Monday, February 26, 2024

Global risk analysts predict possible loss for BDP in 2019

For the first time in the history of Botswana, global risk analysts are predicting a possible change of government after the 2019 general elections. Global Risk Insights (GRI) which endeavors to bring the political risk industry into the 21st century by creating new, cutting-edge approaches to political risk analysis has classified Botswana post 2019 political risk as “uncertain.”

Another risk assessment organisation, BMI Research states: “We expect the political scene to undergo a period of change. This is due to declining support for the BDP amid perceived autocratic ambitions of the BDP leadership and endemic social issues. Growing support for opposition parties will therefore threaten BDP’s power in the next elections.” BMI further points out that “Ongoing social issues and perceptions of undemocratic leadership will , however , boost opposition support during the present political mandate (2014-2019), enabling these parties, as part of the Umbrella for Democratic Change (UDC) coalition, to mount a credible threat to BDP’s power in the next parliamentary election in 2019.”

In their risk analysis under the title: Under the Radar: Will 2019 make or break Botswana?   Written by Senior Analyst Jeremy Luedi, GRI which pioneered a unique political forecasting methodology called Future Generator which combines data analytics with human intelligence states that, “Botswana’s opposition will run a single candidate in 2019 in order to unseat the long-ruling BDP. The country’s political and economic future is at stake.”

“This new coalition, the Umbrella for Democratic Change (UDC) seeks to shake up Botswana’s politics, as economic troubles and a controversial outgoing president set the stage for uncertainty in one of Africa’s most stable countries”, states GRI.

“Like many African independence-era parties, the BDP has held a monopoly on political power, ruling Botswana since 1966. Despite this, the country has managed to peacefully develop and is often touted as a poster-child for effective African governance. That being said, there is increasing talk among observers that we are witnessing the end of Botswana’s exceptionalism, as the country struggles to find a coherent foreign policy, and as inequality, unemployment, and economic hurdles mount.

These factors saw the BDP capture less than 50% of the vote for the first time during the 2014 elections. The four main opposition parties, which have formed the UDC, in turn garnered 53.55% of the vote.”

In the same report under the sub heading: New president, new direction? GRI points out that, “the UDC is planning ahead for the 2019 elections, hoping to unseat the BDP, especially since President Ian Khama is due to step down that same year, as his final permitted five year term comes to an end. The BDP will have to find a candidate to replace a president who leaves behind a mixed legacy.”

GRI has a global team of over 160 analysts and a global network of experts who provide cutting-edge analysis on political events shaping business, economic, and investment climates in every corner of the world and are frequently referenced by leading think-tanks, financial institutions, military generals, former foreign ministers and leading media outlets, including BBC World, The New Yorker, The Wall Street Journal, TIME Magazine and many others. 

GRI also predicts an uncertain Economic future for Botswana. “In recent years, the “narrative of Botswana as a country that escaped the resource curse and [became] a success story as an economic and development success is slowly fading.” Indeed, despite its claims of having avoided the resource curse, Botswana is still heavily reliant on the diamond industry, with uncut stones accounting for some 80% of national exports.

Reduced demand and a glut of diamond jewelry caused a 30% decline in prices during 2014-2015, resulting in the closure of many firms and increasing unemployment. Rising unemployment and youth demographics are both creating instability in Botswana, with the diamond price slump directly correlating to the BDP’s (relatively) poor performance in the 2014 elections.

The problem for Botswana ÔÇô whose diamond reserves are expected to be depleted by 2050 ÔÇô is how to extend said industry’s lifespan in order to facilitate a smooth diversification transition….Botswana currently exports uncut stones, thereby missing out on substantial value added income.

Consequently, Botswana is seeking to become a leading diamond cutting and beneficiation hub, in part by encouraging foreign companies to settle in the country with the help of advantageous tax rates and other incentives. A key element of this strategy is the Debswana joint venture with jewelry-giant De Beers. Botswana produces approximately 70% of all of De Beers’ diamonds, so it has valuable leverage with which to encourage domestic processing, if it only manages to exert that influence. Initially this appears to have been the case, with De Beers stating that companies which are based in Botswana are eligible for a higher allocations of diamonds. The problem with this agreement is that there are almost no mandatory requirements for these firms to add value in Botswana.

Moreover, Botswana faces serious competition from China, the leading producer of synthetic diamonds, as well as India, which has positioned itself as the largest diamond beneficiation centre. India’s cheap, yet highly skilled 800,000 strong diamond workforce is a serious impediment to Botswana’s plans: by way of comparison the entire population of Botswana is only 2.1 million. The high cost of skilled labour in Botswana and southern Africa in general, combined with economies of scale, means that the government must initiate serious talks with unions, tie wages to productivity, and cut down on red tape. Yet Khama’s reluctance for such conversations means that any serious reform will have to wait until after the 2019 elections. A business-as-usual attitude is likely to remain among Botswana’s current government, especially as economic growth is set to almost double (from 2.9% in 2016 to 4.2%) in 2017, as commodity prices rebound.”

GRI further observed that “Botswana’s diamond mining ambitions will also need to be insulated from future infrastructure failings, if the country wants to maintain growth. Severe drought conditions saw electricity shortages in 2016, with the economy contracting by 0.8% in Q3 of 2016. This resulted in Botswana having to import electricity from South Africa, which in turn added additional expenses. Landlocked Botswana is already very reliant on South Africa’s ports, so further reliance on Pretoria’s own shaky grid during a time of political unrestsurrounding the ruling ANC does not bode well. Indeed, instability in the Rand has also been a headache for the Pula and Botswana’s Central Bank, which has been forced to keep adjusting the exchange rate on a crawling peg.

To make matters worse, Botswana’s efforts to secure a more stable electricity supply have been hampered by shoddy infrastructure projects, notably the debacle surrounding the Morupule B power plant. The 600MW, Chinese-built coal plant has been nothing but troublesince its completion in 2012. Given the project’s hefty $970 million price tag, it represents both a serious financial as well as generating capacity loss. Furthermore, the plant’s current owner, Botswana Power Corporation ÔÇô which is planning to sell the plant ÔÇô has been running at a loss for the past eight years, posting a $180 million loss in 2016, despite $218 million in government subsidies.

While the government has increased spending on water infrastructure and electricity generation in the 2017 budget ÔÇô pushing the budget deficit up to 1.43%, it is facing more than just energy problems in its mining sector. Chief among these is the plight of state-owned BCL Mine Ltd. which was put under provisional liquidation in October 2016. Specifically, Russia’s Norilsk is taking legal action against BCL to recover $271.3 million owed for a 50% stake in South Africa-based Nkomati JV. BCL is also facing additional creditor claims amounting to $84.4 million.

Nevertheless, a ray of hope appears to have emerged in the form of a potential buyer for BCL, with the High Court delaying BCL’s provisional liquidation on February 7th. While the buyer is unknown, Minister of Minerals, Energy and Green Technology, Sadique Kebonang recently posted a picture of himself on Facebook with the caption ‘in UAE trying to save BCL.’

Whoever takes the helm in 2019, they will be facing a host of challenges, as Botswana attempts to save, not just BCL, but its future as well.”

BMI Research on the other hand states that, “Social unrest will remain relatively limited in Botswana, even despite the significant economic headwinds facing the country due to faltering diamond production. This comes as a history of legitimate electoral processes and the likely formation of a credible opposition coalition will provide citizens with the means to voice their discontent with the ruling Botswana Democratic Party in the 2019 elections and offer an outlet for discontent .”

BMI Research is a world leading business risk assessment outfit. For more than 30 years, their forecasts, data and analyses have been used by multinationals, governments and financial institutions to guide critical strategic, tactical and investment decisions. Clients include a majority of Global Fortune 500 companies.


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