Sunday, May 28, 2023

Stanchart doubts Botswana’s sustained return to pre-crisis growth rates

Standard Chartered has forecast that Botswana’s real GDP growth will be less than what the government has projected saying the economic growth will take longer time to reach sustained pre-crisis levels.

Finance minister, Kenneth Matambo, said early in the year that in real terms, the economy will grow by 6.8 percent in 2011 and 7.1 percent in 2012.

On its latest update, Standard Chartered, however, said GDP growth (real) will be 4.9 percent this year, 5.4 percent in 2012 and 3.2 percent in 2013.

“Given the dependence of the non-mining economy on government spending (which averaged 40 percent of GDP or more pre-crisis), Botswana may not see a sustained return to pre-crisis growth rates for some time,” Razia Khan, Regional Head of Research, Africa at Standard Chartered Bank said.

“This is despite improved prices for gem diamonds, which reflect output curbs as well as a recovery in global demand,” she added.

The market for diamonds has recovered more strongly than anticipated during the depths of the recession, which has enabled Debswana to increase diamond production above the originally projected level of 20 million carats last year.

Reports showed that prices for rough diamonds also rose strongly, with an average increase of 21 percent during 2010.

As a result, sales by De Beers Diamond Trading Company (DTC) rose sharply to an average of $484 million per sight in 2010, up from $325m in 2009.

Nevertheless this remained well below the average of well over $600 million per sight in 2007 and 2008.

Globally, retail (polished) diamond prices rose by around 10 percent in 2010, less than the increase in rough prices, and as a result industry margins are being squeezed.

This is said will limit the scope for further increases in rough prices in 2011, unless there is a stronger recovery in the retail market.

“The recovery of the global economy has helped boost Botswana’s exports, which showed healthy growth in 2010, rising by 30 percent over the 2009 figure,” Bifm said recently.

“This was largely driven by a recovery of mineral exports, particularly diamonds, which grew by 43 percent in 2010. Overall diamond exports in 2010 totaled $3.2 billion, the best performance since 2007.”

Standard Chartered added that while official estimates suggest that growth will bounce back to 7.9 percent in 2010, the medium term outlook, especially for the non-mining economy, remains subdued.

Botswana experienced one of the sharpest growth contractions of any African economy as a result of the global crisis. GDP declined 4 percent in 2009 following the forced closure of the country’s diamond mines over a four-month period.

The bank also noted that while the IMF has urged an improvement in public finances and greater promotion of private industry, longstanding constraints on Botswana’s diversification (small market size, a landlocked economy with expensive transport and utility costs) also need to be taken into account.

“Despite its successful growth record and reputation for sound economic management, Botswana has always struggled to attract FDI outside of mining.”


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