Monday, September 21, 2020

Global economic slowdown could affect Botswana’s economy

Botswana faces the possibility of a negative impact on its export earnings and economic growth if developed markets, like the United States and Europe, continue to post less than positive economic growth projections.

It emerged at a presentation by economic consultant Dr. Keith Jefferies that recent dips in global economic projections, especially in Japan, U.S. and Europe, are a threat to Botswana primarily because Botswana is an exporting country that is dependent on positive economic growth in developed countries which provide the markets for her goods.

Dr Keith Jefferies said that despite recent positive developments in Botswana’s economy, the country still faces a lot of challenges in dealing with international fuel and food price increases and the slowdown in the global economy.” To this end, with reference to recent global trends, Botswana ‘s inflation is expected to continue rising steadily in the first half of 2008, finally peaking at 11%, and settling at about 9% by the end of the year,” he said.

The expected rise in inflation is mainly due to the rising prices of fuel and food and rising inflation in South Africa and the rest of the world. Dr. Jefferies told the gathering that there is a close relationship between world crude prices and local fuel prices and the impact of global crude oil price hikes is usually felt locally after a four month lag. Despite the recent April 15 fuel price hike in Botswana, local fuel prices have recently fallen behind corresponding hikes in international crude prices such that there is a likelihood of imminent local fuel price hikes if the international crude prices do not fall or stabilize.

However, said Dr. Jefferies, there is a little bit of consolation in that the expected rise in inflation is not generated locally but is rather a result of recent global trends. Again, in the situation of Botswana, the rise in inflation has interestingly not been met by corresponding increases in interest rates.

The international monetary fund recently revised their global growth rate forecasts to 3.7% for 2008. However, developed markets like the U.S., Europe and Japan are expected to experience relatively slower growth rates of 1.3% while emerging market economies like India and China are expected to experience faster growth of about 6.7%.

Projections of global economic slowdowns, especially in the U.S., markets are not a positive development for Botswana which is primarily an export oriented country. A slowdown in the US economy will impact Botswana’s export earnings and, over a long time, economic growth negatively primarily because the U.S. is the largest consumer of our largest exports, textiles and diamonds.

The US alone consumes a bulk of the world’s diamonds such that slower growth in the U.S. economy will impact Botswana’s diamond industry negatively. The local economy will, therefore, be indirectly affected by the U.S.

recession, especially on the aspect of balance of payments. A U.S. recession will greatly affect prices at which the U.S. buys Botswana’s exports and, therefore, erode export earnings.

The U.S. alone consumes about 30% of Botswana’s exports while other developed economies, like Japan, consume 7% while Europe consumes 25%. Therefore, less than positive growth for these markets will translate into poor projections for Botswana’s economic prospects. Again, Botswana cannot put much dependence on copper-nickel exports because they are always dependent on global economic growth.

Dr. Jefferies also said that already the local diamond industry is starting to feel the pinch of the global economic slowdown as surveys have indicated that there has been a steady decline in revenue generated from diamonds exports in the last few years. Indications are that there has been a 2% decline in diamond export revenue in USD terms in 2007 as compared to 2006. Also there has been a 27% decline in revenue generated from diamond exports in the fourth quarter of 2007 as compared to the fourth quarter of 2006.

However, Dr. Jefferies said that there is no immediate crisis and, therefore, no need to push any panic buttons as Botswana has an abundance of foreign reserves which can cushion against the negative impact of short term fluctuations. He, however, warned that deep or prolonged U.S. economic recession will eventually call for serious adjustments in the local economy.

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