2008:Botswana Economic Overview

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2008:Botswana Economic Overview

  1. 1. BOTSWANA: ECONOMICOVERVIEWKeith Jefferis
  2. 2. Botswana’s Growth Record Best-performing economy in Africa over 30 years from 1970-2000 Average economic growth rates over 10% - highest in the world Comparable with Asian “Tiger” economies Driven by growth of diamond mining and exports
  3. 3. Botswana’s Growth Record Per capita income approx USD 6600 (2006) World Bank “middle-income” status Highest in mainland SSA Higher than SA, Brazil, Turkey, Malaysia, Russia
  4. 4. Impact of Mineral Revenues Minerals make up some 90% of total export revenues Basis of consistent balance of payments surpluses Accumulation of substantial foreign exchange reserves Basis for independent exchange rate policy
  5. 5. Impact of Mineral Revenues Diamond mining highly profitable - for both De Beers and Botswana Government Mineral revenues contribute 50% of total govt. revenues Basis for “developmental state” Wide-ranging government spending on social and economic infrastructure (education, health, roads, water etc.)
  6. 6. Current Issues - Diversification Economy is at a transition stage – needs to diversify Diamonds remain very important, but period of rapid diamond-led growth ending Need to diversify sources of economic activity to sustain future growth
  7. 7. Current Issues - Diversification Diamonds mining is capital intensive – need for employment generation to deal with unemployment and poverty Vulnerability to market changes – reduce dependence on single commodity Diamond revenues will decline once mining goes underground and deposits are eventually exhausted Government budget – new revenue sources needed New sources of export earnings
  8. 8. Projections of Diamond Revenues 7000 6000 5000 4000 Diamond revenue in millions of 3000 dollars 2000 Mining goes underground before Recycling of existing waste resources are (higher production of lower- totally depleted 1000 quality diamonds as underlined by a lower price trend) 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029Source: IMF – Botswana Selected Issues, 2007
  9. 9. Economic Structure (GDP, 2006/07)
  10. 10. GDP Growth
  11. 11. Diversification Diversification must be export-led – based on integration with the global economy Initial focus on manufacturing – limited success Broader range of activities now encouraged: financial and business services; tourism; manufacturing; new mining ventures Has been some progress in diversifying exports
  12. 12. Diversification – Policy Policy framework aims to support investment across range of activities Conducive macroeconomic framework Enhance overall investment climate Improve competitiveness and productivity Boost institutional efficiency Key role for FDI Strengthen citizen participation & empowerment
  13. 13. Macroeconomic Policies Basic Philosophy: Liberal, market-based Development role for Government Consistent and stable Based on discussion and national consensus Key Policies Competitive exchange rate Fiscal balance & sustainability Contain inflation
  14. 14. Exchange Rate Policy Policy objective stable real exchange rate to support trade, exports & import substitution Pula pegged to a basket comprising ZAR and SDR Concerns about overvaluation and lack of competitiveness between 2000 and 2004 Hence devaluations in 2004 and 2005 (total approx. 20%)
  15. 15. Exchange Rate Policy New XR policy May 2005: change from fixed (but adjustable) to crawling peg small changes to prevent misalignment more certainty (no more step devaluations) 11% further devaluation (against the basket) since mid- 2005 Future exchange rate movements Long-term tendency for ZAR to depreciate against USD, EUR etc Pula likely to be stable vs rand (1.10 – 1.20) and to depreciate with rand against major currencies
  16. 16. Pula Exchange Rate vs Basket Overall rate stable on a day to day basis Devaluations and crawling peg clearly visible
  17. 17. Pula Exchange Rate vs ZAR, USD Currencies in basket float against each other Bilateral exchange rates driven by ZAR/USD and ZAR/EUR rates
  18. 18. Monetary Policy Bank of Botswana runs independent monetary policy – setting interest rates Aims to keep inflation comparable with trading partners to preserve competitiveness BoB targets a medium term inflation rate of 3%-6% (same as SA)
  19. 19. Inflation and Interest Rates Inflation largely determined externally (import prices) Inflation spikes due to: VAT (2002) Devaluation (2005) Rising oil and food prices (2008) Relatively high interest rates reflecting high inflation
  20. 20. External Assessments Credit Ratings Moodys and S&P have rated Botswana since 2001 Investment grade sovereign ratings; highest in Africa Moodys local currency rating “A1” same as Chile, Czech Rep, Greece, Estonia, Japan higher than Brazil, S. Korea, Malaysia, SA & Russia
  21. 21. External Assessments Credit rating positive assessments Very low public debt - domestic and foreign – and strong asset base Long record of political and macroeconomic stability Strong balance of payments and government budget - no domestic or external imbalances
  22. 22. External Assessments Credit rating negative assessments Narrow economic base Slow diversification HIV/AIDS – fiscal, social and economic impact Poverty levels
  23. 23. External Assessments World Economic Forum Global Competitiveness Index Botswana rated no.3 in sub-Saharan Africa (after SA and Mauritius) Fraser Institute and Heritage Foundation High degree of economic freedom (top in Africa) World Bank “Survey of Doing Business” Botswana rated 51 globally (out of 155 countries) IMF generally positive annual assessments; no borrowing
  24. 24. THANK YOUEmail: info@econsult.co.bw www.econsult.co.bw

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