Standard & Poor’s Ratings Services said it expects the Botswana economy to slow down this year and in the future on the back of decline in minerals revenues and impact of shortages of water and electricity.
Mining and mainly the diamond industry have been the major export earners, but have declined lately as demand has softened.
“We expect Botswana’s real GDP growth to slow over 2015-2018 due to weaker performance of diamond demand and prices,” said the ratings body.
It is estimated that the diamond sector represents less than one-third of Botswana’s GDP, about one-third of its fiscal receipts, and more than two-thirds of exports.
“The weaker global external environment stemming from China’s slowdown and declining liquidity in emerging markets is resulting in weaker performance of diamond demand and sales,” Standard & Poor’s said.
“As a result, Botswana’s diamond production is moderately scaling down,” it said, adding that it believes this will limit a broader negative impact on the financial conditions of Debswana, the country’s major diamond producer, which is a joint venture between De Beers and the state government. “We assume that diamond extraction will decline to about 20 million carats per year from about 22 million in 2014.”
Botswana economy is also battered by electricity and water shortages with the change in climate contributing to the drying of some dams like Gaborone and Bokaa.
The pipeline that carries water from the northern parts of the country is unreliable as there is continuous break down.
“Outside the diamond sector, Botswana’s economy continues to face water and power shortages, which has led to water rationing and power cuts,” Standard & Poor’s noted.
“Therefore, we expect real GDP growth will slow to 2.6% in 2015 before picking up again to 4% by 2018. On a weighted per capita basis, we expect real GDP per capita growth to average 2.3% over 2015-2018, in line with that of peers. We also expect that wealth levels, measured by GDP per capita, will remain below US$8,000 in 2015.”
When delivering his State of the Nation address early this week, President Ian Khama said due to the steeper than originally projected slowdown in mineral revenue, “our expected domestic economic growth has also been adjusted downwards to 2.6% this year.”