Botswana [email protected]

2018 African Economic Outlook George J. HONDE Botswana [email protected] • Botswana’s growth prospects appear favourable, but However, Botswana’s growth prospects for the medium term downside risks emanating from the sluggish recovery of look promising. Real GDP growth is projected to pick up, aver- the global economy and uncertainty surrounding global aging about 4% in 2018-2019. Economic growth will primarily trade remain elevated. be driven by a good performance in non-mining sectors and the recovery of mining activity. Construction activity, mainly • Despite rapid growth in per capita income, unemploy- associated with planned upgrades of the water and electricity ment and inequality remain high, while human devel- infrastructure, is also expected to boost growth. Notwithstand- opment outcomes are far below the norms of an upper ing, the slow recovery of the global economy and uncertainty middle-income country. surrounding global trade and openness, expose Botswana’s • To address existing infrastructure problems, traditional narrow export base to significant downside risks. funding sources will need to be supplemented by alter- native sources of finance from the private sector. Among The fiscal situation remains volatile, swinging between deficit other critical measures, further reforms should be under- and surplus. Government operations resulted in a fiscal deficit in taken to improve the investment climate. 2015/16 after three years of surpluses and returned to a modest surplus in 2016/17. A small fiscal deficit is envisaged for 2017/18 and a further deterioration of the fiscal situation is projected in the following financial year. The deficit largely reflects a decline in OVERVIEW revenues from the Southern African Customs Union (SACU). The Government plans to return to fiscal surpluses starting in 2019/20. After recovering to 4.3% in 2016, real gross domestic product (GDP) growth is estimated to have weakened to 2.4% in 2017. Inflationary pressures remained modest in 2017. After breaching Although non-mining sectors registered strong and broad- the lower end of the Bank of Botswana’s medium-term objective based expansion, economic growth was weighed down by the (a range of 3% to 6%) in 2016, annual inflation closed at 3.3% in continued decline in mining activity. 2017. Inflation is expected to remain within the target range in the medium term. Key factors keeping inflationary pressures in check include low domestic demand and subdued foreign prices. An accommodative monetary stance has been pursued to support economic activity, taking advantage of prevailing low inflation. Botswana TABLE 1. Macroeconomic indicators 2016 2017(e) 2018(p) 2019(p) Real GDP growth 4.3 2.4 3.7 4.3 Real GDP per capita growth 2.4 0.6 2.0 2.7 CPI inflation 2.8 3.3 3.6 3.8 Budget balance (% of GDP) 0.7 -0.1 -0.4 -0.7 Current account (% of GDP) 11.7 7.1 2.9 1.1 Source. Data from domestic authorities; estimates (e) and predictions (p) are based on the authors’ calculations. RECENT DEVELOPMENTS performance, overall domestic growth was weighed down by AND PROSPECTS the sluggish performance of other sectors. Agricultural output contributed 2.0% to GDP in 2017 (mainly from beef exports) and The economy of Botswana has experienced rapid growth in per remained subdued, as crop production continued to be ham- capita income as a result of effective economic management pered by recurrent drought, erosion, disease, traditional farming and prudent management of the country’s resource wealth. The methods and inadequate infrastructure. country’s GDP per capita rose from USD 80 at the time of its independence in 1966 to USD 6 924 in 2016. However, despite Though diamond prices gradually recovered, reflecting a efforts to diversify the economy, the economic base remains rebound in the global diamond market, mining sector output narrow and growth has not been sufficiently inclusive. Botswa- contracted by about 11% in 2017. This was more than the na’s main growth driver remains the extraction and process- decline of 3.5% in 2016 and lowered real GDP growth. The ing of diamonds for export. It provided 88% of the country’s underperformance of the sector was also due to closure of the exports in 2016, even though the mining sector’s contribution BCL and Tati Nickel mines in October 2016 and reduced soda to gross domestic product (GDP) has fallen sharply, from 47% ash production after a mine producing ore for soda ash was put in 1986 to about 20% in 2017. Some structural transformation under care and maintenance in the second quarter of 2017. As a of the economy has occurred, albeit limited. Agriculture’s contri- result, the real value added of copper and soda ash contracted bution to GDP declined to 2.2% in 2017 from a peak of 3.4% in by 98.8% and 19.2%, respectively. After sustained high growth the 1990s. Manufacturing has not developed much; its share of for more than 40 years, Botswana has experienced boom-bust GDP has remained between 5% and 6% since the 1990s. The cycles in recent years because the country is vulnerable to fastest growing sector has been services (including Govern- external shocks as a result of its heavy reliance on exports of ment services); their overall contribution to GDP has increased diamonds and other mining products. from around 45% in 1986 to 69% in 2017. The economy is expected to recover in the medium term; real Botswana’s economy suffered a setback when economic GDP growth is projected to average about 4% in 2018 and 2019. growth dipped into negative territory in 2015, arising from Economic activity is expected to be supported by both a good weak demand for diamond exports, severe El Niño-induced performance in non-mining sectors and recovery of mining. drought conditions, and persistent electricity and water supply While mineral exports are projected to continue to rebound shortages. After rebounding to 4.3% in 2016, economic activ- gradually because of slow global recovery, it is expected that ity slowed again; real GDP growth was estimated to be about growth in non-mining sectors will be driven by service-oriented 2.4% in 2017. The increase in domestic output was mainly sectors, supported by accommodative fiscal and monetary driven by expansion in non-mining activities, notably in trade, policies. A continued expansion of construction activity, asso- hotels and restaurants (which grew by 7.3%), finance and busi- ciated with the Government’s economic stimulus programme ness services (5.0%), and transport and communication (4.7%). (ESP) and planned upgrades of the water and electricity infra- Growth in non-mining sectors was underpinned by improve- structure, is expected to boost growth further. The manufac- ments in downstream diamond industries and the continuation turing sector is also expected to recover moderately, benefiting of accommodative fiscal and monetary policies. Despite their from improvements in electricity generation and water supply. 2018 African Economic Outlook Country Note 2 Botswana TABLE 2. GDP by sector (percentage of GDP) 2011 2017 Agriculture, forestry, fishing and hunting 2.8 2.2 of which fishing – – Mining and quarrying 25.9 19.9 of which oil – – Manufacturing 6.4 5.6 Electricity, gas and water -0.1 0.8 Construction 6.6 7.0 Wholesale and retail trade; repair of vehicles; household goods; restaurants and hotels 16.5 21.6 of which restaurants and hotels – – Transport, storage and communication 5.4 6.5 Finance, real estate and business services 14.7 15.3 Public administration and defence, security 15.6 15.2 Other services * 6.2 6.0 Gross domestic product at basic prices / factor cost 100.0 100.0 * Other services include education, health and social work and other services. Source. Data from domestic authorities. Irrespective of good weather conditions, the production capac- MACROECONOMIC POLICY ity of the agricultural sector is likely to remain limited, for the reasons mentioned above. Fiscal policy Botswana’s fiscal balance has deteriorated in recent years. Downside risks to the medium-term outlook remain high. Key Taking advantage of the country’s sizeable fiscal buffers, fiscal risks include the sluggish recovery of the global economy and policy remained accommodative to boost economic activity uncertainty surrounding global trade and openness, which and create jobs following the economic downturn in 2015. In could have ramifications on the demand for diamonds and consequence, after three years of consecutive surpluses, the therefore lower export earnings. Sluggish economic conditions fiscal position swung into a deficit of 4.6% of GDP in 2015/16. in South Africa could impact negatively on SACU receipts, and It shifted back to a modest surplus of 0.7% of GDP in 2016/17, adverse weather conditions could further weaken growth in before recording a deficit of about 0.1% of GDP in 2017/18. The agriculture and lead to water supply challenges. Possible delays deterioration was due to lower mining revenues, a decline in rev- in construction projects in the electricity and water sectors add enues from the Southern African Customs Union (SACU), and further downside risks that need close monitoring. These risks higher fiscal spending, in part associated with the economic underscore the need for Botswana to accelerate the implemen- stimulus programme. A slightly larger fiscal deficit is envisaged tation of structural reforms, including reforms to reduce its skills in 2018/19, because revenues from the volatile SACU revenue mismatch, diversify the economy, and increase productivity. sharing arrangement are expected to decline, due to reduced Botswana also needs to decisively resolve its energy and water imports and weaker household consumption in the region as crises. These reforms would help to foster economic transforma- well as higher fiscal spending.

Load more