Expert doubts Botswana economic growth

WANETSHA MOSINYI
Staff Writer | Wednesday July 9, 2008 00:00

Commenting on the Bifm Economic Review for the second quarter of 2008, Dr Keith Jefferis said more generally, growth prospects for the year are uncertain, despite strong economic growth in the second half of 2007. He said growth is likely to be negatively affected by the global economic slowdown through reduced demand for exports and the regional electricity shortage. However, strong government spending domestically should help to support growth rates.

In Botswana, things may be made worse by two high-profile corporate failures in the transport sector namely Lobtrans and African Express. This may make the banks more reluctant to provide corporate credit, or impose tighter terms and conditions, which would restrict credit availability.

However, Jefferis said views in the private sector are mixed. The Bank of Botswana's Business Expectations Survey conducted in March 2008 reported that businesses expected an average growth rate of 5.9 percent in 2007-2008 (compared to 6.1 percent in 2006-2007, the most recent actual data), rising to 6.4 percent in 2008-2009. The impact of deteriorating economic conditions has already had a negative impact on two of the major development projects that were expected to boost growth in the coming years. These include the Activox Refinery Project, which was recently postponed indefinitely by Russia's Norilsk Nickel and the Mmamabula Energy Project, which will not take off as earlier envisaged.

The international economy is suffering from a slowdown in growth as well as sharply higher inflation. While the world economy is not yet in recession, growth is falling almost everywhere.

To what extent has this growth slowdown had impact on Botswana? Jefferis said so far, the impact seems to be limited. The latest GDP growth data only go as far as September 2007, but show that, at least up until then, growth was powering ahead.

In the year to September, total GDP grew by 5.9 percent, and the non-mining private sector by a striking 11.1 percent, with particularly rapid growth in the manufacturing, trade, hotels and tourism, and transport and communications sectors. 

However, Jefferis said export data, which is more up to date tells a less encouraging story.

Total exports in the last quarter of 2007 and the first quarter of 2008 were down 12 percent compared to a year earlier, with particularly sharp falls in exports of beef (down 44 percent), and textiles and diamonds (both down 17 percent).

'The reduction in these exports, which almost entirely go to developed country markets, suggest that the effects of the growth slowdown may be biting, and does not augur well for export led growth over the next couple of years,' Jefferis said.

There appears to be no equivalent credit crunch in Botswana, where the financial markets are relatively insulated from global financial developments, he added.

Domestic financial markets remain very liquid, and credit growth has been robust; total bank credit grew by 28 percent in the year to March, the fastest growth since 1999.

Growth has been particularly rapid in credit to the private business sector, which was up by 35 percent.

Looking specifically at mortgage markets, which have been at the forefront of financial sector problems in the major developed economies, in Botswana it appears to be business as usual.

Total mortgage lending by the commercial banks and the Botswana Building Society rose by 12.3 percent in the year to March 2008, and although lower than overall credit growth, demand for mortgage finance reportedly remains robust.

While the Botswana Stock Exchange (BSE) has experienced a period of decline since the third quarter of last year, there are only superficial similarities with the declines in stock markets around the world.

However, Jefferis said the decline in the BSE index largely reflects local developments.