Sub Saharan countries which have their economies pivoted and anchored on resource intensive revenue streams – predominately those with undiversified profiles will be negatively affected by the current slow growth experienced in the world economic space.
This is according to the International Monetary Fund (IMF) Sub Saharan Africa Regional Economic Outlook report released this week. The outlook states that growth in Sub-Saharan Africa is projected to remain at 3.2 percent in 2019 and rise to 3.6 percent in 2020.IMF Africa Director Abebe Aemro Selassie says the expected recovery, however, is at a slower pace than previously envisaged for about two-thirds of the countries in the region, partly due to a challenging external environment on the global economic sphere.
Growth is projected to remain strong in non-resource-intensive countries, averaging about 6 percent. “As a result, 24 countries, home to about 500 million people, will see their per capita income rise faster than the rest of the world,” he said when deliberating on the outlook on Monday. In contrast, growth is expected to move in slow gear in resource-intensive countries reaching low levels of 2.5 %. Mirroring 21 countries will have per capita growth lower than the world average by 0.5 %.
Sub Saharan African countries with resource intensive economies are anticipated to receive a hard hit from subdued activity in the global manufacturing sector which is currently negatively affected by trade wars and geo-political tensions. About 21 countries in Sub Saharan African region have their economies depend on natural resource such as oil, mineral revenue; etc.
In the case of Botswana which largely depends on mineral revenue, in the main diamond industry, growth is expected to be shaken by the current depression in the global diamond market where there is lack of appetite by manufactures for new stones. On Inflation IMF says figures are expected to go ease going forward. While the average sub-Saharan African-wide debt burden is stabilizing, elevated public debt vulnerabilities and low external buffers will continue to limit policy space in several countries.
IMF Africa says the regional outlook faces further downside risks. Abebe Aemro Selassie underscored that external headwinds have intensified compared to April ,explaining that this include the threat of rising protectionism, a sharp increase in risk premiums or reversal in capital inflows owing to tightening global financial conditions, and a faster-than-anticipated slowdown in China and in the euro area.
For Sub Saharan Africa near-term downside risks include climate shocks, intensification of security challenges, and the potential spread of the Ebola outbreak beyond the Democratic Republic of the Congo. In addition, fiscal slippages, including those ahead of elections in some countries, and a lack of reform in key countries could add to deficit and debt pressures.
The International Monetary Fund says over the medium term, a successful implementation of structural reforms, including in the context of the African Continental Free Trade Area (AfCFTA), could pose significant upside risks. “Reducing risks and promoting sustained and inclusive growth across all countries in the region requires carefully calibrating the near-term policy mix, building resilience, and raising medium-term growth,” advised IMF Africa Director Abebe Aemro Selassie.
The Sub Saharan Regional Economic outlook suggests that for African economies to realize significant growth amid external shocks a three-pronged strategy that reduces risks and promotes sustained growth across all countries has to be put in place. The IMF says this will require carefully calibrating the near-term policy mix considering the fact that amid limited buffers and elevated debt vulnerabilities in some countries, policymakers have limited room for maneuver to counter external headwinds.
“The room for supporting growth remains mainly on the monetary policy side and is restricted to countries where inflation pressures are muted and growth is below potential,” observed Abebe Aemro Selassie. The IMF Africa department Head further observed that in the event downside risks materialize, fiscal and monetary policy could be carefully recalibrated to support growth, in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.
Selassie notes that in countries that are growing slowly, the pace of adjustment could be made more gradual, provided financing is available, or its composition fine-tuned to minimize the impact on growth. “In fast-growing countries that are facing elevated debt vulnerabilities, the priority remains rebuilding buffers,” he said. The IMF also recommends that Sub Saharan countries build resilience in their structural reforms. The Global think tank is of the view that this would help the region sustain longer episodes of strong growth.
“Building resilience, to weather-related, health, and security challenges, would require mobilizing domestic revenue, streamlining inefficient subsidies, and improving public financial management to strengthen sovereign balance sheets and create fiscal space for development needs.” It is further noted that promoting economic diversification, improving macroeconomic policy frameworks, and reducing nonperforming loans (NPLs) would also reduce countries’ vulnerability to shocks.
In raising medium-term growth the Outlook observes that raising per capita growth rates, especially for resource-intensive countries, is essential to sustain improved social outcomes and create jobs for the 20 million new entrants poised to join labor markets every year. “Comprehensively tackling tariff and nontariff barriers in the context of the AfCFTA, developing regional value chains, and implementing reforms to boost investment and competitiveness could lift the region’s medium-term growth” recommends the report.
The IMF Africa department also observed in the outlook that most of Sub Saharan African countries are not competitive when comes to being investment destinations, when compared to most parts of the world. The outlook states that although there is considerable heterogeneity across countries, more than 70 percent of the countries in the region are in the bottom half of countries globally in terms of competition indicators. “Firm markups are about 11 percent higher in sub-Saharan African countries relative to other emerging market economies and developing countries and are more persistent” says IMF. The regional outlook further observes that state-owned firms in the region are also more prevalent. Abebe Aemro Selassie says it is research proven that increased competition can boost real per capita GDP growth rate by about 1 percentage point through improved export competitiveness, productivity growth, and investment. The IMF also says domestic arrears in Sub Saharan Africa have been pervasive in many countries, reflecting weak public financial management. Furthermore, arrears have increased in recent years to about 3.3 percent of GDP in 2018, following the 2014 commodity price shock. However, despite the prevalence of arrears, the report says their causes, effects, and consequences are not well understood. The IMF study has found that domestic arrears negatively impact private sector activity and the delivery of social services while increasing banking sector vulnerabilities and undermining citizens’ trust in the government. “Arrears also weaken the ability of fiscal policy to support growth, casting doubt on the merit of relying on arrears financing to avoid spending cuts.”
The Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent at a meeting held on October 21, 2021. Briefing members of the media moments after the meeting Bank of Botswana Governor Moses Pelaelo explained that Inflation decreased from 8.8 percent in August to 8.4 percent in September 2021, although remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent.
He said Inflation is projected to revert to within the objective range in the second quarter of 2022, mainly on account of the dissipating impact of the recent upward adjustment in value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.2 percentage points to the current level of inflation. Overall, risks to the inflation outlook are assessed to be skewed to the upside.
These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and lockdowns due to the COVID-19 pandemic; domestic risk factors relating to regular annual price adjustments; as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.
Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressure to inflation. These risks are, however, moderated by the possibility of weak domestic and global economic activity, with a likely further dampening effect on productivity due to periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants.
A slow rollout of vaccines, resulting in the continuance of weak economic activity and the possible decline in international commodity prices could also result in lower inflation, as would capacity constraints in implementing the ERTP initiatives. Real Gross Domestic Product (GDP) for Botswana grew by 4.9 percent in the twelve months to June 2021, compared to a contraction of 5.1 percent in the corresponding period in 2020.
The increase in output is attributable to the expansion in production of both the mining and non-mining sectors, resulting from an improved performance of the economy from a low base in the corresponding period in the previous year. Mining output increased by 3 percent in the year to June 2021, because of a 3.2 percent increase in diamond mining output, compared to a contraction of 19.3 percent in 2020. Similarly, non-mining GDP grew by 5.4 percent in the twelve-month period ending June 2021, compared to a decrease of 0.7 percent in the corresponding period in 2020.
The increase in non-mining GDP was mainly due to expansion in output for construction, diamond traders, transport and storage, wholesale and retail and real estate. Projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a rebound in economic growth for Botswana in 2021. The Ministry projects a growth rate of 9.7 percent in 2021, moderating to a growth of 4.3 percent in 2022. On the other hand, the IMF forecasts the domestic economy to grow by 9.2 percent in 2021; and this is expected to moderate to a growth of 4.7 percent in 2022. The growth outcome will partly depend on success of the vaccine rollout.
According to the October 2021 World Economic Outlook (WEO), global output growth is forecast at 5.9 percent in 2021, 0.1 percentage point lower than in the July 2021 WEO update. The downward revision reflects downgrades for advanced economies mainly due to supply disruptions, while the growth forecast for low-income countries was lowered as the slow rollout of COVID-19 vaccines weigh down on economic recovery. Meanwhile, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID-19 growth levels.
The South African Reserve Bank, for its part, projects that the South African GDP will grow by 5.3 percent in 2021, and slow to 1.7 percent in 2022. The MPC notes that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment. These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme.
In addition, the successful implementation of ERTP should anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which have recently fallen to an estimate of P47.9 billion (9.8 months of import cover) in September 2021. Overall, it is projected that the economy will operate below full capacity in the short to medium term and, therefore, not creating any demand-driven inflationary pressures, going forward.
The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response. In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent. Governor Moses Pelaelo noted that the Bank stands ready to respond appropriately as conditions warrant.
The Special Economic Zones Authority (SEZA) recently launched the Mayor’s forum. The Authority will engage with local governments to improve ease of doing business, boost investment, and fast track the development of Botswana’s Special Economic Zones (SEZs).
The Mayors Forum was established to recognise the vital role that local authorities play in infrastructure development; as they approve applications for planning, building and occupation permits. Local authorities also grant approvals for industrial licenses for manufacturing companies. SEZA Chief Executive Officer (CEO) Lonely Mogara explained that the Mayor’s Forum was conceptualised after the Authority identified local authorities as critical partners in achieving its mandate and improving the ease of doing business. SEZA intends to develop legal instructions for different Ministries to align relevant laws with the SEZ Act, which will enable the operationalisation of the SEZ incentives.
“Engaging with local government will bring about the much-needed transformation as our SEZs are located in municipalities. For us, a good working relationship with local authorities is the special ingredient required for the efficient facilitation of SEZ investors, which will lead to their competitiveness and ultimate growth,” Mogara stated.
The Mayors Forum will focus on the referral of investors for establishment in different localities, efficient facilitation of investors, infrastructure and property development, and joint monitoring and evaluation of the SEZ programme at the local level. SEZA believes that collaborating with local authorities will bring about much-needed transformation in the areas where SEZs are located and ultimately within the national economy. Against this background, the concept of hosting a Mayors Forum was birthed to identify and provide solutions to possible barriers inhibiting ease of doing business.
One of the key outcomes of the Mayors Forum is the free flow of information between SEZA and local authorities. Further, the two will work together to change the business environment and achieve efficiency and competitiveness within the SEZs. Francistown Mayor Godisang Rasesigo was elected as the founding Chairman of the Mayors Forum. The forum will also include the executive leadership of all city, town and district councils, among them Mayors, City or Council Chairpersons, Town Clerks and District Commissioners.
Mogara explained that initial efforts would engage the local government in areas that host SEZA’s eight SEZs: Gaborone, Lobatse, Selebi Phikwe, Palapye, Francistown, Pandamatenga and Tuli Block. Meanwhile, Mogara told WeekendPost that they are confident that a modest 150 000 jobs could be unleashed in the next two to five years through a partnership with other government entities. He is adamant that the jobs will come from all the nine designated economic zones.
This publication gathers that the Authority is currently sitting on about P30 billion worth of investment. The investment, it is suggested, could be said to be locked up in government bureaucracy, awaiting the proper signatures for projects to take off. Mogara informed this publication that the Authority onboard investors who are bringing P200 million and above. He pointed out that more are injecting P1 billion investments compared to the lower stratum of their drive.
SEZA’s mandate hinges on the nine Special Economic Zones – being Gaborone (SSKIA), whose focus is of Mixed-use (Diamond Beneficiation, Aviation); Gaborone (Fairgrounds) for Financial services, professional services and corporate HQ village; Lobatse for Beef, leather & biogas park; Pandamatenga designated for Agriculture (cereal production); Selibe Phikwe area which is also of a Mixed-Use (Base metal beneficiation & value addition), Tuli Block Integrated coal value addition, dry port logistics centre, coal power generation and export; Francistown is set aside for International Multimodal logistics hub/ Mixed Use (Mining, logistics and downstream value-adding hub); whilst Palapye is for Horticulture.
The knowledge economy buzz speaks to SEZA’s agenda, according to Mogara. The CEO is determined to ensure that SEZA gets the buy-in from the government, parastatals and the private sector to deliver Botswana to a high economic status. “This will ensure more jobs, less poverty, more investment, and indeed wealth for Batswana,” quipped the enthusiastic Mogara. SEZA was established through the SEZ Act of 2015 and mandated with establishing, developing and managing the country’s SEZs. The Authority was tasked with creating a conducive domestic and foreign direct investment, diversifying the economy and increasing exports to facilitate employment creation.
De Beers rough diamond production for the third quarter of 2021 increased by 28% to 9.2 million carats, reflecting planned higher Production to meet more robust demand for rough diamonds. In Botswana, Production increased by 33% to 6.4 million carats, primarily driven by the planned treatment of higher-grade ore at Jwaneng, partly offset by lower Production at Orapa due to the scheduled closure of Plant 1.
Namibia’s Production increased by 65% to 0.4 million carats, reflecting the marine fleet’s suspension during Q3 2020 as part of the response to lower demand at that time. South Africa production increased by 34% to 1.6 million carats due to the planned treatment of higher grade ore from the final cut of the Venetia open pit and an improvement in plant performance. Production in Canada decreased by 13% to 0.8 million carats due to lower grade ore being processed.
Demand for rough diamonds continued to be robust, with positive midstream sentiment reflecting strong demand for polished diamond jewellery, particularly in the key markets of the US and China. Rough diamond sales totalled 7.8 million carats (7.0 million carats on a consolidated basis) from two Sights, compared with 6.6 million carats (6.5 million carats on a consolidated basis) from three Sights in Q3 2020 and 7.3 million carats (6.5 million carats on consolidated basis) from two Sights in Q2 2021.
De Beers tightened Production guidance to 32 million carats (previously 32-33 million carats) due to continuing operational challenges, subject to the extent of any further Covid-19 related disruptions. Commenting on the production figures, Mark Cutifani, Chief Executive of De Beers parent company Anglo American, said: “Production is up 2%(1) compared to Q3 of last year, with our operating levels generally maintained at approximately 95%(2) of normal capacity.
The increase in Production is led by planned higher rough diamond production at De Beers, increased output from our Minas-Rio iron ore operation in Brazil, reflecting the planned pipeline maintenance in Q3 2020, and improved plant performance at our Kumba iron ore operations in South Africa. “We are broadly on track to deliver our full-year production guidance across all products while taking the opportunity to tighten up the guidance for diamonds, copper, and iron ore within our current range as we approach the end of the year.
“Our copper operations in Chile continue to work hard on mitigating the risk of water availability due to the challenges presented by the longest drought on record for the region, including sourcing water that is not suitable for use elsewhere and further increasing water recycling.” On Wednesday, De Beers announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the eighth sales cycle of 2021. The company raked in US$ 490 million for the cycle, a slight improvement when compared to US$467 million recorded in 2020 cycle 8.
Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group has continued to implement a more flexible approach to rough diamond sales during the eighth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration. As a result, the provisional rough diamond sales figure quoted for Cycle 8 represents the expected sales value from 4 October to 19 October. It remains subject to adjustment based on final completed sales.
Commenting on the cycle 8 sales De Beers Group Chief Executive Officer Bruce Cleaver said that: “As the diamond sector prepares for the key holiday season and US consumer demand for diamond jewellery continues to perform strongly, we saw further robust demand for rough diamonds in the eighth sales cycle of the year ahead of the Diwali holiday when demand for rough diamonds is likely to be affected by the closure of polishing factories in India.”