2013-02-28 15:04:09 - New Country Reports market report from Business Monitor International: "Botswana Business Forecast Report Q2 2013"

Core Views

We are forecasting real GDP growth in Botswana of 5.4% and 5.8% in 2013 and 2014 respectively as headline economic growth is constrained by a combination of subdued global demand for diamonds and a slowdown in public spending and private consumption.

Following four consecutive years of fiscal deficits, we expect FY2012/13 to mark a welcome return to the black for a government which has put fiscal consolidation among its top policy priorities over the next few years.

With general elections in 2014 and a newly-launched political opposition party beginning to flex its muscles, we believe the next 12 months will see political tensions in Botswana head higher.


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Major Forecast Changes

Botswana's fiscal

position in FY2012/13 is likely to be significantly healthier than initially projected and we are now forecasting a budget surplus of 1.4% of GDP compared to a 1.7% deficit previously. This is primarily due to larger-than-expected shared customs revenue from SACU which has helped offset a sharp slowdown in mineral revenue growth.

Key Risks To Outlook

A greater than anticipated deterioration in the global economy (namely an intensification of the eurozone crisis) would put further downward pressure on demand for diamond exports and thus pose significant risks to our growth forecasts.

Although we do not anticipate a return to the large scale strikes seen in the first half of 2011, the risk of sporadic outbreaks of protests and public unrest remains a realistic possibility. The government's politically sensitive privatisation agenda has the potential to ignite tensions, bolstered by increasingly influential trade unions.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Political Landscape In Flux
- With general elections in 2014 and a newly-launched opposition party flexing its muscles, we believe political tensions in Botswana will head higher over the coming months. While we do not foresee anything other than a comfortable victory for the ruling Botswana Democratic Party in next year's polls, there are clear signs that the country's one-sided political landscape is beginning to shift.
TABLE: POLITICAL OVERVIEW
Political Stability Expected Despite Risks
- We expect Botswana to remain one of the most politically progressive countries in Sub-Saharan Africa over the coming decade. The biggest threat to this stems from the lack of authentic opposition to the ruling Botswana Democratic Party, while the most potent risk to broad stability in the country comes from income inequality. Botswana also faces challenges in foreign policy decisions as it attempts to sustain the high regard in which it is held by the West, which may put it at odds with regional peers, as has been the case with
Zimbabwe.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Solid, But Constrained In 2013
- We expect economic growth in Botswana to remain relatively solid over the coming quarters, despite the constraining effect of persistent external headwinds and fiscal consolidation. With disposable incomes squeezed and mining output hit by a fall in global demand for diamonds, we believe growth over the near term will be powered primarily by the non-diamond economy, particularly investment and services. We are forecasting real GDP growth of 5.0% and 5.4% in 2013 and 2014 respectively.
TABLE: ECONOMIC ACTIVITY
Balance of Payments
Current Account Squeezed But Staying In Surplus
- With a meaningful recovery in global diamond demand unlikely in 2013, we believe constrained growth in export revenues will continue to weigh on Botswana's external accounts, resulting in a slight narrowing of the current account balance, which we forecast at 1.3% of GDP. Between 2014 and 2017 our outlook is for a gradual stabilisation in Botswana's overall balance of payments position driven by improving terms of trade, solid FDI inflows and robust current transfers.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Fiscal Consolidation Plan Ahead Of Schedule
- We are forecasting Botswana to post a fiscal surplus in FY2012/13 and FY2013/14 as restrained government spending and larger-thanexpected customs revenue from SACU more than offset subdued growth in mineral revenue. Between 2013 and 2017 we predict a stable and gradually widening fiscal surplus, although it will remain vulnerable to fluctuations in global demand for diamonds.
TABLE: FISCAL POLICY
Monetary Policy
Weak Demand To Drive Modest Price Easing In 2013
- On balance we believe the overall theme for price growth in Botswana in 2013 will be one of very gradual easing on the back of subdued aggregate demand and a softening in global inflationary pressures. That said, we expect short term price pressures arising from government administered price increases and persistently high regional food prices to preclude a more sustained easing of price conditions over the coming months, and we are forecasting year-end headline CPI of 6.0% y-o-y.
TABLE: MONETARY POLICY
Chapter 3: 10-Year Forecast
The Botswana Economy To 2022
Long-Term Prospects Still Positive
- Despite ongoing efforts by the government to diversify Botswana's economy away from a heavy reliance on diamonds, we believe the precious stone will remain the mainstay of the southern African country's economy over the foreseeable future.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Infrastructure
Market Orientation
Operational Risk
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY

Full Table of Contents is available at:
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