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ECONOMIC REVIEW Second Quarter April - June 2020 in This Issue www.econsult.co.bw compiled by SETHUNYA SEJOE KITSO MOKHURUTSHE ECONOMIC REVIEW second quarter april - june 2020 in this issue ... SPECIAL KEY MACRO- FEATURE: ECONOMIC NEWS ECONOMIC DISTRICT COMMENTARY 1 VARIABLES 4 HIGHLIGHTS 7 DATA 12 RANKINGS 13 COMMENTARY Economic recovery post COVID-19 Introduction The first half of 2020 has seen the world faced with a major health out- break of the corona virus pandemic. The virus caused massive eco- nomic disruption; and the effects are being felt globally, regionally and domestically. During the first half of the year, most economies went into “lockdowns”, a necessary protection measure to try to reduce the degree of the spread of the COVID-19 virus. As a result, economic ac- tivity worldwide was greatly affected, notably international trade and tourism. The International Monetary Fund (IMF) has also projected a gloomy growth outcome for 2020. The global economy is expected to contract by 4.9% in 2020, much worse than the negative 0.07% growth recorded during the global financial crisis in 2008/09. However, gradu- al recovery is expected in 2021 as most economic activities are antici- pated to have bounced back towards normality. Countries around the world are also developing or have developed policies and strategies essential to encourage economic activity. Botswana has also been preparing a post COVID-19 economic recovery strategy. This strategy is discussed below along with the sectors which have the potential to help the country to bounce back to growth. page 1 www.econsult.co.bw COMMENTARY The Economic Recovery and for international tourism, for its famous Okavango Delta Transformation Plan (ERTP) and the luxurious safaris on the land. Although Tourism Botswana, like many other developing countries, has been does not directly appear as a distinct sector in the national affected by the corona virus pandemic. The national ac- accounts, the sector is estimated to contribute about 5% counts data from Statistics Botswana showed that year- of GDP (Tourism Satellite Accounts, 2016). Hence, there is on-year growth in the first quarter of the year decreased an important need to promote domestic tourism of other by 0.4% to 2.6%, down from 3.0% year-on-year growth unexploited tourist attraction sites other than the famous recorded in Q4 2019. The IMF has forecast a contraction Okavango Delta. This will not only reduce pressure from of 5.4% for Botswana in 2020; but there are a lot of un- one area, but also develop other tourism destinations in certainties as to when most effects of the virus will even- the country. tually phase out and economic activity return to normal. Moody’s are projecting growth of minus 7% for Botswana Agriculture: Food security has become paramount since in 2020, while the Government’s own forecast is a contrac- the onset of the corona virus pandemic. The Government tion of 8.9%. The bounce back of economic activity relies realises the need to increase food production for products on many factors, including the effectiveness of govern- in which Botswana has a comparative advantage, such as ment policies which are being or will be implemented to beef, grains and other horticulture products. The Govern- help bolster economic growth. In Botswana, the Govern- ment is ready to support commercial farming that uses ment is developing a strategy policy called the “Economic climate smart techniques and several funding channels Recovery and Transformation Plan (ERTP)”, which has as through CEDA and NDB have been revised and improved its main objective accelerating the pace of implementation to make access to finance easier for entrepreneurs. It is of existing transformation policies in Botswana. If success- important that commercial farmers develop their niche as fully implemented, the ERTP will assist Botswana to make the future growth and sustainability of the sector relies on the transition out of the corona virus crisis, stimulate eco- competitive enterprises. Also, the sector has a lot of poten- nomic activity and improve economic growth. tial to increase employment because of its labour intensive nature. We hold hopes that the ERTP will be able to also address some of the long-lasting issues impeding economic de- Information and Communication Technology (ICT): The de- velopment and growth in Botswana. Issues relating to the velopment of ICT, along with its essential infrastructure, declining rate of economic growth, a deteriorating fiscal is critical for Botswana’s transformation agenda. This was position, the need to diversify exports and the economy, highlighted when employees had to work from home dur- uncertainties around the diamond industry’s future and ing the period when the country went on a national lock- high unemployment. Fundamentally, the ERTP is aligned down. ICT is important for improving efficiency and the with existing aspirations to accelerate Botswana’s trans- quality of services offered which are essential for fostering formation agenda. a private sector led economy as well as economic develop- ment. Several sectors key to the ERTP have also been identified; these include Tourism, Agriculture, ICT, Manufacturing Manufacturing: This sector is at the core of industrialisa- and Mining. tion aspirations and strategies for economic development in Botswana. In theory, manufacturing can be the driver Tourism: The Tourism sector is the most likely to be the of economic growth through technological improvements hardest hit by the pandemic, as recovery is likely to be and innovation. Similarly, trade is based primarily on slow due to ongoing restrictions on international travel as goods and less so on services. Hence, the development well as the need for customer confidence. This is because of the sector could also foster export diversification and the northern part of Botswana is the primary destination export-led growth in Botswana. page 2 www.econsult.co.bw COMMENTARY Mining: Although the share of the Mining sector in GDP has May. Both of these developments illustrate the continued been gradually declining over the past 30 years, the sec- high level of dependence on diamonds and the extreme tor remains important in the economy. Mining (especially urgency of developing new sources of export earnings; diamonds) is the single most important sector for foreign hence the need to focus on competitiveness. currency earnings in Botswana and exports of diamonds accounted for about 90% of the country’s total exports in The short-term government intervention measures which 2019. Mining is important for providing government rev- were introduced in early April were also of great assis- enues, which are used to finance fiscal expenditures for tance. At this point, without data, it is difficult to assess the provision of public services, development infrastruc- the survival rate of firms during the period, but it appears ture and employment. Coal is another mineral commodity that most firms have been able to survive the wave of the which is now being used to produce the Coal Bed Methane pandemic in the short-term. Similarly, the impact on em- (CBM) electricity. CBM electricity is much more environ- ployment cannot be measured and the most recent data mentally cleaner than the traditional coal fired electricity. from Statistics Botswana is only up to Q4 2019, when the CBM is a form of natural gas found in coal deposits. If COVID-19 virus had not yet impacted on Botswana. It is tapped into sooner, Botswana has an opportunity to pro- a good to note that about 80% of workers were eligible duce electricity to meet the national demand, as well as to be covered by the Government’s wage subsidy, so we export excess electricity to other regional countries. This hope that this reflects positively on the employment fig- would, in turn, diversify mineral exports and increase for- ures once they are available. eign currency earnings. The Bank of Botswana also implemented monetary policy The main impact of COVID-19 on the economy will be felt measures to support economic activity. The Bank Rate in the second quarter (April-June). GDP growth forecasts was reduced to 4.25%, and both nominal and real interest for this period will only be available at the end of Septem- rates are expected to decrease to reflect the policy chang- ber 2020. However, some data are available to assess the es. Along with other bank interventions such as the three short-term economic impact. Most critically, merchandise months holiday period for loans repayments, households trade data from Statistics Botswana showed that exports and businesses were positively assisted as these initia- dropped to almost zero in April and May. While imports tives eased their loan servicing burdens and reduced the also fell sharply in April - the main month of the lockdown cost of borrowing. BoB also reduced the Primary Reserve – they rose in May. As a result, the country experienced a Requirement Ratio from 5% to 2.5%, thereby injecting li- large trade deficit of over P4 billion in May 2020. The im- quidity into the banking system. Up to date data are not pact of this can be seen on the country’s foreign exchange yet available, but about P1.6 billion is estimated to have reserves, which according to Bank of Botswana (BoB) fell been injected into the banking system. Another notable from P68.9 billion at the end of April 2020 to P66.1 billion change was the downward adjustment of the rate of crawl at the end of May. This has also affected government rev- of the Pula exchange rate to an annual rate of -2.87% in enues, as little is being earned from the mining sector; as a 2020. This supports the export competitiveness of locally result, the balance of the Government Investment Account produced goods. at the BoB fell from P18.8 billion in April to P15.1 billion in page 3 www.econsult.co.bw KEY ECONOMIC VARIABLES Annual GDP Growth Sectoral Annual GDP Growth Q1 2020 Annual GDP Growth Sectoral Annual GDP Growth Q1 30% AnnualAnnual GDP GDP Growth Growth SectoralSectoral Annual Annual GDP GDP2020 Growth Growth Q1 Q1 30% 30% AnnualAnnual GDP GDPGrowth Growth Sectoral WaterSectoral & Electricity Annual2020 Annual2020 GDP GDPGrowth Growth Q18.5% Q1 20% Water Water & Electricity & Electricity 8.5% 8.5% Fin.Fin.
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