Economy shrinks 24%, officially enters recession
Mbongeni Mguni | Friday October 2, 2020 18:08
The economy grew by 2.6 percent in the 12 months to March 2020, before plummeting as COVID-19 forced the closure of borders, reduced demand and prices for the country’s key commodities and inhibited productive activity through movement restrictions.
On Tuesday afternoon, experts said the country was in a technical recession as it had experienced two consecutive quarters of negative growth, on a quarter-on-quarter basis. On a quarter-on-quarter basis, the economy shrank by 0.8% between January and March and then by -24.8% between April and June. On a year-on-year basis, the economy grew by 2.6 percent in the first quarter to March 2020, then fell by 24% in the quarter to June 2020.
Local analysts, however, mainly use the year-on-year figures to analyse growth in order to avoid the seasonal swings associated with quarter on quarter analysis. Either way, however, experts say the quantum of the fall in the economy qualified to be called a recession.
According to the latest data, mining, the economic mainstay, led the drop into recession, with real value added falling by 60.2% in the second quarter.
“Diamond production in carats went down by 67% while coal production in tonnes decreased by 40.7%,” Statistics Botswana researchers said in a statement on Tuesday afternoon.
“Diamonds are luxury goods and therefore are bound to fluctuate due to the appetite of reliable customers as the world is highly affected by the outbreak of the coronavirus pandemic. There is a significant drop in the demand for diamonds in the global markets.
“With regard to coal, the remedial works on Morupule B power plant had a negative impact on its uptake and consequently the decline in production.”
The non-mining sector, which in recent years has played a growing role in supporting the economy, fell by 20.7% in the second quarter of 2020 compared to a 4.3 percent increase registered in the same quarter of the previous year.
Within this, the value added by trade, hotels and restaurants fell 40.3% while manufacturing dropped 31.1%, construction -36.3%, transport and communications -16.9% and the financial sector -11.9%.
“The suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of the hotels and restaurants industry,” Statistics Botswana researchers said.
“In manufacturing, the steep reduction is attributed to a massive decline in the sub-industries of beverages and other manufacturing, which include diamonds processing, by 58.5% and 32.3% respectively.
“The production of (alcoholic) beverages such as Chibuku and beers declined drastically by 84.2% due to lockdown during the quarter under review.”
While the finance sector dropped by 11.9%, the banking and insurance sub-sectors witnessed positive growths of 4.4 percent and 1.9 percent respectively, anchored by Bank of Botswana interventions and the industries’ resilience and adaptation.
Surprisingly, the economy’s perennial underperformer, the agricultural sector, grew by three percent in the second quarter being one of only two sectors to record positive numbers. Statistics Botswana researchers attributed agriculture’s rosy numbers to the favourable rainfall experienced during the 2019-2020 rainy season, which resulted in a bumper crop harvest.
The other sector to witness growth, government services, increased by 2.1 percent on the back of the multi-billion pula initiatives government rolled out to fight the pandemic.
Local economist, Sennye Obuseng told BusinessWeek the expectation is that the economy will contract by much more than the current official estimates. Government expects the economy to shrink by 8.9 percent this year.
“The expectation amongst many of us has always been that the contraction will be deeper than anticipated,” he said.
“The contraction in hotels and tourism is totally consistent with expectations because tourism was shut down and is still only at a fraction of its capacity.
“The retail sector, however, is not doing badly because it trades in items that households need daily. In addition, the retailers have added much sought after products such as sanitisers.” Obuseng said higher spending by government was not only expected but also planned and necessary to mitigate the impact of the pandemic.
“Our recession will be deeper than anticipated because of COVID-19 and how we are managing it,” he said.
“We have two crises here; health and the economy, but we are too paranoid and not paying enough attention to the economic side of the crisis.
“People are getting sick, not from the disease but because of what’s happening to the economy, loss of jobs and others.
“The stimulus is not strong enough and not enough attention is being given to the economy.” Government is banking on a P14.5 billion Economic Recovery and Transformation Plan to stimulate the economy and set it on a path to sustainable, higher growth.