Botswana Business Forecast Report Q1 2009

Limited Risks To Economic, Political Stability

Real GDP growth remains strong, with BMI forecasting expansion rates of 4.8% and 5.4% for 2008 and 2009 respectively. Investment remains the driving force, contributing about 80% of growth over the last two years. The fiscal and external positions are enviably strong with a large budget surplus and international reserves providing over two years import cover. On the political front, a general election is imminent, and will probably be held in March 2009. However, there is as yet little sign of any increase in the political temperature. While the polls will be free and fair, the outcome is in very little doubt. President Ian Khama and his ruling Botswana Democratic Party (BDP), which has governed uninterrupted since independence in 1966, look set for another landslide victory.

The BDP has genuine popular support thanks to its long record of maintaining socio-political stability and economic growth, and further boosted by Khama and other BDP leaders positions as senior traditional chiefs, an important position in Batswana culture. Furthermore, the electoral system is tilted in favour of the BDP, which easily has the richest political war chest. Desirable constitutional reforms such the adoption of at least limited proportional representation are unlikely any time soon, but will need to be debated eventually. The lack of any real opposition is not healthy for democracy in the long term. Political stability is safe, but there is a risk of the population coming to view the democratic process with apathy because of its predictability. On foreign affairs, the continuing political upheaval in neighbouring Zimbabwe is the only major issue. Botswana does what it can to promote a settlement, but the Mugabe regime remains extremely resistant to external influence.

Despite years of sustained economic success, unemployment remains high (at least 17.6%), private consumption levels disappointingly low (26.3% of demand side GDP), and 30% of Batswana live in poverty. Efforts to provide better support for small businesses, and micro-enterprises in the informal sector will be essential if macroeconomic wealth is to translate into better living standards for those Batswana yet to benefit from the mining boom. Inflation was essentially unchanged in July and August at just over 15% year-on-year (y-o-y), giving the first sign that the pace of price rises may be peaking. It is too soon to be certain, but we still expect a declining trend over 2009 and 2010 with forecast end-year inflation of 12.5% and 10.0%, respectively. We expect the official policy interest rate to remain unchanged at 15.5% through Q109 at least. Meanwhile, the pula continues to depreciate gently in line with official policy.

In the World Banks 2009 league table of comparative business environments in 181 countries, Botswana ranked a highly commendable 38th. Ease of business closure, paying taxes, getting credit and investor protection were categories in which Botswana scored highly. Conversely, trading across borders scored low, mainly because of high transport costs for international trading operations. The country similarly scored well in the recently released Transparency International 2008 corruptions perceptions index and the 2008 Ibrahim Index of African Governance