Botswana will emerge out of the current credit crunch with some “serious bruises” as the mineral sectorÔÇöespecially diamondsÔÇöwill be hard hit, blighting the growth prospects of the real economy, a senior official at Botswana Institute of Development and Policy Analysis (BIDPA) warned on Friday.
Professor Haile Taye, of BIDPA’s macroeconomic and focus unit said what has been happening within Botswana’s economy within the last three months raises a lot of concern but in general the country seems to be in a better shape compared to other African states.
He said the last three months both the financial sector experienced some downturn with foreign companies index in a decline and at the same time diamonds price and sales were sluggish.
However, he pointed out that Botswana’s position has been relatively healthy as compared with bankrupt countries of the north such as Iceland.
“Botswana has low external debt and the (central) bank assets are in a healthier position than in other countries. The current account is positive for Botswana and foreign exchange reserves represents an import cover of up to 30 months while in Iceland it was for four months,” he said.
Professor Taye was speaking on the topic: “The recent financial crisis; some reflections on its likely financial and economic effects on Botswana”, aimed at looking for possible areas of the economy that may be exposed to the international credit crunch.
The international credit crunch was sparked by the sub-prime mortgage lending in the United States of America, whose effects swiftly spread across the rest of the world, affecting the banking and insurance sectors.
Sub-prime lending is what some people called “irresponsible lending” that saw even people who did not qualify for loans under normal circumstances being given loans which they could not repay.
“This is the worst economic crisis since the Great Depression. It has been caused by a lack of regulation in the financial sector, greed and over supply of cheap money in the financial system,” he said.
“This shows that the market economy got drunk (during the boom period) and now it is on a hangover which is unfolding,” he said.
He said some of the interesting questions, which need to be posed in order to understand the extent of the credit crisis on Botswana, include where the bulk of the pensions are invested and the foreign exchange reserves to gauge the extent of the crisis.
Further, some of the areas which are sensitive include the profiling of tourists’ arrivals and their countries of origin as well as the country’s export market of non-mineral exports.
According to the law in Botswana, fund managers can invest as much as 70 percent of their portfolio outside the country and the bulk of that reside in the United States of AmericaÔÇöa country which holds close to 50 percent of the world’s investable funds but currently besieged by the meltdown.
“Tourism is likely to be affected, however, the jury is still out on the extent of the impact. The thing is tourists seem to come from the countries that have been hard hit by the global recession,” he added.
He warned that with the few examples that come, the country is likely to be faced with serious lay offs and a decrease in exports and revenue.
Analysts said it is difficult for anyone in Botswana to guess the extent of the impact since there is no readily available data that could be used to map the way forward.