Recession: SA sneezes, Botswana catches flu 

SHARE   |   Monday, 12 June 2017   |   By Ditiro Motlhabane
Dr Jefferies Dr Jefferies

Economist Dr Keith Jefferis has warned of negative spill-over effects after the South African economy entered a technical recession at the end of Q2 2017. He, however, said the technical recession is not necessarily a big issue, but the major concern should be that the SA economy – which is by far the biggest in SADC region – has not performed well for many years now. He said the sluggish growth has obviously dragged other smaller economies in the region including Botswana down because if the economy is not growing then demand is suppressed. "Prolonged poor performance of the SA economy is hurting Botswana and the rest of the region, particularly manufacturing and exports. Conversely, if the SA economy was doing well like China or India in the region of 6-7% growth in the whole region would also benefit immensely," he said. A technical recession is a concept when an economy contracts for two consecutive quarters. According to figures from Statistics South Africa, one of South Africa’s highly regarded institutions, the South African economy contracted twice over the last quarter of 2016 (September-December), when it shed 0.3 per cent of GDP and again in the first quarter of 2017 (January-March), when it lost 0.7 per cent of GDP in contrast to expectations of decent growth. Consensus forecasts had predicted annualised quarterly expansion of one per cent.

Another economist, Sennye Sebusang, said that South Africa’s technical recession is a big deal for the region and Botswana in particular because RSA is the economic powerhouse of the SADC. Its economy and that of Botswana are closely integrated through trade, investment and finance, he said. Most of Botswana's non-traditional exports, including services go to South Africa while the dominant source of Botswana’s inbound tourism is RSA. If consumer demand falters in RSA, as it has done, that is bound to affect demand for Botswana goods and services negatively. That hurts local firms and job creation. "And guess what, the recession makes further downgrades of RSA’s credit rating probable. That would automatically trigger massive capital flight because a lot of funds with billions of Dollars invested in RSA are rule bound to exit an economy when its credit ratings descend below the thresholds that RSA is teetering just above," he said. 

Sebusang said Botswana should also worry because of the nature of the root causes of the technical recession, traceable as they are to the epic failures of governance and stewardship that are playing themselves out in the open. He said the Zuma government is redefining economics in 19th century terms or worse at a time when the rest of Africa is making different choices and winning (e.g. Tanzania, Uganda, Kenya, and Rwanda etc). He warned that no country that expresses hostility towards business is going to succeed because toxic politics and destruction of institutions scares investors away. He opined that Batswana should worry, not only because the economic effects of these failures would be passed through to the local economy but also because signs of the same disease abound here as well.

Earlier this year the surprise sacking of a finance minister rocked SA’s financial markets. Later ratings agencies Fitch and S&P both downgraded some of SA’s government debt to junk status in the wake of a cabinet reshuffle, and last week Fitch warned again about the country’s “low trend GDP growth …and deteriorating governance”.  Immediately after news of recession midweek, the Rand weakened and was off 1.16 per cent against the dollar.