Resource-intensive economies are faring very badly from the COVID-19 pandemic and Botswana is counted among the hardest hit in Africa.
“Resource-intensive economies are estimated to have contracted by 4.7 percent in 2020 because of a drop in metal and mineral prices due to lower demand. Botswana (–8.9 percent), South Africa (–8.2 percent), Zambia (–4.9 percent), and Liberia (–3.1 percent) were particularly hard hit,” says the African Development Bank (AfDB) in its “African Economic Outlook 2021.”
When COVID-19 hit, the government imposed a travel ban whose effect was to lock out mostly European diamond buyers who come to Gaborone to buy diamonds. Resultantly, sales of rough diamonds dropped by as much as 64 percent and the national economy shrank by 24 percent in the second quarter of 2020.
If it is any consolation, AfDB says that African growth is projected to recover to 3.1 percent in 2021. The Minister of Finance and Economic Development, Dr. Thapelo Matsheka, said as much in his 2021/22 budget speech, projecting “strong” recovery in diamond exports.
“Within the mining sector, trade conditions are showing some improvement, as shown by an increase in demand for rough diamonds in the third and fourth quarters of 2020, amid easing of COVID-19 restrictions and ahead of the holiday season,” he said.
While Botswana’s economy has fared badly, it is also among the continent’s most resilient. The bank’s Economic Resilience Index (ERI) places Botswana among the continent’s six most resilient economies – the others are Mauritius, Namibia, Rwanda, Seychelles, and South Africa. The ERI measures an economy’s policy-induced ability to recover from, or adjust to, the negative impacts of adverse exogenous shocks and to benefit from positive shocks.
“Countries with high economic vulnerability that use appropriate policies to boost their resilience and withstand exogenous shocks are classified as “home-made” and include Botswana, Rwanda, and Seychelles,” says the bank adding that most African countries fall in the “self-inflicted” category of economies with low economic vulnerability as well as policies that have adversely affected their economic resilience.
The bank says that upside risks to the growth outlook hinge on the steadfast implementation of business environment reforms and government interventions against COVID– 19, including the Economic Recovery and Transformation Plan (ERTP). Downside risks include lower diamond demand if the global economic recovery is weakened by renewed waves of infection.
“There are also threats from persistent drought and the adverse effects of poor economic conditions in South Africa on Botswana’s exports and SACU receipts. The fiscal deficit is projected to narrow to 6.3 percent of GDP in 2021 as domestic revenues pick up. The current account deficit could improve to 7.4 percent of GDP in 2021, depending on how fast the diamond and tourism industries revive. Inflation is expected to be within the central bank’s medium term 3–6 percent target range, but could be higher if the recovery in global commodity prices is faster than anticipated and the constraints on aggregate supply are sustained by the potential reinstatement of worldwide lockdowns.”
