US recession may leave Botswana’s exports dry
Thématique :
botswana
Mokgoabone, Kabo - Mmegi/The Reporter (Gaborone), 08/02/2008
Botswana may face a number of challenges this year even while the macroeconomic environment “looks good”. Such potential hazards include the possibility of a US recession, regional power cuts, and the ‘fiscal surge’ promised in the 2008 budget speech.
Apart from its AGOA II (African Growth and Opportunity Act) which allows duty-free treatment of exports, largely in the textile industry, from Botswana and other African countries, the United States is the world’s single largest diamond market which has led economic pundits to warn that a recession – expected in the first quarter of this year – would have an impact on Botswana’s exports.
According to Dr Keith Jefferis, Managing Director of Econsult, “any slowdown there (in the US) would undoubtedly lead to lower sales, or reduced prices, or both, resulting in reduced diamond earnings and possible stockpiling if production levels are maintained”.
“Speaking yesterday during an after-budget breakfast meeting hosted by First National Bank (FNB) at the GICC, the former Bank of Botswana (BoB) Deputy Governor reasoned that while there are other markets for diamonds, especially in Asia, those markets are also dependent on their own exports to the US, ‘hence a generalised slowdown in demand is almost certain’.” Some key diamond markets along with the US (which accounts for over 45 percent of the world’s diamond market) are Europe, India, Japan and China.
Jefferis was quick to point out, however, that a slowdown in export earnings would have little direct impact on Botswana due to the country’s high levels of foreign exchange reserves which are accumulated for such eventualities. Botswana had, as at November 2007, US$10.2 billion in foreign exchange reserves, which would represent a 28-month import cover bill. According to Jefferis, the problem of having to decrease imports or borrow to finance current account deficits would not apply to Botswana.
The current power crisis is another challenge because many companies are being forced to purchase generators at a time when diesel prices are rising. Botswana is currently experiencing recurring power outages because Eskom, South Africa’s power utility, which supplies almost three-quarters of the country’s energy requirements, is under pressure to meet growing domestic demand. Jefferis stated that “the current situation of unplanned and unannounced power outages is highly disruptive and will have inevitable costs in terms of reduced output and growth and additional costs as businesses are forced to invest in expensive diesel-powered generators”.
In terms of the fiscal surge, it was announced at the 2008/09 budget speech that development spending is projected to more than double to reach P8.5 billion next year, although Jefferis pointed out that “it is unrealistic that spending will increase by 53 percent”.
“Developments such as this perpetuate the stop-go cycle in government spending, which in turn leads to economic volatility, contributes to uncertainty in the private sector and makes planning difficult, and - during the ‘up’ phase - contributes to inflationary pressures. Such volatility in spending is unlikely to reflect good controls or a rational allocation of resources.”
Botswana may face a number of challenges this year even while the macroeconomic environment “looks good”. Such potential hazards include the possibility of a US recession, regional power cuts, and the ‘fiscal surge’ promised in the 2008 budget speech.
Apart from its AGOA II (African Growth and Opportunity Act) which allows duty-free treatment of exports, largely in the textile industry, from Botswana and other African countries, the United States is the world’s single largest diamond market which has led economic pundits to warn that a recession – expected in the first quarter of this year – would have an impact on Botswana’s exports.
According to Dr Keith Jefferis, Managing Director of Econsult, “any slowdown there (in the US) would undoubtedly lead to lower sales, or reduced prices, or both, resulting in reduced diamond earnings and possible stockpiling if production levels are maintained”.
“Speaking yesterday during an after-budget breakfast meeting hosted by First National Bank (FNB) at the GICC, the former Bank of Botswana (BoB) Deputy Governor reasoned that while there are other markets for diamonds, especially in Asia, those markets are also dependent on their own exports to the US, ‘hence a generalised slowdown in demand is almost certain’.” Some key diamond markets along with the US (which accounts for over 45 percent of the world’s diamond market) are Europe, India, Japan and China.
Jefferis was quick to point out, however, that a slowdown in export earnings would have little direct impact on Botswana due to the country’s high levels of foreign exchange reserves which are accumulated for such eventualities. Botswana had, as at November 2007, US$10.2 billion in foreign exchange reserves, which would represent a 28-month import cover bill. According to Jefferis, the problem of having to decrease imports or borrow to finance current account deficits would not apply to Botswana.
The current power crisis is another challenge because many companies are being forced to purchase generators at a time when diesel prices are rising. Botswana is currently experiencing recurring power outages because Eskom, South Africa’s power utility, which supplies almost three-quarters of the country’s energy requirements, is under pressure to meet growing domestic demand. Jefferis stated that “the current situation of unplanned and unannounced power outages is highly disruptive and will have inevitable costs in terms of reduced output and growth and additional costs as businesses are forced to invest in expensive diesel-powered generators”.
In terms of the fiscal surge, it was announced at the 2008/09 budget speech that development spending is projected to more than double to reach P8.5 billion next year, although Jefferis pointed out that “it is unrealistic that spending will increase by 53 percent”.
“Developments such as this perpetuate the stop-go cycle in government spending, which in turn leads to economic volatility, contributes to uncertainty in the private sector and makes planning difficult, and - during the ‘up’ phase - contributes to inflationary pressures. Such volatility in spending is unlikely to reflect good controls or a rational allocation of resources.”
