Botswana growth forecast slashed

Staff Writer | Friday June 15, 2012 00:00

The forecasts are made in the latest edition of the World Bank's Global Economic Prospects report issued worldwide on Tuesday.

According to the report, the major threats facing the local economy this year will come from the troubled Eurozone as well as the extent of the slowdown in China's economy. China's slowdown, or the much-discussed soft or hard landing, is widely expected following years of rapid economic growth. With the Oriental giant now the world's biggest consumer of base metals and the second largest market for diamonds, a hard landing would impact Botswana and other producers.

'Trade impacts are likely to be most severe for regional exporters of oil, metal and mineral and agro-industrial raw materials because sales of these commodities tend to be more sensitive to the global business cycle,' the World Bank report says.

'Should China not succeed in engineering the soft-landing scenario of the baseline, demand for and prices of major metals and minerals could decline significantly. Over the past decade, sub-Saharan exports to China have increased from five percent to some 19.3 percent in 2010.'

For Botswana, the Euro and China scenarios pose a threat to the country's exports of diamonds, copper, nickel and the tourism and hospitality sector which collectively contribute the bulk of the country's Gross Domestic Product (GDP).

Since the New Year, diamond, copper and nickel exports have vacillated with April sales of the gemstones plunging by 57 percent month-on-month to P1.26 billion. Positively, however, the World Bank report suggests that Botswana would largely be insulated from tightening of financial conditions expected as fallout from the Euro area crisis. Highly financially integrated economies such as South Africa, Mauritius and Kenya are expected to suffer the most from the spread of a banking crisis from the Euro zone to Africa.

'However, if the (Euro area) crisis endures, the Foreign Direct Investment inflows, upon which much of sub-Saharan Africa relies, are also likely to be hit,' the World Bank's researchers said. As opposed to equity and bond flows, Foreign Direct Investment (FDI) accounts for approximately 70 percent of private capital flows to sub-Saharan Africa. For Botswana, FDI inflows favour the minerals sector, and to a lesser extent financial services, communications, real estate and hotel and tourism.

Botswana is also expected to largely escape the threats to aid and remittances this year caused by a global slowdown, as the local economy is not extensively reliant on either. The World Bank's researchers said the increasing diversification of trading partners by more sub-Saharan African countries would help cushion the effects of weak demand from Europe this year. 'Over the past decade, Europe's share in sub-Saharan African exports has declined from 40 percent in 2002, to around 25 percent in 2010, with the share going to developing Asia having increased substantially,' the researchers said.

Last year, Botswana's exports of goods, primarily diamonds, to India and China grew by 84 percent and nine percent respectively last year, compared to a five percent increase in exports to Belgium. Botswana inflation has been declining since the beginning of the year, gravitating towards the central bank's target range, while interest rates have been frozen since December 2010.