Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

Botswana: Deceleration in Growth Will Not Derail Positive Longer-Term Outlook

Proshare

Monday, November 13, 2017 5:45 PM / BMI Research

 

BMI View: Botswana's economic recovery will stumble in 2017, as base effects following a recession in 2015 are no longer enough to offset persistent headwinds in the mining sector. That being said, the Southern African economy remains an attractive destination for foreign capital, with foreign inflows into coal mining likely to offer a significant long-term boost to growth.

 

Botswana's economy will likely see a modest deceleration in real GDP growth to 3.3% in 2017, as sustained weakness in the country's diamond industry and the diminishing impact of base effects following a recession in 2015 weigh on headline figures. Headwinds to the country's diamond sector – which traditionally accounts for 80% of export revenues – have seen growth struggle to reach the highs recorded between 2010 and 2014, when real GDP grew at an average rate of 6.9% per annum, peaking at 11.3% in 2013.

 

That being said, the outlook thereafter is relatively robust, with real GDP growth forecast to reach 4.5% in 2018. The country remains an attractive destination for foreign investment and will likely continue to post stable growth beyond any short-term headwinds.

 

Slowing Diamond Sector Hits 2017 Growth

The main headwind to growth in 2017 will come from Botswana's diamond industry, which has long been the backbone of the economy. The sector has struggled in line with a slowdown in global demand after a period of over-production for much of the last two decades, leading to a supply glut and lower prices.

 

The industry has been particularly hurt by falling demand from East Asia following a slowdown in emerging markets and a weaker appetite for precious metals amongst China's ruling class. In Botswana, we believe the diamond industry is still adjusting to the new market, with businesses slowing or shuttering production and diamond production falling by 2.7% y-o-y in the first quarter of 2017.

 

Falling diamond production is part of a wider slowdown in the mining sector in general. Although accounting for a much smaller percentage of the country's total output, gold, copper and nickel producers have also struggled to maintain operations in a climate of low and volatile commodity prices. Weak revenues have forced several companies to liquidate assets, including the state-owned mining company, BCL Mine. Botswana's mining production index stood at just 77.1 in Q117, a 14.4% y-o-y contraction.

 

Headwinds Will Not Derail Positive Longer-Term Outlook

While headwinds to some of Botswana's key industries will weigh on headline GDP growth in 2017, we do not expect these to detract from what is otherwise a positive story. The country remains one of the most attractive destinations for foreign capital in Sub-Saharan Africa, scoring fourth highest in the region in our proprietary Operational Risk Index (50.6 out of 100 compared to a regional average of 42.9) due to political stability and business-friendly regulation.

 

This operating environment will see foreign investment continue to enter the economy, even in those sectors currently facing short-term headwinds to growth, such as mining.

 

Our Mining team have identified that the coal industry will likely post robust growth over the coming years, as a number of foreign companies have launched new projects and shown appetite for M&A activity, suggesting investors remain largely positive towards Botswana's mining sector.

 

Coal has remained an attractive opportunity for investors partly due to the government's own plans to promote coal-powered electricity generation. This forms part of a broader programme of infrastructure investment under the 11 National Development Plan (NDP11).

 

Under the NPD11, the government hopes to progress with a number of projects, not just in the energy sector, but also those aimed at developing water infrastructure, such as the North-South Carrier II project. These projects will see Botswana's construction industry continue to post robust levels of growth, reaching 4.7% and 4.3% in 2017 and 2018 respectively before accelerating thereafter.

 

This attractive operating environment will continue to support investment into the economy over our short-term outlook, mitigating much of the impact on growth of any short-term headwinds.

Proshare Nigeria Pvt. Ltd.

Related News

1.       Kenya – CBK To Make Slow Shift Towards Looser Policy

2.      Kenya: Odinga''s Withdrawal Paves Way For Violence

3.      Regional Growth to Accelerate, But Long-Term Political Headwinds Remain

4.      Cameroon – Anglophone Concerns Will Keep Political Landscape Tense

5.      Côte d’Ivoire – Strong Growth Dented By Weak Cocoa Prices

6.      Ghana – Hydrocarbons to Fuel Strong Growth

7.      Senegal – BBY Victory Bodes Well For Continued Reform

8.     Africa: Regional Growth to Accelerate, But Long-Term Political Headwinds Remain

9.      Uganda: Succession And Inequality Will Pose Risks To Stability

10.  Kenya: Weak Q1 Data Re-Affirms Slowdown In 2017

11.   Sudan – Deteriorating Sudan-Egypt Relations Pose Risk To Stability

12.  Sub-Saharan Africa: Sovereign Risk – Rising Yields and Weak Recovery Will Require Fiscal Discipline

13.  Uganda - Succession and Inequality Will Pose Risks To Stability

14.  Tanzania - Smaller Deficit Will Not Deter Government Tax Crackdown

15.   Congo DRC – Instability Prolongs Growth Slowdown

READ MORE:
Related News