The International Monetary Fund (IMF) last week released its economic outlook for the Sub Saharan Africa region.
According to the document, titled ‘A difficult road to recovery’, the Washington based fund said the region was contending with an unprecedented health and economic crisis, one that, in just a few months, has jeopardized years of hard-won development gains and upended the lives and livelihoods of millions.
The IMF Africa experts have left the 2020–21 October outlook broadly unchanged from the June update, with activity in 2020 projected to contract by 3.0 percent, still the worst outcome on record. For 2021, regional growth is projected to recover modestly to 3.1 percent.
This outlook according to IMF Africa Department Director Abebe Aemro Selassie is however subject to some key downside risks, particularly regarding the path of the COVID-19 pandemic and the resilience of the region’s health systems.
Key to this uncertainties and perhaps the regions’ main uphill task is raising the much needed funding to finance economic recovery and resuscitation plans following an unprecedented erosion of revenue lines across the continent. Selassie says Sub Saharan Africa’s road to recovery will be made more difficult by uncertainty on the availability of external financing, with associated needs estimated at about $900 billion over 2020–23.
Off the estimated $900 billion needed, sources of about $130 billion to $410 billion are unidentified.
Overall, the region’s outlook will be shaped by the availability of additional financing and the transformative domestic reforms to promote resilience (including revenue mobilization, digitalization, and fostering better transparency and governance), lift medium-term growth, create opportunities for a wave of new job seekers, and progress toward the Sustainable Development Goals (SDGs).
The IMF says with this difficult recovery ahead, policy makers have fewer resources at their disposal as they cautiously lift restrictions and reopen economies.
“Transformative reforms are urgently needed for rekindling resilient growth, which will be difficult without external support” said the US based Fund in the outlook.
Abebe Aemro Selassie noted that onset of the pandemic was delayed in sub-Saharan Africa, and infection rates have been relatively low compared to other parts of the world.
He however said the resurgence of new cases in many advanced economies and the specter of repeated outbreaks across the region suggests that the pandemic will likely remain a very real concern for some time to come.
Amid high economic and social costs, African countries are now cautiously starting to reopen their economies and are looking for policies to restart growth.
With the imposition of lockdowns, regional activity dropped sharply during the second quarter of 2020, but with a loosening of containment measures, higher commodity prices, and easing financial conditions, there have been some tentative signs of a recovery in the second half of the year.
Selassie noted, “Overall, the region is projected to contract by 3.0 percent in 2020, the worst outlook on record. Tourism-dependent economies faced the largest impact, while commodity exporting countries have also been hit hard.”
He explained that growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020.
Looking forward, regional growth is forecast at 3.1 percent in 2021. This is a smaller expansion than expected in much of the rest of the world, partly reflecting sub-Saharan Africa’s relatively limited policy space within which to sustain a fiscal expansion.
Key drivers of next year’s growth will include an improvement in exports and commodity prices as the world economy recovers, along with a recovery in both private consumption and investment.
“The current outlook is subject to greater-than-usual uncertainty with regard to the persistence of the COVID-19 shock, the availability of external financial support, and the development of an effective, affordable, and trusted vaccine.” Said IMF
Against this backdrop, Mr. Selassie pointed to a number of policy priorities going forward noting that where the pandemic continues to linger, the priority remains to save lives and protect livelihoods.
The IMF Africa Chief said for countries where the pandemic is under greater control, limited resources will mean that policy makers aiming to rekindle their economies will face some difficult choices.
He explained that both fiscal and monetary policy will have to balance the need to boost the economy against the need for debt sustainability, external stability, and longer-term credibility.
“Financial regulation and supervision will have to help crisis-affected banks and firms, without compromising the financial system’s ability to support longer-term growth. And these efforts must also be balanced against the need to maintain social stability while simultaneously preparing the ground for sustained and inclusive growth over the long term.”
In the outlook the International Monetary Fund said that navigating such a complex policy challenge will not be easy and will require continued external support noting that without significant assistance, many countries will struggle to simply maintain macroeconomic stability while meeting the basic needs of their population.
In this context, the IMF has moved swiftly and disbursed about US$17 billion so far in 2020 which is about 12 times more than we typically disburse each year to help cover a significant portion of the region’s needs and to catalyze additional support from the international community.
However looking ahead, the IMF says sub-Saharan Africa faces significant financing gaps.
The global Fund says If private financial inflows remain below their pre-crisis levels and even taking into account existing commitments from international financial institutions and official bilateral creditors, the sub-Saharan Africa could face a gap in the order of $290 billion over 2020-23.
“This is important, as a higher financing gap could force countries to adopt a more abrupt fiscal adjustment, which in turn would result in a weaker recovery,” warns IMF.
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.
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.
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.
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.