www.econsult.co.bw
compiled by
KEITH JEFFERIS
Sethunya Sejoe
ECONOMIC REVIEW
second quarter april - june 2016
in this issue ...
COMMENTARY
1
KEY
ECONOMIC
VARIABLES
3
NEWS
HIGHLIGHTS
7
MACROECONOMIC
DATA
12
SPECIAL
FEATURE
13
COMMENTARY
Deterioration contained as improvements
seen in economic conditions
Introduction
The second quarter of 2016 has seen some improvement in economic conditions, at least to the
extent that the deterioration experienced towards the end of 2015 has been contained, and in some
respects macroeconomic conditions have improved. This is largely the result of the stabilisation –
albeit at a somewhat subdued level - of global commodities markets.
Diamonds
As always, the global diamond market is of greatest importance
for Botswana. After a dismal performance in the second half of
2015, the recovery in sales of rough diamonds that started in
the first quarter of 2016 continued through the second quarter.
The reduction of rough supplies in 2015 had the desired effect
of unblocking the diamond pipeline – the downstream diamond
traders, cutters, polishers and jewellery retailers – and
restoring demand for rough. This recovery provided a major
boost for export earnings and government revenues, such
that the large balance of trade and fiscal deficits experienced
towards the end of 2015 should have been eliminated, or at
least significantly reduced.
This doesn’t mean that the diamond market is out of the woods
yet. Consumer demand for jewellery remains weak, especially
in China, meaning that even a restored flow of diamonds
through the pipeline is at lower levels than in recent years.
The ability of mid-stream players to hold diamond stocks
is also under pressure, especially with the announcement
by Standard Chartered Bank that it is withdrawing from the
financing of diamond firms, which will take around $2 billion
out of the global industry. Hence, even though the market has
stabilised, major producers are being extremely cautious, and
Debswana has no plans at present to increase production
above the revised target of 20 million carats for 2016. Other
signs of weakness are reflected in the decision by one of
Botswana’s smaller diamond producers, Gem Diamonds, to
reduce production at the Ghagoo mine. It may also be one
reason why Lucara Diamonds’ Lesedi La Rona gem from the
Karowe mine – the largest rough diamond found in over 100
years – failed to reach its reserve price when put up for auction
in London in late June. More positively, another small mine,
Kimberley Diamonds’ Lerala Mine, re-opened in Q2.
Copper-nickel and BCL
The stabilisation of the global rough diamond market is also
reflected in other commodities markets. By the end of June
2016, crude oil prices had risen by 85% from their mid-January
lows, while copper and nickel prices have risen by 12% and
22% respectively.
The recovery in base metals prices, while welcome for
Botswana, does not, however, fundamentally change the
critical situation facing the country’s largest copper-nickel
producer, BCL. The company’s costs of production are well
page 1
www.econsult.co.bw
COMMENTARY
above current price levels, even with the recovery, and it is
Other events and developments contributing to global
facing problems of low-grade ore, overstaffing, and the constant
uncertainty include the US presidential elections in November,
expectation that it will operate as a social welfare provider as
the pace of economic slowdown in China, stresses within
well as a commercial entity. It has high levels of debt, and as a
the Chinese financial sector, the pace of monetary policy
loss-making fully government-owned entity, is dependent upon
tightening in the US, and concerns about over-valuations in
government’s financial guarantees and cash injections for its
major financial markets.
survival. Undoubtedly, BCL’s survival is critical for the town of
Selebi-Phikwe and the surrounding region, given that - apart
Global growth forecasts have been revised downwards slightly,
from government - BCL is the largest employer in north-east
post-Brexit.
Nobody knows
how these will 2017
play out, but there
2015
2016
Botswana. But continuing “as is” is not an option, given the
is consensus that risk is on the downside. Nevertheless, the
World
3.10%
3.10%
3.40%
huge financial cost this is likely to impose on taxpayers. A hardIMF’s core scenario is that global growth will improve slightly,
Advanced economies
1.90%
1.80%
1.80%
headed review is needed to determine whether
the company
from 3.1% in 2016 to 3.4% in 2017, although still below longChina
6.90%
6.60%
6.20%
has any chance of commercial viability, which
is likely to
term trend
growth.
require a fundamental restructuring to achieve a reduction in
costs of around one-third, including a comparable reduction
Figure 1: Global economic growth forecasts
in staffing. Obviously such a large employer has important
social and economic benefits to the region, including multiplier
effects that support economic activity more broadly, but this
8%
does not mean that it is entitled to a blank cheque of indefinite
7%
or unlimited financial support from the taxpayer.
The ownership of BCL is being transferred from a direct
government shareholding to an indirect holding through the
new Minerals Development Company of Botswana (MDCB).
The intention is that MDCB will operate on a commercial basis,
and how it manages BCL, as the sole shareholder, will be
a crucial test of its ability to ensure that government-owned
mining companies operate efficiently in future.
Pecent
Percent
6%
5%
4%
3%
2%
1%
0%
Global Uncertainty
2015
World
The stabilisation of global commodities markets removes, or
at least reduces, one element of the spectrum of uncertainty
that has affected the world economy over the past 12 months.
But there are other risks that could yet be destabilising. The
UK’s “Brexit” vote to leave the European Union, which was
unexpected by most commentators, shows that people are
prepared to support something that is not in their economic
self-interest, if other factors are perceived to be more
important. Misinformation and scaremongering by the media
and politicians may well be believed. But the result, as noted
the following day by the respected commentator Martin Wolf
in the UK’s Financial Times, is “probably the most disastrous
single event in British history since the second world war”,
and as a result, “the UK, Europe, the west and the world are
damaged”. Certainly, it has had a destabilising effect on the
global economy, not to mention the UK economy; for instance,
the proposed mega-merger between the brewers ABInbev
and SABMiller may well fall apart, because it is no longer as
attractive given that it is priced in devalued post-Brexit sterling.
Even for Botswana, Brexit adds to uncertainty, given that
Botswana’s beef is exported to the UK under the recentlysigned EPA trade agreement with the EU. This uncertainty will
remain for quite some time, until the form of post-Brexit trade
and economic relations between the UK, the EU and the rest
of the world become much clearer.
2016
Advanced economies
2017
China
Source: IMF World Economic Outlook, July 2016
National Development Plan 11 and Vision 2036
Uncertain global economic prospects provide the backdrop
for two important medium- and long-term planning exercises
currently under way in Botswana. The 11th National
Development Plan (NDP 11) is due to run from April 2017 to
March 2023, and is currently being finalised. As with several
recent NDPs, NDP 11 is focused on economic diversification,
and has to do so in the context of declining fiscal revenues
(relative to GDP) and continued expectations of high levels
of government provision of infrastructure, services and social
safety nets.
The exercise to prepare a new Long-term Vision for Botswana
is also nearing completion. The new Vision 2036 will follow on
from Vision 2016, which is coming to an end. Vision 2036 will
provide the framework for NDP 11 and the next two NDPs.
Both NDP 11 and Vision 2036 contain commitments towards
the transformation of the economy towards a more diversified,
private sector-led, outward-looking open economy integrated
into global markets, which is exactly what is needed to ensure
sustained growth. The test will be whether policies and the
related actions and decisions are consistent with these
objectives.
page 2
Q4
2015 Q1
Q2
Q3
Q4
2
016 Q1
KEY ECONOMIC
30%
20%
30%
30%
10%
20%
20%
0%
10%
181.4
24.5
160.3
363.4
190.2
25.2
143.3
353.6
195.2
25.9
158.6
374.8
c o n s u l t . c o . b w 358.4
191.8
26.1w w w . e 147.6
188.4
24.6
158.5
360.9
189.3
25.5
140.2
342.5
VARIABLES
Annual GDP Growth
Annual
GDP Growth
Annual
GDP Growth
Annual GDP Growth
2016 Q1
2,233.1
2,091.3
2,172.6
1,505.0
1,778.7
1984.5
1,065.1
902.5
847.1
232.4
429.2
797.1
Sectoral GDP Growth
Growth
Trans. & Comm.TradeSectoral GDP Growth
Trade
Sectoral
GDP Growth
Sectoral
GDP
Trans.
& Comm.
Fin. & Bus.
Service
Trade
Water & Elec.
-­‐63.8%
Sectoral GDP Growth
Fin.
&
Bus.
Service
Government
Trans.
& Comm.
Mining
-­‐21.4%
Trade
0%
Government
10%
Soc.Fin.
& Pers.
Services
-10%
& Bus.
Service
Agriculture
-­‐0.8%
Trans.
& Comm.
Soc.
& Pers. Services
-10%
Construction
0%
Fin.
&
Bus.
Service
Government
-20%
Total VA
-­‐0.6%
Construction
Manuf
-20%
Government
Soc. & Pers.
Services
-10%
Manuf
0.9%
-30%
Soc. & Pers. Total
Services
VAManuf
-30%
Construction
Construction
2.5%
-20%
-40%
Total VA
Construction
Agriculture
Manuf
-40%
Soc. &
P
ers. Manuf
Agriculture
-30%
-50%
Mining
TotalVA
VA
-50%
3.3%
Services
2007
2008 2009 2010 2011
2012 2013 2014
2015 2016
Total
Mining
-40%
Water
&
Elec.
-64%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Agriculture
Agriculture
Government
4.1%
Water & Elec.
-64%
-50%
Mining
-4%
-2%
2%
4%
6%
8%
-21%0%
Mining
Fin. & Bus. Service
4.5%
NMPS-VA
Mining2013 2014
GDP
2007 2008 2009
2010 2011 2012
2015 2016
-4%
-2%
0%
2%
4%
6%
8%
Water
&
Elec.
-64%
NMPS-VA
Water & Elec.
-64%
Trans. & Comm. Mining 5.4% GDP
The economy showed
signs of bottoming out Services
sectors
continued
to
be
the
fastest
-4%
-2%
0%
2%
4%
6%
8%
The economy showed
signs of6.4%
bottoming out Services sectors
to be
Trade
-4% continued
-2%
0%
2%
4% the6%fastest
8%
in the first NMPS-VA
quarter of the year,
after growing sectors in the economy during year
in the first quarterMining
of the GDP
year, after
growing sectors in the economy during year deteriorating
performance
in
2015.
Real
GDP
toServices
March 2016,
while the water
& electricity,
The economy
showed
signs
of
bottoming
out
sectors
to be
the
fastest
deteriorating performance in 2015. Real GDP to March
2016,continued
while the water
&
electricity,
contracted
by
0.2%
in
the
12
months
to
mining
and
agriculture
sectors
recorded
The
economy
showed
signs
of
bottoming
out
in
the
first
Services
sectors
continued
to
be
the
fastest
growing
sectors
in the
first
quarter
of
the
year,
after
growing
sectors
in
the
economy
during
year
contracted by 0.2% in the 12 months to mining and agriculture sectors recorded
quarter of
the year,slight
after a improvement
deteriorating performance
in
in the economy
during year
to March 2016,
while
the water &
March
2016,a
from
the
negative
growth.
Finance
and
business
deteriorating
performance
in 2015.
Real
GDPtheto electricity,
March
2016,
while Finance
the water
& electricity,
2016,a
slight
improvement
from
negative
growth.
business
2015.March
Real
GDP
contracted
by 0.2%
the
12 months
mining
and agriculture
sectorsand
recorded
negative
0.3%
negative
growth
inin
2015
buttobut
services
and
government
were
thethe
fastest
contracted
by
0.2%
in
the
12
months
mining
and
agriculture
sectors
recorded
0.3%
negative
growth
in
2015
services
and
government
were
fastest
to March 2016, a slight improvement from the 0.3%
growth. Finance and business services and government
were
significantly
lowerlower
than than
3.2%3.2%
growth
same
growing
sectors,
at 4.5%
andand
4.1%
in March,
significantly
growth
same
growing
sectors,
atFinance
4.5%
4.1%
March,
March
2016,a
improvement
from
the
negative
growth.
and
negative
growth inslight
2015 but
significantly lower
than
the
fastest growing
sectors,
at 4.5%
and
4.1% business
ininMarch,
up
period
in 2015.
Overall
output
is up from
3.2%
3.3%
recorded
Q1
2015
3.2%period
growth
same
period
in economic
2015.economic
economic
from
3.2%
andand
3.3%
recorded
inrecorded
Q1
2015inrespectively.
The
in
2015.
Overall
output
up from
3.2%
and
3.3%
in Q1
2015
0.3%
negative
growth
inOverall
2015
but isservices
and
government
were
the
fastest
therefore
flat. However,
growth
ininthe
nonrespectively.
subdued
growth
outputtherefore
is therefore
flat.However,
However,
growth
the
non- nonsubdued
growth The
in agriculture
sector
is attributable
tointhein
flat.
growth
in same
the
respectively.
The
growth
significantly
lower
than
3.2%
growth
growing
sectors,
at
4.5%subdued
and 4.1%
in March,
mining
private
sector
(NMPS)
was
3.9%,
agriculture
sector
is
attributable
to
the
mining
private private
sector (NMPS)
was
3.9%, similar
contraction
of crops
and horticulture.
The crops sub-sector
mining
sector
(NMPS)
was to3.9%,
agriculture
sector
attributable
the
period
in 2015.
Overall
economic
output
is up had
from
3.2%
and
3.3%isand
recorded
in Q1to2015
its growthrate
through
2015, butthrough
this was offset
by still
negativeof
growth
of 1.3%
horticulture contracted
by
similar
to
its
growthrate
2015,
but
contraction
crops
and
horticulture.
The
similar
to However,
its growthrate
through
contraction of
crops
and horticulture.
therefore
flat.
growth
in the2015,
non-butrespectively.
The
subdued
growth The
in
significant
mining
contraction.
1.5%
in
the
period.
this this
was was
offset by still
significant
mining
crops
sub-sector
hadhad
negative
growth
of
still
significant
mining
crops
sub-sector
negative
growth
mining
private offset
sectorby(NMPS)
was 3.9%,
agriculture
sector is
attributable
to theof
contraction.
1.3%
and
horticulture
contracted
by
1.5%
in
contraction.
1.3% and of
horticulture
contracted
by 1.5%
similar
to its growthrate through 2015, but contraction
crops and
horticulture.
Thein
the
period.
the period.
Business
Annual
Credit
Growth growth of
this was offset
by Confidence
still significant mining crops
sub-sector
had
negative
% of Firms
Rating
Current
Business
Annual
Credit
Growth
Annual
Credit
Growth
contraction. % of Firms Rating Current Business 1.3%
and
horticulture
contracted
by 1.5% in
45% 45%
Conditions
Satisfactory
Conditions
Satisfactory
the period.
100% 100%
90%
60%
80%
50%
80%
40% 40%
of Firms Rating Current Business
Conditions Satisfactory
35%
45%35%
30%
40%30%
70%
60%
25% 25%
35%
50%
70%
40%
60%
30%
40%
50%
20%
40%
10%
20%
20% 20%
30%
30%
10%
30%
0%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016
20% 2008 2009 2010 2011 2012 2013 2014 2015 2016
10%
Annual Credit Growth
% of credit to sector
80%
100%
70%
%
90%
% of credit to sector
% of credit to sector
90%
Exporters
Exporters
Non-Exporters
Non-Exporters
All
All
15% 15%
25%
10% 10%
20%
5% 5%
15%
0% 0%
10% 2
010 20120011 20121012 20122013 2012301420124015201520162016
5%
Total
Firms
Households
Total
Firms
Households
0%
The
Bank
of
Botswana’s
Business
Credit
growth
in
the
year
to 2 April
2008
2009
2010
2011
2012
2013
2014
2015
2016
The
Bank
of
Botswana’s
Business Credit 2growth
2013 year
2014 to
2015 April
2011 in2012 the
010
016
The Bank
of Botswana’s
Business
Expectations
Survey
Credit
growth
in the year to
April
2016
increased
to 9.5%,
Expectations
Survey
(BES)
for
the
first
half
of
2016increasedto
9.5%,
from
7.1%
Expectations
Survey
(BES)
for
the
first
half
of
2016increasedto
9.5%,
from
7.1%
in in
Exporters
Non-Exporters
All
(BES)2016
for the
first half of 2016
showed
that the overall
from
7.1% inTotal
December
2015, attributable
togrowth
faster
Firms
Households
showedthat
the
overall
rating
of
December
2015,
attributable
to
faster
2016
thedeclined
overall
rating2016of December
to faster
growth
rating ofshowedthat
business confidence
in the March
growth in 2015,
lending attributable
both households
and firms.
Credit
business
confidence
declined
inBusiness
the
March
in lending
to toboth
households
and
firms.
The
Bank
of
Botswana’s
Credit
growth
in
the
year
to
April
business
confidence
declined
in
the
March
in
lending
to
both
households
and
survey when compared to the September 2015 survey. The
to firms increased by 4.5% in the year to Aprilfirms.
2016,
up
2016
survey
when
compared
to
the
Credit
to
firms
increased
by
4.5%
in
the
year
Expectations
for
first
2016increasedto
9.5%,
from in credit
7.1%
in
BES measures
theSurvey
proportion
of firms
thatthe
are satisfied
with
fromto3.2%
in December
2015.
growth
2016
survey
when(BES)
compared
to half
theof Credit
firms
increased
by Household
4.5%
the
year
September
2015
survey.
The
BES
measures
to
April
2016,
up
from
3.2%
in
December
current
business
conditions,
which
deteriorated
from
44%
in
was
13.7%,
down
from
12.8%
in
December
2015.
2016
showedthat
the The
overall
rating of toDecember
2015,
growth
September
2015 survey.
BES measures
April 2016,
up attributable
from 3.2% to
in faster
December
the proportion
of
firms
that
arethe
satisfied
2015.
Household
credit
was
13.7%,
September
2015
toof
36%
in March
confidence
household
credit
growth
isgrowth
due mainly
to
growth
in
the
proportion
firms
that2016.
are While
satisfied
with with
2015.
Household
credit
growth
wasand
13.7%,
business
confidence
declined
in
March
in Rising
lending
to both
households
firms.
amongcurrent
exporting firms
improved drastically,
from 33% inwhich unsecured
lending,
with in
slower
growth in2015.
borrowing
for
business
conditions,
down
from
12.8%
December
Rising
current
business
conditions,
12.8%
in
December
2015.
Rising
2016
survey
when
compared
towhich
the down
Creditfrom
to firms
increased
by 4.5%
in the
year
September
2015 to 71%
in 44%
March in
2016,
it decreased2015
by
mortgages
and growth
vehicles. is due mainly to
deteriorated
from
September
to property
household
credit
deteriorated
from
44%
in
September
2015
to
household
credit
growth
is
due
mainly
to
September
2015
survey.
The
BES
measures
to
April
2016,
up
from
3.2%
in
December
13% 36%
to 31%
for non-exporting
firms during
the period.
in March
2016. While
confidence
among growth in unsecured lending, with slower
36%
in March
2016.
While
confidence
among
in unsecured
lending,
the
proportion
ofis firms
that
are
satisfied
with growth
2015. Household
credit
growthwith
wasslower
13.7%,
Nevertheless,
there
optimism
that
business
conditions
exporting
firmsimproved
drastically,
from growth in borrowing for property mortgages
will improve in
the next 12 months
despite uncertainty
exporting
firmsimproved
drastically,
from growth
in borrowing
for
property 2015.
mortgages
current
business
conditions,
which
down
from
12.8%
in
December
Rising
33% the
in supply
September
2015
to and
71%
in March and vehicles.
surrounding
key
inputs,
33%
in September
2015
towater
71%
inelectricity,
Marchto and
vehicles.credit growth is due mainly to
deteriorated
from of
44%
in September
2015
household
which contributed to overall decline in business confidence.
36% in March 2016. While confidence among growth in unsecured lending, with slower
exporting firmsimproved drastically, from
in borrowing for property mortgages
p a g egrowth
3
33% in September 2015 to 71% in March and vehicles.
0%
10% 60,000
40,000
8%
30%
20%
6% 40,000
20,000
20%
10%
4%
2%
20,000
0
0%
BoB Upper
Deposits
Actual
BankingDeposits
liquidity
Total
Total
Total arrearsBusiness
as a proportion
Households of outstanding
Total
bank
credit
increased
to
6.4%
in
thecredit
first
Total arrears as a proportion of outstanding bank
Total
arrears as a proportion of outstanding
increased
to
6.4%
in
the
first
quarter
of
2016
from
4.9%
quarter of 2016 from 4.9% recorded in the
bank
credit
increased
6.4%
in the
first
Interest
Rates
recorded
in theof
last
quarter
ofto
2015.
The sharp
increase
last
2015.
The
sharp
increase
in
14 quarter
quarter
2016
recorded
in the
in arrearsofwas
drivenfrom
by both4.9%
households
and businesses.
arrears
was
driven
by
both
households
and
12 quarter
Total
arrears on
creditsharp
rose from
4.8% toin
last
of household
2015. The
increase
businesses.
Total
arrears
onincreased
household
6.4% while
total
arrearsby
on firms’
credit
from
arrears
was
driven
both
households
and
10
5.5% rose
to 6.8%from
from Q4
2015 totoQ16.4%
2016 respectively.
credit
4.8%
while
total
businesses. Total arrears on household
8
arrears
on firms’
from 5.5%
credit
rose
from credit
4.8% increased
to 6.4% while
total
to
6.8%
from
Q4
2015
to
Q1 5.5%
2016
6
arrears
on firms’ credit increased from
respectively.
to 6.8% from Q4 2015 to Q1 2016
%
150
0
Index, Jan 2010 = 100
Index, Jan 2010 = 100
% of credit to sector
150 10%
140
9%
140
130
8%
130 7%
120
Stock Markets
Stock Markets
Arrears
Bank Lending
Stockon
Markets
Bank
Prime
BoBC91
BoBC14
Lending
has
BoB
lowerLiquidity
Excess
Forecast
Liquidity
beenExcess
stable
14%
16%
Pula bn
120 6%
110
5%
Foreign Exchange Reserves
110
100
13 4%
100
90
90 3%
12
2%
90
80
80
11 1%
80
70
0%
2012
2013
2014
2015
201670
70
10
2012
2013
2014
2015
2016
60EM
BSE DCI (BWP)
BSE DCI (USD)
MSCI
9
Business
Households
Total
BSE DCI (BWP)
BSE DCI (USD)
MSCI EM
The domestic
companies index (DCI) of50 the
8
USD bn
Lending
at
Banking liquidity
has been
at adequate
levels in recent
adequate
levels
instable
recent
months,
after
Banking
liquidity
has markedly
beenin 2015
stable
at
months,improved
after
having improved
from the
having
in 2015 from
the
ofmarkedly
adequate
levels
inGoods
recent
months,
after
very lowExports
levels
experienced
earlier.&
In Services
the
first four months
very
low
levels experienced
earlier.
In the
the
Copper
of 2016,
both bank deposits
and lending
increased
at& similar
having
improved
markedly
in 2015
from
Nickel
first
four
months
of
2016,
both
bank
deposits
rates.
Banks
as a whole
have excess liquid
assets
equivalent
Other
very
low
levels
experienced
earlier.
the
7% In
Gold
manuf. 5% increased
to around
of total assets, at
which
is a comfortable
buffer
and
lending
similar
rates.
Banks
1%
firstto four
months
of
2016,
both
bank
deposits
support
lending have
demand, although
there
are significant
as lending
agoods
whole
excess
liquid
asses
Salt
& Soda
3%
and
increased
at
similar rates.
Banks
variations
across
individual banks.
Ash
equivalent
to
around
5%
of
total
assets,
as a whole Services
have excess liquid asses
1%
which is ato comfortable
to assets,
support
24%
equivalent
around
5% buffer
of total
Machinery
lending
demand,
although
there
are
4%is a
which
comfortable
buffer to
support
significant
variations
across
individual
banks.
Rough there
lending
are
Vehicle demand,
Inflation although
and Forecast
diamonds
parts
significant
variations
individual
banks.
Inflation across
and Forecast
48%
16% 1%
Inflation
and
Forecast
Textiles Inflation and Forecast
16%
4
respectively.
0%
1%
14%
12%
14%
Beef
2%
12%
10%
12%
Polished
diamonds
8%
10%
10%
8%
8%
8%
6%
30,000
6%
6%
4%
Copper & Nickel Prices
4%
4%
2% 25,000
2%
2%
0%
20,000
0%0%
15,000
12,000
10,000
8,000
BoB Upper
BoB Upper
Actual
BoB
Upper
Actual
inflation
in
Actual
BoB lower 6,000
BoB lower
Forecast
BoB
lower
Forecast
decreased
Forecast
4,000
Copper/tonne
Households
Households
Nickel/tonne
Business
Business
10%
0%
0
0%
2
30%
% of total assets
% of total assets
7%
8%
6%
6%
7%
5%
5%
6%
4%
4%
5%
3%
3%
4%
2%
2%
3%
1%
1%
2%
0%
0%
1%
P million
P million
% of credit
to sector
% of %
credit
to sector
of credit
to sector
2016, it decreased by 13% to 31% for nonexporting
firms
during
the
2016, it decreased bythere
13% isto optimism
31% for
nonperiod.Nevertheless,
that
www.econsult.co.bw
exporting conditions
firmswill improve
duringin the next
the
business
period.Nevertheless,
there
is
optimism
that
12KEY
months
despite uncertainty
surrounding
ECONOMIC
VARIABLES
business
will water
improve
the next
the
supply conditions
of key inputs,
andinelectricity,
12
months
despite
uncertainty
surrounding
which contributed to overall decline in
the supply
ofArrears
key inputs,
and electricity,
on Bankwater
Lending
Bank Deposits, Lending & Liquidity
business
confidence.
which contributed to overall decline in
Arrears on Bank Lending
Arrears on Bank Lending
business
confidence.
Inflation
and Forecast
Bank
Deposits,
Lending &
10%
16%
10%
9%
Liquidity
Arrears on Bank Lending
9%
14%
Bank Deposits, Lending &
10%
8%
60,000
8%
9%
Liquidity
12%
7%
Headline
Q2
2016
10,000
inflation
Q2 2016
decreased
further below
the in
lower
limit of
the Bank of
The domestic
(DCI) poorly
of the Headline
Botswana
Stockcompanies
Exchangeindex
performed
The 7domestic companies index (DCI) of the Botswana
Headline
inflation
inlower
Q2 2016
decreased
further
below
40
5,000
2,000
further
below
the
limit
of
the
Bank
of
Botswana
inflation
range
of
3-6%,
recording
Stock
Exchange
poorly
inBotswana
the second
quarter
of the
year,
falling
by
Stock
Exchange
performed
poorly
inperformed
the
second
quarter
the lower limit of the Bank of Botswana inflation range
Exports
Goods
& Services
Interest
Rates
inflation
3-6%,
recording
a new
low
rate of of
2.7%
inofJune,
inofthe
second
of
the
year,
falling
1.2%
in
Pula and
and
US
the
year,1.3%
fallingquarter
by 1.2%
1.3%
inDollar
Pula
andterms
USby Botswana
of 3-6%,
recording
arange
new low
rate
of down
2.7%
infrom
June,
6and
30
14
0
Copper
&0
a
new
low
rate
of
2.7%
in
June,
down
from
3.0%
in
March.
The
downward
movement
in
1
8
9
0
2
3
4
5
6
Dollar
terms
respectively.
However,
emerging
stock
down
from
3.0%
in
March.
The
downward
movement
in
1.2%
and
1.3%
in
Pula
and
US
Dollar
terms
1
0
0
1
1
1
1
1
1
0
respectively.
However,
emerging
stock
2
20
20
20
20
20
20
20
20
Nickel
12
3.0%
in
March.
The
downward
movement
in
markets
were
generally
weak
in
Q2
and
MSCI
EM
inflation
is
attributable
to
lower
rates
of
price
increase
Other
inflation
is
attributable
to
lower
rates
of
price
7%
respectively.
However,
emerging
stock
markets were generally weak in Q2 and
Gold
manuf.
dollar attributable
Pulaslow economic
declined
by 0.3%, US
largely
across
most
commodity to
groups,
especially
is
attributable
lower
rates offood
price
1%and
10
increase
markets
weredeclined
generally
weak
in Q2
and inflation
goodsacross most
MSCI
EM
by
0.3%,
largely
Nickel commodity
Copper groups,
growth experienced in the emerging markets, while
housing costs. It is expected that inflation willSalt
remain
& Soda MSCI
3%
increase
across
most
commodity
groups,
EM
0.3%,
the 8 MSCI
Worlddeclined
index, whichby
mainly
reflects largely
larger
towards the end of theAsh
year
subdued before increasing
Services
1%
and rising to around 4% by mid-2017.
%
developed markets, gained 0.3%.
6
Machinery
4%
4
2
0
page 4
Vehicle
parts
1%
Textiles
24%
Rough
diamonds
48%
% of
6%
3%
4%
attributable
slow
economic
growth especially
food and housing costs. It is
2%
attributable
slow
economic
growth especially food and housing costs. It is
2%
experienced
in
the
emerging
markets,
while
expected
that
inflation will remain subdued
1%
experienced
in
the
emerging
markets,
while
expected
that
inflation
will remain subdued
the 0%
MSCI World index, which mainlyw wreflects
w . e c o n s u before
l t0%
. c o . b wincreasing towards the end of the
the MSCI World index, which mainly reflects before increasing towards the end of the
larger developed markets, gained 0.3%.
year and rising to around 4% by mid-2017. larger developed markets, gained 0.3%.
year and rising to around 4% by mid-2017. KEY
ECONOMIC
VARIABLES
Exchange
Interest
Rates
attributable
slow
economic
growth especially food
and housingrates
costs. Itlower
is
BoB Upper
14
Business
Households
Total
Exchange rates BoB
Interest
Rates
Actual
Forecast
14
experienced in the emerging markets, while expected20that
inflation
will
remain
subdued
9
0
2
3
4
5
1
0 201 201 201 201 201 201 2016
3 20end
1 2012 201the
12 MSCI World index, which mainly reflects
14 20of
15 the
009 2010 201towards
2016 1.45
the
before
6.0 2increasing
12
6.0
1.45
Ratesgained 0.3%.
larger
developedInterest
markets,
year and rising toExchange
around Rates
4% by mid-2017.
10
1.40
10
7.0
1.40
Exports
of Goods
& Services 1.35
Interest
Exchange
rates
Interest Rates
7.0
8
14
14
8
6
12
12
6
4
10
10
4
828
2
606
0
44
Bank
Bank
BoBC91
BoBC91
22
Rand per PulaRand per Pula
Rand per Pula
%
%
%
Pula per USD Pula per USD
Pula per USD
%
Copper & 1.35
8.0 009 010 011 012 013 014 015 016 1.30
2
2
2
2
2
2
2 Nickel
2
8.0Other
1.30
6.0
1.45
7% Gold
1.25
manuf.
9.0
1.25
1%
1.40
goods
1.20
9.0
7.0 3%
Salt &1.20
Soda
1.35
10.0
1.15
Ash
10.0
1.15
Services
1%
8.0
1.30
1.10
24%
11.0
Machinery
1.10
1.25
1.05
11.0
9.04%
1.05
1.20
12.0
1.00
Rough
Vehicle
12.0
1.00
diamonds
10.0
1.15
parts
BWP per USD
ZAR per BWP
48%
1%
BWP per USD
ZAR per BWP
1.10
Exchange
rates continued to be volatile
11.0
Textiles
Exchange
rates
continued
to
be
volatile
1.05
1% Q2, although in the event the Pula
during
Prime
Prime
BoBC14
BoBC14
Trade BWPTrade
mn BWP mn
Trade BWP mn
US $ mn
US $ mn
700
400
400
600
300
300
500
200
200
400
100
100
300
0
0
200
5,000
5,000
15,000
US $ mn
100
0
10,000
0
-5,000
5,000
-5,000
-10,000
-10,0000
The global
market for diamonds in the 0
The
global
market
the
The global
market
for diamonds
in the second quarter
second quarter
of forthediamonds
year hasin been
of the year
has beenofgenerally
second
quarter
the stable,
year with
hasdemand
been
generally
stable, with
demand for prices
rough
for rough diamonds
corresponding
generally
stable, and
with
demand rough
for rough diamonds
and
corresponding
roughcutting
prices
reflecting
demand
from
consumers
and diamond
The
global
market
for diamonds
in
the
diamonds
and
corresponding
rough
prices
and
polishing
firms.
Sales
by
De
Beers
Global
Sightholder
reflecting
demand
from
consumers
and
second
quarter
of
the
year
has
been
reflecting
demand
from consumers
and
Sales (DBGSS)
in Q2 and
improved
when compared
to De
diamond
cutting
polishing
firms.
generally
stable,
with
demand
for
rough
diamond
cutting
and
polishing
De
the same period
in 2015,
from
USD1,520firms.
million to
diamonds
and corresponding
rough prices
USD1,856 million.
De Beers’ fifth sightholder
and
reflecting
demand
consumers
and
auction sale was
successful from
and rejections
were made
only on lower cutting
quality goods.
sales at firms.
the fourthDe
diamond
andHowever,
polishing
and fifth sights of the year were slightly below those
of the third sight, and the industry remains cautious of
market developments.
Copper/tonne
USD bn
Pula bn
Nickel/tonne
00
The
Monetary
Policy
Committee
The
Monetary its monetary
Policy
Committee
(MPC)maintained
policy
stance
(MPC)maintained
its
monetary
policy
stance during
although in the event the 1.00
Pula
12.0 Q2,
Bank
Prime
and held the Bank
Rate
at
6%
in
June
2016, ended
quarter little changed against
both
Beefthe Polished
Bank
Prime
and held the Bank
Rate
at
6%
in
June
2016,
ended
the
quarter
little
changed
against
both
diamonds
2%
BoBC91price stability
BoBC14
BWP
per USD
ZAR
per BWP
BoBC91
BoBC14
due to a positive
and inflation the SA
rand
and
US
dollar
compared
to
the
8%
due
price stability and
inflation the
SA randrates
and
US
dollar compared
to the Theto a positive
Monetary
Committee
continued
to be volatile
outlook.
The BoBC-14Policy
and BoBC-91
yields Exchange
end of Q1.
Currency
market
volatility
outlook.
The Policy
BoBC-14
and(MPC)
BoBC-91
yields
end
ofQ2,Q1.
Currency
volatility
The Monetary
Committee
maintained
its
Exchange
rates
continued
tothe
bemarket
volatile
during
Q2,
(MPC)maintained
monetary
policy
stance
during
although
ininvestor
event
the
Pula
have
continued
toitsmove
slowly
downward,
followed
changing
sentimentsin
monetary
policy
stance
and
held theslowly
Bank
Rate
at 6% in
although inchanging
the event &the
Pula ended
the quarter
Foreign
Exchange
Reserves
Copper
Nickel
Prices
have
continued
to
move
downward,
followed
investor
sentimentsin
and
held
the
Rate
at1.09%
6% in and
June
2016, ended
the
quarter
changed
both
with
yields
ofBank
0.84%
and
respectively
foreign
exchange
markets,
theUS
possible
30,000
12,000
13 2016,
June
due
a positive
price
stability
inflation
little
changed
againstlittle
both
the SA with
randagainst
and
dollar
with
yields
of to0.84%
and
1.09%
respectively
foreign
exchange
markets,
with
the
possible
due
toThe
a BoBC-14
positive
price
and
inflation
the
SA rating
rand
and
dollar
to the
90
when
compared
to
thestability
1.00%
and
1.36%
outlook.
and
BoBC-91
yields have
continued
compared
to the
endUS
of Q1.
Currency
market
volatility
credit
downgrade
of compared
South
Africa,
and
when
to with
theyields
1.00%
and
1.36%
rating
downgrade
ofvote
South
and
12 compared
to move
slowly
downward,
ofcommercial
0.84%
and 1.09%
followed
investor
sentiments
in foreign
exchange
outlook.
The
BoBC-14
and
BoBC-91
yields
end
of changing
Q1.
Currency
market
volatility
25,000
10,000
prevailing
in
Q1
2016.
The
bank credit
the
United
Kingdom’s
toAfrica,
leave
the
respectively in
when
to thecommercial
1.00% and 1.36%
markets,
with Kingdom’s
the possible credit
rating
downgrade
of
80
prevailing
Q1compared
2016.
The
bank
the
United
vote
to
leave
the
have
continued
to
move
slowly
downward,
followed
changing
investor
sentimentsin
prime
lending
rate
remained
constant
European
Union.
The
Pula-US
Dollar
11
prevailing
in Q1 2016.
The commercial
bank prime
lendingatat European
South Africa, Union.
and
the United
Kingdom’s
vote to leave
the
prime
lending
rate
remained
The
Pula-US
Dollar
20,000exchange markets,
8,000
with
yields
of 0.84%
and 1.09%constant
respectively
foreign
with
the
possible
7.5%.
rate remained
constant
at 7.5%.
European
Union.
The
Pula-US
Dollar
exchange
rate
was
exchange
rate
was
10.94
at
the
end
of
June
70
7.5%.
rate
was
10.94ofcompared
at the end
of June
10
10.94rating
at
the
end
of
June
10.93
atand
the
when
compared to the 1.00% and 1.36% exchange
credit
downgrade
Africa,
2016,
compared
to 2016,
10.93South
at theto
end
of
Q1,
15,000
6,000
end
of
Q1,
while
the
Pula
depreciated
by
0.4%
against
2016,
compared
to
10.93
at
the
end
of
Q1,
60
prevailing
in
Q1
2016.
The
commercial
bank
the
United
Kingdom’s
vote
to
leave
the
while
the
Pula
depreciated
by 0.4%toagainst
9
the SA
Rand
during
the quarter, from
1.36.
the
Pula
depreciated
byZAR1.37
0.4% against
prime lending rate remained constant at while
European
Union.
The the
Pula-US
Dollar
the
SA
Rand
during
quarter,
from
10,000
4,000
50
8
the
SA Rand
during
quarter,
from
7.5%.
exchange
rate
was
10.94 the
at the
end of June
ZAR1.37
to
1.36.
Diamond Sales
International Trade
ZAR1.37
to 1.36.
2016,
compared
to 10.93 at the end of2,000
Q1,
40
5,000
7
DBGSS
International
Trade
while
the
Pula
depreciated
by
0.4%
against
900
DBGSS
International Trade
25,000
900
6
30
the
SA0 Rand during the quarter, 0from
25,000
800
1
8
9
0
2
3
4
5
6
1
0
0
1
1
1
1
1
1
0
20
2800
20
20
20
20
20
20
20
ZAR1.37
20,000 to 1.36.
700
20,000
700
US dollar
Pula
DBGSS
15,000
International
Trade
600
Nickel
Copper
900
15,000
25,000
600
800
500
10,000
500
10,000
20,000
-5,000
Trade Balance
Trade Balance
Imports
Imports
Exports
Exports
As
expected, total trade improved in the year -10,000
As
expected,
total
trade
improved
year
As
expected, total
trade
improved
in the year
to March
to March
2016
consistent,
within the
improved
consistent,
improved global
for
to 2016
March
2016 with
consistent,
with demand
improved
global
demand
for exports
diamonds.
goods
Trade Balance
Imports
Exports
diamonds.
Total
goods
went Total
upTotal
from
4.4% global
demand
for diamonds.
goods
exports
uptotrade
fromgrowth
4.4%in Q1
growth
in toQ4
growth
in went
Q4 2015
61%
2016,
As
expected,
total
improved
in
theindue
year
exports
went
upsales
from
4.4%
growth
Q4
improved
diamond
which
contributed
86%
of
totalto
2015
to
61%
growth
in
Q1
2016,
due
to March
2016growth
consistent,
with
improved
2015
to
61%
in
Q1
2016,
due
to
exports in the
year to March.
Imports
slightly
improved
improved
diamond
sales
which
contributed
global
demand
for sales
diamonds.
Total
goods
improved
diamond
which
contributed
in March from
a contraction
of 5.6%
in December
2015
exports
went up
fromMarch
4.4%2015,
growth
in Q4
to a contraction
of 4.1%
attributable
to
2015
to value
61%of growth
in Q1 2016,
due
to
a lower
diamonds imported
during the
period.
This resulted
in a tradesales
surplus which
of P3,512
million. This
improved
diamond
contributed
page 5
compares with a trade deficit of P4,713 million in the
final quarter of 2015.
periodQ2inimproved
2015, from
to contraction
of 5.6%improved
in December
2015from
to aa
whenUSD1,520
compared million
to the same
Imports slightly
in March
USD1,856
De from
Beers’
fifth sightholder
of of
4.1%
2015,attributable
periodmillion.
in 2015,
USD1,520
million tocontraction
contraction
5.6%March
in December
2015 to a
and USD1,856
auction sale
successful
and to contraction
a lower value
diamonds
imported
million.was
De Beers’
fifth sightholder
of 4.1%ofMarch
2015,attributable
w
w
w
.
e
c
o
n
s
u
l
t
.
c
o
.
b
w
and
auction
sale
was
successful
and
to
a
lower
value
of
diamonds
rejections were made only on lower quality during the period. This resulted in imported
a trade
rejections
were
made
onlyfourth
on lower
qualitysurplus
duringoftheP3,512
period. million.
This resulted
in a trade
goods.
However,
sales
at the
and fifth
This compares
goods.
at the
fourth
andoffifthwith
surplus
of deficit
P3,512of million.
compares
KEY
VARIABLES
sights
ofECONOMIC
the However,
year weresales
slightly
below
those
a trade
P4,713 This
million
in the
sightssight,
of the year
below
those offinal
with
a trade
deficit of P4,713 million in the
the third
and were
the slightly
industry
remains
quarter
of 2015.
the of
third
sight,
and the industry remains final quarterForeign
of 2015.
cautious
market
developments.
Exports of
Goods & Services
Exchange Reserves
cautious of market developments.
Exports of Goods & Services
Foreign Exchange Reserves
13
Exports of Goods & Copper
Services
Foreign Exchange Reserves
&
80
80
11
70
70
10
9
60
60
9
8
8
5050
7
7
4040
Pulabnbn
Pula
10
90
90
12
11
RoughRough
diamonds
diamonds
48% 48%
Vehicle Vehicle
parts parts
1%
1%
Textiles Textiles
1%
1%
Beef
2%
13
12
USD bn
Machinery
Machinery
4%
4%
Services
24% Services
24%
Copper &
Nickel
7% Nickel
Gold
7% Gold
1%
1%
Salt & Soda
Salt
Ash & Soda
1% Ash
1%
USD bn
Other
manuf. Other
goods manuf.
3% goods
3%
6 6
3030
0012001210121012201220123012
104142021051520210616
912
302
00
200820200809202
Polished
Polished
Beef
diamonds
diamonds
2%
8%
8%
20,000
8,000
8,000
15,000
15,000
6,000
10,000
10,000
4,000
5,000
5,000
2,000
2,000
0
0
0
0
Nickel
Nickel Copper Copper
3,000
60
60
2,500
2,500
50
50
6,000
2,000
2,000
40
40
4,000
1,500
1,500
30
1,000
1,000
20
20
500
500
10
10
0
0
0
0
30
Percent
20,000
3,000
Percent
10,000
GWh
10,000
GWh
Copper/tonne
25,000
Copper/tonne
25,000
Nickel/tonne
Nickel/tonne
dollar
Pula
US US
dollar
Pula
Foreign
ExchangeReserves
Reservesdecreased
decreased by
by
In 2015
Botswana’s
exports
were,
as the
in theForeign
Exchange
In 2015
Botswana’s
exports
were,
as in
past,
dominated
by
diamonds.
Excluding
In 2015
Botswana’s
exports
were,
as in theExcluding
past,
dominated
3.5%from
P84.9
billionininDecember
December
2015
to
Foreign P84.9
Exchange
Reserves
decreased
by2015
3.5%from
past,
dominated
by diamonds.
re- re-3.5%from
billion
to
by
diamonds.
Excluding
re-exports
of
aggregated
diamonds
P84.9
billion
in
December
2015
to
P81.9
billion
exports
of
aggregated
diamonds
imported
P81.9
billion
in
March
2016.
Besides
exports of aggregated diamonds imported P81.9 billion in March 2016. Besidesin
imported
from
othercountries,
countries, total
exports
of goods
March 2016.rate
exchange
rate
effects,isthedriven
decline
exchange
effects,
thedecline
decline
from
other
exports
of and
goodsexchange
rateBesides
effects,
the
is driven
from
other
countries,
totaltotal
exports
of goods
services
amounted
to
P53.6
billion
(approx.
US$5.3bn).
Of
is
driven
by
drawing
down
on
government
savings,
which
drawingdown
downonongovernment
government savings,
savings,
and
services
amounted
to P53.6
billionby by
drawing
and
services
amounted
to P53.6
billion
this total,
rough diamonds
mined in Botswana
accounted
for
has an indirect
impact on the foreign exchange
reserves.
(approx. US$5.3bn).
this
total,
roughwhich
which
an
indirectimpact
impact onthe
the foreign
(approx.
Of Of
this
total,
rough
hashas
an
indirect
almost half,US$5.3bn).
48%. Polished diamonds
accounted
for a further
Reserves
increased
in US Dollar on
terms byforeign
0.2% to
diamonds
mined
in
Botswana
accounted
for
exchange
reserves.
Reserves
increased
8%. As previously
reported,
2015 was not
a good year for
USD7.6 billion
while decreasing
by 1.4%
in SDR terms
diamonds
mined
in Botswana
accounted
for exchange
reserves.
Reserves
increased
inin
US
Dollar
terms
by
0.2%
to
USD7.6
billion
almost
half,
48%.
Polished
diamonds
diamonds, half,
so exports
were somewhat
lower than
normal.
SDR5.4terms
billion. by 0.2% to USD7.6 billion
US toDollar
almost
48%.
Polished
diamonds
accounted
further 8%.
As previously
while decreasing by 1.4% in SDR terms to
A striking
result is for
largeacontribution
of services
exports,
accounted for a further 8%. As previously while decreasing by 1.4% in SDR terms to
at 24%
of the total;
the majority
of thisawas
tourism.
The for SDR5.4 billion.
reported,
2015
was not
good
year
reported,
was not a atgood
for SDR5.4 billion.
thirddiamonds,
largest 2015
export was
Theyear
remaining
so copper-nickel,
exports were7%.
somewhat
lower
diamonds,
so
exports
somewhat
lower
13%than
was spread
across gold,
soda ash
and
manufactured
normal.
A were
striking
result
is large
than
normal. Aof striking
products.
contribution
services result
exports,isat large
24% of
contribution
of
services
exports,
attourism.
24% ofThe
the total; the majority of this was
the total;
majority
thisPrices
was
tourism. The
Copper
&of
Nickel
Electricity
thirdthe
largest
export
was
copper-nickel,
at 7%.
third largest
export was
copper-nickel,
at 7%.
The remaining
13%
was
spread
across
gold,
Copper
& Nickel
Prices
Electricity
Copper
&was
Nickel
Prices
Electricity
The 30,000
remaining
13%manufactured
spread
across
gold,
12,000 3,500
soda30,000
ash and
products.
70
3,500
12,000
70
soda ash and manufactured products.
Generation
Generation
Generation
Imports Imports
Generation
% of total% of total
The international
commodities
for During
the to
year
to March
electricity
The international
commodities
marketmarket
for During
the year
March
2016, 2016,
electricity
The
international
commodities
market
for
base
metals,
During
the
year
to
March
2016,
electricity
generated
base
metals,
copper
and
nickel,
continues
to
generated
declined
14.5%
year
on
year
from
base metals, copper and nickel, continues to generated declined 14.5% year on year from
copperbe
and
nickel, continues
to there
be sluggish;
however
declined 14.5%inyear
on year2015
from 518.8GWh
in March
sluggish;
however
is
some
sign
that
518.8GWh
March
to
443.6GWh.
be sluggish; however there is some sign that 518.8GWh in March 2015 to 443.6GWh.
there is some sign that the bottom has been passed as
2015 to 443.6GWh. Correspondingly, the volume of
the bottom
has passed
been passed
as demand
Correspondingly,
the volume
of imported
the
bottom
has been
as demand
from from
Correspondingly,
the volume
of imported
demand from major importers is improving, albeit slowly.
imported electricity during the period increased by 16.1% to
major
importers
is
improving,
albeitslowly.
electricity
during
the
period
increased
by
major
importers
improving,
albeitslowly.
during
period
increased
by
Compared
to Q1 2016,iscopper
prices softened
marginally electricity
451.1GWh.
This the
translated
in total
electricity consumption
tofalling
Q1by 0.6%
2016,
451.1GWh.
This
translated
in total
Compared
to Q1
2016,
copper
pricesprices
16.1%16.1%
This translated
infrom
total
in the Compared
second quarter,
fromcopper
USD4,855
into
the451.1GWh.
firstto
quarter
to amount
to 967.4GWh
969.9GWh
softened
marginally
insecond
the
quarter,
electricity
consumption
infirst
thequarter
first
quarter
softened
marginally
in the
the
quarter,
electricity
consumption
in theElectricity
to felltoin
to USD4,826
per tonne.
On
other
hand,second
nickel
prices
in 2015,
a decrease
of 0.3%.
consumption
falling
by 0.6%
from
USD4,855
toupUSD4,826
amount
toa result
967.4GWh
969.9GWh
in
improved
13.7%,
to USD9,412
from amount
the period
as
of from
slowingfrom
economic
growth,
falling
bysubstantially,
0.6%
frombyUSD4,855
to USD4,826
to 967.4GWh
969.9GWh
in reduced
USD8,275.
There
is On
some
hopeother
that prices
will
recover
mining
demand,
and power
rationing
due
tocontinued
plant
per tonne.
the
hand,
nickel
prices
a decrease
of 0.3%.
Electricity
per
tonne.
On the
other
hand,
nickel
prices
2015, 2015,
a decrease
of 0.3%.
Electricity
furtherimproved
as market
imbalances by
between
and
failures atfell
Morupule
with
substantially,
by supply
13.7%,
to consumption
the station
period
as a result
of
improved
substantially,
13.7%,
to consumption
in fell
theBinpower
period
as acombined
result
of power
demand
improve
with
China’s
increasing
demand.
shortages
in
South
Africa.
USD9,412
upUSD8,275.
from USD8,275.
is some
slowing
economic
growth,
reduced
USD9,412
up from
ThereThere
is some
slowing
economic
growth,
reduced
miningmining
a as
g e 6 demand,
that prices
will recover
rationing
hope hope
that prices
will recover
furtherfurther
as pdemand,
and and
powerpower
rationing
due due
imbalances
between
tocontinued
failures
at Morupule
B
marketmarket
imbalances
between
supplysupply
and and
tocontinued
plant plant
failures
at Morupule
B
demand improve with China’s increasing power station combined with power
www.econsult.co.bw
NEWS HIGHLIGHTS
5th April
Botswana makes
progress in MDGs.
(Daily News)
According to the Millennium Development Goals (MDGs) Status
Report for Botswana, the country has achieved nine out of twelve
MDG targets. This was made possible through a combination of
prudent macroeconomic policies and good governance. Botswana
was able to make commendable process in the 15 years of MDGs as
demonstrated by sustained economic growth and strong social and
development programmes,which had been positive for Batswana.
11th April
Kimberley starts mining
at Botswana's Lerala
diamond mine. (Mining
Weekly)
Kimberley Diamonds has started operations at its Lerala open-pit
diamond mine, and first production is scheduled for April 2016.The
Lerala mine’s life span is estimated at least seven years, and it is
projected to produce an average of 357,000 carats of diamonds per
year.
13th April
Fiscal boost as De
Beers’ rough sales
rebound. (Mmegi)
De Beers’ rough diamond sales in the first quarter of the year showed
signs of market rebound, a development that will be a boost for the
government, anticipating a P6 billion deficit for the 2016/17 financial
year. The first three sightholder rough diamond sales recorded sales
of USD545 million, USD617 million and USD660 million respectively,
significantly higher than in the same period in 2015. The improved
diamond sales are a fiscal boost to Botswana - through royalties,
dividends and taxes the country receives about 80% of the income
generated by Debswana’s sales to De Beers.
15th April
Three suitors bid for
Mowana mine. (Mmegi)
At least three companies have expressed interest in purchasing the
Mowana copper mine. The mine was placed under liquidation last year
when it could not pay it creditors. It is expected to go on sale in August
2016.
18th April
Lucara’s first
exceptional tender of
years fetches USD51
million. (Rapaport New)
In its first exceptional stone tender of the year, Lucara Diamond
Corporation sold rough diamonds with a value of USD51.3 million.Out
of the seven diamonds sold, the company sold two stones for more
than USD10 million each (USD10.49 million and USD12.19 million for
245.4 carat and 296.7 carat diamonds respectively).
19th April
Botswana nickel
producer starts massive
worker lay-off. (Mining
Weekly)
Botswana’s top nickel and copper producer, Bamangwato Concessions
Limited (BCL), issued workers with retrenchment notices in an exercise
that is aimed at cutting operational and salary costs to save the
company from collapse.It is estimated that at least 2,000 workers will
be affected in the retrenchment process. Meanwhile, the government
has approved a USD100 million loan to BCL for recapitalisation.
21st April
De Beers reduces
Q1 output by 10%.
(Rapaport News)
De Beers’ diamond production slid 10% to 6.9 million carats in the first
quarter of 2016, as the miner reduced output in response to market
conditions.Production at Debswana mines fell in the period by 5% to
5.3 million carats.
22nd April
Another 300MW
extension for Morupule
B. (Mmegi)
The Public Procurement and Asset Disposal Board (PPADB) approved
a request from government to expand Morupule B by another 300MW,
a few months after the awarding of a tender to expand the station from
600MW to 900MW. The approval allows the government to directly
appoint an Independent Power Producer (IPP) to construct additional
two units (unit 7 and 8) at Morupule B. This will increase total electricity
generation to 1200MW, above the current national demand of 610MW.
28th April
Botswana retains A-/A-2
credit rating. (Sunday
Standard)
Standard and Poor’s (S&P) Rating Service maintained Botswana’s
sovereign credit rating, reaffirming an “A-/A-2” rating for 2016. S&P’s
review took into account the impact of commodity price shocks on
Botswana’s fiscal position and economic activity, including also the
accumulated buffers which have enabled absorption of trade shocks.
However, Botswana’s credit rating is constrained by the narrow
economic base and the dominance of the diamond sector in the
economy making it vulnerable to external shocks.
page 7
www.econsult.co.bw
NEWS HIGHLIGHTS
29 April
Botswana gets USD76.2
million AfDB support
to help economic
diversification. (Public
Finance International)
The African Development Bank (AfDB) will lend Botswana USD76.2
million to support economic diversification efforts. According to
AfDB, Botswana needs to invest in sectors such as agriculture and
manufacturing and support entrepreneurship development, with the
aim to reduce dominance of mining and government in the economy.
The line of credit will assist the Botswana Development Corporation
(BDC) to expand its investment funding options.
3rd May
African Energy
Resources’ Botswana
projects aimed at SA’s
IPP coal programme.
(Mining Review)
Development work has started on African Energy Resources’ two coal
projects in Botswana, the Mmamabula West and Mmamantswe projects,
for submission into South Africa’s cross border IPP programme. The
two coal projects are owned 100% by African Energy, and the company
is collaborating with two other companies at each site to develop the
power projects. Mmamabula West and Mmamantswe projects are
expected to each produce 600MW of electricity, should the company be
successful in the South African IPP tender.
8th May
Botswana Diamond
raises USD722 thousand
for Orapa project.
(Rapaport News)
Botswana Diamonds managed to raise up to USD722,000 through share
issuance to fund the ongoing diamond exploration at its joint venture
project with Alrosa in Orapa. The funds will be used for drilling, sampling,
geophysics program as well as providing additional working capital.
9th May
Lucara sells its 813
carat diamond. (Lucara
Diamond Corporation)
‘Lucara sold its 813 carat rough diamond named “The Constellation”
for USD63.1 million, the highest price ever achieved for the sale
of a rough diamond. The type IIa diamond was recovered from the
company’s Karowe mine in Botswana.’
10th May
Modest economic
growth seen in NDP 11.
(Mmegi)
The government projected a modest average growth rate of 4.4% for
the next six years under its medium term socio-economic framework,
the 11th National Development Plan (NDP11), higher than the 3.8%
growth recorded duringNDP10 period. However, the projected growth
will not be enough to address Botswana’s development challenges
of unemployment, poverty and income inequality. NDP 11 covers the
period from 2017 to 2022.
11th May
Botswana Diamonds to
start drilling at PL 186.
(Rapaport News)
Maibwe Diamonds will begin drilling for diamond within the Gope area.
The program is part of the Maibwe block of licenses in Gope region
which holds a high potential for diamond discoveries. It is stated that
the drilling will establish the grade and quality of diamonds found in the
area. Maibwe Diamonds is owned 15% by Botswana Diamonds and
51% by Bamangwato Concessions Limited (BCL).
13th May
Government proposes
P370 billion NDP 11
budget. (Mmegi)
According to the draft NDP 11 document, the government proposed
a P370.2 billion budget for NDP 11 period, including P90 billion for
development spending. Revenues during the period are forecast at
P372.3 billion, resulting in a slight budget surplus of P2.1 billion. The
government intends to keep total expenditures at 30% of GDP and
maintain a 70% to 30% allocation between recurrent and development
spending.
13th May
Stronger Pula stifles SA
bound exports. (Mmegi)
The appreciation of the Pula against South Africa’s Rand is putting
Botswana’s economic growth at risk, making exported goods and
services expensive compared to imported goods and services. Thus,
a strong Pula against its major trading partner’s currency erodes
the competitiveness of domestic products which in turn hurts local
manufacturers, and their ability to create employment opportunities.
18thMay
Botswana grants A-Cap
environmental approval
for uranium mine.
(Mining Weekly)
The government has approved the Environmental Impact Assessment
(EIA) of the Letlhakane uranium project, to be developed by A-Cap
Resources. This would be Botswana’s first uranium mine, with an
estimated 18 years of operation. A-Cap has identified a deposit with
approximately 365.7 million pounds of uranium, and the mine would
produce 3.75 million pounds each year for the first 5 years.
page 8
www.econsult.co.bw
NEWS HIGHLIGHTS
20th May
Production halved at
Ghaghoo mine. (Mmegi)
Production from Gem Diamonds’ Ghaghoo mine in the CKGR halved
in the first quarter of the year as the company downsized operations
to reduce costs. In a production update, Gem Diamonds stated that
output at Ghaghoo stood at 11,029 carats in the first three months
of 2016,down by 55%when compared to the last quarter of 2015.
Reducing production at the mine is in line with Gem Diamonds’
strategy for 2016 to keep production in line with market conditions.
27th May
Bruce Cleaver is new
De Beers CEO. (Mining
Weekly)
Bruce Cleaver will with effect from July 2016 be the new De Beers
Chief Executive Officer (CEO), succeeding the outgoing Philippe
Mellier, who is stepping down after five years.
27th May
Peregrine Diamonds
starts core drilling at
Botswana prospect.
(Mining Weekly)
Core drilling has started at Peregrine Diamonds’ 100% owned Sikwane
project, which comprises of nine kimberlites. Diamonds have already
been recovered from surface samples and from down hole samples.
31stMay
Bank of Botswana
doubles on weaker
Pula. (Mmegi)
The depreciation of the Pula against most major currencies,
particularly the US Dollar, has seen Bank of Botswana (BoB)
income for 2015 doubling from the previous year, largely due to
currency revaluations. Net income for the Bank amounted to P9.1
billion,significantly higher than the P4.1 billion realised in 2014. Total
assets rose by P5.7 billion to P85.4 billion, of which foreign exchange
reserves were P84.9 billion in 2015.
3rd June
Banks profitability sinks
to new lows. (Mmegi)
Profitability among commercial banks contracted to a new low in 2015
as the sector suffered the effects of low interest rates, a freeze in
bank charges hike and negative economic growth. According to the
2015 Bank of Botswana (BoB) Annual Report, banks’ profitability as
measured by Return on Equity (RoE) and Return on Assets (RoA)
was subdued in 2015, with one bank recording a loss.The maximum
RoE and RoA achieved by individual banks were 21.4% and 2.6%
down from 27.7% and 3.8% respectively. However, the situation is
considered “normal” by the BoB, as banks in Botswana were making
large profits in previous years.
7th June
Analysts cast down NDP
11 Growth forecasts.
(Mmegi)
According to the Standard Bank Group’s Africa Markets Revealed
report, Botswana’s economy is expected to grow by no more than 4%
a year during National Development Plan 11 (NDP 11), lower than the
4.4% forecast by government officials. Thus, government revenue
in NDP 11may likely to be lower than the estimated P372.3 billion
prompting the government for further fiscal consolidation by either
increasing borrowing or drawing down on its savings.
8th June
Kimberley to sell
first diamonds from
Botswana mine. (Mining
Weekly)
Following the commencement of production in April 2016, Kimberley
Diamond’s Lerala diamond mine is ready for its first sale of diamonds.
The first sale will be conducted through an online auction at the end of
June 2016.
11th June
Slow growth hurts job
opportunities – BoB.
(Business Weekly &
Review)
The slow economic growth experienced in recent years is limiting
the creation of job opportunities in Botswana, as evidenced by
sluggish employment growth. Formal sector employment statistics
from Statistics Botswana (StB) showed that only 1,008 new jobs in
all sectors were created between 2013 and 2015, growth of 0.3%.
According to the Bank of Botswana, factors such as the skills gap and
slow economic diversification contribute to high unemployment levels
and negatively impacts productivity, thus, undermining the ability to
create jobs. As a result, there is need to rethink development strategies
and create sustainable employment.
page 9
www.econsult.co.bw
NEWS HIGHLIGHTS
12th June
Botswana’s electricity
index at the lowest
in 16 years. (Sunday
Standard)
The Africa Infrastructure Development Index of 2016 by the African
Development Bank revealed that Botswana’s electricity index in 2016
is 80.98, the lowest in 16 years. The country is placed at position 38 in
Africa,down from positions 34 and 27 in 2015 and 2014 respectively.
This reflects the country’selectricity supply problems.
13th June
Informal sector critical
for employment
creation. (Weekend
Post)
A review in Bank of Botswana’s Annual Report for 2015 stated that the
high unemployment rate is perpetuated by the small informal sector in the
country, which also has its own challenges. Factors such as lack of access
to infrastructure and services, insufficient skills, and rigid trade and land
use regulations hinder growth of the sector despite its potential to create
more jobs. According to the Bank, there is a crucial need to create an
enabling environment and accommodate growth of informal enterprises.
15th June
Protea Hotels expands
into Botswana. (Mmegi)
Protea Hotels has announced the conclusion of an agreement to enter
into Botswana’s hotels industry. Protea Hotels has footprints in different
African countries and Botswana would be the ninth country for their
brand. Facilities at the hotel will include 160 rooms (different sizes),
business centre, bar, restaurant, fitness centre, conferencing rooms
and an outdoor pool. The decision to enter the Botswana market was
cemented by economic and political stability in the country as well as a
positive economic outlook in the long-term.
15th June
Botswana mine closures
highlight need for
lowcost production.
(Mining Weekly)
The closure of mines in Botswana had placed emphasis on the absolute
necessity for low-cost mining production in Botswana. According to
Econsult Botswana Managing Director Dr. Keith Jefferis, mining companies
in Botswana need to rethink their strategies and adopt low cost production
strategies to strive even in unfavourable market conditions as this will help
prevent mine closures and loss of employment.
16th June
Government buys
Debswana shares in
MCM. (Business Weekly
& Review)
Government has moved to acquire 100 percent shareholding in
Morupule Coal Mine Limited (MCM) through the newly established
Minerals Development Company Botswana (MDCB), buying out
Debswana Diamond Mining (Pty) Ltd in the process.Through
Debswana, the Government and De Beers previously each held 50%
of MCM indirectly.
17th June
EPA: A window for
Botswana to boost
exports. (Mmegi)
The Economic Partnership Agreement (EPA) signed between the
European Union (EU) and six of Southern African Development
Community (SADC) countries including Botswana, known as the
SADC EPA,provides an opportunity for the country to increase
its export base and increase exports to the EU market. The EPA
eliminates tariffs and barriers and guarantees 100% free access to the
EU market as a way of promoting seamless and efficient trade.
19th June
National Development
Bank (NDB) shows
signs of financial
recovery. (Sunday
Standard)
The 2015 financial results of the National Development Bank (NDB)
showed an improvement, with losses reduced significantly from
P86.4 million in 2014 to P48.4 million in 2015. The bank’s impairment
charges also declined. Loans and advances increased from P1.3
billion to P1.37 billion while assets decreased marginally by 1.7%. Its
turnaround strategy to return to profitability and operational efficiency
has worked well for the bank to reduce losses.
20th June
Bank Rate remains
unchanged at 6%.
(Weekend Post)
The Monetary Policy Committee (MPC), at the meeting held on the
15 June 2016, maintained the lending rate at 6%, due to a positive
price stability outlook. Inflation is forecast to remain within the Bank of
Botswana medium-term objective range of 3-6%, and the prevailing
monetary policy stance is also consistent with maintaining inflation
within the Bank’s medium-term objective range.
page 10
www.econsult.co.bw
NEWS HIGHLIGHTS
20th June
Revenue pool under
pressure. (Weekend
Post)
Econsult Botswana Managing Director, Dr Keith Jefferis, emphasised
the need to expand the government revenues from domestic sources
as Botswana’s other revenue sources are under pressure. The
2016/17 budget estimated revenues at P48.4 billion, a reduction
of P3.36 billion from the revised 2015/16 budget estimates on
revenues of P51.76 billion. Thus, there is need to mobilise revenues
as dependency on mineral and customs and excise revenues is not
sustainable.
21st June
Botswana: Posco and
Marubeni to develop
300MW coal plant.
(African Energy)
A consortium of South Korea’s Posco Energy company and Japan’s
Marubeni company has been selected as preferred bidders to develop
the 300MW units 5 and 6 at Morupule B coal power station. The
expansion of the power station will cost USD800 million which will
be financed by the Export-Import Bank of Korea and Japan Bank for
International corporation. Construction is scheduled to commence in
the second half of 2016 and be completed in 2020.
23rd June
Botswana records
further decline in
business confidence.
(Sunday Standard)
The Business Expectations Survey (BES) by Bank of Botswana
showed an overall decline in the level of optimism among businesses.
Measured by the Business Confidence Index, the overall confidence
in the first half of 2016 (H1:2016) is at 36% down from 44% in 2015.
The subdued levels of confidence particularly reflect the water and
electricity challenges in the country.
24th June
Economic growth target
too optimistic – Bank of
Botswana. (Mmegi)
According to the central bank’s BES, the economy is unlikely to
expand by the projected 4.2% this year as the country continues to
encounter multiple challenges. On average, businesses’ sentiments
on real GDP are that the economy will grow by 3.3% and 3.5% in
2016 and 2017 respectively. Problems experienced in the water and
electricity sectors are at the top of challenges forgrowth prospects.
30th June
Lesedi la Rona diamond
fails to sell at auction.
(Rapaport News)
The 1,109 carat Lesedi la Rona diamond shocked the market when it
did not sell at the long awaited London auction sale. Bidding failed to
reach the anticipated higher price than that of The Constellation (the
previous record), and did not go higher than USD61 million. Prior to
the auction sale, the rough diamond was estimated to sell for more
than USD70 million (a world record price for a rough diamond).
30th June
Lucara to evaluate
alternative market
options for 1,109 carat
Lesedi la Rona. (Mining
Weekly)
Lucara Diamond Corporation will pursue alternative market
opportunities for sale of the 1,109 carat Lesedi la Rona rough
diamond, after it failed to sell at the Sotheby’s London auction. Options
include increasing exposure of the diamond to the market by placing
it on display at various museums for a period of more than a year. In
a company statement, Lucara said they are not in a rush to sell the
diamond.
page 11
www.econsult.co.bw
MACRO-ECONOMIC DATA
Key Economic Data
unit
2012
2013
2014
2015 Q2
2015Q3
2015Q4
2016Q1
2016Q2
Annual Economic Growth
GDP
%
4.8
9.3
4.4
3.1
1.2
-0.3
-0.2
..
Mining
%
-4.6
23.9
4.5
-0.4
-11.8
-19.7
-21.4
..
Non-mining private sector
%
8.0
6.8
4.1
3.8
3.9
3.8
3.9
..
GDP current prices
P mn
112,705
125,810
142,466
37,267
37,319
34,912
39,239
..
GDP 2006 prices
P mn
75,786
82,961
85,619
21,450
20,707
21,730
22,120
..
2.7
Money & Prices
Inflation
%
7.4
4.1
3.8
3.1
2.9
3.1
3.0
Prime lending rate
%
11.0
9.0
9.0
8.0
7.5
7.5
7.5
7.5
BoBC 14-day
%
4.6
3.1
3.1
1.9
1.18
0.97
1.0
0.84
Trade & Balance of Payments
Exports - total goods
P mn
45,719
66,402
76,208
19,773
11,830
12,355
19,875
..
Exports - diamonds
P mn
36,143
55,367
65328
16,618
9,609
10,026
17,003
..
Imports - total goods
P mn
62,112
70,210
72,394
19,760
18,077
17,068
16,363
..
Balance of visible trade
P mn
-16,393
-3,808
3,814
13
-6,247
-4,713
3,512
..
Balance of payments
P mn
-862
1,340
11,404
942
- 468
-5 529
..
..
Exchange rate BWP per USD
end
7.776
8.718
9.515
9.911
10.638
11.236
10.929
10.941
Exchange rate ZAR per BWP
end
1.090
1.196
1.217
1.237
1.329
1.383
1.366
1.361
FX reserves
$ mn
7,628
7,726
8,323
8,572
8,179
7,546
7,559
..
FX reserves
P mn
59,317
67,772
79,111
84,536
86,190
84,881
81,891
..
Deposits in banks
P mn
47,216
48,512
51,492
57,628
61,780
59,961
61,078
..
Bank credit
P mn
34,555
39,763
45,116
45,866
47,209
48,307
49,040
..
7,510.2
9,053.4
9,501.6
10,690.1
10,624.3
10,602.3
10,202.6
10,081.3
Foreign Exchange
Financial Sector
BSE index
Business Indicators
Diamond production (a)
'000 cts
20,619
23,134
24,658
5,999
4,176
4,836
5,429
5,294
Copper production (c)
tonnes
57,916
49,448
46,721
7,530
2,518
3,349
5,777
2,747
Nickel production
tonnes
17,942
22,848
14,958
6,439
1,194
3,987
7,303
3,770
47%
45%
52%
..
44%
..
36%
..
16,561
14,190
16,300
4,904
5,071
3,921
4,592
..
Business confidence index
No. of companies formed
Electricity consumption
GWh
3,703
3,502
3,990
1,006
956
1,041
967
..
Crude oil (Brent)
$/bar
110.80
109.95
55.27
60.31
47.29
36.61
36.75
48.05
Government
131,033
130,175
129,918
..
130,220
..
..
..
Parastatals
17,484
18,838
18,790
..
19,411
..
..
..
Private sector
188,531
189,894
191,399
..
191,484
..
..
..
Total
337,048
338,907
340,107
..
341,115
..
..
..
Employment (formal)
Govt Budget
2013/14
2014/15
Outturn
2015/16
Revised
Revenues
P mn
48,951
55,904
51,764
Spending
P mn
41,730
50,564
55,961
Balance
P mn
7,222
5,340
-4,197
Public debt & guarantees
P mn
29,481
32,991
33,670
Govt deposits at BoB
P mn
31,745
41,680
36,752
GDP
P mn
129,425
145,435
153,844
Revenues
Spending
%GDP
%GDP
37.8%
32.2%
38.4%
34.8%
33.6%
36.4%
Balance
%GDP
5.6%
3.7%
-2.7%
Public debt & guarantees
%GDP
22.8%
22.7%
21.9%
Govt deposits at BoB
%GDP
24.5%
28.7%
23.9%
page 12
Sources: Bank of Botswana; MFDP; Statistics
Botswana; Department of Mines; Registrar
of Companies; Econsult
Notes: (a) 2013 figures include production
from Boteti Diamond and
Debswana
(b) Numbers in Italics reflect
revisions from the previous
review
(c) Copper production figures in
Q2 2016 are for the months of
April and May. Data for June is
not yet available
www.econsult.co.bw
SPECIAL FEATURE
The Botswana Economy at 50 Achievements and Challenges
An Economy and Society Transformed
The run-up to Botswana’s 50th anniversary of independence on September 30th provides an opportunity to highlight some of the key economic developments that have occurred over the past
half-century. It also provides a good opportunity to highlight some of the key challenges that we face
entering the next fifty years, and to identify how the second fifty years of independence may (or may
not) be different to the first.
Over the fifty-year period since 1966, Botswana’s economic
growth has exceeded that of almost all other countries. Real
As a result, per capita incomes in Botswana increased 13-fold
in real terms (from $483 in 1966 to $7,080 in 2015, measured
in constant 2010 US dollars). Only China and South Korea had
larger increases over this period.
10%
700
9%
600
8%
500
7%
6%
400
5%
300
4%
3%
200
2%
100
1966 GDP per capita
Source: World Bank, World Development Indicators
page 13
GDP growth
ZAF
SGP
ZMB
MYS
ZWE
GHA
KOR
SWZ
KEN
NGA
IND
CHN
BWA
NPL
BFA
MWI
BDI
1%
LSO
0
0%
Average annual real GDP growth rate,
1966-2015
Figure 1: GDP per capita in 1966, and real GDP
growth rates, 1966-2015 (selected countries)
RWA
At Independence, GDP per capita (average income) was
US$84 (then R60). As is widely noted, this made Botswana
one of the poorest countries in the world at that time. Of
the 113 countries for which data is available from the World
Bank for per capita income in 1966, Botswana was the 7th
poorest, with only Rwanda, Burundi, Lesotho, Malawi, Nepal
and Burkina Faso having lower per capita income. Botswana
was just below India ($92), China ($103), Kenya ($119),
Nigeria ($124), and well below other African countries such
as Zimbabwe ($281) Ghana ($270) Zambia ($337) and South
Africa ($591).
GDP growth averaged 8.2% a year from 1966-2015; this was
faster than other rapidly-growing countries such as Singapore
(7.3%), Malaysia (6.4%), and South Korea (7.4%). Only
China, with growth of 9.3% a year, grew faster (at least
amongst countries for which the World Bank reports data for
the entire period).
GDP per capita, US$, 1966
The broad outline of Botswana’s economic development
history is well known. The economy has grown rapidly over the
period since 1966, and has indeed been one of the fastestgrowing economies in the world. The result has been rising
per capita incomes, and a transformation of one of the
world’s poorest economies in 1966 to an upper-middle income
country. Furthermore, a country that was in a precarious
macroeconomic position at Independence – with substantial
balance of payments and fiscal deficits, heavily dependent upon
foreign aid to balance these deficits – has achieved prolonged
macroeconomic stability with, in many years, balance of
payments and fiscal surpluses. The country has long moved on
from dependence on foreign aid. Substantial net asset positions
have been built up, in terms of both government’s investment
account and the nation’s foreign exchange reserves.
www.econsult.co.bw
SPECIAL FEATURE
This growth has been translated into important advances in social indicators and the quality of life. On the health front, infant
mortality has decreased by two-thirds, life expectancy has increased from 52 to 64 years – notwithstanding the devastating
impact of HIV/AIDS - and the number of doctors per 10,000 population has increased tenfold. The provision of education has
improved dramatically, with the number of students in primary education rising from 71,577 in 1966 to 340,000 in 2013, and
the number of secondary students rising from 1,800 to 175,000 over the same period.
Figure 1: GDP per capita in 1966, and real GDP growth rates, 1966-2015 (selected countries)
Table 1: Key Economic and Social Indicators, 1966 and 2015 Indicator 1966 2015 612,950 2,262,485 51.5 14,390.9 296.1 16,018. 6 84.0 6,361 R60.2 P64,410 0.0 20.2 Manufacturing, utilities, construction value added (% of total) 14.4 13.2 Services value added (% of total) 33.1 47.2 Agriculture value added (% of total) 39.3 2.4 353.6 361.8* 2,159,000^^ 2,084,000** Population, total GDP at market prices (current US$ million) GDP at market prices (constant 2010 US$ million) GDP per capita (current US$) GDP per capita (current Rand/Pula) Mining value added (% of total) Cereal yield (kg per hectare; 5 year average) Number of cattle Mortality rate, infant (per 1,000 live births) 97.0 34.8 Mortality rate, under-­‐5 (per 1,000 live births) 139.5 43.6 Mortality rate, adult, female (per 1,000 female adults) 312.3 262.2* Mortality rate, adult, male (per 1,000 male adults) 374.1 345.2* Birth rate, crude (per 1,000 people) 46.2 25.0* Death rate, crude (per 1,000 people) 14.5 7.5* Life expectancy at birth, total (years) 52.6 64.4* Fertility rate, total (births per woman) 6.7 2.8* 48.5 32.0 Population, ages 0-­‐14 (% of total) Urban population (% of total) Enrolment in primary education, both sexes (number) Enrolment in secondary general education, both sexes (number) Physicians (per 100,000 people) Tarmac roads (km) Notes: ^1970; ^^1971; *2014; **2013; ***2010 4.4 57.4 71,577 340,065** 1,854 174,853** 6.4^ 33.6*** 7 6,616 Notes: ^1970; ^^1971; *2014; **2013; ***2010
Source: orld Bank; Hartland-­‐Thunberg, 1978; Econsult, Source:
WorldW
Bank;
Hartland-Thunberg,
1978; Econsult
Over the fifty years of independence, the population has not just become healthier and better-­‐educated, but its demographic character has changed as well. In 1966, Botswana fell into this category. The population growth rate has fallen
Over the fifty years of independence, the population has not just
was almost entirely rural, only 4% of from
the appeak
opulation in uinrban areas; by 2015, of almostliving 4% a year
the 1970s
to under
2%
become healthier
and better-educated,
but w
itsith demographic
Although death
have
and alife
expectancy
characterthis has changed
as well.
had risen to In51966,
7% (Botswana
or even was
as almost
high as 6currently.
5%, depending on rates
how an fallen
urban rea is increased, the main driver of declining population growth
entirely rural, with only 4% of the population living in urban
defined). The population is also aging; in 1has
966, almost half (49%) of the population was has been a falling birth rate as the total fertility rate (births
areas; by 2015, this had risen to 57% (or even as high as 65%,
14 r below, hereas by 2015 less one-­‐third (32%) fell into his inc1966
ategory. per woman)
has dropped
sharply,
from t6.7
to 2.8Tinhe dependingaged on how
anourban
area isw
defined).
The
population
is than population
from
613,000
2.3
also aging;
in 1966, almost
half (49%)
ofhthe
was a p2014.
population growth rate as population
fallen from eak oTotal
f almost 4% has
a yincreased
ear in the 1970s to to
under million.
aged 14 or below, whereas by 2015 less than one-third (32%)
2% currently. Although death rates have fallen and life expectancy has increased, the main driver of declining population gprowth a g e 1 4 has been a falling birth rate as the total fertility rate (births per woman) has dropped sharply, from 6.7 in 1966 to 2.8 in 2014. www.econsult.co.bw
SPECIAL FEATURE
The character of the economy has also been transformed. In
1966, Botswana was predominantly a farming nation, with
agriculture accounting for 39% of GDP (and beef production
perhaps a further 5%). But agriculture has largely stagnated
since then; over the period since Independence, the sector
grew on average by 2.1% a year – far below the overall
economic growth rate, and hence its share of GDP has fallen
to only 2.4% in 2015. This stagnation can be seen in terms
of crop yields; cereal yields per hectare averaged 354 kg per
hectare in the five years to 1966, and were virtually unchanged
at 362 kg nearly fifty years later. Cattle numbers and off-take
rates have also stagnated. And while meat & other livestock
products made up over 90% of goods exports in 1966, by 2015
they accounted for only 3% of the total.
Figures 2a and 2b: Structure of GDP and Exports, 1966
GDP, 1966
Business &
financial
serv.
7%
As is well known, the economy was transformed by mining,
which grew from virtually nothing in 1966 to over half (51%)
of GDP at its peak in 1988/89, although it has since dropped
to only 20% in 2015. This has been largely driven by diamond
mining, although copper-nickel mining has also played a
significant role. Interestingly, in 1966 it was anticipated that
mining would come play an important role in the economy of
newly-independent Botswana. The first National Development
Plan (NDP 1), published in 1967, placed a great deal of
emphasis on the development of copper-nickel, diamonds, coal
and soda ash as a key driver of economic growth. At that stage
the viability of mining deposits was still uncertain; however,
NDP 1 noted that “further feasibility studies are continuing
and there is optimism that these will reveal that mining can
be established on a scale that will make a dramatic impact
on Botswana’s economy”. However, the main emphasis was
on developing the Selebi-Phikwe copper-nickel deposits
rather than diamonds. Despite these hopes for mining, it was
nevertheless felt that “for many years to come, agriculture
will remain the most important industry in Botswana”. In the
Exports, 1966
event, mining
overtook agriculture as the largest sector of the
Other agric.
economy inproducts
1978/9.
3%
Figure 3: Structure of GDP, 1966-2015
Government
13%
Other animal
products
4%
Agri-culture
39%
100%
90%
80%
Transp. &
comms.
8%
70%
Live animals
8%
60%
Meat & meat
products
77%
Hides & skins
8%
50%
40%
Other agric.
products
3%
Exports, 1966
Other animal
products
4%
Live animals
8%
Hides & skins
8%
Meat & meat
products
77%
anuturing
8%
Source: Republic of Botswana, 1967; Hartland-Thunberg, 1978
30%
20%
Mining
Agric
Manuf, constr. etc.
Services
2015
2011
2013
2009
2007
2005
2003
2001
1999
1997
1995
1993/94
1991/92
1989/90
1987/88
1985/86
1983/84
1981/82
1979/80
1977/78
1975/76
0%
1973/74
10%
1966
Construction
6%
Manufacturing
8%
Water &
electricity
1%
1968/69
Trade
18%
Govt.
Source: Econsult; Statistics Botswana; Hartland-Thunberg, 1978
Although there are no data on poverty rates in the early
years of independence, it is evident that poverty has declined
significantly. The first nationwide household income and
expenditure survey was only carried out in 1985/86, with
the result that 59% of Batswana lived in households with
incomes below the poverty datum line (PDL). The headcount
poverty rate declined subsequently to 47% in 1993/94, 30%
in 2002/3 and 19% in 2009/10.
The First Transformation
The process by which Botswana was transformed from one
of the poorest countries in the world to an upper middleincome economy, with high levels of social provision and
economic infrastructure, is of course due in large part to the
growth of the diamond industry. However, this was not the
first contributor to the process of achieving macroeconomic
page 15
www.econsult.co.bw
The diamond industry took off during the 1970s. However it
was only in 1983/4 that mineral revenues exceeded SACU
revenues in the government budget. In the same year, the
government budget shifted from structural deficit to structural
surplus. This was driven by both the rapid increase in diamond
production, which far surpassed initial expectations, and
the favourable taxation and revenue arrangements that the
government negotiated. Botswana was also fortunate that
the diamond deposits were both very large and also highly
profitable to exploit.
Also important in the early years of independence were the
governance and public finance management systems that were
put in place. These systems were designed for an environment
where financial resources were very scarce, and had to be used
prudently and productively. Fortunately, these systems endured,
even when financial resources eventually became plentiful.
The growth of diamond production and exports, and the
governance systems that were in place, underpinned Botswana’s
dramatic economic success over the fifty years of independence.
In that sense, Botswana’s economic development story can be
characterised as “well-managed good luck”. Both institutions
and the natural resource endowment were essential to the
success story. This is no mean achievement – many countries
that are well-endowed with natural resources have not been
well managed, and have suffered as a result.
Nevertheless, it is important to recognise that Botswana’s
upper middle income status, with GDP per capita around
$7,000 a year, is still largely generated on the back of the
diamond industry – in a sense, we are “eating diamonds”.
Although the mining sector does not contribute as much to GDP
as it once did, the crucial point is that it still dominates exports,
and hence is the source of most of the foreign exchange that
keeps the economy functioning.
With the declining contribution of mining to overall economic
output, the structure of GDP is now dominated by services,
which account for 47% of the total. And outside of tourism,
services are not generally exported, unlike minerals, which are
almost all exported. Diversification of the economy has largely
involved the growth of non-exporting activities, which is why
the diversification of exports has proceeded much more slowly
than the diversification of GDP.
It is also clear that much of transformation of the economy
occurred in the first 25 years of the period since Independence,
and that in the second 25 years, momentum has slowed. As
Figure 4 shows, average annual GDP growth rates over five
year periods were very high – in double digits – from 1966 to
1990, but since that time growth has dropped to much lower
levels around 4% a year – not bad, but hardly transformative.
In that respect, the “diamond” engine of growth has run out
of steam.
Figure 4: Average annual real GDP growth rates,
5 year periods
20
18
Average annual % growth
sustainability (containing the twin fiscal and balance of
payments deficits) and reducing aid dependence. The first
significant development was the renegotiation of the Southern
African Customs Union (SACU) Agreement. This was treated
as a high priority by the new Botswana government, and the
renegotiated SACU revenue-sharing agreement, which came
into effect in 1969, was much more favourable to Botswana,
Lesotho and Swaziland than the old (1910) agreement had
been. The revenues received under the new agreement made a
huge contribution to transforming the government budget and
balance of payments during the 1970s.
16
14
12
10
8
6
4
2
0
Source: Econsult; Statistics Botswana; Hartland-Thunberg, 1978
It is an interesting thought experiment to consider what
Botswana might have looked like without diamonds, especially
given that the anticipated benefits of copper-nickel mining
were never fully realised. Would Botswana resemble Lesotho,
with a similar population size, an environment that that is also
not very hospitable to agriculture, and the same relationship
with SACU – and an income level per capita that is now only
one-sixth that of Botswana?
The Second Transformation?
Looking ahead to the next fifty years, what is in store? There is
no immediate threat to Botswana’s current “business model”
– unless of course synthetic diamonds destroy the market - as
diamond mining and exports should continue at something
like current levels for the next couple of decades. However,
it would be a mistake to assume that “business as usual” is
a viable approach to the future growth of the Botswana
economy, for several reasons. First, even if diamond production
continues at current levels for many years, this represents an
output plateau, which by definition entails zero growth. So
diamond mining is unlikely to drive economic growth in future,
as opposed to providing a foundation for current economic
activity and income levels. Second, as mines get deeper and
more difficult to exploit, costs of production go up and hence
profits – and the sector’s contribution to GDP and government
revenues – will gradually decline. And third, the population
is growing, so constant diamond production actually entails
declining production (and income) per capita.
page 16
www.econsult.co.bw
There are also various economic (and social) stresses apparent
that require something other than “business as usual”. Poverty
rates have come down, but are still too high. Unemployment is
high, because the rate of job creation is far too slow. Inequality
is far too high, and the majority of households struggle to
afford decent housing. Too many people are dependent upon
government for their monthly incomes, mostly through various
social safety net schemes, and this is unlikely to be sustainable.
What all this means is that a second transformation of the
Botswana economy is needed to meet the challenges of the
next fifty years of independence. “Eating diamonds” will not
provide the basis for Botswana to move from upper middleincome status to high-income status; indeed, it may not even
provide the basis for maintaining current income levels. The
hard truth is that Botswana did not, in general, reach upper
middle-income status by being productive, competitive or
efficient – although there are some pockets of economic
activity that demonstrate all of those things. We reached it by
consuming, and investing wisely, the proceeds of the natural
resources under our soil. However, moving to a higher income
level, and dealing with the problems of unemployment, poverty,
inequality, dependence on government and low household
incomes requires a fundamental change, so that productivity,
efficiency and competitiveness become the basis for growth.
This will be demonstrated in a diversification of exports, as
Botswana firms produce goods and services that the rest of the
world wishes to buy, and a much more prominent role for the
private sector in creating jobs and driving growth.
cannot do everything for everybody, which sometimes seems to
be the expectation today. Policymaking must be rational, based
on evidence, and implemented consistently and transparently
in the national interest. Regulatory reform has to take place,
promoting less, but better and more targeted, regulation. The
fundamental approach must be outward looking, embracing
global integration, vigorously promoting and supporting firms
that export goods and services, attracting inward foreign
investment, welcoming foreign firms and individuals who
wish to invest in Botswana, work in Botswana, and trade
with Botswana. The current tendency of putting up barriers
to such regional and global integration will not lead Botswana
towards high-income status.
A successful “second transformation” means that in 50 years
the economy, and indeed society more broadly, will look
quite different to that of today. It is likely that urbanisation
will continue steadily, and will settle with more than 80% of
the population living in urban areas – similar to that of highincome countries today. The country will be deeply integrated
into global and regional markets for goods, services, capital
and labour. There will be extensive FDI in Botswana, and local
firms will be active investors around the region and around
the world. Migration will be a two-way street, and many
Batswana will live and work in other countries. The private
sector will be larger, and government smaller, than at present.
Citizens will be empowered, but by competing successfully,
not by being protected from competition. Botswana will have
dealt successfully with the challenges posed by global warming
and climate change, and will be a responsible global citizen
by contributing to broader initiatives towards environmental
sustainability.
Hartland-Thunberg, P. (1978) Botswana: An African
Growth Economy. Boulder: Westview Press
Moving towards this vision will require many changes, and
some of them will be difficult, uncomfortable, or a challenge
to vested interests. The fact that “business as usual” is not an
option going forward also means that “policy as usual” is also
not an option. Government has to change its approach towards
the private sector, towards facilitation rather than control. The
private sector must drive productivity growth, and look for
external markets rather than depend on government contracts.
There has to be greater efficiency in government spending, and
a prioritisation of claims on government resources; government
page 17
References/Sources:
Acemoglu, D., S. Johnson & J. Robinson (2003)
“An African Success Story: Botswana”, in D. Rodrik
(ed.) In Search of Prosperity: Analytic Narratives on
Economic Growth. Princeton: Princeton University
Press, 80-119.
Bank of Botswana (1987) “Public Finance in
Botswana: A Historical Overview”, in Selected
Papers on the Botswana Economy. Gaborone:
Bank of Botswana
Harvey, C. & S. Lewis (1990) Policy Choice
and Development Performance in Botswana.
Basingstoke: Macmillan
Jefferis, K. (1998) “Botswana and DiamondDependent Development”, in W. Edge & M.
Lekorwe, (eds.) Botswana Politics and Society.
Pretoria: J L van Schaik
Leith, J. (2005) Why Botswana Prospered.
Montreal: McGill-Queens University Press
Republic of Botswana (1967) National
Development Plan, 1968-73
World Bank, World Development Indicators
http://data.worldbank.org/products/wdi
PO Box 45016, Gaborone, Botswana
tel [+267] 390 0575
fax [+267] 390 0585
[email protected]
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