Rand Merchant Bank Botswana (RMB), a division of First National Bank Botswana (FNBB) says the current market conditions are characterized by tight economic conditions, consumer and business pressures as well as low interest rate environment. When speaking at the recent RMB risk management workshop, Moatlhodi Sebabole, Research Manager -Treasury at RMB-Botswana, said there is need to focus on hedging strategies and instruments to manage risks associated with interest rates, foreign exchange and commodities prices.
“We now have changing drivers of economic growth, with a shift towards consumption-led growth and a move from net exports to net imports,” he said.
Botswana’s GDP increased by 4.4 percent in 2014, down from a revised 9.3 percent in 2013, which Sebabole attributed to increase in value add of transport and communications, tourism and mining. He added that total GDP growth averaged 6.6 percent in the past five years, and is expected to average 5.0 percent for the next three years.
“Past growth was spurred by mining output which outpaced non-mining private sector growth. However, mineral revenues are expected to decline in the short-to-medium term while SACU revenues are under threat,” he said.
While diamond prices soared from 2011, they are expected to get softer in 2015 due to lower value of sales and decreasing average prices. Also, Russia is likely to increase production to boost growth. A sharp drop in diamond production in Botswana is expected in late 2020’s, even though diamonds will continue to support economic growth.
At the same time, the Botswana Pula is under pressure as economic data indicates that dollar inflows from DTC auctions have no fundamental impact on movements of the local currency.
“Over the past year, the Pula was largely on the back foot against the dollar as the growing divergence between a stronger US economy and struggling economies in the Eurozone, China and Japan become more evident,” said Sebabole.
“This year, the Pula has experienced a mixed performance against the dollar owing to some patchy US indicators in 1H15. Furthermore, growing challenges in South African economic fundamentals have weighed heavily on the Pula’s direction.”
However, Botswana achieved a balanced budget in 2012/13 after four years of budget deficits, and government has committed to restoring a balanced budget by cuts in spending and recovery of revenues. Sebabole stated that revenues are projected to remain below historical average of 40 percent of GDP as government targets small budget surpluses.
“Infrastructure developments remain in the top agenda for economic diversification,” said Sebabole.