2017 economic prospects subdued

SHARE   |   Monday, 09 January 2017   |   By Staff Writer
Dr Jefferies Dr Jefferies

Economist Dr Keith Jefferis is not excited about economic prospects for Botswana in 2017, following a turbulent 2016 which saw massive job losses and closure of some businesses. Although some of the causes were difficult trading conditions locally, part of the reason has been heavy reliance on commodities, which renders the country vulnerable to international market fluctuations. Prolonged uncertainty in global markets and the slow pace of economic recovery in advanced economies continue to act as a drag on Botswana's economic outlook, particularly evident in recent years.  Should we anticipate changes in the performance of the economy?   Dr Jefferis – former Bank of Botswana Deputy Governor - insists probably not. "Because the conditions that led to depressed economic performance in 2016 are still in place. There may be some recovery in commodity prices, which continue to be subdued, that may help boost the economy but that should not translate to mean all will be rosy. Otherwise many of the other factors that led to lack of confidence in private sector will continue and such confidence will remain low," he said. Dr Jefferis said there is still an open question on what will happen to BCL as the liquidator is yet to submit his final findings in February. Whether the liquidator has managed to find buyers or not, or whether the mine will be ultimately closed, remains the question. "All we know is that there were some interested parties but nothing more than that. All in all, we will know more about the performance of the economy by end of the first quarter," he said. 

Job creation

In the face of massive job losses, which dogged firms in 2016, Dr Jefferis believes that government holds the power to change that and facilitate creation of new jobs. Among many others, BCL topped the list when approximately 6 000 workers lost their jobs as government placed the mine under liquidation in October 2016. Dr Jefferis said business confidence remains low in Botswana because government has made some decisions which make life difficult for the private sector to thrive. He cited the example of a recent refusal to grant operating licences to South African chain stores, which would have created hundreds of jobs locally. "The other challenge to business confidence is the difficulty in obtaining work and residence permits by either foreign investors or skilled labour that is not available locally. This kills investor confidence. If government wants to see jobs being created she has to open up to foreign investors and these investors are jittery when there is a lot of uncertainty," said Dr Jefferis. 

Economic diversification

Dr Jefferis is quick to warn that beneficiation is not necessarily a solution to economic diversification and government should tread carefully when venturing into such opportunities. He said as has been demonstrated by the diamond cutting and polishing, all factors need to be considered and a thorough feasibility assessment carried out before any investment in that area. "Government took a big move in that area to facilitate diamond cutting and polishing but most of those firms have closed shop. Beneficiation failed largely because productivity was very poor showing that beneficiation is not automatically a solution," he said. He cautioned against rushing headlong into exploiting opportunities in the beneficiation of soda ash produced by BOTASH. He said such could fail in the same manner as the diamond cutting and polishing sector if there is no thorough feasibility assessment into its viability.

The World Bank
Last year the World Bank revised its 2016 global economic growth forecast down to 2.4 percent from the 2.9 percent pace projected in January. The move was due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. Low commodity prices, tightening global financial conditions and drought in parts of the region will continue to weigh on growth this year. However, the recovery is expected to strengthen to an average of 4.1 percent in 2017-18, driven by a gradual improvement in the region’s largest economies and as commodity prices stabilise.
Commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities. Growth in these economies is projected to advance at a meagre 0.4 percent pace this year, whereas growth in commodity importers has been more resilient. Projections are subject to substantial downside risks, including additional growth disappointments in advanced economies or key emerging markets and rising policy and geopolitical uncertainties. In an environment of weak growth and eroding policy buffers, structural reforms have become even more urgent. “Depressed commodity prices have slowed growth sharply in commodity-exporting emerging and developing economies, which are home to more than half the global poor,” said World Bank Group President Jim Yong Kim. “Economic growth remains the most important driver of poverty reduction. This underscores the critical priority of pursuing growth-enhancing policies to eliminate extreme poverty and boost shared prosperity.” The January 2017 report will be released on January 10.

Global Outlook
Growth prospects have weakened throughout the world economy, according to the June 2016 Global Economic Prospects. Global growth for 2016 is projected at 2.4 percent, 0.5 percentage point below the January forecast. Emerging market and developing economies (EMDEs) are facing stronger headwinds, including weaker growth among advanced economies and low commodity prices. Significant divergences persist between commodity exporters struggling to adjust to depressed prices and commodity importers showing continued resilience. Global growth is projected to pick up to 3 percent by 2018, as stabilising commodity prices provide support to commodity exporting EMDEs. Downside risks have become more pronounced. These include deteriorating conditions among key commodity exporters, softer-than-expected activity in advanced economies, rising private sector debt in some large emerging markets, and heightened policy and geopolitical uncertainties. Still in 2016 Standards and Poor’s (S&P) downgraded the economic outlook rating for Botswana from stable to negative, amid soaring graduate unemployment and massive job losses. S&P said the downgrading to negative was meant to reflect the downside risks emanating from the possibility of a prolonged commodity price shock, especially in the diamond sector.

Regional Outlook
Weakness in emerging market and developing economies in 2015 has carried over into 2016. Aggregate growth for this group is projected at 3.5 percent in 2016, only marginally up from a post-crisis low of 3.4 percent in 2015. However, there are substantial differences in economic prospects between commodity exporters and importers. Regions with a large number of importers (East Asia and Pacific, South Asia) are expected to show resilience, while the outlook for regions with a sizable number of exporters (Latin America and the Caribbean, the Middle East and North Africa, Sub-Saharan Africa) continued to deteriorate since the start of the year.

Sub-Saharan Africa
Growth in Sub-Saharan Africa is projected to slow again in 2016, to 2.5 percent, down from an estimated 3.0 percent in 2015. The forecast is 1.7 percentage points lower than the January 2016 projections. Low commodity prices, tightening global financial conditions, and drought in parts of the region will continue to weigh on growth this year. The recovery is expected to strengthen to an average of 4.1 percent in 2017-18, driven by a gradual improvement in the region’s largest economies and as commodity prices stabilize. Nonetheless, risks to the outlook remain tilted to the downside, including a sharper-than-expected slowdown in major trading partners, further decline in commodity prices, delays in adjusting to the negative terms-of-trade shocks, worsening drought conditions, and political and security uncertainties.

At a glance
Population 2.262 million 2015
GDP        $14.39 billion 2015
GDP growth -0.3% 2015
Inflation 3.1% 2015