By Staff Writer | for Moakanyi Magazine
Before Covi19 hit all economies of the world, the African Union had the following insights for the economy of Botswana;
Real GDP is estimated to have grown 3.5% in 2019 after averaging nearly 4% in 2016–18, driven by the continued recovery in diamond production, following a rebound in global demand and resumption of operations at the Damtshaa mine in January 2018. With a fairly robust and broad-based expansion in nonmining activities. Supported by higher public investment and accommodative monetary policy, Botswana’s economy has recovered well from the recession in 2015.
Inflation averaged 3% between 2015 and 2018 and will remain stable at about 3.1% in 2019. Monetary policy has been progressively loosened, with periodic reductions in the policy rate (to 4.75% in August 2019 from 5% in October 2017). Low inflation reflects a combination of low domestic demand and modest increases in foreign prices.
The fiscal position has weakened on the back of higher spending associated with stimulating the economy and lower mineral revenues and receipts from the Southern African Customs Union (SACU). The fiscal deficit is estimated at 2.4% of GDP in 2019, financed primarily through drawdowns of fiscal savings and issuance of securities under the Government Note Program. Public debt, estimated at 23% of GDP in 2019, thus remains low.
The external position remains moderate, though the surplus in the current account shows signs of narrowing and is estimated to drop to 1.0% of GDP in 2019 from 1.9% in 2018. Faced with volatile diamond export revenues, the government has financed its public investments through reserve drawdowns rather than foreign debt. International reserve buffers have thus been declining since 2016, but remain high ($6.6 billion at the end of 2018, or 13 months of imports).
Tailwinds and headwinds
The medium-term outlook remains positive, with growth projected to rise to 4.2% in 2020 and 5.1% in 2021. Conducive conditions include accommodative monetary policy, initiatives to improve the business climate, and ongoing strategies laid out in the 11th National Development Plan to diversify both production and exports away from mining into other growth-enhancing and job-creating sectors.
When implemented, these initiatives should accelerate growth over the medium term, strengthening the government’s ability to address socioeconomic challenges and improve human development outcomes.
The Economic Diversification Drive is supporting local production of goods and services. Eight special economic zones have been identified. The Revitalization Program offers incentives to firms to invest in preferred industries. And the Cluster Development Initiative seeks to improve business productivity, value chains, and competitiveness in five sectors.
Despite the positive outlook, Botswana’s economy faces significant external headwinds from weaker global diamond demand. Other risks arise from ongoing weak growth prospects of South Africa and lower SACU revenues. This reflects the country’s heavy dependence on exports of diamonds. Despite rapid economic progress and its benefits to the country, the economic base remains narrow. Spatial poverty is still high in rural areas, remote communities, female-headed households, and among those with low education. Inequality remains high despite recent improvements.
At 18%, unemployment is also high, especially for youth. To address these issues, the country would benefit from diversifying its current development model driven by diamond mining and public sector–driven investments. Botswana needs to transition to a private sector– driven model and undertake reforms to exploit global and regional comparative advantages.
The small domestic economy means that the expected benefits from this transition would bear fruit only if the country relies much more on exports. That requires fostering private firms that can integrate competitively into global value chains by addressing constraints that hinder private sector engagement in trade and investment.
Source: AU
