It’s a mixed bag for the economy
Real GDP falls in last quarter of 2020 Agric picks, mining down ‘ COVID has served to highlight Botswana’s vulnerability’
The domestic economy took a knock during the fourth quarter of 2020. However, there is optimism that things will get better as government tries to open up the economy amid the COVID- 19 plague.
Fresh data released by Statistics Botswana just before the Easter holidays indicate that the real Gross Domestic Product ( GDP) declined by 4.1 percent, with major sectors such as mining taking a hit. “Real GDP for the fourth quarter of 2020 decreased by 4.1 percent compared to a contraction of 6.0 percent registered in the previous quarter. “The improvement in the fourth quarter GDP, reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID- 19 pandemic,” Statistician General, Dr. Burton Mguni said.
For the better part of last year, government imposed restrictive movement regulations which hindered business activities and cross border trade, worse for a landlocked economy like Botswana. “The contraction in the domestic economy was observed across all sectors except Government, Agriculture, Finance and Business Services and Social and Personal Services.
“The unfavourable performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID- 19 pandemic,” the SG added.
The mining sector, which is a stalwart in the landlocked economy, was the biggest loser during the quarter. The sector, largely dominated by diamonds, was heavily affected by travel restrictions as buyers- mainly from Europe, the United States and China were barred from entering Gaborone where sales take place, for the most part of 2020.
According to Statistics Botswana, real value added by mining declined by 24.1 percent was mainly influenced by diamond and coal real value added. Botswana’s diamond sector is controlled by Debswana followed by Lucara’ owned Karowe diamond which is independently owned. Debswana Diamond Company which is owned by De Beers and Botswana government has also been forced to cut production during the period under review.
Diamond production in carats went down by 28.2 percent while Coal production in tonnes decreased by 6.1 percent during the period under review.
“The poor performance of the diamond sub- industry is attributed to the reduction in production due to the weak demand from global markets. With regard to Coal, there was lower demand at Morupule B power plant due to ongoing remedial works,” data from Statisctis Botswana attests.
Non- mining sectors such as agriculture, finance and business, trade hotels and restaurants, manufacturing had mixed performances.
Surprisingly, the dark horse of the economy, agriculture performed exceptionally well. Since COVID- 19 started, government has handsomely supported the sector, which was the biggest contributor to GDP during the early years of Botswana’s independence. The agriculture industry increased by 2.8 percent in real value added during the fourth quarter of 2020, relative to a contraction of 1.0 percent registered during the same quarter of 2019. “The main driver of the improved performance stems from an increase in real value added of Horticulture, Crops and Livestock farming sub- industries, which posted growth of 2.1, 1.2 and 1.1 percent respectively,” Statistics Botswana said. Secondly, the trade, hotels and restaurants real value added declined by 8.1 percent in the fourth quarter of 2020 compared to an increase of 1.4 percent registered in the same quarter of the previous year. The sector also comprises tourism, which has been severely hit by COVID- 19 as most of the big spenders are from outside Botswana. Not even huge discounts for local holiday makers were enough to pull the sector through. According to Statistics Botswana, the reduction in real added value is largely attributed to a decrease of 27.8 percent in real value added of the Hotels and Restaurants sub- industry.
“The suspension of air travel occasioned by COVID- 19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry. “COVID- 19 restriction measures resulted in reduced demand for leisure and conferencing activities, as conferences are held through virtual platforms,” the governmentowned Statistics agency, said. Another sector negatively affected by COVID- 19 is construction. There were several construction sites in the country. For example, the multi- billion Pula interchange construction involving Kgale, Rainbow and Botswana Television traffic circles has been stalling, resulting with possible cost overruns.
Available data shows that the construction sector slumped by 3.3 percent compared to an increase of 3.1 percent realised in the corresponding quarter in 2019. “This industry comprises of building construction, civil engineering and specialised construction activities. The industry is showing signs of recovery from the consequences of COVID- 19 pandemic. The industry recorded a negative growth of 7.6 percent in the previous quarter,” Statistics Botswana said.
The latest data comes at a time when government has just increased key taxes and introduced new ones to bolster the ailing economy which is projected to have an expanded budget deficit this year. While, the finance and economic development minister, Dr. Thapelo Matsheka is buoyant that the economy will grow by close to 10 percent this year on the backdrop of improving diamonds sales, analysts at Ninety- One, formerly Investec Asset Management Botswana, have slammed government’s heavy reliance on diamonds or exposing the economy to more shocks. “The effects of the pandemic have served to highlight Botswana’s vulnerability to shocks and the importance of building resilience into our economic system. “Specifically, the economy’s over reliance on the diamond sector for growth, exports and revenues means the economy is always in the crosshairs. While the pandemic is far from over, some of its more deleterious impacts are subsiding and other structural factors are reasserting their influence,” Ninety One Portfolio Manager, Pako Thupayagale and Analyst Leano Babitse noted.
‘ A substantial infrastructure deficit, insufficient fiscal revenue mobilisation, weak labour markets, and a stifled business environment continue to weigh on the country’s economy’. Meanwhile, the analysts have said the implementation of the budget ( 2021/ 22) priority areas and some of the key reforms listed in the Economic Recovery and Transformation Plan ( ERTP) – starting with the implementation of backlogged projects and easing the cost of doing business – will boost confidence, investment and growth.
During his budget speech in February this year, the finance minister was buoyant the economy will be back this year, stronger than ever before.
“The outlook for the domestic economy is, however, positive, with a growth rate of 8.8 percent projected for Botswana in 2021. Achieving this positive growth will depend on the trajectory of the recovery of the global economy and the successful implementation of policies, programmes and projects outlined in the MTR of NDP 11,” Matsheka told lawmakers.
On the other hand, although it has projected a recovery, First National Bank Botswana is less buoyant.
“We expect Botswana’s economy to have registered a contraction of 8.1 percent in 2020 before rebounding to 3.9 percent growth in 2021.
“This should in part be driven by structural recovery, and most significantly in tourism and mining, which were severely impacted in 2020,” FNBB said last month. Recently, the credit rating agency maintained Botswana’s negative outlook on account of COVID- 19 which poses a risk to the country in the next 12 months.