Botswana Business Forecast Report Q4 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	56
ISBN Number	not applicable
Product Code	BMI00276

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Summary

Braced For A Tough Year

The global economic downturn has had a harsh impact on Botswana, dependent as it is on global (and particularly US) spending on luxury goods. The collapse in demand for diamonds has weighed on prices, forcing operators to suspend mining operations (although most restarted by Q209), which has fed through to emaciated fiscal revenues. Ordinarily, this would be of extreme concern to the government in an election year, but the US$1.5bn loan from the African Development Bank will help support government spending while preventing too great a further drawdown of reserves.

With the effect of the recession on employees and consumers potentially less severe than would otherwise have been expected, a greater threat to the government's re-election success is the acrimonious leadership battle within the ruling party.

Although Botswana is heading for a severe recession in 2009 on the back of the global economic slowdown, the impact on jobs is set to be surprisingly limited, as mining operators have come to agreements with workers for longer holidays and reduced pay rather than outright job losses. Although many will be affected, the risks of civil unrest and popular discontent, in our view, are likely to be contained, and we see victory for the incumbent President Ian Khama and the Botswana Democratic Party, even if the opposition does manage to gain some seats.

Following a shocking set of Q109 data, we have revised our full-year forecast from a contraction of 9.4% to one of 10.0%. Mining activity and exports - primarily of diamonds - have both been savaged, but even a pick-up in subsequent quarters will be insufficient to prevent such a severe contraction. Fiscal revenues have also been hit, but the government will be able to maintain a countercyclical spending programme thanks to the budget support loan of US$1.5bn from the African Development Bank.

Botswana's business environment is facing tough times on the back of a collapse in mining operations.

Consumer spending should still be positive in 2009, in part helped by historically low interest rates. Nevertheless, business confidence in the country, as revealed by the publication of the Bank of Botswana's biannual survey, is at its lowest since 2005, when the pula was devalued.

Content

Executive Summary
Braced For A Tough Year
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Despite Upsets, BDP & Khama Victory Likely
- Ahead of the elections scheduled for October 2009, a number of potentially significant events risk upsetting
- traditionally stable Batswana politics
- TA BLE: POLITICAL OVERVIEW
- Foreign Policy
- Vice President Slams African Union
- In recent years, Botswana has become increasingly outspoken on regional matters, a stance that has set it
- apart from other countries on foreign policy
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Full-Year Forecast Revised Down On Q109 Data
- Battered by a collapse in net exports, Botswana is in our view likely to see real GDP contraction in the region of
- 10.0% in 2009, with only the government's fiscal stimulus and continued build-up of inventories due to weaker
- exporter demand preventing the figure from being even worse
- Table: ECONOMIC ACTIVITY
- Table: GDP BY EXPENDITURE, % OF GDP
- Balance Of Payments
- C/A Heads Into The Red
- With the Bank of Botswana having revised its balance of payments data for 2008, last year now looks even worse,
- with the trade and current account surpluses having shrunk more than originally thought
- Table: CURRENT ACCOUNT
- Fiscal Policy
- Landmark Support From AfDB
- In its first borrowing in 17 years from the African Development Bank, Botswana has secured a budget-support
- loan of US$1.5bn to plug the hole created by the collapse in diamond revenues
- Table: FISCAL POLICY
- Monetary Policy
- Further Cuts Expected To Slow Inflation
- The Bank of Botswana's surprising 150bps cut in its policy rate to 11.50% at its June monetary policy meeting
- was an attempt both to respond aggressively to real GDP contraction and to soften the impact of much higher
- fiscal deficit financing
- Table: MONETA RY POLICY
- Regional Outlook
- Diverging Trade Dynamics
- The boom then bust then reflation of the commodity complex has had a mixed effect on trade balances in
- sub-Saharan Africa
Chapter 3: 10-Year Forecast
- The Botswana Economy To 2018
- Long-Term Prospects Still Positive
- Despite modest efforts by the government to diversify Botswana's 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
- TA BLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune
- to the downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TA BLE: BMI BUSINESS AND OPERAT IONAL RISK RAT INGS
- Institutions
- Infrastructure
- TA BLE: BMI LEGAL FRAMEWO RK RAT INGS
- Market Orientation
- TA BLE: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
- TA BLE: BMI TRADE RAT INGS
- Operational Risk
- TA BLE: TOP EXPORT DEST INAT IONS
Chapter 6: BMI Global Assumptions
- Global Assumptions
- TA BLE: GLOBAL ASSUMPTIONS
- TA BLE: GLOBAL & REGIONAL REAL GDP GROWT H
- TA BLE: DEVELOPED MARKET EXCHANGE RAT ES
- TA BLE: EMERGING MARKET EXCHANGE RAT ES