS2018 2018Mining2019 2019 2020GDP 2020 2021 2021 ManufacturingAdmin & Supp. 2016 Real2017 GDP continued2018 2019to shrink2020 during the2021 first quarter ofConstruction Accom.Construction & Food serv -35.4% -30% ConstructionMiningTotal VA NMPS2021.NMPS NMPSQ1 2021Mining wasMiningMining the GDPfourthGDPGDP consecutive quarterManufacturing to Manufacturing -27.8% Real GDP continued to shrink during the first quarter of Accom. & FoodDiamond serv Trad. -20% -35.4%-10% 0% 10% 20% 2016 register2017 negative2018 economic2019 growth,2020 highlighting 2021 the deep MiningMiningConstructionMining -27.8%-27.8%-27.8% 2021.Real Q1 GDP 2021 continued was the to fourthshrink during consecutive the first quarterquarter of to Accom. & Food serv Real GDPReal continuedGDP continuedand to persistentshrink toNMPS shrink during effect during Miningtheof the first the COVID quarterfirstGDP-19 quarter pandemic of Accom.of on theAccom. & FoodInManufacturing &line serv Food with -20%serv continued-35.4%-10%-35.4% difficult-35.4%0% economic10% conditions,20% most 2021.Real GDP Q1 continued 2021 was to theshrink fourth during consecutivethe first quarter quarter of 2021. to In line with continued difficult economic conditions, most 2021.register2021. Q1 negative 2021 Q1 2021 was economicdomestic the was fourth the economy. growth, fourth consecutive highlighting consecutiveReal year quarter-on the- year quarter deep toGDP togrowth sectors-20% ofMining the -10%economy0% recorded-27.8%10% negative20% growth during registerQ1Real 2021 GDP negative was continued the fourth economic consecutive to shrink growth, quarter during highlighting to registerthe first the negative deepquarter of sectorsAccom. of & the Food-20% economy serv-20%-10% recorded-10%0%- 35.4%negative0%10% growth10%20% during20% the registerandregister persistent negative negative economiceffectdeclined economic of theto growth, minus COVID growth, 8.6%, highlighting-19 marginally highlightingpandemic the lower deepon the than the deep theIn minus line withthe year continued to Q1 2021. difficult There wereeconomic significant conditions, contractions most in andeconomic2021. persistent Q1 growth, 2021 effect highlighting was of thethe the COVID fourth deep -and19 consecutive pandemicpersistent effect on quarter the of In toline year with to continuedQ1 2021. Theredifficult were economic significant conditions, contractions most in the anddomestic persistentand persistent economy. effect8.5% effect of recorded Realthe of COVID theyear in COVIDQ4--on19 2020.- yearpandemic-19 The pandemic GDP mining on growth sectorthe on the continuesInsectors line In withline ofthe withcontinued theAccommodation economycontinued -20%difficult recorded difficult &-10% economic Food economic negative 0%Services, conditions,10% growth conditions,Mining20% most during and most domestictheregister COVID-19 negative economy. pandemic economic Realon the year domestic growth,-on-year economy. highlighting GDP Real growth year- the deepsectors Accommodation of Manufacturing the economy & Food recordedsectors Services, which negative Mining recorded growthand Manufacturinggrowth during rates of domesticdeclineddomestic to economy. minus economy.to 8.6%, bear Real themarginally Realyear brunt -onyear of- theloweryear-on COVID -year GDPthan-19 GDPthe growthpandemic, minus growth recordingsectorsthe sectors yearIn of line to the ofQ1with economy the 2021. continued economy There recorded weredifficult recorded negativesignificant economic negative growth co ntractionsconditions, growth during during in most declinedon-yearand persistent GDP to minusgrowth effect 8.6%, declined marginallyof tothe minus COVID lower8.6%,-19 thanmarginally pandemic the minus lower on thethe year sectors, tominus Q1 which 2021. 35.4%, recorded There minus weregrowth 27.8% significant rates and ofminus minus contractions 16.2% 35.4%, respectively. minusin 8.5% recorded in yQ4-on -2020.y growth The of minusmining 27.8%, sector down continues from minus thethe 26.5% yearthe sectors Accommodation toyear Q1 to of2021. Q1 the 2021. There economy &There were Food recorded weresignificant Services, significant negative co ntractions Mining co growthntractions andin during in declineddeclined8.5%thandomestic to therecordedminus tominus minus economy.8.6%, in 8.5%in the Q4 8.6%, marginallypreviousrecorded 2020. marginally Real The inquarter. Q4 lowerminingyear 2020. -Thereloweron than sectorThe-year were thethanmining continues GDPminuscontractions the sector minus growth the across Accommodation27.8% The and data minus highlights 16.2% & Food respectively.the severe Services, impactThe data Mining that highlights the and COVID the -19 Manufacturingthe year to sectorsQ1 2021. which There recordedwere significant growth co ratesntractions of in 8.5%to bear 8.5%recordedtocontinuesdeclined bear the recorded thebrunt toin to bear bruntQ4 minusall of in the 2020.mining Q4theof brunt 8.6%,the 2020. COVID The subsectorsof COVID the marginally mining The COVID-19-19-19 miningpandemic, especiallypandemic, sector pandemic,lower sector continuesdiamond thanrecording recording continues the mining minus theManufacturing which the Accommodationsevere pandemic Accommodation impact sectors that has the whichhad & COVID-19 Foodon recorded& both Food pandemic Services, the growth Services, minhas ing had ratesMining and on Mining of both tourism and and the Accommodation & Food Services, Mining and toy bear-onto-yy-on-yy8.5% -bearthe ongrowth-y brunt growth recordedgrowththe ofbrunt ofof recorded minusof minusthe minusin of Q4COVID 27.8%,the growth 27.8%,2020. COVID- 19down down ofThe downpandemic, - minusfrom19 mining from frompandemic, minus 29.1%. minusminus sectorrecording26.5% Non 26.5%recording26.5% incontinues-mining the Manufacturingminus minusprivate Manufacturingthe 35.4%, 35.4%,miningindustries. minus and sectorsminus tourism27.8% The sectors 27.8% whichPublic andindustries. which minusand Administration recorded minusThe 16.2% recorded Public 16.2% growthrespectively. Administrationand growth respectively. ICT rates sectors rates of of Manufacturing sectors which recorded growth rates of y-inon the-y- ingrowthpreviousonto previousthe -beary growthprevious quarter.ofthe minusquarter. sectorbrunt of quarter.There minus 27.8%, (NMPS)of Therewere theThere 27.8%, down COVID contractionsactivitywere were down from -contractions 19contractionsshowed pandemic, fromacrossminus a minusall slight26.5% acrossacrossmining recording improvement26.5% minusTheThe dataminus and data35.4%, ICT highlightsrecorded highlights35.4%, sectors minus thepositiverecordedminus 27.8% the severe 27.8% severepositive yand- on impact-y minus andy-on-y impactgrowth that minus growth16.2% the thatof 16.2% COVID5.8% of respectively. the 5.8% - and COVID19respectively. and 5.3% -19 minus 35.4%, minus 27.8% and minus 16.2% respectively. in allthe miningin previousallsubsectors ythe- onmining -previous ysubsectors growth quarter.especiallysubsectorsduring quarter. of diamondespecially minusThereQ1 especially 2021,There were27.8%,mining diamondalthough diamond were contractionswhich down contractionsrecorded still miningfrommining performing growth acrossminus whichwhich across of 26.5% Thebadlypandemicpandemic dataThe5.3%by datarespectively, highlightsrespectively, has has highlights had had on thereflectingreflecting on both severe the both the the severe uptakeimpact uptake minthe impactining minthein that the anduseing use the thatof tourism technology andof COVID thetechnology tourism COVID- 19 -19 Theand data government highlights relief the programmes severe impact in an effort that to the combat COVID -19 allrecorded miningallrecordedminusin mining the subsectors 29.1%. growth previous growthsubsectors Non-mininghistorica of especiallyquarter. of minus minusl privateespeciallystandards, 29.1%. There 29.1%. diamondsector recording werediamond Non(NMPS) Non -mining- miningminingcontractions activity y -onmining - whichy privateprivateshowed growth which across pandemicofindustries.industries. minus pandemicand government hasThe The Publichad has Publicrelief had on Administrationprogrammes both Administrationon both the in an minthe and effort ing min ICT and to and ingcombat sectors ICT and tourism the sectors tourism all mining subsectors5.7%, up from especially a contraction diamond of 6.5% miningin Q4 2020. whichrecorded pandemic the positive pandemic. has y-on had-y growth on both of 5.8% the min and ing 5.3% and tourism recordedsectorrecordedsectora slight (NMPS) growth (NMPS)improvement growth activity of activity minus ofduring showedminus 29.1%.showed Q1 2021, 29.1%. a Non a althoughslight slight -mining Non improvement improvementstill-mining performing private private industries.recorded industries.pandemic. The positive The Public y Public -on Administration-y Administration growth of and 5.8% and ICT and sectors ICT 5.3% sectors duringrecorded Q1 growth 2021, although of minus still 29.1%. performing Non- mining badly by private respectively, industries. reflecting The the Public uptake Administrationin the use of technology and ICT sectors sectorduringsector badly (NMPS) Q1 by (NMPS) 2021,historical activity although activitystandards, showed showed recording still Annual a slightperforming y-on-y a Credit slight improvement growth Growth improvement badly of minus by recordedrespectively, recorded positive reflecting positiveBank y-on Deposits, -the y- on growthuptake-y Lending growth in of the & 5.8% ofuseLiquidity 5.8%of and technology and 5.3% 5.3% historicasector l (NMPS) standards,45% activity recording showed y-on- y a growth slight of improvement minus and governmentrecorded relief positive programmes y-on-y in growthan effort ofto combat 5.8% and 5.3% 5.7%, up from a contraction of 6.5% in Q4 2020. respectively,andrespectively, government reflecting reflecting relief the programmes uptake the uptake in the in in anuse the effort of use technology ofto technologycombat duringhistoricaduring 5.7%,during Q1l standards,up 2021, Q1 from Q1 2021, although2021,a contraction40% recording although although still of y performing6.5% still- on still - yin performing growth performingQ4 2020. badly of minusbadly badlyby bythe by pandemic. respectively, 100 reflecting the uptake in the use of50% technology historica5.7%,historicahistorica upl standards, froml standards,l a standards, contraction recording35% recording recording of y 6.5%-on - y -in yon growth- Q4on-y- y2020. growth growth of minus of of minus minusandthe governmentand pandemic.and government government relief relief programmes relief programmes programmes in an ineffort in an an effort toeffort combat to to combat combat Annual Credit Growth 80 40% 30% the pandemic.thethe Bankpandemic. pandemic. Deposits, Lending & Liquidity 5.7%,5.7%, up5.7%, from45% up up froma fromcontractionAnnual a Annualcontractiona contraction Credit ofCredit 6.5% of Growthof 6.5%in 6.5% Q4 in 2020. in Q4 Q4 2020. 2020. Bank Deposits, Lending & Liquidity 25% Bank Deposits,60 Lending & Liquidity30% 45% 40% Annual Credit Growth 100 50% Annual20%Annual Credit Credit Growth Growth BankBank BankDeposits, Deposits, Deposits, Lending Lending Lending & Liquidity & & Liquidity Liquidity 45%40%45%35%45% 100 billionP 40 50%20% 15% 80 40% 40%35%40%30%40% 100 100100 50% 50%50% % of total assets % of credit to sector of credit % 10% 80 20 40%10% 25%35% 60 30% 35%30%35% 80 40% 5% 80 80 40% 40% 20%30% 0 0% 30%25%30% 0% P billion 40 60 20% 30% 15%25% 60 30%

25%20%25% -5% 60 60 30%assets total %of 30% P billion

%ofcredit tosector 10%20% 20 40 10% 20% -10% P billion 20%15%20% 40 20%

P billion P billion Deposits Lending Excess liquidity (RHS) 5%15% 40 40 20% 20% assets total %of 0 0% assets total %of 15%%ofcredit tosector 10%15% 20 10% %ofcredit tosector Total Firms Households 20 10% 0%10% Bank liquidity improved during the first quarter of 2021.assets total %of assets total %of 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 %ofcredit tosector %ofcredit tosector 20 20 10% 10% 10%5%10%-5%5% Annual bank credit growth declined to 2.8% in April 2021, Excess0 liquidity0 rose from 8.1% of total assets in0% January0% 5%0% -10%5%0% down from 3.9% in January 2021. Although total back 20210 to 09.9% in April 2021. Excess liquidity as proportion0% 0% of Deposits2011 2012201120132012Lending20142013201520142016201520172016Excess20182017 2019liquidity201820202019 (RHS)20212020 2021 0%-5% 0%-5% total assets has now reached its highest levels since Q3 2010 2011 2012credit2013 2014growth2015 2016slowed2017 2018 down,2019 2020growth2021 in both household Total Firms Households 2015.2011 2012Bank20112013 2012deposits2014201320152014 were201620152017 valued2016201820172019 at2018 2020P84.020192021 2020billion2021 in April -5%-10% -5%-10% credit and credit taken up by private firms improvedBank liquidity improved during the first quarter of 2021. during this period. Household credit growth rose to 7.1% 202Deposits1, upDeposits by 4.0% (P3.23Lending billion)Lending fromExcess JanuaryExcess liquidity. Bank liquidity (RHS) lending (RHS) -10% -10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Excess liquidity rose from 8.1% of total assets in January Ann2010 ual2011 bank2012 2013credit2014 growth2015 2016 declined2017 2018 to2019 2.82020% in2021 April 2021, Totalin April 2021, up Firms from 6.7% inHouseholds January, whilst credit taken DepositsDeposits LendingLending Excess Excessliquidity liquidity (RHS) (RHS) down from Total 3.9% in JanuaryFirms 2021. HouseholdsAlthough total back 2021 toBank 9.9% liquidityin April 2021. improved Excess liquidity during as the proportion first quarter of of 2021. 2010 2011201020122011201320122014201320152014201620152017201620182017201920182020201920212020 2021 Bank liquidity improved during the first quarter of 2021. Total Total Firms Firms HouseholdsHouseholds total assetsExcess has liquidity now reached rose from its highest 8.1% of levels total since assets Q3 in January creditAnnualAnnual growthbank bank credit slowedcredit growth growth down, declined growthdeclined to 2.8% in in toboth April 2.8 2021,househo% in Aprildownld 202BankExcess1, Bank liquidityBank liquidity liquidity liquidity improved improved rose improved from during during 8.1% the during thefirst of quarter first totalthe quarterfirst of assets 2021. quarter inofExcess January 2021. of 2021. Annualcredit bank and credit credit growth taken declined up by private to 2.8 % firms in April improved 2021 , 2015. Bank2021 depositsto 9.9% werein April valued 2021. at Excess P84.0 billionliquidity in as April proportion of fromdown 3.9% from in January 3.9% 2021. in January Although 202 total1. bank Although credit growth total back2021 liquidity to 9.9% rose in from April 8.1% 2021. of Excesstotal assets liquidity in January as proportion 2021 to of AnndownualAnnduring bank fromual bankcreditthis 3.9 period.% credit growth in January Household growth declined 202declined credit 1to. Although2.8 growth to% 2.8in April rose% totalin to202April 7.1% back1 ,202 Excess2021, 1,Excess up total liquidity by 4.0% assetsliquidity rose(P3.23 has rosefrom billion) now from 8.1% reachedfrom 8.1%of January total of its . total highestassetsBank assetslending in levels January in sinceJanuary Q3 slowedcredit down,growth growth slowed in both down, household growth credit andin bothcredit takenhouseho ld 9.9% in April 2021. Excess liquidity as a proportion of total downcreditdown fromin growthApril from3.9 2021,% slowed 3.9in up %January from in down, January6.7% 202 ingrowth January,1 .202 Although1 in. whilstAlthough both totalcredit househo total backtaken ld back 2021total 2021to 2015. assets9.9% to Bank9.9%in has April indeposits now April2021. reached 2021. Excess were Excess its valuedliquidity highest liquidity at as P84.0 levelsproportion as proportion billion since of inQ3 April of upcredit by private and firms credit improved taken during up this by period. private Household firms credit improved assets has now reached its highest levels since Q3 2015. Bank creditcreditcredit growth and growth credit slowed slowed taken down, updown, growth by privategrowth in both firmsin bothhouseho improved household totalld2015. total assets202 Bank 1 assets, up has deposits by now has 4.0% now reachedwere (P3.23 reached valued billion) its highest itsat from P84.0 highest levelsJanuary billion levels since. Bank in since Q3April lending Q3 growthduring rose this to period. 7.1% in Household April 2021, up credit from growth6.7% in January, rose to 7.1% deposits were valued at P84.0 billion in April 2021, up by 4.0% creditduringcredit andin this April credit and period. 2021, credit taken upHousehold from taken up 6.7% by up credit private in by January, privategrowth firms whilst firmsrose improved to credit improved 7.1% taken 2015.202 2015.1 Bank, up by Bank deposits 4.0% deposits (P 3.23 were billion) were valued valued from at P84.0 J anuary at P84.0 billion. Bank billion in lending April in April whilst credit taken up by private firms contracted by 0.7% in 2021,202 (P3.23up 1by, up billion)4.0% by 4.0%from(P3.23 January. (P billion)3.23 Bank billion) from lending fromJanuary also J increased,anuary. Bank. Bankalbeitlending lending duringin Aprilduring thisthe 2021, year period. this to up period.April fromHousehold 2021 6.7%Household up from in credit January, a contraction credit growth whilst growth 1.7% rose credit in torose January. 7.1% taken to 7.1% marginally, by 0.4% (P0.26 billion), reaching a value of P66.2 in Aprilin Therefore,2021,April 2021, up the from upslowdown from6.7% 6.7%inin totalJanuary, in credit January, whilstgrowth whilst creditwas driven credit taken by takena billion in April 2021. 36.4% contraction in credit taken up by parastatals.

page 4 up by private firms contracted by 0.7% in the year to April also increased, albeit marginally, by 0.4% (P0.26 billion), up2021 by upprivate from firms a contraction contracted 1.7% by 0.7% in January. in the year Therefore, to April alsoreaching increased, a value albeitof P66 marginally,.2 billion in Aprilby 0.4% 2021 (P0.2. 6 billion), up by private firms contracted by 0.7% in the year to April also increased, albeit marginally, by 0.4% (P0.26 billion), the2021 slowdown up from a incontraction total credit 1.7% growth in January. was driven Therefore, by a reaching a value of P66.2 billion in April 2021. 2021 up from a contraction 1.7% in January. Therefore, reaching a value of P66.2 billion in April 2021. the36.4% slowdown contractio in n total in credit credit taken growth up was by driven parastatals, by a the slowdown in total credit growth was www.econsult.co.bw driven by a reflecting36.4% contractio governmentn in credit’s more taken hard up-line by parastatals, stance on reflecting36.4% government contraction ’ ins credit more taken hard -line up by stance parastatals, on borrowingreflecting by these government entities’s and more the hard need-line for stance them to on KEYborrowing ECONOMIC by these entities VARIABLESand the need for them to start borrowingturning profits by these. entities and the need for them to start turning profits. start turning profits.

Arrears on Bank Lending Interest Rates Arrears on Bank Lending Interest Rates ArrearsArrears on onBank Bank Lending Lending 14 Interest Rates 12% Interest Rates 1414 12% 12% 12 10% 1212 10% 10% 10 8% 1010 8 8% 8%

% 88 6%

% 6 6% 6% % 66 4%

%ofcredit tosector 4 4% 4%%ofcredit tosector 4

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June While 2021. policy While and policy money andmarket money rates tomarket 1.04% rates in June remain 2021. unchanged,While policy longer and - moneyterm partiallyThis whichwas offset partially rose by from offsetan increase 8.4% by an to increasein 8.6% arrears duringin onarrears lending the on same lending to businesse period. Thes,remain market unchanged, rates longer-term remain interest unchanged, rates have longer been -rising.term which rose from 8.4% to 8.6% during the same period. The marketinterest rates rates have remain been unchanged, rising. The longer long-term-term whichto businesses,marginal rose from whichdecline 8.4%rose in fromarrears to 8.6%8.4% suggests to during 8.6% a duringthemeasure same the sameof period. resilience The Thein interestlong-term government rates have bond been rate (BW012) rising. 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This rose is fromdue to 5.05%increased in Botswana’s credit sector as the Covid-19 pandemic has not governmentOctober 2020 bond to 6.60% rate (BW012)in May 2021. rose This from is 5.05%due to in Botswana’sresilienceresulted in Botswana’s credit in households sector credit sector as or the firmsas the Covid COVID-19 defaulting-19 pandemic pandemic on loans has at not anbond October issuance 2020 following to 6.60% government’s in May 2021.decision This to is increasedue to resulted in households or firms defaulting on loans at an Octoberincreased 2020 bond to issuance6.60% in followingMay 2021. government This is due’s to resultedhas notincreased resulted in households rate. in households or or firms firms defaulting defaulting on loans on at loans an at andomestic increased borrowing bond to issuancefinance budget following deficits. government The changed’s increased rate. increaseddecision to bond increase issuance domestic following borrowing government to finance ’s increasedincreased rate. rate. balancedecision between to increasesupply and domestic demand in borrowing the capital tomarket finance has decisionbudget to deficits. increase The domestic changed borrowing balance betweento finance inevitablybudget led to deficits. an increase The in the changed cost of long-term balance funds. between budgetsupply anddeficits. demand The in changed the capital balance market between has supplyinevitably and led demandto an increase in the in the capital cost of marketlong-term has supply and demand in the capital market has inevitablyfunds. led to an increase in the cost of long-term Interest Rate Spread inevitably ledInflation to an increase and Forecast in the cost of long-term funds. 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0% 0% 0% 0%

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InterestInterest Rate Rate Spread Spread InflationInflation and and Forecast Forecast Interest Rate Spread 16%16% Inflation and Forecast 35% 35% 16% 35% 14%14% 30% 30% 14% 30% 12%12% 25% 25% Interest Rate Spread 12%Inflation and Forecast 10% 25% 16% 10% 35% 20% 20% 10% 14% 8% 20% 8% 30% 8% 15% 15% 12% 6%6% 15% 25% 6% 10% 10% 10% 4%4% 20%10% 8% 4% 5% 5% 15% 2%2% 5% 6% 2% 0% 0% 10% 0%0% 0% 4% 0% 2008200920102011201220132014 2015 2016 2017 2018 2019 2020 2021 5% 2% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2008200920102011201220132014 2015 2016 2017 2018 2019 2020 2021 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0%ReturnReturn on Advances on Advances Cost Costof Deposits of Deposits InterestInterest Margin Margin 0% UpperUpper LowerLower ActualActual Forecast Forecast Return on Advances Cost of Deposits Interest Margin Upper Lower Actual Forecast The Thelong long-term200820092010-term2011 2012trend20132014 trend 2015of both of2016 both lending2017 lending2018 and2019 and deposit2020 deposit2021 rates rates for for The 2008The2009 headline2010 headline2011 2012 inflation2013 inflation2014 2015 2016 rate 2017rate 2018increased increased2019 2020 2021 sharply2022 sharply during during The long-term trend of both lending and deposit rates for The headline inflation rate increased sharply during commercialcommercial banksReturn banks on has Advances hasfollowed followedCost B ofank DepositsBank of Bofotswana’s BInterestotswana’s Margin Bank Bank Rate Rate Q2 Q2 2021, Upper2021, rising risingLower from from 3.2% 3.2%Actual in in March March Forecast 2021, 2021, to to 8.2% 8.2% in in commercial banks has followed Bank of Botswana’s Bank Rate Q2 2021, rising from 3.2% in March 2021, to 8.2% in downwards.downwards. 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tradetrade surplus surplus of P1.3 of P1.3 billion. billion. This This is the is firstthe firstquarterly quarterly trade trade Exchange Rates surplussurplus since since 2018. 2018.Foreign Exchange Reserves ExchangeExchange Rates Rates ForeignForeign Exchange Exchange Reserves Reserves 6.0 6.0 1.6 1.6 13 13

12 12 7.0 7.0 1.5 1.5 11 11 8.0 8.0 1.4 1.4 10 10

9.0 9.0 9 9 1.3 1.3 8 8 10.010.0 7 7 USDbillion

Pula per USD per Pula 1.2 Rand per Pula per Rand USDbillion

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4 4 13.013.0 1.0 1.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 US dollar Pula BWPBWP per USDper USD ZARZAR per BWPper BWP US dollar Pula

Foreign Foreign exchange exchange reserves reserves decreased decreased across across all all TheTheThe Pula Pula Pula depreciateddepre depreciatedciated against against against the therand the rand and rand strengthenedand and strengthened strengthened against Foreign exchange reserves decreased across all measurement against the USD during Q2 2021. The Pula depreciated by measurementmeasurement currencies, currencies, namely, namely, the thePula, Pula, US Dolla US Dollar andr and theagainst USD during the USD Q2 2021. during The Q2 Pula 2021. depreciated The Pula by depreciated2.6% against by currencies, namely, the Pula, US Dollar and SDR, (albeit 2.6% against the rand, ending Q2 2021 at ZAR1.310, down SDR,SDR, (albeit (albeit marginally marginally against against the the Pula Pula and and the the SDR) SDR) the2.6% rand, against ending theQ2 2021rand, atending ZAR1.310, Q2 2021 down at from ZAR1.310, ZAR1.345 down during marginally the first quarteragainst the of 2021.Pula and Foreign the SDR) exchange during the reserves first quarter fromfrom ZAR1.345 ZAR1.345 at theat the end end of Q1of Q1 2021. 2021. The The Pula Pula-US- USdollar dollar during the first quarter of 2021. Foreign exchange reserves exchangeat the end rate of Q1 was 2021. 10.92 The at Pula-US the end dollar of Q2 exchange 2019, rateup from was declineddeclinedof 2021. by 0.5%by Foreign 0.5% in Pula inexchange Pula terms terms reserves to P53.1 to declinedP53.1 billion billion by in 0.5% March in Marchin Pula 10.92exchange at the rateend ofwas Q2 10.922019, atup thefrom end 11.09 of atQ2 the 2019, end ofup Q1 from 2021, termsdown to from P53.1 P53.4 billion billion in March in December 2021, down 2020. from ReservesP53.4 billion in 11.0911.09 at at the the end end of of Q1 Q1 2019, 2019, an an appreciation appreciation of 1.6%.of 1.6%. 2021, down from P53.4 billion in December 2020. Reserves These2019, an changes appreciation were of mainly1.6%. These driven changes by thewere strongmainly decreaseddecreasedDecember by 2.4% by2020. 2.4% inReserves U inS DollarUS decreased Dollar terms terms by and2.4% and 0.7% in US 0.7% inDollar SDR in terms SDR drivenThese by changesthe strong wereappreciation mainly of the driven rand against by the the strongUS terms and to 0.7% USD4.8 in SDR billion terms and to SDR3.4 USD4.8 billion,billion and respectively, SDR3.4 billion, appreciationappreciation of theof the rand rand against against the the US USdollar. dollar. terms to USD4.8 billion and SDR3.4 billion, respectively, dollar. duringduringrespectively, the thesame same period. during period. the same period.

page 6 www.econsult.co.bw

NEWS HIGHLIGHTS

9th April IMF Staff completes 2021 The International Monetary Fund (IMF) team has completed virtual Article IV Mission to discussions for the 2021 Article IV consultation for Botswana and Botswana. applauded the country for the immediate response and actions to (International Monetary reduce the impact of the COVID-19 pandemic. The IMF noted that Fund) the pandemic has intensified Botswana’s economic challenges as it has reduced Botswana’s financial buffers, caused revenues to drop significantly, increased the level of public debt, and widened the current account deficit. According to the IMF team, economic recovery is expected but depends on the successful rollout of the COVID-19 vaccine locally and globally, and on a positive demand trend for rough diamonds. Botswana has been advised to continue with the implementation of the recovery measures, which include advancing fiscal reforms, enhancing policy frameworks, implementing the ERTP to diversify sources of growth and promote private sector activity, and building resilience and transforming the economy.

15th April Tenders awarded to Tlou Energy has awarded tenders for the construction of 100 km of connect Lesedi gas, solar overhead transmission lines and substations at Lesedi and Serowe project to Botswana grid. to connect the coal-bed methane Lesedi power project to the (Engineering News) Botswana national electricity grid at Serowe. The Lesedi substation will integrate the generation assets with the transmission line and the Serowe substation will tie in with BPC’s existing infrastructure. According to the company, the proposed transmission lines are key to unlocking the independently certified gas reserves, contingent resources, and the company’s solar potential. Tlou Energy aims to be a significant supplier of clean energy as the local and regional markets are significantly short of renewable energy.

23rd April Botswana’s Debswana Debswana Diamond Company expects its new five-year strategy to expects new strategy to create approximately P10 billion in additional revenues. The strategy, create at least USD900 which was adopted in 2020, includes restructuring of mines and million in extra revenue. improving efficiency throughout the group’s operations. As mines (Nasdaq) get deeper and costlier to run, Debswana is looking to convert its flagship Jwaneng mine into an underground mine and expand the lifespan of the mine by further 20 years, with annual production of about nine million carats. At full operation, Jwaneng mine will be the world’s largest underground mine with more than 360 km of tunnel network.

23rd April Moody’s downgrade Moody’s Investor Service (Moody’s) has downgraded Botswana’s Botswana’s rating to rating from “A2” to “A3” and changed outlook from “negative” A3, changes outlook to to “stable”. According to Moody’s, the downgrade reflects the stable. deterioration in fiscal strength exacerbated by the shock induced by (Yahoo finance) the coronavirus pandemic. Hence, Botswana’s fiscal buffers have significantly reduced, and this makes the country more vulnerable to future shocks than its A-rated peers. However, the stable outlook reflects Botswana’s strong credit profile; low debt and high debt affordability, and prudent macroeconomic policies which should help the country navigate through the challenges and take out the economy out of the crisis. Moody’s noted that the ratings could be revised upwards if the country has improved resilience to external shocks, reduced vulnerabilities of the budget structure, made progress in economic diversification and improvement in the business environment. However, a downgrade is possible if there is a deterioration of fiscal metrics beyond the current level due to fiscal consolidation challenges and a significant increase in financial support to state-owned enterprises.

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NEWS HIGHLIGHTS

3rd May Botswana launches The Ministry of Investment, Trade and Industry (MITI) and the Revised AGOA Strategy. Embassy of the United States of America (USA) has launched the (Daily News) Revised African Growth and Opportunity Act (AGOA) National Response Strategy for Botswana. The strategy provides a comprehensive plan to increase Botswana exports to the USA under the AGOA preference Program, a non-reciprocal unilateral trade arrangement that the United States established in 2000 to promote bilateral trade and investment between the United States and Sub-Saharan African countries. The revised strategy is aligned with national priorities of promoting export-led growth and promoting a knowledge-based economy included in the National Vision 2036 and the National Development Plan 11. Priority industries identified under the strategy that have the potential to increase exports, create employment, reduce poverty and diversify the economy are Agriculture, Textile and Apparel, Meat and Meat Products, Handcrafts, Jewelry and Semi-precious stones, Horticulture and Agro-processing and Indigenous products. Botswana has mainly exported textiles and clothing, and furniture since the commencement of the AGOA in 2000, and the addition of other industries to the program is hoped to increase the value of exports to the USA which has fallen significantly from USD318 million in 2014 to USD277 million in 2019.

6th May Lucara secures USD220 Lucara Diamond Corp. has secured funds of up to USD220 million million for Botswana for underground expansion of its Karowe mine. It is anticipated diamond mine that the lifespan of Karowe mine will be increased to 2040, with expansion. life-of-mine production of approximately 7.8 million carats. The (Mining weekly) Karowe underground expansion has an estimated capital cost of USD514 million and a five-year development period. The balance of the development capital is expected to come from operating cash flow generated by open-pit operations at the mine during the development period.

10th May Businesses project According to the Bank of Botswana’s Business Expectations Survey slower growth, rising (BES), businesses are still hampered by the coronavirus containment costs. measures, with the first three months of the year characterised by (Sunday Standard) decline in production, inventories, sales, profitability, and investment. However, businesses remain optimistic and expect economic activity to increase in the second half of the year. Similarly, there is optimism about economic performance in the twelve-month period to March 2022 with businesses expecting increased economic activity and the easing of COVID-19 containment measures.

18th May Kazungula bridge opens. The Kazungula bridge, which connects Botswana and Zambia (The Voice) and links Durban’s port to the Democratic Republic of Congo and Tanzania through the North and South corridor has been officially opened. The construction of the 923-meter road began in 2014 at an estimated investment cost of USD259 million, financed jointly by the governments of Botswana and Zambia. The road is key to connect regional markets in the SADC region with major seaports, thereby promoting regional integration. The Kazungula bridge also offers an alternative north-south route, allowing long-haul truckers to bypass the Beitbridge border post and will also help to ease congestion at border crossings, which could previously delay trucks for days. There is also a new one-stop border post in Botswana and Zambia.

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NEWS HIGHLIGHTS

20th May RDC rental revenue 14% The COVID-19 pandemic has taken a toll on most economic down. sectors, including the property market. The RDC Properties Group (The Patriot) has reported a 14% decline in rental revenue, attributable to the difficulties brought by the pandemic. The Group has reported that rental revenues were down by 13.7% to P131.6 million for the financial year ended 31 December 2020, as compared to P152.5 million recorded in financial year ended in December 2019. The Botswana market accounted for 55% of the decline while South Africa accounted for 45%. The diversified real estate property indicated that both markets have been heavily impacted due to deep contraction in economies owing to COVID-19.

26th May BURS targets P43 billion. Botswana Unified Revenue Service (BURS) expects improvement (The Patriot) in revenue collection and anticipates collecting about P43 billion in tax revenue during 2021/ 22 fiscal year. In the 2020/21 FY, BURS exceeded its target by P2 billion and collected revenue totaling P39 billion from the targeted P37 billion. According to the Commissioner General, the COVID-19 pandemic brought challenges regarding tax collection. However, it is expected that the revenue service which is undergoing Tax Administration Diagnostic Assessment Tool (TADAT) will help measure the effectiveness of the operations of a tax administration against international best practices and improve the overall tax administration in Botswana.

3rd June Botswana’s Khoemacau Botswana’s new Khoemacau copper mine aims to start production Copper mine aims to in June 2021 and its first sales are expected from the third quarter of start production this the year. According to the Chief Executive of the company, the first month. concentrate will be produced after completing the commissioning (Mining weekly) work and introduction of ore into the processing facility. Khoemacau plans to produce between 25,000 to 28,000 tonnes of copper in concentrate and between 790,000 to 810,000 ounces of silver in 2021 and increase production to 60,000 tonnes of copper and 2 million ounces of silver thereafter. Khoemacau mine will be the only operational copper mine in Botswana, after the closure of the BCL and Mowana mines, which have been placed under liquidation since 2017 and 2018, respectively.

9th June PPC sells Botswana PPC has signed a binding sale and purchase agreement with a aggregates business, Botswana-based construction and mining company to buy PPC’s expects to report higher 100% shareholding in PPC Aggregate Quarries Botswana. The full-year earnings. transaction is expected to be completed in August 2021. (Engineering News)

9th June World-class Motheo Sandfire Resources has awarded the contract for open pit mining copper project in services of the T3 pit at its Motheo copper project in Botswana to Botswana ties the knot African Mining Services (AMS). The award was made through its with mining contractor. subsidiary, Tshukudu Metals Botswana. The contract is estimated (Mining review) to be valued at USD496 million and is the largest single operational contract for the new Motheo project covering a period of seven years and three months, with provision for a one-year extension. The award is subject to the grant of mining licence and subsequent execution of the final contract.

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NEWS HIGHLIGHTS

11th June Government loses debt The Bank of Botswana has managed to raise 53% of the targeted target again. P1.95 billion - or P1.03 billion - through monthly auctions of (Mmegi) Government Treasury Bills and Bonds. The shortfall comes about the market opting for shorter maturing government bonds as opposed to long-term bonds, and Government rejecting the higher return being demanded by the market to lend funds. The auction for short-term bonds managed to raise P1 billion while the remainder was from auctions of long-term government bonds, indicating the market’s preference for short-term government bonds as opposed to long term bonds. The Government was looking to raise funds to finance part of the forecasted P6 billion budget deficit in 2021/22 financial year, as government savings have been depleted due to COVID-19 spending.

11th June Cresta suffers P63m The hospitality and tourism group, Cresta Marakanelo Limited, has loss due to COVID-19 recorded a net loss of P63 million for the financial year 2020 because pandemic. of disruptions caused by the COVID-19 pandemic in the travel and (Mmegi) hospitality industry. This compares with P24 million profit recorded in the corresponding period in 2019. The Group’s chairperson, Mr Moathodi Lekaukau, noted that the disruptions are expected to continue in the medium term and is uncertain when the operations will return to normal. This is a further indication of how the Tourism sector has adversely been affected by the pandemic.

16th June Botswana unearths the A 1,098-carat diamond, believed to be the third largest gem-quality world’s third-largest stone ever to be mined, has been discovered in Botswana by the diamond. Debswana Diamond Company. The rough diamond is the third (Reuters News) largest after the 1,758-carat Sewelo in 2019 and the 1,109 carats Lesedi la Rona in 2015, both of which were recovered by Lucara Diamond Corp. Karowe mine in Botswana. According Debswana Acting Managing Director Ms Lynette Armstrong, the rough diamond is the largest that the company has ever recovered in its history of over 50 years in operation.

17th June Botswana gets a P2.6 The World Bank has approved a P2.6 billion loan to Botswana billion loan from World under the Programmatic Economic Resilience and Green Recovery Bank. Development Policy Loan (DPL). The loan will be used to accelerate (Sunday Standard) the pace of economic reforms and support the implementation of the ERTP which is important to take the economy out of the COVID-19 crisis, restore growth and build resilience to future economic shocks. Also, the program will encourage the Government’s effort towards green technologies by supporting reforms to increase production of renewable energy by independent power producers, promoting and regulating rooftop solar energy generation, and embedding climate change considerations in environmental assessments.

21st June Tsodilo set to advance The Ministry of Mineral Resources, Green Technology and Energy Phase 2 of Botswana Security, has renewed Tsodilo Resource’s prospecting licence for project following licence two years, for an area which contains the company’s BK16 kimberlite renewal. project. The renewal will pave way for the company to continue with (Mining weekly) its plans to advance to Phase 2 of the evaluation programme and it include a surface bulk sample of 20,000 tonnes of kimberlite, which will enhance the work already undertaken and increase confidence in the value of the diamonds and grade as the miner moves closer to developing this asset.

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NEWS HIGHLIGHTS

23rd June De Beers sales bounce De Beers’ rough diamond sales reached a three-month high at its back. June 2021 De Beers Global Sightholder Services (DBGSS) sight (Rapaport News) as retail demand remained strong and the COVID-19 crisis in India eased. Provisional rough sales at the fifth cycle were USD470 million, up from USD385 million in May 2021. This compares to DBGSS sales of only USD56 million for the fourth and fifth cycles combined in 2020, as the coronavirus pandemic froze the supply chain. The demand for rough diamond during the first half the year has been consistently positive with increased activity in the fifth cycles and prompted the company to increase rough prices by 2% for 2-carat rough and by 5% for larger rough diamonds.

23rd June Lucara wows again Lucara Diamond Corp. has recovered a 1,174.76 carats rough with 1,175 carats rough diamond from its Karowe mine in Botswana. It is believed that the diamond. (Rapaport diamonds were originally part of a stone weighing more than 2,000 News) carats. The rough diamond is the third over 1,000 carats Lucara has recovered following the 1,758 carat Sewelo in 2019 and the 1,109 carat Lesedi la Rona in 2015. The rough diamond was unearthed from the south lobe, an area known for its large and high-quality rough diamonds.

23rd June Tsodilo Resources: Tsodilo Resources has announced a research collaboration with the Initiates Collaboration Department of Chemical, Materials and Metallurgical Engineering to Study the Production at the Botswana International University of Science and Technology of a Pellet Feed Direct (BIUST) and Morupule Coal Mine (MCM) to undertake metallurgical Reduced Product Using studies with respect to the potential of generating a Pellet Feed and Botswana Coal for Steel Direct Reduced Iron (DRI) product from the Xaudum Iron Formation Generation. (XIF) utilizing its magnetite and MCM's coal as a reductant. (Junior Mining Network) Commercially, these high-grade pellets and DRI product would be used to produce steel for the local market and export market. The Company's Metallurgical results show that the XIF magnetite product is expected to be a premium high-grade product containing 67% iron magnetite that will be ideal pellet feed material. This quality grade will place the XIF in the top 4-5% of producers in the world by Fe grade. High-grade concentrates and pellets of 67% Fe, such as the XIF products, offer a net environmental benefit over its life cycle compared to classic lower grade. They are shown to have lower GHG emissions.

29th June Update on Botswana’s The Ministry of Finance and Economic Development (MFED) has progress towards exiting announced the outcome of the Financial Action Task Force (FATF) the FATF grey-listing. Plenary on Botswana’s progress towards moving out FATF greylist. (MFED) The FATF Plenary recognized the country’s efforts to address the strategic deficiencies which were identified in the 2018 Mutual Evaluation Review and noted that Botswana has substantially completed its action plan to strengthen the AML/CFT regime. Based on this significant progress, the FATF Plenary plans to conduct an on- site assessment to determine sustainable and political commitment for the implementation of the AML/CFT reforms. It is then that a final determination will be made on whether to remove Botswana from the FATF grey-list and subsequently de-listing from the European Union’s (EU) black-list.

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MACRO-ECONOMIC DATA

Key Economic Data unit 2015 2016 2017 2018 2019 2020 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2

Annual Economic Growth GDP % -5.7 7.0 4.0 4.0 3.0 -8.5 2.2 -5.1 -7 -8.5 -8.6 .. Mining % -15.3 0.3 6.3 8.4 -3.7 -26.5 -6.7 -19.3 -22.2 -26.5 -27.8 .. Non-mining private sector % -5.0 11.5 3.6 2.6 4.1 -6.5 2.7 -3.3 -5.4 -6.5 -5.7 .. GDP current prices P bn 137.54 164.42 166.47 172.53 178.48 172.55 46.46 36.59 43.87 45.63 47.74 .. GDP 2016 prices P bn 153.61 164.42 171.00 177.81 183.13 167.58 45.75 33.96 43.98 43.89 46.08 ..

Money & Prices Inflation % 3.1 3.0 3.2 3.5 2.2 2.2 2.2 0.9 1.8 2.2 3.2 8.2 Prime lending rate % 7.50 7.00 6.50 6.50 6.25 5.25 6.25 5.75 5.75 5.25 5.25 5.25 BoBC 7/14-day % 0.97 0.84 1.45 1.52 1.41 1.04 1.44 1.00 1.01 1.04 1.02 1.04

Trade & Balance of Payments Exports - total goods P bn 63.48 80.34 61.67 67.17 56.29 48.24 13.20 4.39 13.24 17.41 24.09 .. Exports - diamonds P bn 52.73 70.78 54.38 60.41 51.01 42.54 11.44 3.57 11.68 15.85 21.61 .. Balance of payments P bn -4.15 -3.28 -4.28 -4.20 -12.02 -20.10 -4.85 -3.02 -6.95 -5.24 .. ..

Foreign Exchange Exchange rate BWP per USD end 11.24 10.65 9.87 10.73 10.63 10.79 11.96 11.79 11.67 10.79 11.09 10.92 Exchange rate ZAR per BWP end 1.38 1.28 1.26 1.34 1.33 1.36 1.50 1.47 1.47 1.36 1.34 1.31 FX reserves $ bn 7.55 7.19 7.50 6.66 6.17 4.94 5.20 5.39 5.07 4.94 4.82 .. FX reserves P bn 84.88 76.80 73.69 71.43 65.23 53.36 62.01 63.65 58.85 53.36 53.08 ..

Financial Sector Deposits in banks P bn 59.96 62.44 63.58 69.27 75.71 80.54 77.26 78.37 79.75 80.54 79.88 .. Bank credit P bn 48.31 51.32 54.18 58.33 62.77 65.55 64.63 64.05 63.77 65.55 65.64 .. BSE index 10,602 9,728 8,860 7,854 7,495 6,890 7,488 7,160 7,001 6,890 6,528 6,622

Business Indicators Diamond production (a) mn cts 20.73 20.88 22.96 24.38 23.67 16.87 5.74 1.93 4.92 4.29 5.04 .. Copper production (b) tonnes 23.05 16.88 1.24 1.46 0.00 ...... Nickel production tonnes 16.79 13.12 0.00 0.00 0.00 ...... Business confidence index 44% 43% 46% ...... No. of companies formed 19,134 17,133 20,707 ...... 8,110 .. Electricity consumption GWh 3,974 3,929 3,772 3,919 3,906 3,842 1,011 854 994 983 943 .. Crude oil (Brent) $/bar 36.61 54.96 66.73 50.57 67.77 51.22 14.85 41.64 40.30 51.22 63.52 76.94

Employment (formal) (f) Government 130,220 129,216 129,009 156,785 156,785 152,973 155,488 .. .. 152,973 .. .. Parastatals 19,411 19,008 19,444 23,497 23,497 18,933 26,591 .. .. 18,933 .. .. Private sector 191,484 194,202 193,745 250,778 227,281 250,715 224,735 .. .. 250,715 .. .. Total 341,115 342,426 342,198 431,060 407,563 422,621 406,814 .. .. 422,621 .. ..

Govt Budget 2017/18 2018/19 2019/20 2020/21 2021/22 Revised Projection (d) (d) (d) (e) (e) Revenues P bn 56.41 53.47 54.30 48.33 64.58 Spending P bn 58.39 62.35 65.40 69.36 70.61 Balance P bn -1.98 -8.88 -11.10 -21.03 -6.03 Public debt & guarantees P bn 32.99 34.41 36.19 46.69 56.64 Govt deposits at BoB P bn 30.09 21.56 19.86 6.20 .. GDP P bn 167.70 175.20 180.60 173.80 197.90 Revenues %GDP 33.6% 30.5% 30.1% 27.8% 32.6% Spending %GDP 34.8% 35.6% 36.2% 39.9% 35.7% Balance %GDP -1.2% -5.1% -6.1% -12.1% -3.0% Public debt & guarantees %GDP 19.7% 19.6% 20.0% 26.9% 28.6% Govt deposits at BoB %GDP 17.9% 12.3% 11.0% 3.6% ..

Sources: BoB; MFED; Statistics Botswana; Department of Mines; CIPA; BSE; US Energy Information Administration; Bloomberg; Econsult Notes: (a) Figures include production from Lucara Diamonds (Karowe mine) and Debswana. In 2016 and 2017, figures also include production from Gem Diamonds (Ghaghoo) and Lerala mines (no longer operational) (b) Copper production starting Q2 2017 for Mowana mine (c) Numbers in Italics reflect revisions from the previous review (d) Actual (e) Budget (f) Employment figures up to 2018 are not comparable with those from 2019 onwards due to changed methodology of data collection and reporting

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SPECIAL FEATURE

Updating and Rebasing Botswana National Accounts

Introduction 2020 GDP estimates, Botswana’s national accounts Statistics Botswana has released the national accounts of have been prepared following the 1993 SNA meth- Botswana by economic activity and components of final odology, which was subsequently updated to the demand at current and constant prices for the period 2014 2008 SNA in 2009. These updates considered the to 2020 and the first quarter of 2021. In this feature we look evolving needs of users, latest economic develop- at the new methodology and also investigate the detail of ments, and upgrades in statistical methodologies. the results, which provide some interesting insights into The 2008 SNA are flexible and are designed to cater the structure of the economy and how it is changing. for the needs of countries at different stages of eco- nomic development. Rebasing and why it is necessary The new data are not just a normal update from the previ- • As a result, there has also been a change in the ous data, but are the results of a once-a-decade exercise methodology used to prepare the Botswana GDP to rebase the entire national accounts data, update the estimates. The latest figures employ a Supply and methodology of calculation and improve the range of Use Table (SUT), for the first time in Botswana. data sources used in doing so. Hence, the new national SUTs describe how products (goods and services) accounts include Gross Domestic Product (GDP) estimates are brought in the economy (Supply table) and how that have been rebased from the old base year of 2006 to the same products are used in the economy (Use a new base year of 2016, for the constant prices (real out- table), and hence ensure consistency between the put) estimates. The update in the base year was necessary output and expenditure estimates of GDP. to reflect changes in the structure of the economy, prices, and consumption patterns over the years. This exercise • The new GDP data also have a more detailed break- ensures that the data is as accurate as possible and is rep- down economic activities into main sectors and resentative of the economy and the economic develop- sub-sectors, the inclusion of several new industries ments that have taken place over the years. It is desirable in economic sectors – across agriculture, manufac- that national accounts be updated periodically as recom- turing and services, and re-classification of -eco mended by the 2008 System of National Accounts (SNA) nomic sectors as more and more data has become with best practice updating every 5 to 10 years. available over the years (see table 1).

Until the end of 2020, Botswana national accounts used The new estimates have: a 2006 base year, which meant that there were potential - 17 primary sectors and 58 sub-sectors, compared to inaccuracies in the measurement of GDP and economic 10 primary sectors and 39 sub-sectors in the old NA; growth. The exercise to update to the new 2016 base year - Much more disaggregation of manufacturing (15 has been ongoing for some time but was delayed by the sub-sectors, compared to five previously); COVID-19 pandemic which disrupted data collection and - Much more disaggregation of services (reflecting the the technical discussions. However, the rebase exercise pattern of growth over past years); has now been completed. - Explicit recording of education and health services; - A new ICT sector; Changes in revised estimates - Clearer identification of tourism-related activities; • The newly revised estimates use the recent concept - Separation of downstream diamond activities (cut- and definitions (as far as possible and where data ting & polishing, trading) so that the overall extent of is available) as set in the latest version of the 2008 the diamond value chain can be measured; System of National Accounts (SNA). Until the Q4 - Clearer identification of activities related to creative industries.

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SPECIAL FEATURE

Table 1: Comparison of new and old primary economic sectors and sub-sectors

NEW OLD Sector Subsector Sector Subsector Agriculture Crop farming; horticulture Agriculture Livestock Livestock farming Crops Support services to agriculture Other Forestry & logging; fishing & aquaculture Mining Coal Mining Diamonds Copper & nickel Copper Gold & other metal ores Coal Diamonds Soda ash Soda ash & salt Other mining Other mining & quarrying Prospecting Mining support service activities Manufacturing Meat & meat products Manufacturing Meat & meat products Dairy products Beverages Grain mill & animal feed products Textiles Bakery products Tanning & leather products Other food products Other manufacturing Beverages & tobacco Textiles, clothing & leather products Wood, paper & products thereof Printing & reproduction of recorded media Chemical, pharmaceutical, rubber & plastic products Other non-metallic mineral products Basic metals & metal products Manufacture, repair & installation of machinery & equipment Furniture; other manufacturing Diamond sorting, cutting, polishing & setting Water & Electricity Electricity supply Water & Electricity Water supply Water collection, treatment & supply Electricity distribution Construction Construction Wholesale & Retail Trade, hotels & restaurants Wholesale Diamond Trade Retail Accommodation & Food Accommodation Hotels & Restaurants Services Food Services Petrol Stations Vehicle Dealers

Source: Compiled based on Statistics Botswana’s GDP for the first quarter of 2021

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SPECIAL FEATURE

Transport & Storage Rail Transport Transport & Communications Road Road transport CTO Air Transport Railway Storage & Transport Support Services Air Postal & Courier Services Post & Comm. Information & Communication Publishing incl. motion pictures, printed Other Technology matter Radio & television broadcasting Telecommunications Computer programming & information services Finance, Insurance & Pensions Central banking Finance & Business Services Banks Monetary intermediation & financial Insurance services Insurance & pensions Real Estates Financial & insurance auxiliary services Business Service Real Estate Activities Owner occupied dwellings Prospecting Real estate Own Occupied Dwell. Professional, scientific & technical Administrative & support Travel agencies, tour operators & related services activities Other administrative & support services Public Admin. & Defence Public administration, central government General Govt C/Govt Local government activities L/Govt Education Social & Personal Services NPISH Health & social work HH Business Enterprises Other Services Arts, entertainment & recreation Domestic Servants & Traditional doctors Activities of membership organisations Other service activities

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SPECIAL FEATURE

Purpose of rebasing national accounts Methodology used for rebasing the national accounts Measures of economic activity (national accounts) are Rebasing is the process of replacing the old base year typically derived from a detailed measurement of the used for compiling the constant price estimates to a new economy carried out in a base year, with annual and quar- and more relevant base year for compiling constant price terly measurements of activity and growth based on a estimates. Constant price estimates are important because selection of indicators. The base year is also used to de- they are used to calculate growth rates, an important in- rive the prices/values of different types of economic ac- dicator about how well the economy is performing. The tivity and output, which are used for the “constant price” choice of the base year is important and should be repre- estimates of economic output that are used to calculate sentative of the current state of the economy. The Inter- real GDP growth rates. Best practice is for the national ac- national Monetary Fund (IMF) recommends that the base counts base year to be updated every 5-10 years as recom- year should be one that reflects “normal economic activ- mended by the 2008 System of National Accounts. This is ity” for a country and “not shocks” because economic because the structure of the economy changes over time, shocks can often cause temporary shifts in production and with new economic activities emerging that may not be consumption patterns. Choosing the base year in which well reflected in GDP if an old base year measurement is the economy was undergoing economic shocks can result used. Similarly, relative prices change, which can cause in the calculation of unusual weights which could under- different distortions. Therefore, these changes in the econ- state or overstate growth rates. omy that continuously take place justify the need to rebase national accounts series periodically. For the first time in Botswana, national accounts have been prepared using the Supply and Use Tables (SUTs). New data has also become available which made it pos- They show the inputs and outputs of different sectors and sible for the rebase exercise. The main data sources are their inter-relationships and ensure the overall consistency of the sectoral national accounts estimates, and notably • 2015/16 Botswana Multi-Topic Household Survey between the output and expenditure approaches to the (BMTHS); calculation of GDP. • 2015 Agriculture census and surveys; • 2016 Census of Enterprise and Establishment; SUTs describe everything in the economy by industry • Administrative data source from businesses e.g (e.g. livestock farming) and by product (e.g. cattle sold for Mining, Financial Services, Public Administration, slaughter). They have two interlinked tables being the sup- Water & Electricity; ply table and the use table. The supply tables show the • VAT data from the Botswana Unified Revenue Ser- supply of products (goods and services) by type of product vice. and by type of industry and differentiate between domes- tic supply and imports from abroad. The use table gives in- formation about the different uses of products (goods and services) by type of product and by type of use. By type of use it is meant whether it is intermediate consumption by industry, final consumption, gross fixed capital formation or exports.

Table 2: Example of supply and use table

Products Industries Final Users Industry Industry Industry Industry Industry Industry Final Gross capital Total ...... Exports A’s product B’s product Z’s product A B Z consumption formation Industry A’s product Industry Total Intermediate consumption by B’s product Final use by product and by category use by product and by industry product Products ... Industry Z’s product Industry A Industry B Total Output by product by industry output by ... industry Industries Industry Z Value added by component Value Value added and by industry added Total Imports Total imports by product imports Total Total supply by product Total output by industry Total final uses by category Source: United Nations (2018)

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SPECIAL FEATURE

GDP estimates in Botswana have been calculated using mainly due to technical adjustments/differences on how the product approach. Using this measurement approach, taxes and subsidies on products are accounted for in GDP the formula for calculating GDP is: calculations between the two systems of national account- ing, rather than any differences in the value of goods and GDP (value added) at basic prices = services produced during the year. The “new” series is output (at current prices) – Intermediate consumption consistently smaller than the “old”, with the greatest dif- ference between the two (-9.6%) coming in 2019. The im- GDP at market prices = plications of a smaller economy are broad and far reach- GDP (value added) at basic prices + ing. For 220 instance, per capita GDP is now slightly lower than (taxes – subsidies on products) previously reported, making the Vision 2036 objective of Real GDP (at constant prices) = reaching 200 high income status more difficult. Furthermore, GDP at market prices / GDP deflator various 180 key economic metrics such as the fiscal deficit, public debt as a share of GDP, tax-to-GDP ratios, credit-to- In rebasing the national accounts, the reference period GDP 160ratios will now be higher, affecting investment and (base year) has been changed from 2006 to 2016 for the P billion borrowing 140 decisions by government, banks and other eco- deflators. This means that the reference prices for the cal- nomic agents. culation of constant price (real) GDP will now be 2016 pric- 120 es rather than 2006 prices. This in turn affects the relative Real GDP growth weights of different sectors in GDP and their contribution 100 2014 2015 2016 2017 2018 2019 2020 to economic growth. Figure 2: RealNew GDP GrowthOld The new GDP methodology will be used for the reporting of GDP from the first quarter of 2021 onwards. It has also 8% been applied to historical GDP, for the period 2014 to 2020, 6% Fig.2 Real GDP Growth and will in due course be “backcast” to 2006, so that the 4% old series becomes comparable and consistent with the 2% new concepts and clarifications in the 2008 SNA. 0% -2% Results of the Rebasing and New Data -4% The rebasing of the National Accounts data coupled with -6% the change in methodology to the 2008 SNA and the utili- -8% sation of new data sources has provided several insights -10% into economic growth and the structure of the economy 2015 2016 2017 2018 2019 2020

in Botswana. New Old

Size of the economy The contraction of the local economy in 2020, due main- Figure 1: GDP at Current Prices ly to the COVID-19 pandemic, was greater than initially thought. Growth calculations based on the “old” data series reported that real GDP output contracted by 7.9% 220 year-on-year, whereas the “new” data series reports an 200 8.5% contraction. The “new” data series paints a more dire picture of the impact of the pandemic and highlights 180 the need for swift, targeted and decisive government in- 160 tervention in providing support to agents within the econ-

P P billion omy. Real GDP growth rates were similar between both 140 series in 2018 and 2019, however, the new series reported 120 greater growth rates in 2016 and 2017 and a greater con- traction in 2015. On a more positive note, the yearly aver- 100 2014 2015 2016 2017 2018 2019 2020 age growth rate of GDP from 2014-19 in the “new” series was 3.1%, slightly greater than the 2.9% average reported New Old by the “old” series during the same period. This implies that pre-COVID, the domestic economy had been perform- On8% the basis of the new data, Botswana’s economy is ing better than reported, suggesting that economic institu- slightly6% smaller than previously estimated. According tions in Botswana are stronger than previously thought, Fig.2 Real GDP Growth to4% the new series, nominal GDP in 2020 was recorded providing a basis for assuming stronger post-pandemic at2% P172,552 million compared to previous estimates of recovery than earlier projected. P180,7990% million, a 4.6% reduction. This discrepancy is -2% -4% -6% page 17 -8% -10% 2015 2016 2017 2018 2019 2020

New Old www.econsult.co.bw

SPECIAL FEATURE

Structure of the economy Apart from these six sectors, there are other conclusions As previously stated, the shift to the 2008 SNA has result- we can draw about the structure of the economy: ed in the re-organisation of economic sectors and sub-sec- tors. The changes make it difficult to draw a direct compar- • The share of GDP attributed to the Trade, Hotels and ison of the structure of the economy between the “new” Restaurants sector in the “old” national accounts and “old” series as sectors like Education and Health ser- data was overestimated at 19.7%. The comparable vices were not previously separately identified. However, sectors in the “new” data, namely, Wholesale & Re- the comparison of some key sectors, where classifications tail trade, Diamond trading and Accommodation & are unchanged, is possible1. Food services, only account for 14.1% of GDP. • The Education (5.2% of GDP) and Human Health & Social Work Activities (3.1% of GDP) sectors, which Figure 3: Shares of GDP, 2019 were previously not separately identified, account Fig.3 for a significant share of total output (8.3%).

20% • The Finance & Business Services in the “old” data

18% series is comparable to a combination of various

16% sectors in the “new” series, namely, 1) Finance, In-

14% surance & Pensions: 2) Real Estate: 3) Professional,

12% Scientific & Technical activities: and 4) Adminis-

10% trative and Support Service activities. These four

8% sectors make up 14.3% of total GDP in the “new”

6% series, similar to the 14.2% share of total GDP held

4% by Finance & Business Services in the “old” series.

2% • Downstream diamond activities – cutting & polish-

0% ing, plus valuing and trading – accounted for 2% of Agriculture Mining Manufacturing Water & Elec Construction Government GDP in 2019, compared to 12% for diamond mining. Old New Sectoral Growth Admin. & Prof., Accommo Manufactu Diamond support Other scientific Agricultur dation & ring trade FigureMining 4:Education Sectoral Growth,serv. Services 2014-19and tech. Total VA e food serv. The six sectors we can compare directly are Agriculture, Fig.4 Average Annual Growth Mining, Manufacturing, Water & Electricity, Construction and Government. These sectors account for 45.2% and 12% 10% 51.7% of total GDP in the “old” and “new” series respec- 8% 6% tively, allowing us to make inferences about structural dif- 4% 2% ferences for approximately half of the economy. Agricul- 0% -2% ture accounts for a slightly larger share of GDP (2.1%) in -4% -6% the “new” series when compared to the “old” (1.9%) but -8% remains a small component of total output. Similarly, Wa- ter & Electricity continues to account for a small fraction of output although its share declined from 1.0% (old series) to 0.9% (new series). The share of total output attributed to Mining activity is significantly smaller in the “new” series (13.5%) than previously estimated (15.2%), resulting in a 10.2% decline in the sector’s share of GDP. On the other Examination of average annual growth rates between hand, the Manufacturing sector’s share of GDP increased 2014 and 2019 across all sectors of the economy provides significantly, (by 17.2%) from 5.2% (old series) to 6.1% new insights into how the economy has been evolving (new series). The largest percentage increase in share of over the past half decade. On average, total value added total output (68.1%) took place in the Construction sector (GDP less taxes and subsidies) grew by 3.1% yearly. We which accounts for 11.4% of GDP in the “new” series, up can classify fast-growing sectors as those with average from 6.8%. The size of Government in the economy is sig- annual growth above 5%; those with an average annual nificantly larger than previous thought. The Government growth rate similar to total value added (+/- 2%) are re- sector is estimated to directly account for 17.6% of total garded as normal growing and the rest as slow growing GDP in the “new” series, up from 15.1%. Government is sectors. That data is summarised in the table below. now by far the largest sector of the economy. Once public health and education are added in, the share of Govern- ment is larger still, at well over 20% of GDP. Hence there is an increasing danger that government activity will crowd out the private sector.

1The following comparisons are based on 2019 shares of GDP.

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SPECIAL FEATURE

Fast Growth Normal Growth Slow Growth Wholesale & Retail (9.8%) Health & Social work (4.8%) Mining (0.5%) Finance, Insurance, Pensions (8.1%) Transport & Storage (4.3%) Diamond Traders (0.2%) Water & Electricity (7.5%) Public Admin. & Defence (4.2%) Manufacturing (-1.2%) Construction (5.7%) Accommodation & Food services (3.7%) ICT (-5.7%) Real Estate (5.6%) Agriculture (3.2%) Professional, Scientific and Technical Activities (3.1%) Total VA (3.1%) Other Services (2.5%) Administrative & support services (2.4%) Education (2.2%)

One anomaly is the high negative growth rate of the ICT Worryingly, the average annual growth rate between sector over this period. This doesn’t seem to match de- 2014-19 for both Government Consumption (1.7%) and velopments on the ground. Our view is that falling prices Household Consumption (2.3%) were previously over- for telecommunications and internet products have intro- estimated (2.6% and 4.3% respectively). The significantly duced a distortion into the measurement of growth rates. lower growth of Household Consumption is now in line Hence there may be a technical deficiency that will need to with conditions prevalent in Botswana’s labour market be addressed and resolved in future data revisions. such as high unemployment, low average earnings and sticky wages. On a more positive note, the yearly average GDP by Expenditure annual growth rate for GFCF rose from 2.4% (old) to 4.3% The year 2019 is again adopted as a base year to allow (new) suggesting a more rapid increase in the level of in- us to investigate changes in the structure of the economy vestment than previously thought. when considering GDP by expenditure in the national ac- counts. GDP by expenditure comprises three main ele- Conclusion ments that are of particular interest, namely, Government The rebasing of the national accounts represents a criti- Consumption, Household Consumption and Gross Fixed cal step in updating GDP data to reflect the evolving struc- Capital Formation (GFCF). According to the “old” data se- ture of the economy and new data sources. The updating ries, Government Consumption accounted 19.3% of total is overdue – coming ten years after the last similar revi- GDP and Household Consumption accounted for 50.8%. sion – but welcome nonetheless. Besides a more accurate The “new” data series reveals that the share of Govern- measurement of overall growth, it enables more detailed ment Consumption (31.1% of GDP) was previously grossly understanding of key sectors of the economy. The break- under-stated, and the share of Household Consumption down of manufacturing and services sectors is particularly (now 44.2% of GDP) was over-stated. This reaffirms our important in monitoring how the economy is changing, the earlier finding that the size of government in the domestic effectiveness and impact of policy measures, and emerg- economy was being under-reported. GFCF as a percent- ing opportunities. In terms of results, the larger shares in age of GDP was also over-stated in the “old” data series the new data for Manufacturing and Construction are il- (31.5% in 2019) when compared to the “new” data series luminating, but the much larger share for Government in (29.1%), suggesting a lower level of infrastructural invest- terms of both output and expenditure suggests that the ment. economy is less diversified and more dependent on public spending than earlier thought.

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