Sunday, October 25, 2020

What inspired Matambo’s bullish growth projection?

When Finance Minister Kenneth Matambo projected Botswana’s economic growth at 4.2 percent in 2016, local economists described his statements as overly ambitious. This development raised the question: What does Matambo know that the economists don’t? 

Perhaps Matambo was led to making such a bullish growth projection by the rapid growth observed in America in the past year. Botswana experienced very slow growth of 1 percent in 2015, down from 3.2 percent the previous year. In comparison to the projected 4.2 percent, this seems a quite a stretch from where growth figures currently sit. 

An excerpt from the Bank of Botswana (BoB)’s 2016 Monetary Policy statement puts America’s growth into context: “Output in the USA and UK grew rapidly compared to other advanced economies in 2015, supported by improvement in domestic demand as real incomes increased; in part due to the fall in energy prices. Output expansion also benefited from the accommodative financing conditions, less aggressive fiscal austerity measures and improving labour market conditions.”

According to the statement America’s economy grew by 2.4 percent and 2.5 percent in 2014 and 2015 respectively; and is projected to grow by 2.6 percent in 2016. America’s growth trends are an important yardstick because Botswana sells a significant portion of its diamonds to the US.

Diamonds remain the bedrock of Botswana’s economy and America has a direct influence on the country’s economy. The rapid growth experienced by America in 2015 could be the reason why Matambo remains confident that the local economy will supercharge its output to achieve a growth rate of 4.2 percent in 2016, from 1 percent in 2015. Matambo seems confident that America will continue on its bullish growth trajectory.  

Analyst and Portfolio Manager at Afena Capital South Africa, Shoaib Vayej said at a recent press club meeting hosted by Afena Capital that the world has run out of growth engines. While he cited America as a major engine of growth in 2015, Vayej said the US had started to stumble. America’s Central Bank, the Federal Reserve announced in December last year that it will increase interest rates-the first hike since the 2008/09 economic meltdown-with the hope of strengthening the economy. However, Vayej thinks differently, as he believes the hike was a policy mistake. He explained that the capital inflow affected the currency market as the USD strengthened while it’s trading partners’ currencies weakened; which reduced the US’s Dollar earnings. If the interest rate hike is indeed a policy mistake, Botswana’s growth projection could also be a mistake.

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