Standard Chartered Bank has said that should the South African economy underperform due to the ongoing political unrest the impact is likely to automatically have a further impact on the Southern African Customs Union (SACU) receipts.
The SACU receipts have direct impact on Botswana’s economy as well as that of other small member states such as Lesotho, Swaziland and Namibia.
Speaking recently in Gaborone, the London-based Standard Chartered Bank Chief Economist, Africa Global Research, Razia Khan said Botswana’s economy was volatile due to the political instability in South Africa.
She observed that investor confidence in South Africa had been risked by the recent Cabinet reshuffle, adding that there was no assurance from the Treasury office.
“SACU revenue doesn’t help when you look at the volatility and with the current events in South Africa one cannot be positive that this is going a super turbo-charged source of revenue,” said Khan.
She said the revenue sources of Botswana were vulnerable particularly the diamonds mining sector which is exposed to the economic cycle. She said when commodities prices are doing well mining revenue will be stronger and Botswana will be fine. When mining revenue doesn’t look strong an allowance needs to be made for that.
She is of the view that Botswana needs to preserve its current credit rating status because the coming years would not be easy.
She said Botswana was likely to see accelerated reforms where the growth model is less dependent on just the input of government.
The private sector has to play a big role as a driver of economic growth in the country, she said.
Khan stated that if there was a threat on South Africa’s economy and investor confidence waned, this posed serious implications for Botswana.
“Botswana was underperforming relative to other middle income countries due to the fact that the economy was dependent much on the government rather than the private sector,” she stated.
Khan stated that the correct assessment about Botswana in 2017 was that the country would have a cyclical recovery during the year adding that growth would be better than it was last year.
She stated that there were important issues that needed to be considered in Botswana which includes the sustainability of the country’s model. She said that Botswana would see little pressure to undergo rapid fiscal consolidation just because global financial conditions were tightening.
However, she said this did not mean that Botswana’s economy did not have pressures of its own, adding that the country seems to be caught up in a classic middle income trap.
Khan said if an economy can sustain 7 percent growth and doubling in size every 10 years means Botswana has been doing well with the management of diamonds revenue and high rate of investments.
“Economist are beginning to question the efficiency of public investment. Even though the numbers are big, there are questions about whether that investment is driving the same extent of growth benefit as it once did,” said Khan.