Bank of Botswana (BoB) has kept the country’s lending rate at 3.75 percent. The decision emerged at the Central Bank’s Monetary Policy Committee (MPC) meeting held on August 19, 2021.
The Monetary Policy Committee (MPC) comprises senior Bank of Botswana staff and advisers. It is responsible for guiding monetary policy within the framework and objectives set out in the annual Monetary Policy Statement. Principally, this involves setting the policy rate (Bank Rate).
The policy is assessed in light of a systematic review of the evolving economic outlook that influences the anticipated medium-term path for inflation. Central to the Committee’s deliberations is the inflation forecast. The MPC meets approximately every two months, although, if required by circumstances, additional meetings can be convened.
Deliberating on why BoB maintained the bank rate, officials said in a virtual briefing on Thursday that inflation rose from 8.2 percent in June to 8.9 percent in July 2021, remaining above the upper bound of the Bank’s medium-term objective range of 3–6 percent. The latest increase in inflation mainly reflects the upward adjustment in domestic fuel prices in July 2021.
However, 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. Altogether they 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 for an increase in international commodity prices beyond current forecasts; persistence of supply and logistics constraints due to possible maintenance of travel restrictions and lockdowns; and domestically-based risk factors relating to second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalized higher prices.
Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand and the successful rollout of the COVID-19 vaccination programs could add pressure to inflation.
However, these risks are 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.
BoB Governor Moses Pelaelo said Botswana’s 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) contracted by 8.6 percent in the twelve months to March 2021, compared to a growth of 2.2 percent in the corresponding period in 2020. The decline in output is attributable to the contraction in the production of both the mining and non-mining sectors, mainly resulting from the impact of the strict COVID-19 pandemic containment measures.
Mining output declined substantially by 27.8 percent in the year to March 2021 compared to a decline of 6.7 percent in 2020, as the sector, including its support service activities, underperformed. Similarly, non-mining GDP contracted by 3.1 percent in the twelve months ending March 2021, compared to a growth rate of 5 percent in the corresponding period in 2020. The decline in non-mining GDP was mainly due to lower output for accommodation and food services, manufacturing, construction, and diamond traders.
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 of 8.8 percent in 2021 before moderating to a growth of 5.5 percent in 2022. On the other hand, the IMF forecasts the domestic economy to grow by 8.3 percent in 2021; this is expected to moderate to 6.4 percent in 2022. The growth outcome will partly depend on the successful vaccine rollout.
Global output growth is forecast at 6 percent in 2021, reflecting expectations of strengthening economic activity in the latter part of the year, primarily supported by additional fiscal support and the rollout of effective COVID-19 vaccines. However, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID levels.
Meanwhile, the South African Reserve Bank projects the South African GDP to grow by 4.2 percent in 2021 before slowing to 2.3 percent in 2022. The MPC noted that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment.
This includes accommodative monetary conditions, improvements in water and electricity supply, further reforms to improve the business environment, and government interventions against COVID-19, including positive news around the vaccination rollout program.
In addition, the successful implementation of ERTP should anchor the growth of exports and preserve a sufficient buffer of foreign exchange reserves which have recently fallen to an estimate of P50.8 billion (9.4 months of import cover) in August 2021. Overall, it is projected that the economy will operate below total capacity in the short to medium term and, therefore, not creating any 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), would not usually 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. The Bank said it stands ready to respond appropriately as conditions dictate.
The local mining industry is on the rise again, emerging out of the COVID-19 pandemic induced headwinds.
In 2020 mining operations had to curtail their production in response to plummeting demand across commodity markets. Companies also had to reduce their workforce to comply with COVID-19 protocols such as social distancing in an effort to curb the spread of the contagious plague.
This resulted in low production levels across the sector, however operations are significantly jumping back to pre-COVID-19 output levels albeit another variant that has now surfaced, posing uncertainty for the year 2022.
Just before close of business for the year 2021, Statistics Botswana released the Index of Mining Production, a quarterly measure of output across Botswana’s mining operations and extractive industries.
The Index of Mining Production stood at 95.5 during the third quarter of 2021, showing a year-on-year growth of 31.8 percent, from 72.5 registered during the third quarter of 2020.
The quarter-on-quarter analysis shows an increase of 11.6 percent from the index of 85.6 during the second quarter of 2021 to 95.5 observed during the period under review.
The main contributor to the increase in mining production came from the Diamonds, which contributed 31.2 percentage points.
Gold was the only negative contributor to mining production, at negative 0.4 of a percentage point.
Diamond production increased by 32.2 percent (1.584 million carats) from 4.916 million carats during the third quarter of 2020 to 6.5 million carats during the same quarter of the current year.
The increase was a result of planned strategy to align production with stronger trading conditions.
Similarly, the quarter-on-quarter analysis shows that production registered an increase of 11.6 percent (673 000 carats) during the third quarter of 2021 compared to the 5.8 million thousand carats during the second quarter of 2021.
Botswana’s flagship diamond producer is De Beers – Government jointly owned Debswana, by far the country’ s mining jewel and global leader in rough diamond production.
The other diamond producing operation is Lucara’s 100 % owned Karowe Mine, a relatively small operation but known around the globe for its spectacular diamond recoveries, the likes of which the world has never seen before.
Gold production decreased by 26.9 percent (65 kilograms) during the third quarter of 2021, from 241kilograms during the same quarter of the previous year to 176 kilograms currently
The quarter-on- quarter analysis reflects a decrease of 5.5 percent (10 kilograms) to 176 kilograms during the third quarter of 2021, compared to 186 kilograms in the preceding quarter.
Botswana’s sole gold producer is Galane Gold’s Mupane Mine in North East Botswana, enclaved around the historic gold fields of Francistown.
The decrease in production according to Statistics Botswana was a result of the deteriorating lifespan of the mine. Mupane Gold Mine is currently on a rough run with imminent workers strike over unsatisfactory payments. The impending protests have been heavily endorsed by Botswana Mine Workers Union.
In Sua Pan, the sodium crystals have risen to glory, making Sowa Town great again, Soda Ash production rose by 81.7 percent (29, 312 tonnes) from 35, 883 tonnes during the third quarter of 2020 to 65, 195 tonnes in the same quarter of the current year.
The quarter-on-quarter analysis shows that production went up by 12.5 percent (7, 233 tonnes) during the period under review, from 57, 962 tonnes during the previous quarter.
The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production went up by 86.1 percent (78, 566 tonnes) to 169, 826 tonnes during the third quarter of 2021, from 91, 261 tonnes during the same quarter of the previous year.
Similarly, the quarter-on-quarter analysis shows that salt production registered an increase of 66.9 percent (68, 050 tonnes) compared to 101, 776 tonnes during the second quarter of 2021.
Botswana’s industrial scale Salt an Soda Soda Ash producer is Botswana Ash (Botash), a 50-50 partnership between Botswana Government and South African Chlor Alkali Holdings (CAH) Group.
Coal production increased by 1.0 percent (5, 434 tonnes), from 543, 793 tonnes during the third quarter of 2020, to 549, 227 tonnes in the current quarter.
The slight increase came as a result of the efforts made to meet both domestic and international high demand, particularly that new markets have been identified.
The quarter-on-quarter comparison shows that coal production went up by 13.1 percent (63, 585 tonnes) compared to 485, 642 tonnes during the second quarter of the current year.
Inthe coal space the only operating mines are the privately developed Minergy’s Masama located near Media Village and the wholly Gorvenment owned Morupule Coal Mine.
Copper-Nickel-Cobalt Matte recorded zero production during the period under review. The affected mines are still under provisional liquidation.
Copper in Concentrates and Silver though there has been exportation of Copper by the newly launched Khoemacau Copper Mine since July 2021, the mine has been engaged in preparatory mining activities in readiness for full operations intended for the year 2022.
The preparatory mining operations yielded rewarding outcomes as copper residues realized have been exported since July 2021.
The period between preparatory and full operations is intended to allow the production to stabilize before reporting production output figures.
Botswana exports took a knock in October 2021 registering only P4,960.7 million, a 22.1 percent decline from the revised September 2021 value of P6,365.1 million, latest International Merchandise Trade Statistics have revealed.
According to this monthly data, released by Statistics Botswana late December 2021 the decline is attributed largely to the reduction in the exportation of Diamonds by 22.6 percent (P1, 264.8 million) from the revised September 2021 value of P5, 608.4 million to P4, 343.6 million.
Though it registered a decline in export figures , the Diamonds group still remained Botswana ‘s biggest exported commodity accounted for 87.6 percent (P4, 343.6 million) of total exports, followed by Copper and Machinery & Electrical Equipment with 3.1 percent (P152.2 million) and 2.6 percent (P131.3 million) respectively.
During the month Asia was the main destination for Botswana exports, having received 65.5 percent (P3, 249.0 million) of total exports. These exports were mainly destined to the UAE and India, having received 28.1 percent (P1, 395.1 million) and 20.4 percent (P1, 011.8 million) of total exports, respectively. Only Diamonds and Copper were exported to the regional block during the October.
Exports destined to the EU amounted to P1, 066.6 million, accounting for 21.5 percent of total exports during the month under review. Belgium received almost all of the exports destined to the regional union, acquiring 21.4 percent (P1, 062.0 million) of total exports during the reporting period. The Diamonds group was the main commodity group exported to the EU.
The SACU region received exports valued at P423.6 million, representing 8.5 percent of total exports. Machinery & Electrical Equipment and Live Cattle accounted for 28.0 percent (P118.6 million) and 14.1 percent (P59.7 million) of total exports to the customs union.
South Africa received 7.8 percent (P386.7 million) of total exports during the month under review more goods entered Botswana in October than the previous month September.
On the other side the value of imports for the month of October clocked P8, 801.5 million, mirroring an increase of 30.5 percent (P2, 056.1 million) over the September 2021 revised figure of P6, 745.4 million.
The increase was mainly attributed to a more than 100 percent (P1, 755.9 million) rise in the importation of Diamonds from the revised September 2021 figure of P1, 616.2 million to P3, 372.0 during the current period.
Diamonds contributed 38.3 percent (P3, 372.0 million) to total imports. Fuel; Food, Beverages & Tobacco and Machinery & Electrical Equipment followed with contributions of 12.3 percent (P1, 086.6 million), 11.7 percent (P1,034.1 million and 10.0 percent (P882.7 million) respectively. Chemicals & Rubber Products contributed 9.7 percent (P856.1 million).
During the month SACU region contributed 61.4 percent (P5, 405.3 million) to Botswana ‘s total imports. The top most imported commodity groups from the customs union were Fuel; Food, Beverages & Tobacco and Diamonds, with contributions of 19.9 percent (P1, 075.1 million), 17.9 percent (P965.0 million) and 16.3 percent (P882.5 million) to imports from the region, respectively.
South Africa contributed 58.8 percent (P5, 176.0 million) to total imports during the reporting period. Fuel, Food, Beverages & Tobacco and Diamonds made contributions of 18.4 percent (P952.3 million), 18.3 percent (P949.4 million), and 16.0 percent (P826.7 million) respectively to imports from South Africa.
Botswana received imports worth P1, 794.2 million from the EU, accounting for 20.4 percent of total imports during October 2021.
The major commodity group imported from the EU was Diamonds, at 89.8 percent (P1, 611.0 million) of all imports from the union. Belgium was the major source of imports from the EU, with a contribution of 18.7 percent (P1, 643.1 million) of total imports during the month of October.
During the month Imports from Asia were valued at P989.5 million, accounting for 11.2 percent of total imports.
The major commodity groups imported from the regional block were Diamonds and Machinery & Electrical Equipment with contributions of 51.9 percent (P513.8 million) and 13.4 percent (P132.6 million) of total imports from Asia.
China and UAE supplied 2.5 percent (P221.3 million) and 2.3 percent (P202.0 million) of total imports during the period, respectively.
Canada supplied imports worth P364.0 million, representing 4.1 percent of Botswana’s total imports during the current period. Imports from Canada were mainly Diamonds, at 99.6 (P362.3 million) of imports from that country.
The rise in imports and decline in exports resulted in a trade deficit of P3, 840.8 million for the month of October.
During the month exports transported by Air were worth P4, 380.1 million, accounting for 88.3 percent of total exports, while those leaving the country by Road were valued at P567.5 million (11.4 percent) while imports representing 51.7 percent (P4, 554.0 million) were transported into the country by Road.
Transportation of imports by Rail and Air accounted for 24.4 percent (P2, 148.0 million) and 23.8 percent (P2, 098.4 million) respectively.
Debswana Diamond Company, Botswana’s flagship mining business recently received an award from Absa Bank Group in recognition of its commitment to economic empowerment across the supply chain.
The 4th Annual Absa Business Day Supplier Development Awards were held in Johannesburg, South Africa on the 18th November 2021.
The awards celebrate companies that are working towards a better African continent through innovative and impactful supplier development initiatives.
The selection process acknowledges and recognizes corporates who go beyond the scorecard to open access, empower SMEs, foster learning, build a community of best practice and encourage a collaborative spirit within their industries and within the communities in which they operate.
Explaining how Debswana scooped the award Absa Bank Botswana Managing Director Keabetswe Pheko-Moshagane said: “At Absa Bank Botswana, we were excited that for the first time since inception, the 2021 awards were extended to include nominations from Sub-Saharan Africa.”
She explained that the judges special recognition awards for Sub Saharan Africa corporates (excluding South Africa) were made under four categories being: commitment to Economic Empowerment across the Supply Chain, commitment to women inclusion in the supply chain, Commitment to localization of the supply chain and lastly commitment to a pioneering supplier development.
“We immediately thought of the transformative and inspiring work that Debswana is doing locally and what the company continues to achieve through its Citizen Economic Empowerment Program,” she said.
Pheko-Moshagane explained that in recognition of this commitment and outstanding leadership Absa nominated Debswana Diamond Company into the competition under the category: “commitment to economic empowerment across the supply chain”, for which the company was selected as the winner.
The Absa Bank Botswana MD hailed Debswana Citizen Economic Empowerment Program as a true example of how the private sector can contribute to rebuilding the economy through and post the Covid -19 pandemic.
“Your commitment to citizen economic empowerment resonates with us at Absa bank, because we are also committed to and passionate about growing Small and Medium businesses as they represent a vital part of our economy,” she said.
In 2017 Absa, launched the Enterprise and Supply Chain Development (ESD) in the local market as a response to address some challenges faced by the SMEs. The main objective of ESD is to unlock lending to SMEs in corporate value chains.
The introduction of the ESD program has streamlined some of the stringent financing requirements like the provision of financial statements, security, historical performance and weak credit ratings.
The relaxation of the financing requirements has therefore enabled the SMEs to execute on the provision of goods or services for the clients and positively impacted their growth.
ESD uses non-traditional bank lending solutions to provide financing to SME’s. Through this program Absa offers 100% finance to Enterprises in corporate supply chains.
Moshagane said this approach has allowed Absa to unlock the opportunities within the large corporate as they are now assured that their suppliers and contractors will be able to deliver and in addition releasing the corporate cash flows.
“We continue to explore various partnership agreements with various corporates to see how best we can assist the SMEs in response to government’s call for Citizen Economic Empowerment by propelling the support of the SMMEs” she said.
Speaking to Absa & Debswana partnership Mrs Keabetswe Pheko-Moshagane said the relationship thus far has seen Debswana extend contracts to the value of BWP1.2 billion to SMEs on a joint program, and Absa has financed close to half a billion to these SMEs, some of which would not have ordinarily qualified for funding under normal banking circumstances.
“To date no SME on the program has had its banking or contract facility terminated, which speaks to the commitment on both our ends in ensuring the success of these SMEs”
Receiving the award, Debswana Acting Managing Director, Lynette Armstrong explained that Debswana started its Citizen Economic Empowerment journey with ABSA Bank in 2017, borne out of the realisation of access to finance challenges by citizen owned enterprises.
This partnership, initiated with a deliverable to implement a pilot project at Orapa Letlhakane Damtshaa Mines within the crushing and drilling spaces.
The two projects delivered the desired results in project KPI’s with impeccable safety records with Absa providing the required access to finance that enabled the citizen suppliers to acquire machinery for the projects.
In 2019, Debswana set up the Citizen Economic Empowerment Programme office a factor that accelerated the signing of a MoU in 2020 on access to finance between Debswana and ABSA and in that, ABSA has pledged to avail access to finance totalling an unprecedented BWP1billion over a period of 3 years.
To date, ABSA has financed 23 projects since 2020 at a total impact of BWP1.5 billion pula in Contract amount with more than BWP700 million advanced to citizen suppliers.
These funds enabled citizen suppliers to pay salaries on time, procure machinery in various areas such as drilling and crushing and participate in the recent LTE installation at Jwaneng Mine.
Armstrong said in the coming year 2022, CEEP will see Debswana focused on implementing plans aimed at supporting local manufacturing and local repairs and maintenance.
“This is where access to funding is key as the two areas of local manufacturing and local repairs and maintenance have a potential to create meaningful and sustainable employment in the medium to long term to achieve Debswana’s target of 20 000 jobs by 2024”
She noted that Debswana has committed to heightened efforts of connecting the Youth and Women in the Debswana Citizen Economic Empowerment conversation, capacitation series and participation in the economic opportunities to further, totally involve all possible demographics and diversify the creativity of building sustainable communities and Make Life Brilliant for all, a total commitment of our Debswana Strategy 2024.
The Debswana Acting MD said the recognition of Debswana for its commitment to economic empowerment across the supply chain by is an encouragement to the Debswana – ABSA partnership and “gives us hope to further intensify our efforts to create opportunities for our fellow citizens and support Government’s efforts towards achieving prosperity for all in terms of Vision 2036”