The latest Bifm Economic Review has painted a picture of a recovering Botswana economy, but one that is still faced with challenges of fighting recurring deficits that might force government to cut spending.
The economy will also have to live with the reality that Eskom is slowly switching the country off from its electricity grid.
“As 2010 drew to a close, economic developments in Botswana have continued to be largely positive, with improved growth, rising exports, low inflationary pressures and a cut in interest rates,” the report, authored by Dr Keith Jefferis, Bifm Investment Committee Chairman, stated.
The review for the 4th quarter of 2010 showed the real GDP growth was positive, reaching 10.7 percent in the year to September and largely driven by the recovery in mining, which grew by 21.7 percent.
The growth was largely underpinned by recovery in the global economy which picked towards the end of the year after the mini-slow down in the middle of the year that was feared could turn into a double dip.
The recovery also helped Debswana to increase its production guidance as the preliminary information showed it could have met its production target of between 20 and 23 million carats of diamonds.
Although sales were still shy from the pre-recession period, diamond sales improved as sales by Diamond Trading Company (DTC) rose sharply to an average of $484 million per sight in 2010. This was up from $325 million in 2009.
Nevertheless, this remained well below the average of well over $600 million per sight in 2007 and 2008, the review observed. There was also a 10 percent rise in prices of polished stones buoyed by the rising demand in the U.S.
United States accounts for about 45 percent of the global demand and De Beers is enticed to up production to 40 million carats this year to fill the demand gap.
Despite the positive outlook, Botswana economy could face threats that might reverse the gains of last year.
“Moving into 2011, the positive developments of 2010 should continue. Nevertheless, there will be several difficult economic challenges to be faced in the New Year, including the need to contain government spending and further reduce the budget deficit, and possible power supply problems,” Bifm added.
One of the most dramatic impacts of the global financial and economic crisis on Botswana was on the government budget, which moved from substantial surplus to substantial deficit between 2006/7 and 2009/10.
At the time of the 2010 Budget, it was projected that the deficit for the 2009/10 fiscal year would be P13.5 billion, or around 15 percent of GDP ÔÇô a magnitude that would be unprecedented in Botswana’s history and large by international standards, even in a period of generalised high budget deficits.
However, the actual deficit for 2009/10 was P9.5 billion, or 11 percent of GDP, some P4 billion less than estimated.
“The challenge of achieving a balanced budget by 2012/13 remains. While this will be assisted by a continued recovery of mineral revenues, the overall revenue picture will be adversely impacted by the anticipated decline in SACU revenues, and hence the burden of fiscal adjustment will fall on the expenditure side of the budget,” stated the review.
Finance Minister Kenneth Matambo last year hinted at austerity measures and said the 2011/2012 budget will focus on cutting wastage while focusing resources on sustainable projects.
“It will be important for stakeholders to recognise that resources are scarce and that allocation of resources require priority. What ever we do should be sustainable,” said Matambo.
Botswana businesses face power challenges as Eskom has started to reduce its exports to Botswana by another 150 MW this year from 250 MW. The reduction is in line with agreement between the South African power utility and Botswana Power Corporation.
Eskom is also under pressure to meet South Africa’s needs first, then Africa later.