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Economic fundamentals in African countries showed significant improvement

Global growth has stabilized, with world output estimated to have grown by 3.7 per cent in 2018 and projected to grow by the same magnitude in 2019.

With the volatility of commodity prices and the rise of trade tensions between the United States and its main trading partners, the external environment has created increasingly adverse conditions for Africa’s growth. According to African Development Bank, higher interest rates in the United States and the strengthening of the US Dollar have put pressure on the currencies of developing countries and increased the costs of borrowing.

While the increase in energy prices gave relief for oil producers, it also worsened the terms of trade for oil importers. African Development Bank said in 2018, Africa’s Gross Domestic Product GDP growth reached an estimated 3.5 per cent, roughly the same as in 2017 and up by 1.4 percentage point from 2.1 per cent in the previous year 2016. In the short term, growth is projected to accelerate to 4 per cent in 2019 and 4.1 per cent in 2020. These projections are higher than those of other emerging and developing regions.

However, domestic risks, in addition to external constraints, could limit the continent’s growth. These include climate change, security and migration concerns, increasing vulnerability to debt distress in some countries, and uncertainties associated with elections and political transitions. In 2018, ADB reported, while East Africa remained the fastest growing region at 5.7 per cent, North Africa contributed the most to overall African GDP growth, accounting for 37 per cent.
 

The general drivers of Africa’s economic growth have been gradually rebalancing, moving from consumption to investment and exports. The recent commodity price rebound and particularly the increase in oil prices supported the recovery of commodity exporters. Overall, 17 African countries achieved real GDP growth higher than 5 per cent in 2018, and 21 between 3 and 5 per cent.

Only five African countries recorded a recession in 2018, down from eight in the two previous years. Six of the world’s ten-fastest growing economies (Burkina Faso, Cote d-Ivoire, Ethiopia, Libya, Rwanda and Senegal) are African countries. Some of the non-resource-rich countries had high growth rates in 2018, including Cote d’Ivoire (7.4 per cent), Rwanda (7.2 per cent) and Senegal (7 per cent), supported by agricultural production, consumer demand and public investment.

Economic fundamentals in most African countries continued to improve, thanks to fiscal consolidation along with massive investments in infrastructure, major roads in financial innovation, increased domestic demand, and substantial improvements in the investment climate (more than a third of global reforms). On average, Africa’s fiscal deficit declined from 5.8 per cent in 2017 to an estimated 4.5 per cent in 2018, while inflation fell from 12.6 per cent in 2017 to 10.9 per cent in 2018.

However, growth rates remain insufficient to address the persistent challenges of high unemployment, low agricultural productivity, inadequate infrastructure and fiscal and current deficits as well as debt vulnerabilities. Although tax revenues and spending efficiency have improved, domestic resource mobilization has generally remained well short of potential. For instance, 16 African countries were classified as being in debt distress or at high risk of debt distress at the end of 2018.

Debt in Africa has risen steadily in recent years after having declined and stabilized under the Heavily Indebted Poor Countries Initiative, and the Multilateral Debt Relief Initiative. Africa’s public debt represented 58 per cent of GDP in 2017, up from 36 per cent in 2008. The drivers of the rise in debt include low commodity prices, higher infrastructure spending, depreciating exchange rates, rising costs of foreign currency borrowing and greater defence and security spending. The report said there is, however, significant heterogeneity across countries and regions. At the end of 2017, the government debt-to-GDP ratio was below 40 per cent for 16 of 52 countries with data and above 100 per cent for six.

According to ADB, to ensure a high social return on debt-financed public investment, it is important to strengthen the debt-investment link. In this regard, the Bank’s multidimensional approach to mitigating the risk of debt distress in Africa will include tapping new sources of funding to lower the cost of debt; engaging in policy dialogue to raise awareness of debt sustainability at the highest political level; laying the foundation for efficient use of existing resources to limit recourse to additional debt; strengthening country capability to manage debt; supporting efficient and productive use of debt; and building fiscal capacity for increased domestic resource mobilization.

ADB further indicated that Africa has the world’s fastest growing population. The continent’s young labor force is projected to grow at an average rate of 2.75 per cent a year between 2016 and 2030, so an inclusive and pro-employment growth path is crucial to creating enough jobs. In addition, the adverse impacts of climate change, now pronounced, are projected to become even starker by 2050, undermining Africa’s agricultural performance and water and energy security.

These challenges, ADB stressed that call for significant investment and external funding, involving the private sector, particularly in regional infrastructure development and financing. The continent faces a large annual gap of between USD 68 billion and 108 billion in meeting its infrastructure investment needs, estimated at USD 130 to 170 billion a year. African countries must therefore fast-track economic transformation and structural reforms and continue to tap into identified opportunities.

Fostering regional integration would increase trade and economic cooperation and enhance the delivery of regional public goods, according to African Development Bank. The bank said this will also enable countries to move up the ladder through socialization and reverse external imbalances. The African Continental Free Trade Agreement, upon entry force, will contribute to the creation of the world’s biggest free trade area in terms of the number countries involved, and will be an important driver of sustained economic growth.

In line with its High 5 priorities, the Africa Development Bank is ideally placed to enhance social and economic inclusiveness in Regional Member Countries through infrastructure development, agro-industrialization, and improved access to finance and support for regional integration. As a knowledge institution with an overview of Africa, the bank helps to produce and manage knowledge, build capacity and provide sound policy advice to member countries’ decision-makers. It also aims at boosting blended finance for attracting private investment at scale. In this context, the results of the first Africa Investment Forum, organized by the bank in Johannesburg in November 2018, exceeded expectations, resulting in 49 deals totalling 38.7 Billion US Dollars.

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Business

BITC assisted companies rake in P2.96 billion in export earnings

21st June 2022
BITC-CEO-Keletsositse-Olebile

Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.

In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.

The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.

With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.

Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.

BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.

During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.

BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.

As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.

In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.

BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.

Another tool used for export development by BITC is the Botswana Trade Portal, which has experienced some growth in terms of user acceptance and utilisation globally. The portal provides among others a catalogue of information on international, regional and bilateral trade agreements to which Botswana is a party, including the applicable Rules, Regulations and Requirements and the Opportunities for Botswana Businesses on a product by product basis.

The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.

BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.

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Business

Inflation up 2.3 percent in May

21st June 2022
Inflation

Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.

According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).

With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.

In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.

Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.

The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.

The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.

The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.

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Business

Global high inflation, slow growth bad news for Botswana

21st June 2022
World Bank President: David Malpass

In the latest June 2022 global economic prospects, released last week the World Bank has warned that low global economic growth and economic activity in global commodity markets such as China and Europe could negatively affect export revenues for Botswana and other Sub Saharan countries.

Recent data from Statistics Botswana show that Botswana’s exports destined to the global markets such as Asia and the European Union (EU) on monthly basis accounts for around 60.1 percent and 20.1 percent respectively.

The World Bank last week lowered its 2022 projections of global economic growth and indicated that the new forecasts could be bad news for countries like Botswana who are dependent on export mineral revenues. The Bank noted that just over two years after COVID-19 caused the deepest global recession since World War II, the world economy is again in danger and stated that this time it is facing high inflation and slow growth at the same time.

In the recent June projections, the bank lowered its forecast of global economic growth from the January 4.1 percent to 2.1 percent. “Our June forecasts reflect a sizable downgrade to the outlook: global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent this year. This also reflects a nearly one-third cut to our January 2022 forecast for this year of 4.1 percent,” a team of World Bank economists noted in the June 2022 Global Economic Prospects.

The World Bank indicated that exports from Botswana and other Sub Saharan countries could suffer from a substantial deceleration of activity in China and Europe. The Bank noted that exporters of industrial metals, crude oil, and ores such as Angola, Democratic Republic of Congo, Republic of Congo, South Africa, and Zambia could suffer from a substantial deceleration of activity in China.

On the other hand a sharp contraction of growth in the euro area could hurt exporters of agricultural products such as beef, coffee, tea, tobacco, cotton, and textiles from Botswana, Ethiopia, Madagascar and Malawi. “The faster-than-expected deceleration of the global economy and increased volatility of commodity prices could hurt many SSA commodity exporters,” said World Bank President David Malpass.

Malpass indicated that subdued growth in the global markets for Botswana and other Sub Saharan exports will likely persist throughout the decade because of weak investment in most of the world.

He noted that with inflation now running at multi-decade highs in many countries and supply expected to grow slowly, inflation could remain higher for longer than currently anticipated. “Even if a global recession is averted, the pain of stagflation could persist for several years— unless major supply increases are set in motion. Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022. Several years of above-average inflation and below-average growth are now likely,” said Malpass.

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