Friday, April 3, 2020

Botswana’s economic outlook for 2020

In the political space the year ended with the main opposition taking the ruling party to the courts of law for alleged vote rigging in some constituencies.

Some amongst the business community are worried that the court proceedings on election outcomes are delaying progress in dealing with other important aspects of the policies.

The combination of economic and political developments over the past 12 months in Botswana has geneated particular interest in the outlook for the economy in 2020. What are some of the relevant factors to be taken into account as 2020 unfolds?

Botswana’s economy continued to show signs of weakness, as evidenced by its latest Gross Domestic Product (GDP) figures revealing that the diamond dependent economy staggered following slowed growth in key sectors.

Figures of the 2019 last quarter from Statistics Botswana have shown that real GDP grew by 3.1 percent in the third quarter of 2019 (Q3 2019), which was a similar rate compared to the second quarter. However, the 3.1 percent annual growth rate is lower than the 4.1 percent rate recorded in 2018’s third quarter. The GDP growth was constrained by both mining and non-mining sectors.

Government expenditure, unemployment, FDI

Slow growth in government spending, the largest constituent under others, continues to be the greatest challenge facing businesses, as shown by the Bank of Botswana’s Business Expectation Survey.

Also unavailability of skilled labour is often considered the most impeding factor to business operations and relates to reported difficulties experienced in recruiting foreign skilled labour.

The challenge of lack of skilled labour is more pronounced for the construction sector followed by manufacturing. Lack of skilled labour is also one of the areas that are highlighted among the main challenges to doing business in Botswana by the Global Competitiveness reports.

As now the general elections are out of the way, Motswedi Securities Senior researcher, Garry Juma said it remains unclear on the strategy that is going to be applied by President Dr. Mokgweetsi Masisi. “It remains unclear if the man will expand his budget or he will be cautious in spending,” he said.

The country is expected to run budget deficits in the next two financial years as government ramps up on job creation and improving civil service salaries. The budget deficit for 2019/20 is estimated at P7.7 billion or 3.8 percent of GDP, while the expected deficit for 2020/21 is set at P6.9 billion or 3.1 percent of GDP, and then another deficit of P4.4 billion in 2021/22.

According to Juma, with the relaxation of business operating from home it may not be employment but it will help the youth to start their own businesses from home and make something for a living. Although there may be structural challenges, as long as there is a directive from the office of the president then it will be helpful and make it easier for the authorities concerned to implement the directive.

Botswana still ranks the best in the world in transparency, corruption, rule of laws and security indexes but surprisingly the foreign direct investment is still not realised to the expected level.  The big question “why” remains, but no answer to that.

Diamonds exports performance

The diamond industry has struggled to maintain resilience in the first three quarters of 2019 following mild growth in the last two years. The softer demand for polished diamonds was also driven by two major factors: geopolitical and macroeconomic tension which lowered consumer confidence and thus demand, and an increase in e-commerce created efficiencies in the supply chain that decreased the need for inventory on hand. This has affected diamond mining giant De Beers’ revenue which has slumped following decline in sales of rough diamonds this year.

Inflation performance and bank rate

Meanwhile, the central bank’s Monetary Policy Committee (MPC) in December, during the sixth and last meeting of the year, decided to keep the bank rate at 4.75 percent, the lowest rate in the history of modern Botswana. The rate hit the new lows in September after MPC slashed it from 5 percent, ending three years and nine months of the same rate.

The bank rate cuts have been part of larger efforts by Bank of Botswana (BoB) to stimulate demand in a low inflationary environment, which the bank attributes to subdued domestic demand pressures.

BoB anticipates consumer inflation to remain below the lower bound of the objective range for the remainder of the year. However, the bank’s officials revealed that inflation rate will increase slightly in the second quarter of 2020 on the back of increase in prices of electricity and water tariffs expected in the same quarter.

The annual inflation rate in December 2019 was 2.2 percent, registering a rise of 0.1 of a percentage point on the November 2019 rate of 2.1 percent.

The national Consumer Price Index was 102.2 in December 2019, registering a growth of 0.2 percent, moving from 102.0 recorded in November 2019.

Equity Market Statistics

The Botswana Stock Exchange total turnover of P4.2billion was recorded in 2019 compared to P4.4billion in 2018, a relative decline of 4.2 percent. In 2019, the equity market performed relatively well in comparison to the corresponding prior period as evidenced from a pullback in market returns.

The decline in the Domestic Company Index (DCI) registered at 4.6 percent compared to a decline of 11.4 percent in 2018, attributable to a rebound in the majority of the stocks.  In the period under review, 11 companies (compared to 8 in 2018) registered positive price changes, 10 (compared to 14 in 2018) registered negative price movements and 3 (compared to 4 in 2018) closed the year with -share prices back to their 2018 levels.

Efforts to attract listings and products intensified in the year, although there was no conversion in terms of actual listings. Other projects commenced and progressed successfully, such as the implementation of the new CSD system and the implementation of the new equity brokerage commission, and are expected to stimulate performance in the years ahead.

Strengthening implementation of policies and projects

A lack of effective implementation must cease to be the game in Botswana’s economic performance.

To reduce policy uncertainty and boost investor confidence a clear and consistent sense of direction ought now to emerge in 2020around the drivers of economic growth. An intensive collaborative effort between the public and private sectors is highly required to help overcome entrenched constraints on growth and reform.

The nation awaits full implementation of the National Transformation Strategy will be the national value system that will promote the spirit of entrepreneurship and commitment to development. In his previous inaugural speeches, Masisi assured that public institutions will be revitalized and they in turn, will renew their commitment to serve effectively with purpose and agility.

Overall, 2020 remains a critical fork in the road towards Botswana’s challenging goal of a bigger, stronger and better economy, which will require strong political leadership and skilful economic steersmanship to successfully manage it.

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