Sunday, June 16, 2024

Inflation to slide further, mining sector to pick-up the economy- analysts

The consumer price index (CPI) is expected to sage in the second part of the year while the mining sector is thought to bolster the economy of the country, analysts concurred last week.

The consensus from three analysts, however, warned of the hostile Middle East geo-politics, which is likely to upset-the-apple-cart at a time when central bank is looking at the de-rating of inflation from 14 percent to 12.1 as at the end of June this year.

The central bank governor, Linah Mohohlo, said at the Mid term review of the February Monetary Policy Statement ( MPS) that, despite the falling inflationary rate in the recent months, there is an impending dark-cloud of both international and domestic inflationary pressure, which makes it difficult to forecast on the possibility of a rate cut before the end of the year.

She said on the domestic front, the possibility of a hike in the administrative prices such as the public transport fares and telecommunication tariff rebalancing might add weight to the inflationary pressures, leading to second round effect.

The central bank has set itself an inflationary target of four – to- seven percent at the beginning of this year.

However, the possible domestic upwards inflationary pressures did not unnerve analysts who pointed out that the move is likely to have a small impact in the component of the CPI basket.

“Whilst an increase in transport fares and telecommunications tariff rebalancing will place an upwards pressure on CPI, these are currently relatively small components of the CPI basket.

Thus, unless the envisioned increase is very significant, the inflation rate should continue to fall,” an analyst at Allan Gray, Tapologo Motshubi, said.

Stockbrokers Botswana’s Alphonse Ndzinge said he expects inflation to cool-down to about nine percent by the close of the year, given the fact that government has decided to put other commodities on zero rated VAT starting the end of July this year.

“Also underpinning this viewpoint is the relative stability of the Pula, the widening coverage of zero rated commodities for VAT, the anticipated beneficial impact of the rebasing of the CPI and the expected benign influence of trading partner inflation for the remainder of the year,” he said.

But they were more concerned with the Middle East geo-politics which he said still remain uncertain and the tricky global energy supply and demand matrix which are being pushed to the limit by the demand from Brazil, China and India.

“A significant portion of the current oil price is as a result of the Middle East geo-political tensions, given the importance of that region in terms of oil production,” he said.

Political tension in that region flared up since the beginning of last year when the coalition forces moved into Iraq, one of the third oil producers under the flagship of Organisation of Petroleum Exporting Countries (OPEC), and there is another stand-off between the USA and Iran over the enrichment of missiles.

Iran is the second oil producing country after Saudi Arabia under OPEC.

But there is a strong optimistic mood that the mining sector, as a component, will drive the economy of the country further, thanks to the strong commodities market that spilled into this year.

“The outlook on commodities remains positive. Commodity prices should remain at the current level for sometime and this global buying of the commodities will revatilise the local mining industry,” Leutwetse Tumelo of Capital Securities said.

The Botswana economy is expected to benefit from both government and private sector mining activities well beyond this year which is also expected to create a number of jobs. Among the first new ventures to create jobs will be DiamondEx and African Copper, which are due to be commissioned in first and fourth quarter of next year, respectively.

“There are other mining projects which will come on board in 2008 which will add to increased employment in remote areas and increased earnings for government of Botswana and Batswana shareholders,” Tumelo added.


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