Wednesday, May 22, 2024

BIFM says economic recovery sight, inflation to spike

It is expected that between 2010 and 2011, domestic and global economies will see some green shoots with improving diamond prices and other commodities.

Bifm said in an economic update for Quarter 1 of 2010 that the export sector, including mining, textiles and tourism, will see conditions improving.

“Export sectors that suffered last year will improve,” Dr Keith Jefferis, Chairman of Bifm Investment Committee, said.

A number of mines, which are a livelihood of the country, were either scaled down, shut down or put on care and maintenance.

It is anticipated that a couple of mines that were put on hold will be developed, including Discovery Metals operation in Maun, which is coming back on track with a uranium deposit quite likely to be developed. African Diamond’s project at the AK6 kimberlite and DiamoneX Lerala Mine are likely to come on stream as ‘conditions in the mining industry are good’, said Jefferis.

China and other emerging markets including India has been leading the recovery and helping Botswana copper-nickel prices that collapsed in 2009.

However, just like the stock markets, there could be a risk bubble and burst in the Chinese economy, which recovered very quickly.

The prices of these metals have tripled from the lower points of 2008 although they have not reached the peaks of 2007.

This is good news for miners like BCL and Tati Nickel, which have struggled during the recession.

Mining was the first industry to go into recession and later drew every sector into that economic abyss although other sectors like construction and financial services registered growth.

Despite light coming out of the end of the tunnel, there are other sectors of the economy that will find it difficult going forwards.

Jefferis said these are the ones that focus on the domestic markets.

They will be affected because there were no pay rises with declining household incomes coupled by the reduction in government expenditure.

“Mining and other export sectors will have a good year,” said the economist.

However, Bifm expects the inflation to jump to about 8 percent although the Bank of Botswana might be lenient not to up the interest rates.

Value Added Tax (VAT), that was adjusted by 2 percent from 12 percent to 14 percent, will be blamed for mark ups and high electricity costs.

“We will see it (inflation) sticking around 7- 8 percent for the rest of the year. Hopefully, as we go into 2011, it will go down,” said the former Bank of Botswana deputy governor.

The risk to inflation will also reflected by the uncertainities in the oil prices, with international prices gripping up.

“I will not be surprised if domestic fuel prices go up,” he added.

However, he hoped that in the next two months, the Bank of Botswana will understand the difficulties coupled by the fact that the Central Bank now focuses on inflation in the medium term.
Botswana’s inflation rate fell last month to 6 percent, which was the lowest for the first time in three months.


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