Will Botswana catch SA's cold?

Heading out: South Africa is Botswanau00e2u20acu2122s biggest trading partner PIC: MBONGENI MGUNI
Heading out: South Africa is Botswanau00e2u20acu2122s biggest trading partner PIC: MBONGENI MGUNI

The local economy is expected to enter a tricky period after regional powerhouse, South Africa, announced it was in a technical recession on Tuesday.

Statistics SA, that country’s data agency, released figures this week showing South Africa’s economy shrank by 1.4 percent in the fourth quarter of 2019 after a 0.8% reduction in the third quarter.

By Stats SA definitions, a recession is said to have taken place when the economy experiences negative growth over two successive quarters.

Botswana is due to release its own fourth quarter 2019 GDP figures on March 31, following real growth of 3.1 percent in the third quarter despite a slowdown in the mining sector.

Government expects the domestic economy to have grown by 3.6 percent in 2019, and to reach 4.4 percent in 2020, driven by faster growth in the services sector.

Standard Bank chief economist, Goolam Ballim told BusinessWeek the bank’s estimates showed that one percent of growth or contraction in the South African economy had the impact of 0.5% to 0.7% growth or contraction in neighbouring states such as Botswana.

“Botswana is buoyed by the South Africa tide and when the tide washes out in South Africa, neighbouring countries will feel it,” he said.

“Healthy aggregate demand in South Africa creates spillover effects in Botswana.”

He said one immediate effect would be on Botswana’s budget, as South Africa’s contribution to the Southern African Customs Union shared revenue pool would decline.

Traditionally, South Africa is by far the biggest contributor to the shared revenue pool, reaching as high as 97% contribution. For 2018-2019, the pool distributed P71 billion, with South Africa receiving P32 billion and Botswana R14 billion. For the current financial year, Botswana expects about P14 billion, and approximately P15.4 billion in the 2020-2021 year starting on April 1, representing nearly 25% of the total revenue budget.

“We saw the (South African finance) minister in his budget speak of trimmed provisions for SACU in the coming financial year.

“To the extent to which the South African economy is able to return to growth quicker, it will have an effect on Botswana as well,” Ballim added.

Kgori Capital managing director, Alphonse Ndzinge said the linkages between the local and the South African economy would be key in assessing the effects of the recession in that country.

“You would also have to keep an eye on the policy interventions South Africa takes to come out of the recession, such as cutting policy rates and forward looking inflation trends,” he told BusinessWeek.

“South Africa is the regional powerhouse and any slowdown there would affect the rest of the countries.

“The country is on an economic tight rope with little choice but to implement several much-needed – but painful – fiscal and economic reforms.

“Hopefully this could boost the country’s medium-term growth prospects.

“And this in turn could positively impact growth prospects for the region as a whole, given South Africa’s sheer market size.”

Econsult managing director, Keith Jefferis said the major issue was not so much the negative percentages of growth on a quarter-by-quarter basis, but the fact that South Africa’s economy was far below the rates of growth it needed to be at.

“The South African economy needs to be growing at between four to six percent annually and it is not,” he told BusinessWeek.

“The most immediate impact of the recession we can see will be on some of our firms that export.

“When that economy is not growing, it makes it more difficult for our firms exporting there.” South Africa is Botswana’s biggest regional market, with non-mining exports reaching P192 million for December 2019, comprising salt and soda ash, machinery and electrical equipment, plastic and plastic products, meat and others.

Other analysts told BusinessWeek the local economy would largely escape unscathed by the South African recessions, as it had even grown in the previous contraction of 2018.

They said the factors driving the contraction in sectors such as agriculture, transport and construction, which include electricity shortages and the drought, were expected to ease in the medium term.

Editor's Comment
A Call For Government To Save Jobs

The minister further shared that from the 320 businesses that notified the Commissioner of Labour about their plans to retrench, 20 were acceded to, which resulted in 204 workers being retrenched during April 2020 and July 2021.The retrenchments were carried out while the SoE was in place, meaning the companies that succeeded must have had solid reasons, despite the strict SOE regulations imposed on businesses to not retrench. We are left with...

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