Botswana Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI03419

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Summary

Challenges Mount In 2009 As global growth experiences a sharp slowdown in 2009, Botswana will find itself particularly exposed given its heavy dependency on diamond, copper and nickel exports. With global prices having suffered in Q408 on the back of waning global demand, particularly for big ticket luxury consumer purchases, the outlook has turned decidedly negative. Such a slowdown in real economic growth has come at an especially unfortunate time for President Ian Khama Seretse Khama and the Botswana Democratic Party, with both facing the electorate this year. That said, we do not expect any strong challenge to the party's rule, which has been uninterrupted since independence in 1966.

Its management of the economy will become a test of the BDPs hitherto little challenged hegemony, with the party having benefited from strong real growth over the years. Even if the economic situation worsens, however, the opposition parties remain poorly funded and lack the organisation to take advantage. While the BDP may lose some seats, we do not believe that there will be any upsets come the election. With Botswana's stable polity, we expect the elections to be free and fair, and for the country to avoid the political violence and disruption that has affected its neighbours.

As the global economic clouds darken, we have downgraded our forecast of real GDP growth to 1.0% and 1.1% for 2008/09 and 2009/10, from 4.1% and 5.2% respectively. With diamonds, as well as copper and nickel, making up the largest proportion of exports, weaker global demand and associated price pressures will feed through to lower exports and reduced associated fiscal revenues. Inflation will continue to ease in 2009 to our year-end forecast of 7.6% as imports and energy costs remain subdued.

Standard & Poor's, the ratings agency, recently affirmed Botswana's investment grade sovereign risk ratings of A/A-1 for foreign currency debt and A+/A-1 for pula obligations, with a stable outlook.

In the current global economic climate, the outcome of the agency's review is an impressive achievement. Some drawdown of official net external assets is anticipated, reflecting a cyclical slowing in FDI inflows, and the public finances will come under moderate pressure, but years of prudent economic management have left the country with ample savings to potentially mitigate some of the worst effects of the global economic slowdown.

Content

Executive Summary
- Challenges Mount In 2009
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Political Outlook
- Social Implications Of Economic Deterioration
- We believe that the domestic impact of the worsening global economy will prove to be one of the biggest tests
- faced by the hitherto unchallenged Botswana Democratic Party (BDP)
- TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Losing Its Sparkle
- As global recessionary fears bite harder, we have revised our growth outlook for Botswana
- TABLE: ECONOMIC ACTIVITY
- Monetary Policy
- Time For A Bold Monetary Policy Stance In 2009?
- Although consumer price growth of 13.1% y-o-y in October 2008 is still well outside the Bank of Botswanas
- (BoB) target band of 3.0-6.0%, the monetary authorities cut the bank rate by 50bps to 15.00% at their
- December meeting
- TABLE: MONETARY POLICY
- Balance Of Payments
- C/A Surplus Under Continued Pressure
- We are forecasting a current account surplus in 2009 in the region of US$450mn, around 5% of GDP
- TABLE: BALANCE OF PAYMENTS
- Fiscal Policy
- Spending Cuts Cut
- Since the April 2004/March 2005 fiscal year, Botswana has posted robust fiscal surpluses, primarily on the
- back of growing prices and volumes of exports, with mineral revenue and customs and excise contributing 65%
- of all central government revenues in 2007/08
- TABLE: FISCAL POLICY
- Human Capital
- Struggling To Plug The Skills Gap
- The conundrum of strong economic growth and stability alongside high unemployment remains unresolved
Chapter 3: 10-Year Forecast
- The Botswana Economy To 2018
- Long-Term Prospects Still Positive
- Despite modest efforts by the government to diversify Botswanas economy away from such heavy reliance on
- diamonds, the sharp slowdown in real economic growth we expect in 2009-10 will be a hard lesson in how much
- was left unfulfilled
- TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009
- TABLE: Banks Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Euro zone Is Considered Home Country
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- TABLE: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
- TABLE: BMI TRADE RATINGS
- Operational Risk
- TABLE: TOP EXPORT DESTINATIONS
Chapter 7: BMI Global Assumptions
- Global
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
- Economic Activity
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- Commodities
- TABLE: EMERGING MARKET EXCHANGE RATES