The formation of a new political party in Botswana is set to mount the pressure on government to speed up the economic diversification process.
The 2010 fourth quarter forecast report compiled by a UK research company, Business Monitor International (BMI) says the diversification of Botswana's economy is set to become a central political issue in the medium term as the Botswana Democratic Party (BDP) attempts to maintain its dominance in the face of a challenge from the newly formed Botswana Movement For Democracy (BMD).
The report says that although Botswana's economic recovery has gained momentum in the past few quarters, with first-quarter growth data showing that the revival is firmly underway, statistics indicate that the bounce in growth has been driven almost entirely by a recovery in diamond exports.
"This emphasises the point that the economy remains disproportionately dependent on the precious stones and that diversification is absolutely vital to ensure sustainable growth over the coming years.
"With the government's hands tied in terms of development expenditure in the near future due to a bloated fiscal deficit, its primary role in facilitating diversification will be to provide a business and political environment that will allow private sector investment to pick up the slack.
"The BMD, which was officially launched in May, has yet to articulate its own plan for diversification, however, it is sure to challenge the BDP over the issue," says the report.
From an economic standpoint the report, which was released last week, says that the long-term impetus for growth will come from investment in other areas of the economy with the focus likely to be on (non-diamond) minerals, diamond beneficiation and value-adding activities, and investment in the country's basic infrastructure.
"Copper looks likely to play a large part in future growth. The Kalahari Copper Belt in north-western Botswana is widely believed to be an extension of the Pan African
One of the areas identified by the report as key to unlocking Botswana's non-diamond potential is expansion of the country's inadequate infrastructure.
BMI's business environment ratings show that Botswana scores 42 out of 100, placing it fourth in Sub-Saharan Africa (behind South Africa, Mauritius and Ghana). Of the sub-components that make up the headline rating, 'infrastructure' provides the biggest drag with a score of 28.5 out of 100, placing it a lowly 16th in Sub- Saharan African. In this regard, the country is in the process of coming up with an independent regulator for the energy and utilities sector in a bid to attract private investment into the sectors.
In an earlier report released in May, BMI said that while the political split could mark the beginning of the emergence of a credible opposition party in Botswana, it could also bring uncertainty to the government's efforts to cut the large budget deficit.
The report added that uncertainties aside, a combination of restrained spending and improving revenues will see Botswana's fiscal shortfall head lower over the coming years. Looking at the 2010/11 fiscal years specifically BMI said: "We expect tax revenues will see a recovery in line with reviving diamond exports and an up tick in economic activity in general.
Furthermore, we believe that the government's planned spending cuts outlined in the financial year 2010/11, although ambitious, are achievable".
The current Botswana budget indicates the bulk of the cuts will affect development expenditure. In February, government, which perennially runs budget surpluses, announced a P12.1 billion-budget deficit as diamonds revenues were severely affected by the collapse of the diamond industry in the recession period.