Botswana headed for crippling recession?

Staff Writer
There is no doubt that given the prevailing global credit crunch Botswana's economy is going to experience a slow-down.Is Botswana headed for recession?Mmegi Staff Writer WANETSHA MOSINYI asks some of the local analysts

The impact of the global financial crisis has definitely hit the mining sector, which is a key contributor to the country's gross domestic product (GDP). The world's economies are currently in recession.  Recession means a period of negative economic growth. 

In most parts of the world, a recession is technically defined as two consecutive quarters of negative economic growth, when real output falls.

The global downturn has impacted heavily on the prices of commodities such as diamonds, nickel and copper, of which Botswana is among the world's leading producers.

Copper prices have weakened by around 40 percent and nickel by around 50 percent.

The decline in commodity prices due to the global downturn, if it persists, will translate into low export earnings for the country.

Analysts interviewed by Mmegi have different views on whether Botswana is heading for a recession.

"If the global financial crisis is short term, then it might have a minimal impact on the economy and the country may avoid a recession but if the global economy enters a long and deep recession, then this might impact negatively on the country's economic growth," an analyst at Motswedi Securities, Garry Juma, says.
The CEO of Capital Asset Management, Leutlwetse Tumelo, said the effects of the downturn will not only be felt in the mining sector but also in another key sector, tourism.
 He says as the economic slow down continues to hit the disposable incomes of families in Botswana and abroad, the tourism sector will see a significant drop in tourist numbers throughout the current financial year. Other export-oriented businesses in the country are also likely to see a drop in business.
"Overall the outlook for 2009 is one which suggests that the country is likely to be headed for a recession," Tumelo said.
 However, Fund Manager

Bakang Seretse of Invetec Botswana says Botswana has a healthy pot of (foreign) reserves that she can always dip into to keep the economy afloat."It is a little bit premature to start mentioning the word recession in reference to the local economy," Seretse says.  "However, one thing is certain, economic growth will drastically slow down."
The United States of America (US), United Kingdom (UK), Europe and Japan may well be already in a recession.  "Asia will not see a recession and neither will we for now," he said but warned that all this depends on the duration of the global economic slowdown.
Seretse said there is no denying that the global economic crisis has radically worsened local economic fundamentals with mineral exports, in particular diamond sales, being the most affected.
Slowing economic growth, reduced government revenues, the postponement of capital expenditure programmes, reduced employment and incomes are but a few of the challenges facing the domestic economy this year. "We expect domestic consumption to falter as consumers progressively become more guarded with their spending in the face of concerns about rising unemployment and slowing government spending.
The benefits of lower oil prices and interest rates are likely to be eroded by rapidly rising job losses and unemployment as well as the pressure to reduce debt."
 The next few weeks are going to be crucial in terms of what direction the local economy is going to take.  Analysts believe Minister of Finance and Development Planning, Baledzi Gaolathe's Budget next month will be the watershed.
"Much will depend on whether Baledzi Gaolathe will come up with a stimulus fiscal package to counter the effects of slowed economic growth or decide to totally close the tap in light of reduced revenues from diamond sales," he said.



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