Botswana experiences mixed economic recovery
Botswana’s economy continues to experience a mixed recovery as it exits the post- pandemic period and adapts to the new normal.
Several internal headwinds and impacts from global conflicts continue to plague progress. Director of Research in the Ministry of Finance and Economic Development, Dr. Sayed Timuno says currently, the economy is driven by external factors including Russia/ Ukraine conflict, high inflation and the lingering Covid- 19 in China.
He said this week at the TransUnion Botswana Summit, that as a result of the contraction of three of the world’s biggest economies - Euro, China and US - that mostly consume Botswana’s diamonds, Botswana’s economy is also expected to slow down.
The IMF revised economic outlook predicts global growth to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. According to the IMF, this is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the Covid- 19 pandemic.
It also reflects significant slowdowns for the largest economies, a US GDP contraction in the first half of 2022, a Euro area contraction in the second half of 2022, and prolonged Covid- 19 outbreaks and lockdowns in China with a growing property sector crisis. “The domestic economy largely mirrors the performance of the regional economy. Domestic growth there is increasingly volatile,” he said, further highlighting that Botswana will remember the devastating economic dip in 2009 as a result of the global financial crisis.
The second dip was in 2015 as a result of commodity prices, while the third economic depression was in 2020 due to supply and demand in- balances due to the Covid- 19 pandemic. Dr. Timuno said Botswana’s dependence on nonrenewable resources is the country’s greatest enemy, and exposes it to external shocks.
“It is in our best interest as a country to cushion ourselves against the shocks and be better prepared as we move forward,” he said, adding that the IMF predicts that a crisis is bound to happen every 10 years, therefore it is up to Botswana to prepare to deal with the next.
His view is that it is important to build up reserves and start saving now. “Foreign Reserves are still recovering. They are currently at P54.2 billion in June 2022 from P50.9 billion in June 2021,” Dr. Timuno said, adding that had Botswana not had healthy reserves when the pandemic hit, the economic situation would have been worse.
He explained that with current reserves, the economy would not survive for seven months, if it happens that the country did not produce anything, with no exports and no foreign exchange, but the same import bill.
“This should keep us producing more to build foreign reserves,” he advised.
He emphasised that while data indicates that there has been some level of diversification of the economy, it has been diversifying to sectors that produce non- tradeable goods and services that are consumed by households.
“We need goods and services that can compete in the international market because that is where the country earns foreign exchange that ultimately builds foreign reserves,” he said.
Dr. Timuno said sectors including agriculture, manufacturing and mining need to be fullydiversified so that their outputs can be exported.
According to Dr. Timuno, economic growth was 7 percent in the first quarter of 2022 while the second Quarter was 5.6 percent. He attributed much of the growth to non- mining sectors, such as energy and water. He predicts that the economy will grow by 4.2 percent in the later part of this year, which is still below economic potential that the country needs to generate meaningful growth. According to Dr. Timuno, the economy needs to grow by an estimated 5.1 percent annually for the country to attain high- income status by 2036.
He added that risks to economic growth remain the uncertainties in the global economy.
“We still do not know how long the Russia/
Ukraine conflict will last for, nor do we know how long the energy and food crisis will persist because these will continue to impede growth,” Dr. Timuno said, adding that to transform the economy, government has identified priority areas, among them, innovation and digital transformation, export led growth, financial sector reform, infrastructure sustainability and business environment reforms.