Mmegi

Behind Botswana’s shrinking GDP

Shot in the arm: While agriculture has a small contribution to GDP, it’s a key contributor for both unskilled labour and rural incomes. The improved rains this cropping season give hope for better yields PIC: BOTSWANA AGRICULTURAL MARKETING BOARD
Shot in the arm: While agriculture has a small contribution to GDP, it’s a key contributor for both unskilled labour and rural incomes. The improved rains this cropping season give hope for better yields PIC: BOTSWANA AGRICULTURAL MARKETING BOARD

The economy is set to shrink for the first time since the COVID-19 pandemic year of 2020, as confirmed by the latest Gross Domestic Product figures. Mmegi Staffer, TIMOTHY LEWANIKA, speaks to Economics expert, Dr Lovemore Taonezvi, on the trends and likely outcomes going forward

In 2024, households spent more money on goods and services, while government expenditure also rose supported by the largest recurrent and developmental budget in the history of the country. However, the country’s Gross Domestic Product still contracted over the first three quarters.

Weighed down by decreasing exports, the country may be headed for a full-blown recession.

Botswana is bearing the brunt of being an undiversified economy as troubles in the diamond market ripple whittle down growth. With the economy having contracted by -5.3%, 0.5% and -4.3% for the first three quarters respectively, it is evident that contraction for the full year is on the horizon.

Mmegi: Real GDP continues to shrink quarter on quarter. What problem does this pose for the economy in the long run?

TAONEZVI: The continued contraction of real GDP signals growing vulnerabilities in Botswana’s economy. Prolonged negative growth can lead to rising unemployment, reduced investor confidence, and diminished household incomes. Over time, this weakens economic productivity, discourages capital investment, and exacerbates inequality. Botswana’s heavy reliance on mining, particularly diamonds, means that shocks to this sector ripple across the entire economy. Additionally, shrinking GDP limits government revenue, restricting public investment in infrastructure and social services, further impeding long-term development. Structural diversification is necessary to mitigate these risks and ensure sustainable growth.

Mmegi: Non-mining GDP continues to perform positively despite challenges in the broader macro-economy. What are the factors and sectors that have helped to keep the non-mining GDP buoyant?

TAONEZVI: The resilience of non-mining GDP reflects the strength of sectors like Public Administration, Wholesale and Retail Trade, Construction, and ICT. In the third quarter of 2024, Public Administration contributed 18.7% to GDP, driven by government expenditure, while wholesale and Retail grew by 7.5%, reflecting strong consumer demand. Construction expanded by 2.1%, supported by ongoing infrastructure projects. ICT, growing at 5.7%, highlights the increasing role of digital services. These sectors provide crucial buffers, reducing dependency on volatile mining industries.

Mmegi: Is the economy in a recession?

TAONEZVI: The economy appears to be nearing a recession, although it may not yet meet the formal definition. A technical recession is generally defined as two consecutive quarters of negative growth in real GDP on a quarter-on-quarter basis. Real GDP has contracted for two out of three quarters in 2024. The first quarter showed a decline of 1.9%, followed by a modest recovery of 1.4% in Q2, but Q3 saw another significant contraction of 2.9%.

Mmegi: if the economy is not in a recession, how far is a recession should the negative growth persist?

TAONEZVI: This pattern suggests that the economy may formally enter a recession if the negative quarter-on-quarter trend continues into Q4 of 2024. The fluctuations in total final consumption and gross fixed capital formation, which have been relatively stable or positive, indicate that domestic demand remains resilient. However, the persistent decline in real GDP points to structural weaknesses, particularly in key sectors like mining and diamond trading. The economy is at a critical juncture, and unless there is a reversal in GDP performance in the final quarter, a recession could become inevitable.

Mmegi: What is your prediction for the performance of the economy in 2025? When can a bounce-back be expected for GDP figures

TAONEZVI: I expect Botswana’s economic recovery in 2025 to be modest considering that organisations such as Fitch have projected the country's growth rate to be just under 4%. The economic downturn largely experienced in 2024 has been driven by declining diamond demand. I believe the ongoing competition from lab-grown diamonds will continue to limit the rebound of diamond prices.

Even as diamond retailers reduce stockpiles, I don't anticipate a significant recovery in natural diamond prices, which will keep the mining sector under pressure. Under the new UDC government, I expect a stronger focus on economic diversification. I believe there will be a push to invest in renewable energy, agriculture, and tourism to reduce reliance on mining and create jobs. This shift could stimulate growth and build long-term resilience, but expansionary policies might also increase deficits in the short term.

I'm optimistic that the stable inflation rate the country is currently experiencing will support household purchasing power and drive consumption. Combined with public investment and infrastructure projects, I believe these efforts will gradually steer Botswana’s economy toward recovery, even as export growth remains weak.

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