Absa sees local growth reaching 12.5%

Home truths: Serame says the net economic growth between 2020 and 2021 is about zero PIC: MORERI SEJAKGOMO
Home truths: Serame says the net economic growth between 2020 and 2021 is about zero PIC: MORERI SEJAKGOMO

Analysts at Absa expect that the country’s economy expanded by 12.5% last year, an estimate greater than government’s projection of 9.7 percent, BusinessWeek has learnt.

Should Absa’s expectations be realised, the 12.5% growth will be the highest the country has recorded since 1989 when the economy expanded by 13.1%.

In a recent research note, the bank’s analysts attributed their estimates to a strong rebound trajectory over the first three quarters of the 2021 calendar year, in which the local economy expanded by a 'remarkable' 13.5% year-on-year. The growth was driven by a 33% surge in mining output and withstood the Delta COVID-19 wave, which affected the country between June and August.

Besides mining, recovery in sectors such as wholesale and retail trade, manufacturing sectors and diamond trade, all supported economic expansion in the first three quarters of 2021.

“Combined with favourable base effects, as the economy contracted 8.5 percent in 2020, the strong performances by these sectors and the weaker-than expected impact of the pandemic during third quarter now suggest a significantly stronger growth outcome over the full year,” the analysts stated.

Statistics Botswana is expected to unveil full year growth figures for the local economy on March 25, when it announces fourth quarter 2021 figures.

The finance ministry recently said it expected growth in 2021 to eclipse its own 9.7 percent projection and potentially come in at double digit figures, due largely to resurgent activity in mining, particularly the diamonds sector. Debswana’s sales jumped to a five-year high of P38.1 billion, while production was up 35% to 22.3 million carats, the highest since 2019.

However, economists have cautioned that the expectations of high growth in 2021 are reflective of the deep contraction of 2020, meaning the economy’s overall growth trajectory in recent years remains below par. Finance minister Peggy Serame in her recent budget speech said the sharp dip in 2020 and the rebound in 2021 meant overall growth over the two years 'was approximately zero'.

Absa’s analysts captured the phenomenon in the term 'favourable base effects' referring to the appearance of high growth due to the arithmetic effect of comparing the figures to a steep contraction in the previous period.

The growth expected in 2021 also runs counter to trends in job creation, with a recent Statistics Botswana report indicating that unemployment had risen to 26% by December 2021, compared to December 2020. Youth unemployment over the same period rose to 34.4% from 32.4%, continuing the 'jobless growth' phenomenon that has dogged the local economy for years.

Absa analysts said growth this year was due to slow substantially as the economy transitions to a more sustainable growth rate and as the 'favourable base effects' disappear from the growth calculation. Absa expects local growth to print at 5.2 percent this year, compared to the finance ministry’s own expectations of 4.3 percent growth.

“The slowdown will primarily be driven by fading base effects, although key economic sectors will likely continue their recovery from the fallout of the pandemic. “The services sector, notably accommodation and restaurants, is likely to see a sharp improvement as conditions normalise,” the analysts stated.

The World Bank expects local growth to reach 5.9 percent this year, while the International Monetary Fund has forecast 4.7 percent.

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