The establishment of a Diamond Future Fund in Botswana holds immense potential for the country’s long-term prosperity. Honorable Thapelo Letsholo’s proposal to allocate a portion of diamond revenues to this fund demonstrates a forward-thinking approach to harnessing the country’s natural wealth sustainably. By ensuring that these precious resources serve as enduring assets for future generations, Botswana can secure its economic stability beyond immediate fiscal requirements.
The decision by Honorable Peggy Serame, the Minister of Finance, to transform the Pula Fund into a true sovereign wealth fund further reinforces Botswana’s commitment to responsible wealth management. This strategic move is a crucial step in the government’s efforts to safeguard the sustainable stewardship of its natural resources. By introducing legislation to support this transformation, Botswana is taking a significant stride towards enhancing its economic resilience and long-term prosperity.
Hon. Letsholo’s proposal also emphasizes the importance of effective allocation of diamond revenues, with a focus on promoting intergenerational equity. This demonstrates a deep understanding of the need to create a lasting legacy through prudent national resource management. By drawing inspiration from successful global examples like Norway’s management of its oil reserves, Botswana can adopt similar wealth management strategies that will significantly enhance the impact of financial mechanisms such as the reformed Pula Fund.
The dialogue initiated by Hon. Letsholo and Minister Serame’s response marks a pivotal moment in Botswana’s economic policy. It signifies a united effort towards a future where the wealth generated by the diamond industry is not only a pillar of current prosperity but also a foundation for the sustainable economic security of future generations. This collaborative approach to wealth management sets Botswana on a path towards long-term success and ensures that the benefits of its natural resources are maximized for the greater good.
Observers say the establishment of a Diamond Future Fund in Botswana, as proposed by Honorable Letsholo, holds great promise for the country’s prosperity. By allocating a portion of diamond revenues to this fund and transforming the Pula Fund into a true sovereign wealth fund, Botswana is taking significant steps towards sustainable wealth management. This initiative, inspired by global success stories, demonstrates a commitment to intergenerational equity and prudent resource management. It is a testament to Botswana’s determination to secure its economic stability and ensure the long-term prosperity of its people.
Botswana has recently recorded a significant trade deficit of over P6 billion. This trade deficit, which occurred in November 2023, follows another deficit of P4.7 billion recorded in October of the same year. These figures, released by Statistics Botswana, highlight a decline in export revenues as the main cause of the trade deficit.
In November 2023, Botswana’s total export revenues amounted to P2.9 billion, a decrease of 24.3 percent from the previous month. Diamonds, a major contributor to Botswana’s exports, experienced a significant decline of 44.1 percent during this period. This decline in diamond exports played a significant role in the overall decrease in export revenues. However, diamonds still remained the leading export commodity group, contributing 44.2 percent to export revenues. Copper and Machinery & Electrical Equipment followed, contributing 25.8 percent and 10.1 percent, respectively.
Asia emerged as the leading export market for Botswana, receiving exports worth P1.18 billion in November 2023. The United Arab Emirates, China, and Hong Kong were the top destinations within Asia, receiving 18.6 percent, 14.2 percent, and 3.8 percent of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia.
The Southern African Customs Union (SACU) received Botswana’s exports worth P685.7 million, with South Africa being the main recipient within SACU. The European Union (EU) received exports worth P463.2 million, primarily through Belgium. Australia received exports worth P290 million, while the United States received exports valued at P69.6 million, mostly composed of diamonds.
On the import side, Botswana imported goods worth P9.5 billion in November 2023, representing an increase of 11.2 percent from the previous month. The increase in imports was mainly driven by a rise in Diamonds and Chemicals & Rubber Products imports. Diamonds contributed 23.3 percent to total imports, followed by Fuel and Food, Beverages & Tobacco at 19.4 percent and 15.0 percent, respectively.
The SACU region was the top supplier of imports to Botswana, accounting for 77.7 percent of total imports. South Africa contributed the largest share at 57.2 percent, followed by Namibia at 20.0 percent. Imports from Asia accounted for 9.8 percent of total imports, with Diamonds, Machinery & Electrical Equipment, and Chemicals & Rubber Products being the major commodity groups imported. The EU supplied Botswana with imports worth 3.2 percent of total imports, primarily in the form of Machinery & Electrical Equipment, Diamonds, and Chemicals & Rubber Products.
Botswana’s recent trade deficit of over P6 billion highlights a decline in export revenues, particularly in the diamond sector. While Asia remains the leading export market for Botswana, the country heavily relies on imports from the SACU region, particularly South Africa. Addressing the trade deficit will require diversification of export markets and sectors, as well as efforts to promote domestic industries and reduce reliance on imports.
The business sector in Botswana is optimistic about the year 2024, according to a recent survey conducted by the Bank of Botswana (BoB). The survey collected information from businesses in various sectors, including agriculture, mining, manufacturing, construction, and finance, among others. The results of the survey indicate that businesses expect trading conditions to improve in the first quarter of 2024 and remain favorable throughout the year.
The researchers found that firms anticipate improvements in investment, profitability, and goods and services exported in the fourth quarter of 2023 compared to the previous quarter. These expectations, combined with anticipated growth in all sectors except construction and real estate, contribute to the overall confidence in business conditions. Furthermore, businesses expect further improvements in the first quarter of 2024 and throughout the entire year.
Confidence among domestic market-oriented firms may decline slightly in the first quarter of 2024, but overall optimism is expected to improve throughout the year, consistent with the anticipated domestic economic recovery. Firms in sectors such as mining, retail, accommodation, transport, manufacturing, agriculture, and finance are driving this confidence. Export-oriented firms also show increased optimism in the first quarter of 2024 and for the entire year.
All sectors, except agriculture, which remains neutral, are optimistic about the first quarter of 2024 and the year ending in December 2024. This optimism is likely supported by government interventions to support economic activity, including the two-year Transitional National Development Plan (TNDP) and reforms aimed at improving the business environment. The anticipated improvement in profitability, goods and services exported, and business investment further contributes to the positive outlook.
Firms expect lending rates and borrowing volumes to increase in the 12-month period ending in December 2024. This increase in borrowing is consistent with the expected rise in investment, inventories, and goods and services exported. Firms anticipate that domestic economic performance will improve during this period. Domestic-oriented firms perceive access to credit from commercial banks in Botswana to be relaxed, while export-oriented firms prefer to borrow from South Africa.
During the fourth quarter of 2023, firms faced high cost pressures due to increased input costs, such as materials, utilities, and transport, resulting from supply constraints related to conflicts in Ukraine-Russia and Israel-Hamas. According to the survey report, the firms noted that cost pressures during the fourth quarter of 2023 were high, mainly attributable to increase in some input costs, such as materials, utilities, and transport arising from supply constraints related to the Ukraine-Russia and Israel-Hamas wars. “However, firms’ expectations about domestic inflation decreased, compared to the previous survey, and have remained within the Bank’s 3 – 6 percent objective range, averaging 5.4 percent for 2023 and 5.4 percent for 2024. This suggests that inflation expectations are well anchored, which is good for maintenance of price stability,” reads the survey report in part.
However, firms’ expectations about domestic inflation decreased compared to the previous survey, and inflation expectations remained within the Bank’s objective range of 3-6 percent. This suggests that inflation expectations are well anchored, which is beneficial for maintaining price stability.
In terms of challenges, most firms in the retail, accommodation, transport, manufacturing, construction, and finance sectors considered the exchange rate of the Pula to be unfavorable to their business operations. This is mainly because these firms import raw materials from South Africa and would prefer a stronger Pula against the South African rand. Additionally, firms in the retail, accommodation, transport, and mining sectors cited other challenges, including supply constraints from conflicts in Russia-Ukraine and Israel-Hamas, as well as new citizen economic empowerment policies that some firms considered unfavorable to foreign direct investment.
On the positive side, firms highlighted factors such as adequate water and electricity supply, a favorable political climate, an effective regulatory framework, the availability of skilled labor, and domestic and international demand as supportive to doing business in Botswana during the fourth quarter of 2023.
Overall, the business sector in Botswana is optimistic about the year 2024. The anticipated improvements in trading conditions, supported by government interventions and reforms, are expected to drive growth and profitability in various sectors. While challenges exist, businesses remain confident in the potential for economic recovery and expansion.
A study conducted by the United Nations says countries implemented bold and timely fiscal policy measures in response to the COVID-19 pandemic crisis and to stimulate recovery.
Governments around the world have also relied on fiscal policy to confront higher food prices and food insecurity risks resulting from the war in Ukraine. The UN said in a report titled World Economic Situation and Prospects 2024 that sharp increases in interest rate since the first quarter of 2022 and tighter liquidity conditions have adversely affected fiscal balance, renewing concerns about fiscal deficits and debt sustainability.
Fiscal space remains very limited, especially in developing countries: for many of these countries the lack of fiscal space presents special risks, as it restricts their capacity to invest in sustainable development and respond to new shocks.
In 2022, more than fifty developing economies spent more than 10% of total government revenues on interest payments, and 25 countries spent more than 20%. The UN added that market expectations that interest rates in major economies will remain higher for longer than previously anticipated have led to a further rise in sovereign bond yields, adding pressure on fiscal balances.
In the medium term, subdued growth prospects, together with the need for increased investment in education, health and infrastructure, will put pressure on government budgets and exacerbate fiscal vulnerabilities.
In this report, it is highlighted that in developing countries with less vulnerable fiscal positions, it ill be crucial for governments to avoid self-defeating fiscal consolidation. “Many of these economies will need to bolster fiscal revenues to expand their fiscal space. In the short term, the increased use of digital technologies can help developing countries reduce tax avoidance and evasion.”
The UN stressed that in the medium term, governments will need to expand revenues through more progressive income, wealth and green taxes. Many economies also need to improve the efficiency of fiscal spending and the effectiveness of subsidies and better target social protection programmes.
Low-income countries, as well as middle-income countries with vulnerable fiscal situations will need debt relief and restructuring measures to avoid devastating debt crises and protracted cycles of weak investment, slow growth and high debt-servicing burdens.