Africa > Southern Africa > Botswana > Botswana Outlook for 2016-17

Botswana: Botswana Outlook for 2016-17

2016/09/03

The country (Botswana) is situated in Southern Africa, north of South Africa.  It has borders with Namibia for 1360km, South Africa for 1840km and Zimbabwe for 813km.
Land in Botswana is predominantly flat to gently rolling tableland; Kalahari Desert in southwest. Botswana (singular), Batswana (plural) land covers an area of 600370 km²

The climate is semiarid with warm winters and hot summers. Botswana (singular), Batswana (plural) speak Setswana 78.2%, Kalanga 7.9%, Sekgalagadi 2.8%, English 2.1% (official), other 8.6%, unspecified 0.4%

OVERVIEW

The pace of economic increase has slowed reflecting weak request for mineral exports and a gloomy outlook for the world economy.
Increase prospects look promising, but the weak pickup in world increase, subdued commodity prices and persistent electricity supply problems pose substantial downside risks.

​The country has experienced a rapid pace of urbanisation which has been associated with some environmental harm and is straining urban areas’ capacity to provide jobs, infrastructure and other essential amenities.

The Botswana economy rebounded in the last five years next a significant setback following the 2008 world economic downturn. However, the country’s pace of economic activity moderated in 2014, reflecting modest increase in mining and persistent electricity and water supply problems. Real gross domestic product (GDP) increase is estimated to have weakened further in 2015 mainly due to subdued request for mineral exports on account of the gloomy world economy.

Despite this, Botswana’s increase prospects look promising, with real GDP increase projected to pick up slightly in 2016-17. The development in increase over the medium term is predicated on the government’s Economic Stimulus Programme (ESP), a gradual recovery in the world diamond market, and increased energy availability following the completion of remedial measures at Morupule B Power Station. The favourable outlook is as well underpinned by expected increase in manufacturing following the commission, in 2015, of a steel manufacturing plant and a horticultural processing plant. Downside risks persist from the weak pickup in world economic increase and subdued commodity prices.

In keeping with the government’s fiscal stance targeting a balanced budget, fiscal operations resulted in a budget surplus in FY 2014/15 for the third successive financial year. The government as well projected a budget surplus for FY 2015/16. However, government operations during the initial half of FY 2015/16 resulted in a fiscal deficit. The deteriorating fiscal situation is on account of a decline in mineral exports receipts. Therefore, Botswana is expected to record a fiscal deficit in FY 2015/16 for the initial time in four years.

Inflation continued to fall and breached the lower end of the Bank of Botswana’s mediumterm target range in February, March, September and November 2015. Annual average inflation ended the year in 2015 much lower than in 2014, reflecting lower fuel prices and the government’s commitment to prudent monetary policy.

Botswana has experienced a high rate of urbanisation, with nearly two-thirds of the country’s total people presently living in urban areas. Although rural-urban migration and natural people increase have played a role in urban people increase, the positive trend is mainly due to the reclassification of some villages to urban settlements.

 

Recent developments and prospects


Botswana is a resource-rich, middle-income country (MIC) praised for its prudent economic management. The country’s real GDP, supported by increased mining production, grew by nearly  10% annually from 1960 to 2008, thereby enabling Botswana to graduate from a least developed
country to MIC status in 1992. Botswana’s GDP per capita income has risen from USD 80 at the time of its independence in 1966 to USD 7 750 in 2014.

After a significant setback following the 2008 global economic downturn, the Botswana economy rebounded in the last five years. Real GDP grew strongly by 9.3% in 2013, underpinned by buoyant activity in the mining sector, particularly diamond production. However, the country’s economic growth slowed to 4.4% in 2014, and further to 2.5% in 2015. The slowdown reflects modest growth in mining activity and persistent electricity and water supply shortages.

In particular, weak GDP growth in 2015 is mainly attributable to the fall in mining value added, which contracted sharply. The negative growth rate of the mining sector was mainly due to a decline in diamond and copper/nickel production by 33.4% and 75.6%, respectively, in the twelve months to September 2015, compared to an increase of 14.1% and a decrease of 17.3%, respectively, realised in the corresponding period in 2014. The poor performance is due to the slackening demand for mineral exports on account of the gloomy global environment. The mining sector is an important engine of growth in Botswana, contributing an average of 24% to the country’s GDP from 2005 to 2014.


Botswana’s real GDP growth in 2015 was, therefore, driven by the non-mining sectors. With the  exception of water and electricity sub-sectors and the agriculture sector, all the other non-mining sectors registered positive growth exceeding 2% in the twelve months to September 2015. The
sectors posting robust growth were trade, hotels and restaurants; transport and communication; and central government. Growth in these sectors made up for the contraction of more than 100% in the water and electricity sub-sectors, which continued to be adversely affected by persistent
problems in electricity and water supply due to power generation challenges and poor rainfall,
respectively.

The continued poor performance of the electricity sub-sector is of major concern to the government, given the importance of water and power in the economy. To address these challenges, the government allocated a substantial development budget in FY 2015/16 to the sector and is in the process of establishing a Project Management Office to oversee implementation of major energy and water projects. The government is also undertaking major reforms through the National Energy Policy, which is undergoing the legislative process to guide the energy sector.

Agricultural output, which contributed 2.4% to GDP in 2014 (primarily through beef exports), registered negative growth during the period due to severe drought conditions during the year. Botswana’s crop production continues to be hampered by traditional farming methods, drought,
soil erosion and diseases. Botswana’s growth prospects look promising. Real GDP growth is projected to pick up slightly, averaging about 3.5% in 2016-17. The recovery from 2.4% in 2015 is predicated on government’s Economic Stimulus Programme (ESP), a gradual recovery in the global diamond market and increased energy availability following the completion of remedial measures to improve the reliability of the newly constructed Morupule B Power Station and refurbishment of the Morupule A Power Station. The government unveiled the ESP in October 2015, which seeks to stimulate economic growth, promote economic diversification and address Botswana’s high rate ofunemployment. The ESP is targeting key areas where there is a backlog of public projects, as well as labour-intensive activities to promote local enterprises. The favourable outlook is also
underpinned by the expected growth in manufacturing activity following the commissioning of a steel manufacturing plant and a horticultural processing plant in 2015.

Downside risks to the positive medium-term outlook persist from the weak pickup in global growth and subdued commodity prices. Other risks to medium-term growth prospects include lower revenues from the Southern African Customs Union (SACU), which are expected to fall in 2016 and remain subdued in the medium term and persistent drought and the lacklustre growth in South Africa (Botswana’s major trading partner). The risks underscore the need for Botswana to intensify efforts to diversify its economy in order to achieve sustainable high levels of economic growth. The country needs to promote industrialisation by accelerating economic transformation from the primary sector to advanced manufacturing and   services in order to reduce its vulnerability to shocks in the diamond trade. This can be done by stimulating growth of private sector investments and increase productivity of the economy by investing in economic infrastructure, providing a sound regulatory environment that is friendly to business, and enhancing skills development.

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