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Home » News » Business »  External factors blunt economy

External factors blunt economy

Publishing Date : 07 August, 2017

Author : AUBREY LUTE

Motswedi Securities analysts have said the performance of the Botswana economy will largely continue to be affected by exogenous factors such as the performance of the global economy particularly developed markets which have a bearing on the diamond industry.

In their latest Economic Bulletin, the economic pundits at Motswedi say they expect continued growth from the agriculture, tourism and financial services sectors and they have decided to keep their 3.1% y/y GDP forecast by December 2017 - this is slightly lower from 4.1% projections from the Finance Minister.

But the analysts’s outlook partly draws inspiration from the recently released Bank of Botswana Business Expectations Survey which shares optimism among businesses strengthened in the first half of 2017 compared to the second half of 2016, and is expected to rise further in the survey horizon for both domestic market -oriented firms and exporters.

The encouraging growth from the non-mining sector is giving confidence to the economy. Motswedi Securities analysts see the brighter side of the non-mining sector because it expanded by 5.4% y/y from another growth of 3.3% y /y in Q4 2016. According to their Bulletin, the growth in the non-mining sector was led by growth in agriculture (1.5% y/y), Trade, Hotels and restaurants (18.7% y/y) and finance and business services. (5.4% y/y).

“It is pleasing to note that the Trade, Hotels and restaurants is now the biggest contributor to GDP (20.9%), overtaking mining (17.6%). This is largely attributed to the positive performance realised from downstream diamond industries. The resilient of the non-mining sector is encouraging as it shows that the economy is slowly diversifying away from the mining sector,” they state.

Modest growth in GDP during Q1 2017
 
The analysts point out that it was always expected that the closure of the BCL mine would have contagion effects on the economy at large and the latest GDP numbers which shows that the economy expanded at a smaller 0.8% y/y during Q1 2017 is not surprising.

They further state in the report that during Q4 2016 Botswana’s GDP expanded by 4.2% y/y. Furthermore, the mining sector was the biggest casualty contracting by -28.9% y/y during Q1 2017 from another contraction of -6.2% y/y in Q4 2016 as the closure of the BCL Mine in October 2016 filtered in. Although copper/nickel production contributes 8.6% towards the mining sector, it is the contagion effects that weighed on the sector and the economy at large.

Contagion effects from BCL closure

The Motswedi Securities Economic Bulletin for Q2 also reveals the closure of BCL not only reduced output from other mines such as the Morupule Coal Mine, but it also led to the reduction in output from the water and electricity sectors, redundancies amongst miners and a negative impact on suppliers.

It notes that BCL was one of the largest consumers of water and electricity as well as coal from the Morupule Coal Mine. Therefore, it further states, it is not surprising that the water and electricity sector contracted by -17.3% y/y, from a strong growth of 90.1% y/y the previous quarter. This is the first contraction since Q1 2016. According to the Bulletin, diamond value added decreased by 2.8% during the quarter under review due to weaker diamond prices on the international market and this led to a reduction in diamond production.

“This is worrisome if this trend is sustained as it may result in decline in diamond exports which will also impact on the country’s Balance of Payment position and government revenues. Soda Ash value added decreased by 41.5% due to low demand as some industries utilising the commodity were also affected by the low metal prices,” reads the Motswedi Securities Bulletin.

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