Download 2015 Quarter 1 BOTSWANA SNAPSHOT

BOTSWANA
SNAPSHOT
2015 Quarter 1
Inflation - Botswana's consumer price index (CPI) inflation rate was recorded at 2.8% y-o-y in the second month of 2015, compared to 3.6% y-o-y during the
preceding month. On a m-o-m basis, the CPI decreased by 0.4% in February, after increasing by 0.8% the previous month. The inflation rates in February for
towns & cities, urban villages, and rural areas were 2.6% y-o-y, 2.9% y-o-y, and 3.2% y-o-y, respectively.
Growth - The Botswanan economy expanded by 5.3% y-o-y in the fourth quarter of 2014, slightly slower than the 5.4% y-o-y recorded in Q3 2014. On an
annual basis, real GDP grew by 4.4% last year, compared to the heavily revised 9.3% in 2013 (GDP growth in 2013 was previously estimated at 5.8%).
National development plan - Economic policy continues to be mapped out by the country’s seven-year National Development Plan (NDP) and the long-term
policy, Vision 2016, which promotes diversification of the economy while maintaining macroeconomic stability through running a balanced budget over the
medium term. The 10th NDP, which is currently in place, commenced in April 2010 and is due to expire in 2016. Key policy objectives focus on poverty
reduction, employment creation and HIV/AIDS, with particular emphasis placed on economic diversification.
OPPORTUNITIES
STRENGTHS
In addition to existing opportunities in the dominant diamond sector, vast
potential exists in the extractive sector, that of coal in particular.
Potential to further develop downstream diamond activities following the
relocation of the De Beers Diamond Trading Company’s (DTC) trading
operations from London to Gaborone in 2013.
Implementation of Economic Diversification Drive (EDD) aims to promote
production and consumption of local goods and services.
Well-developed mining sector and sound regulatory environment. A track
record of political and macroeconomic stability.
Ongoing development of the non-banking financial sector.
Botswana is considered to be one of the least corrupt countries in Africa.
Low levels of external debt, which is further supported by a strong public
sector balance sheet.
Sound liquidity position, manifested in robust foreign exchange reserve levels
and a favourable balance of payments position.
VULNERABILITIES
WHAT IS BEING DONE?
Economic structure: heavy reliance on diamonds. This renders the economy
vulnerable to fluctuating gem prices and external demand.
Fast-tracking economic diversification remains a key objective, as seen by the
implementation of the EDD.
The Trans-Kalahari railway line between Botswana and Namibia received new
A relatively underdeveloped rail infrastructure is a constraint to development
momentum in February, with the Botswanan government stating that it
of non-diamond extractive sectors (coal, uranium).
remains committed to the construction of the 1,500 km railway line.
Botswana is historically a net importer of electricity, and power shortages are Medium- to long-term goals include the development of additional units for
likely to have had a detrimental effect on economic growth last year.
the Morupule B power station, which will provide an estimated 600 MW.
The National Water and Waste Water Policy is set to address the country’s
Recurring droughts have seen the agricultural sector experience water
water shortages. Additional policies currently in development include the
shortages across the country.
National Water Conservation Strategy and an Integrated Water Resource
Management Plan.
MEGA TRENDS
Population
2,155,784 (July 2014 est.); Age 15 - 64: 63%
Population growth rate (%)
1.26% (2014 est.)
Life expectancy at birth
Total population: 54.06 years; male: 55.75 years; female: 52.32 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 21.86%; People living with HIV/AIDS: 319,685 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 88.5%; male: 88.0%; female: 88.9% (2015 est.)
and write)
Urbanisation
Urban population: 56.9% of total population (2013); Urban population growth: 1.3% (2013)
Population below national poverty line
19.3% (2009 est.)
Unemployment rate
17.5% (2012 est.)
Employment (% of total)
Agriculture: 29.9%; Industry: 15.2%; Services: 54.9% (2006 est.)
Labour participation rate (% of total
population ages 15+)
76.7% (2013)
Business languages
English, Setswana, Kalanga
Telephone & Internet users
Main lines in use: 174,165; Mobile cellular: 3.25 million; Internet users: 323,368 (2013)
Sources: CIA World Factbook, World Bank, ITU, UNDP, UNAIDS, ADBG & NKC Research
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Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
175
31
189
74
74
144
178
187
36
109
0
Source: NKC Research
Botswana
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
A-/Stable
N/R
A2/Stable
Standard & Poor’s (S&P) affirmed its long-term and short-term sovereign credit ratings for Botswana on November 7, with the respective ratings therefore
remaining at “A-” and “A-2”, while both outlooks are deemed stable. According to the rating agency’s press release, Botswana’s ratings are supported by the
country’s “relatively strong institutions and fairly strong external and fiscal balance sheets, reasonably well-managed minerals-based economy, and long
track record of political stability and relatively sound institutional effectiveness”. On the other hand, Botswana’s narrow economic base that relies heavily on
the diamond sector and is thus vulnerable to shocks, continues to constrain the country’s ratings, despite diversification efforts by the government. On 10
December 2014, Moody’s Investors released an annual update to the markets on Botswana’s government bond rating. The agency’s rating for Botswana of
“A2” (equivalent to “A” on S&P’s scale) with a stable outlook was unchanged from the previous occasion Moody’s issued an update in November 2013.
Moody’s noted in its report that “[u]pward pressure on Botswana’s A2 rating could develop as a result of the successful implementation of economic
diversification strategies over the medium term, coupled with the accumulation of an even larger net financial position”. On the other hand, downward
pressure on the rating could be exerted should Botswana see “a large deterioration in its net asset position over the medium term”. Botswana is currently not
rated by Fitch Ratings.
Infrastructure
Diversity of
the Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Good overall
Dominated by
diamond sector
Good
Good
Strong
Twin (fiscal and
current account)
surpluses
Strong
High (in African
context)
Exceptional
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading Volume
Botswana Stock
Exchange
22 Domestic listings
(Main Board)
Limited
$4.64bn end Feb 2015
(Source: Bank of
Botswana)
Banking
$336,000 in Feb 2015
(Source: Bank of Botswana)
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Limited
14-days to 364-days
(BoBCs)
1-Yr to 10-Yr (Govt.
bonds)
No
Yes
Yes
Limited
Macro-economic overview
The single largest concern pertaining to Botswana’s sovereign risk is the country’s continuing reliance on the diamond mining industry, which exposes the
economy to external global developments. The authorities are well aware of Botswana’s exposure to the diamond sector, and have implemented several
policies in an effort to diversify the economy – the most significant being the Economic Diversification Drive (EDD). The key aim of the EDD is to promote
production and consumption of local goods and services in order to develop local production capacity for future expansion into key export markets. Given the
country’s well-established mineral development infrastructure, diversification will focus on expanding the mineral sector beyond diamonds. The downstream
sectors have large potential, while the services sector is also likely to benefit from the EDD. At the forefront of potential alternatives to diamonds are the
country’s vast coal resources. The authorities have claimed several times that Botswana is home to more than 200 billion tonnes of coal resources, although
these resources remain mostly unproven, with the International Energy Agency (IEA) estimating that the country is home to only about 21 billion tonnes of
coal resources. Nevertheless, it is clear that there is considerable potential in the Botswanan coal sector, and the commodity could be the most propitious new
export sector and a potential substitute for Botswana’s diamond revenue in time. Consequently, the development of the coal sector has become a key priority
for the Botswanan government.
Continuing constraints with regard to an improved rating are that poverty and unemployment remain pervasive, and are exacerbated by the high prevalence of
HIV/AIDS, despite a relatively high GDP per capita by regional standards. Rising socioeconomic challenges are also an ongoing rating constraint. However,
due to the government’s steady commitment to macroeconomic reform, combined with a strong economic growth outlook, the rating constraints are mostly
negated. In addition, the country’s strong macroeconomic fundamentals and relatively low debt levels provide further support. Still-high foreign exchange
reserves, amassed from years of prudent management of the country’s diamond wealth, are an additional rating strength. Overall, Botswana remains the bestrated country on the continent, drawing on strong economic fundamentals and good management of its abundant natural resources.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
2.6%
Industry/GDP
33.8%
Service/GDP
63.5%
Botswana's industrial sector is dominated by mining activities and contributed an estimated 33.8% in 2014 to the country's economic output. Within the
industrial sector, the manufacturing sector made a contribution of around 5.9% to GDP in 2014, with activities in this sector focused on textiles and apparel.
Downstream diamond activities are also gaining in importance, and are likely to become increasingly important contributors to economic output in coming
years. The services sector is the largest contributor to GDP, with an estimated contribution of 63.5% in 2014. The most important sub-sectors within the
services industry are government services, tourism and financial services. The agricultural sector’s contribution to GDP has declined significantly over the
years; from 10.7% in 1980 to only about 2.6% last year. However, despite agriculture only making a marginal contribution to GDP, it remains an important
facet of the economy, since more than half of the population lives in rural areas and is dependent on subsistence crop and livestock farming, and also in terms
of agriculture’s contribution to export earnings.
Real GDP Growth & Net FDI/GDP
10.0
3.5
7.5
3.0
5.0
2.5
2.5
2.0
0.0
1.5
-2.5
1.0
-5.0
0.5
-7.5
0.0
Source: NKC Research
-10.0
-0.5
2009 2010 2011 2012 2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Botswana’s mining sector continues to play a pivotal role in the Botswanan economy, accounting for 23.4% of GDP in the fourth quarter of 2014. The
statistics agency attributed the recent upward revision GDP growth in 2013 to the inclusion of several mines in Botswana’s GDP estimates, with the Lucara
(Karowe) diamond mine and Boseto copper mines being included from 2013 onwards. Looking ahead, the country’s real GDP growth is projected to slow
marginally in the coming year, but to remain healthy due to diversification of the non-mining sectors, in particular the trade, hotels & restaurants, finance &
banking, and social & personal services sectors. Given that much of Botswana’s natural resources are already being exploited, the country’s mostly untouched
coal deposits could prove to attract some renewed foreign direct investment (FDI). The government has stated several times that Botswana has coal resources
of over 200 billion tonnes, although the IEA estimates that Botswana only has some 21 billion tonnes of coal resources. Regardless, it is clear that vast
potential exists, and that coal could be the most propitious new export product and a potential substitute for Botswana’s diamond revenue in time. That said,
the fall in global oil prices over the last few months (combined with our outlook that the commodity’s value will remain relatively subdued in the medium
term) will likely translate to fewer exploration projects by energy companies, particularly in countries that pose geographical challenges.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
2016F
Other Imports
Diamonds
Main Imports: % share of total
2014E
2015F
2016F
Other Imports
45.72
49.02
47.82
Diamonds
29.58
31.24
32.45
Fuel
15.94
11.01
11.14
Machinery & electrical equipment
8.76
8.73
8.59
Main Exports: % share of total
2014E
2015F
2016F
Diamonds
91.08
91.16
91.04
Copper / Nickel
5.86
5.72
5.57
Other exports
2.49
2.56
2.88
Textiles
0.57
0.56
0.52
Fuel
Machinery & electrical equipment
Diamonds
Copper / Nickel
Other exports
Textiles
Source: NKC Research
0.0
2.0
4.0
6.0
8.0
The diamond trade continues to be imperative to Botswana’s balance of payments. According to the central bank, which differentiates between domestic rough
diamonds and diamonds that are re-exported, exports of rough diamonds that were mined in Botswana amounted to almost $4bn in 2014, compared to the
$3.4bn exported during the previous year. The increase stems primarily from a ramp-up in domestic diamond production at the beginning of 2014, which saw
the mining sector grow by 10.5% y-o-y in the first quarter of 2014. Looking ahead, the US economic recovery and continued growth of China and other
emerging diamond markets are set to see diamond demand grow in real value terms over the medium term. Furthermore, demand is expected to exceed supply,
with De Beers projecting global diamond production to slow from 2020 onwards.
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Current Account & Budget Balance
(% of GDP)
20.0
6.0
Source: NKC Research
10.0
0.0
0.0
-6.0
-10.0
-12.0
-20.0
-18.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
According to the latest statistics released by the Bank of Botswana (BoB, the central bank), Botswana recorded a current account surplus amounting to almost
P5.2bn in the third quarter of 2014, compared to a surplus of P7.6bn in the preceding quarter. The smaller surplus stems directly from lower exports during
Q3, which declined by 13.1% q-o-q. This is, however, considered to be a temporary complication associated with power outages during the second quarter,
which had negative consequences for Botswana’s mining production. In percentage of GDP terms, the country’s current account surplus is forecast to grow
from 16.9% in 2014 to 17.9% this year, before narrowing to 15.9% in 2016.
With regard to the fiscal budget, the finance and development planning minister, Kenneth Matambo, presented Botswana’s 2015 budget speech to the National
Assembly on February 2. Total revenues and grants for the 2015/16 fiscal year (FY, April 1 to March 31) are projected by the government to amount to
P55.38bn, representing an increase of 6.9% from the revised budget for the 2014/15 FY. On the spending side, total fiscal expenditure and net lending is
projected at P54.15bn, representing an increase of some 5.6% from the previous FY’s revised budget. According to the calculations done by the Ministry of
Finance & Development Planning, the fiscal surplus is projected at P1.28bn (0.8% of GDP) in the 2015/16 FY.
Average CPI (% change, y-o-y)
9.0
Source: NKC Research
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
CPI inflation is well under control in Botswana, having fallen within the central bank’s target band since June 2013, while the CSO has also recorded
relatively low levels of core monthly inflation over the last few months. Consequently, the BoB’s Monetary Policy Committee (MPC) decided to reduce the
bank rate by 100 bps to 6.5% in February, following the 14 consecutive months at 7.5%. In the press release, the MPC stated that “[t]he current state of the
economy and both the domestic and external economic outlook, as well as the inflation forecast, provide scope for easing monetary policy to support
economic activity without undermining price stability”. Looking ahead, Botswana is set to continue to benefit from low global oil prices, considering its status
as a net oil importer. Apart from the low inflation environment, the MPC is also concerned with expansion of the non-mining sector of the economy, which it
deems to be “below potential” – therefore prompting the looser monetary policy stance.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Gerard Devlin – designation is Partner
Tel + 267 391 2400
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon
such information or opinions.
© 2015 KPMG, a Botswana partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, ("KPMG International"), a Swiss
entity. All rights reserved.
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