2007:Botswana – Recent Economic Developments and Prospects
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2007:Botswana – Recent Economic Developments and Prospects Document Transcript

  • 1. Recent EconomicDevelopments & Prospects March 8, 2007 Keith JefferisStructure of Presentation Botswana Economic Developments Economic Growth Exchange Rates, Trade etc. Inflation and Interest Rates Government Budget 2007 Prospects 1
  • 2. Economic GrowthGrowth Developments Economic growth data released just after 2007 Budget For the first time in many years, the real GDP growth figure was not mentioned in the Budget speech Growth in 05/06 was minus 0.8% 2
  • 3. GDP growth 16 Growth data 14 disappointing, but not 12 all bad: Mainly driven by mineral 10 sector developments – 8 volatile due to overlapping 6 calendar and national accounts years 4 Underlying mineral growth 2 performance steady and at 0 a reasonable rate -2 Prospects for improvements in non- diamond mineral sector 6 8 0 2 4 6 /9 /9 /0 /0 /0 /0 growth 5 7 9 1 3 5 9 9 9 0 0 0 Growth of Diamond Production 25% 20% 15% 10%% 5% 0% -5% -10% 2 3 20Q4 2 3 20Q4 2 3 20Q4 2 3 20Q4 2 3 20Q4 2 3 01 02 03 04 05 06 4 Q Q Q Q Q Q Q Q Q Q Q Q Q 20 3
  • 4. Growth Developments Outside of mining sector, growth performance mixed. Strong growth in transport, hotels & restaurants Negative growth in manufacturing, construction, agriculture Year to year volatility Concern over quality of GDP data Growth by Sector Hotels & restr TransportSoc. & Pers. Serv. Government Water & Elec Fin. & Bus. Serv. 05/06 Trade 04/05 Manufacturing Construction Agriculture Mining -20 -10 0 10 20 30 40 4
  • 5. Growth Developments Major revisions to GDP data in some sectors, notably: Agriculture Social & personal services Transport Manufacturing Most recent GDP growth estimates highly provisional Growth by Sector 2004/05: Original & Revised TotalSoc & pers serv Government Fin & bus serv Revised Transport (2007)Trade, hotels etc Original Construction (2006) Water Manufacturing Mining Agriculture -20 -10 0 10 20 5
  • 6. Growth Developments GDP data difficult to interpret, due to: Revisions Adjustment items not allocated to sectors Making allowances for these factors, overall growth in non-mining GDP appears to be picking up slowly Growth of Non-Mining Value Added 10 8 % growth 6 4 2 0 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 Non-min. 5.6 6.9 7.6 4 4.1 5.8 7.9 4.9 2.4 2.7 NMPS 4.7 6.2 7.9 3.4 3.4 5 5.1 4.7 1.2 2.5NMPS = non-mining private sector (i.e. excludes government 6
  • 7. GDP Growth 15 GDP Non-min. NMPS 12% grow th 9 6 3 0 -3 97 98 99 00 01 02 03 04 05 06 6/ 7/ 8/ 9/ 0/ 1/ 2/ 3/ 4/ 5/ 9 9 9 9 0 0 0 0 0 0 Evidence for Economic Recovery? GDP data (to June 06) Growth indicators in positive territory BoB Business Expectations survey Jump in confidence in 2006H2 compared to 2006H1; Confidence now over 50% for first time Much improved confidence amongst non-exporters 7
  • 8. BoB Business Confidence Survey 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005H1 2005H2 2006H1 2006H2 Exporters Non-exporters All Growth Indicators – Real Private Business Credit 35% Strong signs 30% of business 25% recovery 20%Real growth 15% 10% 5% 0% -5% -10% -15% 00 01 02 03 04 05 06 07 20 20 20 20 20 20 20 20 8
  • 9. Growth Indicators – Non-Mining Electricity Consumption 20%Quarterly consumption, y-o-y Signs of recovery, although weaker 15% & later 10% growth 5% 0% -5% 2000 2001 2002 2003 2004 2005 2006 Exchange Rates 9
  • 10. Exchange Rates 140 130 120Index 1996=100 110 NEER 100 BWP/ZAR 90 BWP/USD 80 70 60 Crawling 50 peg 2002 2003 2004 2005 2006 2007 Exchange Rate Volatility400%350%300%250%200%150%100% 50% 0% 2004 2005 2006 2007 10
  • 11. Exchange Rates BWP crawl reduced slightly as forecasts of inflation gap closing and real exchange rate stabilising No transparency yet on rate of crawl or basis for calculation, but would be desirable to make exchange rates and inflation more predictable Crawl may be reviewed around mid-year Real Effective Exchange Rates 1995-2006 125 120Index 1996=100 115 110 105 100 95 Devaluations and crawling peg 90 have restored competitiveness 85 80 95 96 97 98 99 00 01 02 03 04 05 06 19 19 19 19 19 20 20 20 20 20 20 20 11
  • 12. Exchange Rate Forecasts: 2006 Actual, Forecast, end Dec-06 end Dec-07 Change ZAR/USD 6.97 7.80 -10.6% ZAR/BWP 1.157 1.167 0.9% USD/BWP 0.166 0.150 -9.7% Forecasts 2006-2011 Pula vs. ZAR 1.22 1.20 1.18ZAR per BWP 1.16 1.14 1.12 1.10 1.08 1.06 1.04 1.02 05 06 07 08 09 10 11 2 3 4 2 3 4 Q Q Q Q Q Q 20 20 20 20 20 20 20 12
  • 13. Forecasts 2006-2011 Pula vs. USD, EURUSD & EUR per BWP 0.19 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 05 06 07 08 09 10 11 2 3 4 2 3 4 Q Q Q Q Q Q 20 20 20 20 20 20 20 USD/BWP EUR/BWP Export Developments Exports have become more diversified (away from diamonds) Wide range of non-diamond exports Modest overall export growth from 2005 to 2005 (3% in USD terms) 13
  • 14. Diamond Exports as % of Total Exports Rapid diamond export growth90%85%80%75%70% Exports have become more65% diversified60% Temporary since 2001 diversification -55% Hyundai50% 82 84 86 88 90 92 94 96 98 00 02 04 0619191919191919191920202020 Composition of Non-diamond Exports, 2006 Textiles 13% Other goods 14% Meat etc. 7% Salt & soda ash 6% Machinery 3% Gold Nickel & copper 3% 50% Vehicles & parts 2% Iron & steel prods 2% 14
  • 15. Change in Exports (US$), 2005-06 Other goods Nickel & copper Salt & soda ash Meat etc.Iron & steel prods Total exports Diamonds Gold Machinery Textiles Vehicles & parts -80% -60% -40% -20% 0% 20% 40% 60% Exports & Imports Exports growing much faster than imports – as devaluations 3500 intended 3000 P000 per month 2500 2000 1500 1000 500 0 04 05 06 20 20 20 Exports Imports Import trend Export trend 15
  • 16. Foreign Exchange Reserves (Pula) Trade performance resulting in rapid growth of fx reserves – more than doubled since late 2003. 50000 Import cover approx. 30 months 40000 30000Pula mn 20000 10000 0 001 2 03 04 05 06 200 20 20 20 20 2 Inflation & Monetary Policy 16
  • 17. Inflation vs Forecast (as at July 06) 16% Inflation has declined Actual steadily since peak of 14% 14.2% in April 2006 Forecast 12% Down to 7.4% in January 2007 10% Decline has been faster 8% than expected, due mainly to falling oil prices 6% BOB target range New CPI index will help 4% more accurate measurement of inflation 2% 0% 06 07 A A F S J J O N 20 D M M 20 Crude Oil Prices (Brent) 100 500 Crude oil prices have 95 reversed most of 2006 90 450 gains 85 By end-Feb down 23% in USD terms and 21% in BWP/barrelUSD/barrel 80 400 75 BWP terms from 2006 70 350 peak 65 Impact of falling prices 60 300 reinforced by larger 55 weight for fuel prices in new basket 50 250 ar , 2 6 2 6 n ,2 6 ,2 7 g ,2 6 ct , 2 6 b ,2 5 ,2 6 2 6 n ,2 6 b ,2 6 Ap 24 006 Ju 6, 06 7 2 6 2 6 M 21 00 Se 11 00 Fe 27 00 M 24 00 Ju 19 00 Au 14 00 D 03 00 Ja 29 00 Fe 26 00 23 00 O 08 00 00 N 06 00 D 01 00 1 0 r ,2 2 n ,2 ay , ov , ec , ec , Ja 30 l ec p D USD BWP 17
  • 18. Inflation Forecast (Feb 07) Actual F’cast16%14%12%10%8%6% BOB target range4%2%0% 2002 2003 2004 2005 2006 2007 Monetary Policy No interest rate changes since Feb 2006 Declining inflation favours rate reduction, but: inflation still above BoB target range of range of 4%-7%, which is to be maintained in 2007 historically interest rates only reduced when inflation close to target inflation should fall within range in Q2 2007, but only to around 6.5% main concern now is credit growth – way above range of 11%-14% may see small reduction in rates (50bps) in next 2- 3 months, but not much after that 18
  • 19. Real Prime Lending Rate12% Real prime rate10% reaching recent historical peak8% Supports case for rate reduction6%4%2%0%19 8 99 00 01 02 03 04 0520 6 07 9 01920202020202020 Government Budget 2007 19
  • 20. Govt Revenue & Spending 50% Budget now sustainable – revenue and expenditure in line with long-term trends 45%% of GDP 40% 35% 30% 5 6 7 8 9 0 1 2 3 4 5 6 7 9 9 9 9 9 0 0 0 0 0 0 0 0 Expenditure/GDP Revenue/GDP Budget Balance Large surpluses are back! 10% 5%% of GDP 0% -5% -10% 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 20
  • 21. Budget balance – actual vs. forecast 10% actual 8% 6% Budget balance more 4%% of GDP favourable than expected 2% 0% -2% -4% forecast -6% 0 1 2 3 4 5 6 7 8 /0 /0 /0 /0 /0 /0 /0 /0 /0 99 00 01 02 03 04 05 06 07 19 20 20 20 20 20 20 20 20 Budgeted Expenditure 14,000 +36% Development expenditure forecasts 12,000 for 2007/08 unrealistic 10,000 +36% +92% 8,000 P mn 6,000 2005/06 2007/08 4,000 2,000 0 Pers Other Development emoluments recurrent 21
  • 22. Allocation of Expenditure byFunction, 2007/08 Education 24% Health 13% Defence 8% Social & comm welfare Public order & 4% safety Housing & urban 5% dev. 6% Agric 3% Gen admin Elec & water 16% Roads 4% Other econ serv RSGs 2% 8% 7%Economic Prospects 2007 22
  • 23. Botswana Economic Prospects2007 Slow resumption of growth declining inflation and – hopefully – interest rates; positive impact of govt. salary increases in 2006 & 2007 impact of higher government spending – but slow positive devaluation impact feeding through – export-led growth impact of reforms – telecomms etc. major projectsMajor Projects – Mining & Related LionOre/Tati Nickel Activox refinery (Cu/Ni/PGMs) (Francistown) Diamondex mine early 2007 (Tuli Block) African Copper 2008 (Dukwe) Diamond aggregation/cutting African Diamonds AK6 2007 (Orapa) Mmamabula coal/power Mount Burgess (zinc/silver); Discovery (nickel/copper/silver) & A-Cap Resources (uranium) 23
  • 24. Botswana Economic Prospects 2007 Growth inhibited by: Slow disbursement of govt. spending Slow structural reforms, privatisation etc. Skills shortages Capacity constraints in region (e.g. cement) BEAC reforms Focus on openness, competitiveness, policy and mindset change, supported by major projects IMF growth forecasts 2006 4.2%; 2007 4.3% SADC GDP Growth 2007 IMF Forecasts 15 Botswana f’cast growth (4.3%) below 10 SADC average (6.0%) 5% 0 -5 -10 m M ia a N ana ot SA o a d ia q r C Le az A nz Za wi M cr au ol th b R b Zi M ib s Sw a Ta m ng D oz g so M al sw am B 24
  • 25. Thank YouEmail: info@econsult.co.bw www.econsult.co.bw 25