Botswana ended the second quarter of the year with the worst quarterly trade deficit as the landlocked and diamond dependent economy’s trading position continues to worsen over the years.
The International Merchandise Trade Statistics report for last month, released by Statistics Botswana on Friday, shows that total exports in June were recorded at P943.5 million, falling by 70 percent from the P3.2 billion recorded in May. The decrease in outward trade receipts was a result of a 75.1 percent drop in diamond exports, the country’s economic mainstay. Nonetheless, diamonds remained the main export, representing over 58.2 percent of total exports, a departure from the usual contribution of nearly 90 percent.
On the other hand, the total imports for June were valued at P7.2 billion, up by 45.3 percent from May’s imports that clocked P4.9 billion. The increase was attributed to diamond imports which went up by 49.2 percent. Gaborone has now emerged as an important rough sales centre after the decision to move De Beers’ sorting operations and sight location to Gaborone in 2013, thus increased diamond imports from other De Beers mines outside Botswana.
With exports significantly lower and imports rising, Botswana registered a P6.3 billion trade deficit, the largest shortfall for a monthly trade deficit since 2012. The successive monthly trade deficits from April to June add up to a P9.3 billion trade deficit in the second quarter of 2020, also making it the biggest quarterly shortfall in over two decades. The massive deficit is also on the back of another P4.2 billion deficit recorded in the first quarter of the year.
Botswana’s trade position has been worsening, with the last five years revealing a troubling pattern where imports rose faster than exports, a sign that the country is losing money that could be circulating in the domestic economy that has been sluggish. Botswana ended 2019 with a cumulative trade balance deficit of P14.2 billion, the highest since 2012’s trade shortfall of P16.3 billion. The country’s continued growing deficits are reversals of gains made in the five-year period of consecutive trade balance surpluses that started in 2014, though the surpluses were growing smaller in size.
According to Bank of Botswana’s balance of payments data, the current account – which records the country’s transactions with the rest of the world – is estimated to have recorded a deficit of P7.2 billion in the second quarter of 2020, compared to a revised deficit of P219 million during the corresponding period in 2019. The merchandise trade, services and income accounts – which tracks the difference between exports and imports – recorded a combined deficit of P11 billion, which was partly offset by a surplus of P3.9 billion in the current transfers account, which is dominated by the Southern African Customs Union (SACU) revenue receipts.
Exports decreased by 96.9 percent, while imports decreased by 51.1 percent, leading to a deficit of P7.8 billion in the merchandise trade account. The fall in exports was largely due to a 99.4 percent decline in diamond exports from P16.9 billion in the second quarter of 2019 to P103.2 million in the second quarter of 2020. During the same period, diamond imports also decreased from P5.5 billion to P1.5 billion. The decrease in diamond trade mainly stemmed from lower demand for rough diamonds by importing countries such as China due to curtailed economic activity following COVID-19 related lockdown and movement restrictions. The third and fourth diamond sales cycles for 2020, that were scheduled for March and May, were cancelled due to the pandemic related restrictions.
The other commodities that contributed to a decrease in exports include vehicles and transport equipment, salt and soda ash, meat and meat products and textiles, which fell by 94.6 percent, 83.7 percent, 81 percent and 72.1 percent, respectively. In addition to diamond imports, other commodities that contributed to a decrease in imports are metal and metal products, and vehicles and transport equipment that fell by 75.6 percent and 74 percent, respectively. The negative balance in the income account resulted from the payments of investment income to foreign investors, mainly by the mining sector, which paid out about P2.9 billion in the second quarter of 2020.
The financial account, a component of balance of payments which tracks shifts in international asset ownership, registered an estimated net outflow of P4.9 billion during the second quarter of 2020 compared to a revised net outflow of P488 million in the second quarter of 2019. The outflow was mainly attributable to an increase in offshore investments, particularly by pension funds.
When put together, the overall balance of payments was in deficit of P16.3 billion for the twelve months to June 2020, compared to a deficit of P5.4 billion in the twelve months to June 2019.