Mmegi Online :: GDP numbers sparkle, but household and business struggle
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Last Updated
Wednesday 17 January 2018, 23:00 pm.
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GDP numbers sparkle, but household and business struggle

The economy is seen growing by a healthy 4.7% this year up from an equally satisfactory 3.7% last year but the situation on the ground does not paint a picture of such a ticking economy with many businesses and households remaining under pressure.
By Brian Benza Fri 22 Dec 2017, 12:20 pm (GMT +2)
Mmegi Online :: GDP numbers sparkle, but household and business struggle








In September, the Ministry of Finance officials revised the 2017 growth estimate to 4.7% from 4.2% projected in February as higher output from the services sectors and the end of a drought eased pressure on major industries.

But numbers show that households and business are increasingly playing a lesser role in driving the economy and analysts believe the anomaly between the sparkling economic growth numbers and the struggling household is a reflection of Botswana’s economic structural set up.

The Botswana economy has largely been driven by the mining sector, which has in turn contributed the lion’s share of national income and foreign exchange earnings.

Explaining the anomaly, economists say such diamond-driven growth lacks the desired multiplier effect of job creation and improving demand since it is capital intensive. On the other hand, Botswana has not fully exploited the value chain on the manufacturing and retail side of the mining sector.

“Therefore with the improvement in diamond demand; prices/carat and prospects with Cut 9, the outlook for Botswana has improved on that premise, not because the overall outlook of other sectors or even households has improved.

The net effect of this growth dynamics therefore benefits the macros from a growth and balance of payments effect whereas the business and household activity is not significantly improved due to limited transfer of benefit to the demand cycle,” market strategist in the treasury department at First National Bank of Botswana (FNBB), Moatlhodi Sebabole said.

Economists believe there has been a structural shift on the expenditure side of Botswana’s gross domestics product (GDP), which is a result of the structural set up of Botswana’s economic growth.

“The pressure on households is evident on that household final consumption as a proportion

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of GDP has reduced to 50% from 57% levels as household disposable income has become under pressure in-line with subdued business activities. On the other hand, the current account has improved as a share of GDP in line with improvement with diamonds exports (current account as a share of GDP improved to 13% from 6.9% two years prior). Evidently, this structural shift means businesses and households play less role in economic activity,” added Sebabole.

With national economic growth still having limited multiplier effect, consumption expenditure growth has remained low due to the fact that households’ real income levels remain compressed on the back of rising unemployment and minimal wage increases.

This can be attributed to the closure of mines and other outlets, while wages have not necessarily grown, thus pressuring households further.

Although the economy is forecast to grow at about four percent, analysts remain cautiously optimistic as the subdued private-sector employment prospects, freeze in government headcount and high levels of indebtedness will continue to constrain growth in household consumption – therefore reducing the ability of economic growth to create enough sustainable jobs and new sub-sectors.

Households’ pressure is also reflected in banks’ credit uptake figures where despite an accommodative monetary policy stance in 2016, annual growth in commercial bank credit, particularly for household are hovering at decade low levels.

According to the central bank, the slowdown in annual credit expansion was mostly associated with the decrease in growth in lending to households, largely reflecting the effect of restrained growth in personal incomes.

The central bank projects that growth in personal incomes will continue to be restrained, contributing to modest overall domestic demand, with a dampening effect on inflation in the medium-term.

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