BOTSWANA – RECENTECONOMIC DEVELOPMENTSFEBRUARY, 2008Keith Jefferis
Structure of Presentation Botswana Economic Developments  Growth  Exchange Rates  Inflation and Interest Rates  Government...
Economic Growth
Recent Economic Growth Experience Long term decline in economic growth rates Overall growth rate volatile due to mining Di...
Growth Developments - Mining Good conditions in mining sector   world commodity markets tight, although for metals less so...
Mining-related Developments Ongoing and Forthcoming Projects    Diamonex, 2008 (Tuli Block – licensed, funded and under co...
Economic Growth16%                   Headline GDP growth has14%                recovered from (a12%                revised...
Economic Structure (GDP, 2006/07)                     Soc. & Per.       Trade,               Mining still dominates       ...
Growth by Sector, 2005/6 & 2006/7Transp & comms                                      Transport &          Trade           ...
Growth by Sector 2005/06: Original & Revised     Transport                                          Previous year’s growth...
BoB Business Confidence Survey                                   90%                                 Clear upturn in confi...
Growth Indicators - 1      Non-mining electricity          Real business credit (y-o-y   consumption (y-o-y growth)       ...
Growth Indicators - 2       Real Government           Multiple Indicators          Spending       30%                     ...
Investment (GFCF) & Savings           60%                                   Declining rate of           50%               ...
World Bank “Doing Business” 2007     Ranking (178 countries)                   Botswana amongst the top                   ...
External Sector
Exchange Rates                                                          Rate of crawl reduced                 130         ...
Exchange Rate Forecasts to 2012       ZAR per BWP        BWP per USD & EUR1.18                 101.17                     ...
Real Effective Exchange Rate (REER)                 125                               Long period of REER                 ...
Exports & Imports                3500                                                Much faster export growth            ...
Export growth, Jan-Sep 2006-7200%              Strong export growth in                  2007, driven by150%              n...
Non-diamond Exports, Jan-Sep 2007                                                Nickel & copper dominate                 ...
Foreign Exchange Reserves (Pula)               70           Trade performance               60           resulting in rapi...
Inflation & Monetary Policy
Inflation Inflation fell sharply early in 2007, as expected, from 14.2% in April 06 to a low of 6.3% in April 07   falling...
Inflation Inflation likely to continue rising, should end year around 8%; Main risks:   world fuel and food prices   furth...
Inflation & Forecast16%                 Inflation likely to continue                    rising in 1st half of 2008,14%    ...
Fuel Prices                       600                                           800                                       ...
Monetary Policy Interest rates cut by 0.5% in June 2007, but no more rate cuts likely in the short term:   Inflation now a...
Credit growth (yoy)30%                    Credit growth has risen                       sharply25%                       N...
Inflation and Interest Rates         Prime Rate & Inflation            Real Prime Rate    18                              ...
Government Budget
Govt Revenue & Spending - actual           45%                           After deficits in the late                       ...
Budget Balance           15%              Budget situation has                            turned around           10%     ...
Budget balance – actual vs. forecast      12%                                 Quality of budget      10%             actua...
Budgeted Expenditure       16,000             +37%             2008/09 Budget entails       14,000                        ...
Expenditure Budget Efficiency                             110%                 Progressive decline in                     ...
Government Spending Cycle      Spending Growth (%)   Long-term decline in40%                         growth rate of35%    ...
Long-term Mineral Revenues    7000    6000    5000    4000                                                                ...
Economic Prospects
Botswana Economic Prospects 2008-9 2008: improved growth to continue, driven by     Rising government spending     Mining ...
Power Supply Issues                             Sources of Supply                          Sources of Demand              ...
Power Supply Issues                         Emerging Supply Deficit       Peak demand increasing at                   800 ...
Thank You
Upcoming SlideShare
Loading in …5
×

2008:Botswana – Recent Economic Developments and Prospects

451 views
374 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
451
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

2008:Botswana – Recent Economic Developments and Prospects

  1. 1. BOTSWANA – RECENTECONOMIC DEVELOPMENTSFEBRUARY, 2008Keith Jefferis
  2. 2. Structure of Presentation Botswana Economic Developments Growth Exchange Rates Inflation and Interest Rates Government Budget Economic scenario 2008
  3. 3. Economic Growth
  4. 4. Recent Economic Growth Experience Long term decline in economic growth rates Overall growth rate volatile due to mining Diversification has been slow - mining and government still account for over 50% of GDP Non-mining private sector growth has been weak But, signs of significant improvement in past 18 months Good export performance, including reduced dependence upon diamonds Non-mining private sector growth has picked up, although still dependent upon government
  5. 5. Growth Developments - Mining Good conditions in mining sector world commodity markets tight, although for metals less so than in 2006; copper & nickel prices at high levels by historical standards, but off their peak in 2007H2; widespread prospecting taking place in Botswana, (copper, nickel, zinc, diamonds, gold, PGMs, uranium, coal, gas) Market for diamonds weak in short-term US slowdown & dollar weakness will hurt in 2008 but long-term supply-demand imbalance will support prices, with long-term real price rise forecast
  6. 6. Mining-related Developments Ongoing and Forthcoming Projects Diamonex, 2008 (Tuli Block – licensed, funded and under construction) African Diamonds AK6, 2008/9 (Orapa) – mining licence applied for African Copper 2008, (Dukwe – licensed, funded and under construction) Norilsk Nickel/Tati Nickel Activox refinery (Cu/Ni/PGMs), 2007-9 (Francistown) – under construction CIC coal/power, 2008-12 (Mmamabula) – moving closer to conclusion of negotiations BPC expansion (coal, power) (2008-11) Diamond aggregation/cutting, 2008 onwards Discovery (nickel, zinc) and A-Cap (uranium) – very good prospecting results & favourable price developments Longer-term possibilities: gas, trans-Kalahari coal Huge investments in processing as well as mining Positive impact on exports, jobs, spin-offs Very active prospecting continuing Not yet impacting on economic growth data, although signs of capex feeding through to trade data
  7. 7. Economic Growth16% Headline GDP growth has14% recovered from (a12% revised ) 0.6% in10% 2005/06 to 6.2% in8% 2006/076% Confirms earlier signs of4% recovery from other2% indicators0% Growth in NMPS even more buoyant – up from a revised 5.3% GDP NMPS (previously 2.5%) to 9.7%
  8. 8. Economic Structure (GDP, 2006/07) Soc. & Per. Trade, Mining still dominates Serv hotels etc. 4% 11% GDP Mining & government Govt 16% contribute 58% of GDP, so non-mining private Fin. & bus. Mining sector well under half 42% Serv 11% of the economy Transp.& comms Trade 4% 11% Constr. Water Manuf 4% & elec 4% 2%
  9. 9. Growth by Sector, 2005/6 & 2006/7Transp & comms Transport & Trade communications, trade, Manufg manufacturing and Construction construction fastest growing Total GDP sectors Fin/bus. serv. All showing improved Water & elec performance over the Mining 06/07 previous year Agriculture 05/06 Government However, growth figures Soc/pers. serv. are preliminary and are -5 0 5 10 15 20 subject to revisions % growth
  10. 10. Growth by Sector 2005/06: Original & Revised Transport Previous year’s growthSoc/pers. serv. performance revised Government upwards for several sectors Water & elec Notably, finance/business, Fin/bus. serv. trade and manufacturing, Trade which all had appeared to Manufg do badly Construction Agriculture Mining -10 -5 0 5 10 15 20 Revised (2008) Original (2007)
  11. 11. BoB Business Confidence Survey 90% Clear upturn in confidence% rating conditions satisfactory 80% shown in BoB survey 70% 60% Striking recovery amongst 50% firms serving the domestic 40% market 30% Surprising decline in 20% confidence amongst 10% exports, but BoB caution 0% about small sample Exporters Non-exporters All
  12. 12. Growth Indicators - 1 Non-mining electricity Real business credit (y-o-y consumption (y-o-y growth) growth)16% 30%14% 25%12% 20%10% 15%8% 10%6% 5%4% 0%2% -5%0% -10% Source: BPC Source: BoB
  13. 13. Growth Indicators - 2 Real Government Multiple Indicators Spending 30% 16%20% 25% 14%15% 20% 12%10% 15% 10% 5% 10% 8% 5% 0% 6% 0%-5% 4% -5%-10% 2% -10%-15% -15% 0% Govt. Exp RBC NMEC
  14. 14. Investment (GFCF) & Savings 60% Declining rate of 50% investment (% GDP) does not augur well for future 40% growth% of GDP 30% Not due to shortage of 20% savings, which remain 10% very high Reinforces need to 0% improve investment -10% climate, encourage FDI GFCF Savings
  15. 15. World Bank “Doing Business” 2007 Ranking (178 countries) Botswana amongst the top 0 50 100 150 performers in African on Paying Taxes the WBDB survey, but slow Getting Credit slipping Closing a Business Regulatory reform can Registering Property Doing Business address some of the Employing Workers weaknesses Enforcing Contracts Starting a Business Protecting Investors Dealing with LicensesTrading Across Borders
  16. 16. External Sector
  17. 17. Exchange Rates Rate of crawl reduced 130 from 4% to 2% in July - 120 reflecting smaller inflation gap between Botswana 110 and trading partnersIndex 1996=100 100 Basket weights adjusted – ZAR reduced - presumably 90 reflecting growth of non- 80 diamond exports outside of the region 70 Will make BWP slightly 60 more volatile against ZAR 50 Basket parameters still not 2003 2004 2005 2006 2007 disclosed (against advice of IMF, credit rating NEER BWP/ZAR BWP/USD agencies & BoB)
  18. 18. Exchange Rate Forecasts to 2012 ZAR per BWP BWP per USD & EUR1.18 101.17 91.161.15 8 USD1.14 EUR1.13 71.12 61.111.10 5
  19. 19. Real Effective Exchange Rate (REER) 125 Long period of REER appreciation (declining 120 competitiveness) through to 115 2004Index 1996=100 110 Devaluations and crawling 105 peg have achieved REER depreciation and restored 100 competitiveness 95 90
  20. 20. Exports & Imports 3500 Much faster export growth 3000 than imports – as intended 2500 by exchange rate policyMonthly (Pmn) 2000 Healthy balance of trade ( surpluses & accumulation of 1500 fx reserves 1000 Recent pick up in imports 500 driven by capital goods – 0 suggesting investment may 2003 2004 2005 2006 2007 be recovering Exports Imports Exp trend Imp trend
  21. 21. Export growth, Jan-Sep 2006-7200% Strong export growth in 2007, driven by150% non-diamond exports100% Textiles, Cu-Ni & Meat the best performers50% Diversification of exports 0% taking place-50%
  22. 22. Non-diamond Exports, Jan-Sep 2007 Nickel & copper dominate non-diamond exports, but Soda ash Textiles the rest is quite diversified 17% Other 4% 17% Meat 7%Machinery 2%Gold 2% Nickel/ copper 51%
  23. 23. Foreign Exchange Reserves (Pula) 70 Trade performance 60 resulting in rapid growth of fx reserves – more 50 than doubled since latePula million 40 2003. 30 Import cover approx. 30 20 months 10 0
  24. 24. Inflation & Monetary Policy
  25. 25. Inflation Inflation fell sharply early in 2007, as expected, from 14.2% in April 06 to a low of 6.3% in April 07 falling away of one-off impacts (devaluation, school fees) lower world fuel prices in late 06/early 07 Subsequent increase (to 8.1% in December) due to: Higher fuel prices Higher food prices (esp. cereals and dairy) Rising domestic demand
  26. 26. Inflation Inflation likely to continue rising, should end year around 8%; Main risks: world fuel and food prices further BTC telecomms rebalancing administered prices (health costs, housing, water, electricity) rising world and SA inflation
  27. 27. Inflation & Forecast16% Inflation likely to continue rising in 1st half of 2008,14% due to12% world fuel and food prices10% administered prices8% (housing, water)6% rising power costs rising world and SA4% inflation2% But should peak and fall in H20% Forecast of inflation around 8% by year-end
  28. 28. Fuel Prices 600 800 Close relationship 550 between local fuel prices 700 500 and world crude prices, Brent crude (pula/barrel with a 4 month lagPetrol (Thebe/litre) 450 600 400 Still may be further rises 500 if international fuel 350 prices do not fall 300 400 250 300 200 150 200 2005 2006 2007 Crude Oil Petrol (lagged 4 months)
  29. 29. Monetary Policy Interest rates cut by 0.5% in June 2007, but no more rate cuts likely in the short term: Inflation now above BoB target range High credit growth pushing up demand pressures Increasing government spending also contributing to inflationary pressures Next move likely to be upwards 2008 Monetary Policy Statement Due late February Likely to have less positive outlook than 2007 MPS MPC meetings slightly more transparent
  30. 30. Credit growth (yoy)30% Credit growth has risen sharply25% Now well above BoB20% target range (11%-15% 14%) Driven by improving10% economic sentiment,5% inflow of funds from non-bank BoBCs in 20060% 2005 2006 2007
  31. 31. Inflation and Interest Rates Prime Rate & Inflation Real Prime Rate 18 12% 16 10% 14 12 8%% 10 6% 8 6 4% 4 2 2% 0 0% Inflation Prime Rate
  32. 32. Government Budget
  33. 33. Govt Revenue & Spending - actual 45% After deficits in the late 1990s and early 2000s, 40% spending is now well below revenues% of GDP 35% Decline in spending (as % of GDP) has led to 30% major reduction in demand 25% Expenditure Revenue
  34. 34. Budget Balance 15% Budget situation has turned around 10% significantly in last two years% of GDP 5% 2006/07 surplus over 0% 11% of GDP – largest -5% since late 1980s -10%
  35. 35. Budget balance – actual vs. forecast 12% Quality of budget 10% actual forecasts seems to 8% 6% have declined% of GDP 4% Mainly due to 2% shortfalls on 0% -2% expenditure -4% forecast -6%
  36. 36. Budgeted Expenditure 16,000 +37% 2008/09 Budget entails 14,000 major increase in spending 12,000 compared to last year of 10,000 +36% +110% actual data (2006/07) 8,000 Total +53%P mn 6,000 Recurrent +36% (without 4,000 public sector pay rise) 2,000 Development +110% 0 Demands much improved implementation capacity 2006/07 2007/08 2008/09
  37. 37. Expenditure Budget Efficiency 110% Progressive decline in 105% proportion of budget% of budget actually spent 100% actually spent 95% Particularly a problem 90% with development budget – only 67% 85% spent in 2006/07 80% 75% 70% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
  38. 38. Government Spending Cycle Spending Growth (%) Long-term decline in40% growth rate of35% government spending –30% which is appropriate25% Budgeted figures for20% 2007/08 suggest much15% larger increase in10% spending than has been5% achieved in recent history0% – and are therefore unlikely to be realised 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Likely to be destabilising
  39. 39. Long-term Mineral 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
  40. 40. Economic Prospects
  41. 41. Botswana Economic Prospects 2008-9 2008: improved growth to continue, driven by Rising government spending Mining projects Export uncertainty, due to US recession and international economic slowdown, but impact will be confined and not widespread through the economy, as long as growth slowdown is not long-term Main threats to domestic growth: Volatility in government spending, and hence uncertainty Power constraints Sharply higher inflation, and rising interest rates
  42. 42. Power Supply Issues Sources of Supply Sources of Demand 300 300 250 250‘000 MWh/month /month 200 200 150 150 100 100 50 50 0 0 Morupule Imports - Eskom Imports - other Mines Non-mining
  43. 43. Power Supply Issues Emerging Supply Deficit Peak demand increasing at 800 around 8% p.a. 700 Tati, other new mines 600 excludedPeak demand (MW) 500 400 Eskom firm supply reducing 300 from 2008-2011 200 Gap emerging – around 100 80MW in 2008 0 60MW from HCB in 2008, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 but then what? Morupule Eskom Deficit Major shortfalls from 2010
  44. 44. Thank You

×