Wednesday, December 8, 2021

Pula Fund ‘aid’ Botswana’s ranking as Africa’s fifth most attractive investment destination

Botswana has been positioned as Africa’s fifth most attractive investment destination, according to Rand Merchant Bank (RMB)’s Where to Invest in Africa 2021 report.

The annual report showed that Egypt is the continent’s top investment destination with Morocco following in second place while Botswana’s neighbour – South Africa sits comfortably on third spot. The continent’s most talked about – Rwanda has been ranked fourth while Botswana round up the top five list.

RMB, a leading African Corporate and Investment Bank and part of one of the largest financial services groups in Africa (FirstRand Bank Limited, or First National Bank Botswana), for Botswana, the country’s high foreign-exchange reserves, enabled it to weather the Covid 19 pandemic-induced economic storm better than most.

RMB Africa Economist Daniel Kavishe said a new world called for a new approach to the publication and this year’s reportassesses the extent of the pandemic’s impact by sketching the landscape of the continent pre-Covid-19, and then painting a picture of both its actual and potential outcomes through and post pandemic.

RMB says where previous editions positively projected Africa’s prospects, discerned through reliable and readily available data, COVID-19 has muddied the analytical waters and compelled the team to adapt its methodology.

In assessing Botswana, RMB picked that the country’s sovereign fund – the Pula Fund, created in 1994 is financing a large part of the budget deficit, lowering the diamond rich country’s fiscal dependency on debt.

While it’s been on the ‘red’, the Pula Fund has also worked in favour of Botswana in recent times when global rating agencies gave Botswana a clean bill of health for its credit position.

In September 2021, global credit rating agency – S&P Global Ratings (S&P) revised the country’s economic outlook from negative to stable on account of anticipated rebound in economic growth, partially led by the diamond mining recovery.

The latest move to change the economic outlook to stable by S&P is based on expectations that the country’s economic recovery will be driven by the anticipated strong recovery in the diamond market which, in turn, should result in a substantial improvement in the domestic fiscal and external sectors’ performance over the next two years.

RMB on the other hand says following an 8.5 percent contraction in 2020, Botswana’s economy is on a path of recovery, with growth slated for 6.7% in 2021.

“While the primary sector –diamond-mining in particular –is the main catalyst for this year’s growth, concerted efforts have been undertaken by both the private and public sector to ensure that the effects of the pandemic are minimised moving forward,” says RMB Botswana.

Botswana has put together Economic Recovery and Transformation Plan (ERTP) after securing funding from the World Bank and the AfDB to the tune of US$250m and US$137m respectively. The ERTP funds are expected to be directed towards attracting private-sector investments, contributing to the diversification of the country’s exports, and creating job opportunities towards a green economy.

[RMB’s top 5 Investment countries]

1. Egypt: While Egypt’s economy was hard hit by the pandemic, it was also one of the first to bounce back to a path of growth due the measures that were introduced and it has been on a stronger footing at the outbreak of Covid-19.

2. Morocco: The economy of Morocco continues to benefit from political stability. A special fund to combat Covid-19 was established in 2020, representing 2.7 percent of GDP.

3. South Africa: South Africa offers a strong manufacturing and retail base that will continue to support southern African regional economies with goods and services.

4. Rwanda: Rwanda continues to benefit from the efforts it has made to improve its operating environment. As a part of the country’s National Strategy for Transformation, various investments should support the construction and energy sectors over the next few years.

5. Botswana: The country has high foreign-exchange reserves, which have enabled it to weather the pandemic-induced economic storm better than most. The Pula Fund a sovereign fund created in 1994 has meant that fiscal dependency on debt has been low.

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