BY PORTIA NKANI
Sub Saharan Africa region’s growth in the region is expected to rise to 3.3 percent in 2019, reflecting a rebound in oil production in Nigeria and Angola, shows the recent release of World Bank’s Africa Pulse report.
Botswana’s neignbouring South Africa, which is perceived as one of the region’s power houses, its economic activity is expected to remain subdued, as high unemployment and slow credit growth weigh on household demand, and fiscal consolidation limits government spending.
“Economic activity in the rest of the region is expected to continue to expand at a solid pace. Nevertheless, average growth per capita will remain weak, pointing to continued slow progress in poverty reduction. Structural constraints hinder a stronger rebound in the region’s largest economies, and growth is expected to rise moderately in 2020 to reach 3.6 percent,” reveals the report.
Still on the recovery path, not there yet
The bi-annual analysis of the state of African economies by the World Bank further indicates that, Sub-Saharan African economies are still recovering from the slowdown in 2015/16, but growth is slower than expected. The average growth rate in the region is estimated at 2.7 percent in 2018, which represents a slight increase from 2.3 percent in 2017.
Slow growth is partially a reflection of a less favorable external environment for the region. Global trade and industrial activity lost momentum, as metals and agricultural prices fell due to concerns about trade tariffs and weakening demand prospects. While oil prices are likely to be on an upward trend into 2019, metals prices may remain subdued amid muted demand, particularly in China. Financial market pressures intensified in some emerging markets and concern about their dollar-denominated debt has risen amid a stronger US dollar.
The International Monetary Fund (IMF) had in January, also forecast that the emerging market and developing economies will grow at a rate of 4.4 percent in 2016 and 4.7 percent in 2017, and reach 4.9 percent in 2018. This attributable to the expected robust economic activities in China and other emerging European countries, especially Turkey and Poland, owing to supply side reforms such as expansionary policy mix. Sub-Saharan Africa economies will benefit from the recovery in the global economy, with growth forecast to increase from 1.4 percent in 2016 to 2.7 percent in 2017, and further to reach 3.3 percent in 2018. This was underpinned by recovery in commodity prices, which resulted in increased oil production in Nigeria and Angola.
Some of Sub Saharan Africa’s powerhouses, cloudy view
It is no secret that, South Africa and other emerging markets like Turkey and Argentina are facing powerful crosswinds driven by rising oil prices, higher yields in the United States, dollar appreciation, trade tensions, and geopolitical conflict. For South Africa, In September, Moody’s Investors Service cut its estimate for South Africa’s 2018 GDP growth from 1.5 percent to between 0.7 percent and 1 percent after the country slipped into its first technical recession since 2009. It also took down its 2019 forecast from 1.9 percent to 1.5 percent.
Similarly, the International Monetary Fund (IMF) has since earlier this year revised South Africa’s economic growth forecast downward in 2018 and 2019 as a result of rising political uncertainty which it says weighs on confidence and investment.
It projects the country’s economy to grow by 0.9 percent over the next two years, down from a projection of 1.1 percent in 2018 it forecast in October, and 1.6 percent in 2019.
“The growth pickup in Sub-Saharan Africa (from 2.7 percent in 2017 to 3.3 percent in 2018 and 3.5 percent in 2019) is broadly as anticipated in the fall, with a modest upgrade to the growth forecast for Nigeria but more subdued growth prospects in South Africa, where growth is now expected to remain below 1 percent in 2018ÔÇô19, as increased political uncertainty weighs on confidence and investment,” the IMF said.
Back on the Africa Pulse report, the slower pace of the recovery in Sub-Saharan Africa is explained by the sluggish expansion in the region’s three largest economies, Nigeria, Angola, and South Africa. Lower oil production in Angola and Nigeria offset higher oil prices, and in South Africa, weak household consumption growth was compounded by a contraction in agriculture. According to the Washington-based institution, growth in the region – excluding Angola, Nigeria and South Africa – was steady. Several oil exporters in Central Africa were helped by higher oil prices and an increase in oil production.
In a related development, the Central Bank of Nigeria (CBN) over a month ago allayed worries over the fluctuation in external reserves, assuring that with its current levels at over $44 billion, there’s no cause for alarm.
South Africa which was declared to be on recession few months ago, signals that there will be a reduction in the size of the SACU revenue pool hence a reduction in Botswana (and other SACU countries) shares of revenue.
Barclays Botswana Economist, Naledi Madala at the time of events also observed that, the ongoing South Africa Rand weakness, has led to a significant USD/BWP (dollar/pula) depreciation. The currency weakness will have a positive impact on exports competitiveness. She however said, the currency weakness will exert upward pressure on inflation locally.”
The world’s biggest diamond producer by value
Located towards the bottom tip of the Africa continent and commonly known to be politically stable unlike to its regional peers, by comparison, the World Bank in January forecast Botswana’s growth at 4.7 percent in 2018 and 4.5 percent in 2017.
Even so, Botswana’s own budget delivery by Finance Minister Kenneth Matambo projected 2018 growth to reach 5.3 percent from 4.7 percent in 2017, while revenues will jump to P64.3 billion from the revised 2017/18 figure of P57.2 billion.
Best known for its rich high value diamonds in the global sphere, the country’s increase in both growth and revenues is underpinned by Matambo’s projection of a 51 percent leap in mineral revenues in 2018/19 to P24.6 billion.
The stronger forecasts will go some way towards ameliorating the lower projected contribution of customs earnings to revenues, which Matambo said would be under pressure from “weakerÔÇôthanÔÇôexpected imports and household consumption in the region”.
The recovery in the global economy is expected to have major impact on the performance of the domestic economy during 2017 and 2018, as it provides a market for exports.
Mining sector performance is expected to benefit from the recovery in the global economy, while that of non-mining sectors reflects the impact of government’s interventions in terms of policies and strategies to diversify the country’s sources of growth. Already, the diamonds which are the country’s mainstay of the economy, has seen a positive demand from the global markets.
According to Barclay’s Economist, trade balance is expected to improve, returning to a surplus over the full year as mining output grows, supported by global demand and a weaker Pula. De Beers’ half year 2018 diamond production data reported growth of 9 percent year-to-year compared to 5.7 percent a year earlier, which bodes well for export prospects.
Economic growth is set to accelerate over the coming quarters in Botswana as the country’s key mining sector recovers from a recent slowdown. An increasing focus on capital expenditure in government budgets will offer further support to the country’s real GDP growth.
Market researchers have indicated that, Botswana is likely to benefit from continued political stability in the run up to the 2019 general elections, as an economic recovery will temper social tensions in the short term. Meanwhile, new president Mokgweetsi Masisi will likely increase spending on major capital development projects in a bid to distance himself from his predecessor Ian Khama, which will also bolster the country’s business environment.
Botswana’s central bank will look to resume easing monetary policy over 2018 in order to support weak credit growth. While economic growth is already accelerating due to stronger mining activity, a benign outlook for inflation will provide room for a more dovish stance going forward.