2007:botswana – recent economic developments and prospects

25
1 Recent Economic Developments & Prospects March 8, 2007 Keith Jefferis Structure of Presentation Botswana Economic Developments Economic Growth Exchange Rates, Trade etc. Inflation and Interest Rates Government Budget 2007 Prospects

Upload: econsultbw

Post on 18-Nov-2014

586 views

Category:

Documents


0 download

DESCRIPTION

 

TRANSCRIPT

Page 1: 2007:Botswana – Recent Economic Developments and Prospects

1

Recent Economic Developments & Prospects

March 8, 2007

Keith Jefferis

Structure of Presentation

Botswana Economic DevelopmentsEconomic GrowthExchange Rates, Trade etc.Inflation and Interest RatesGovernment Budget2007 Prospects

Page 2: 2007:Botswana – Recent Economic Developments and Prospects

2

Economic Growth

Growth Developments

Economic growth data released just after 2007 Budget

For the first time in many years, the real GDP growth figure was not mentioned in the Budget speechGrowth in 05/06 was minus 0.8%

Page 3: 2007:Botswana – Recent Economic Developments and Prospects

3

GDP growth

-202468

10121416

'95/96

'97/98

'99/00

'01/02

'03/04

'05/06

Growth data disappointing, but not all bad:

Mainly driven by mineral sector developments –volatile due to overlapping calendar and national accounts yearsUnderlying mineral growth performance steady and at a reasonable rateProspects for improvements in non-diamond mineral sector growth

Growth of Diamond Production

-10%

-5%

0%

5%

10%

15%

20%

25%

2001

Q2

Q3

Q42002

Q2

Q3

Q42003

Q2

Q3

Q42004

Q2

Q3

Q42005

Q2

Q3

Q42006

Q2

Q3Q4

%

Page 4: 2007:Botswana – Recent Economic Developments and Prospects

4

Growth Developments

Outside of mining sector, growth performance mixed.Strong growth in transport, hotels & restaurantsNegative growth in manufacturing, construction, agricultureYear to year volatilityConcern over quality of GDP data

Growth by Sector

-20 -10 0 10 20 30 40

MiningAgriculture

ConstructionManufacturing

TradeFin. & Bus. Serv.

Water & ElecGovernment

Soc. & Pers. Serv.Transport

Hotels & restr

'05/06'04/05

Page 5: 2007:Botswana – Recent Economic Developments and Prospects

5

Growth Developments

Major revisions to GDP data in some sectors, notably:

AgricultureSocial & personal servicesTransportManufacturing

Most recent GDP growth estimates highly provisional

Growth by Sector 2004/05: Original & Revised

-20 -10 0 10 20

AgricultureMining

ManufacturingWater

ConstructionTrade, hotels etc

TransportFin & bus serv

GovernmentSoc & pers serv

Total

Revised(2007)Original(2006)

Page 6: 2007:Botswana – Recent Economic Developments and Prospects

6

Growth Developments

GDP data difficult to interpret, due to:

RevisionsAdjustment items not allocated to sectors

Making allowances for these factors, overall growth in non-mining GDP appears to be picking up slowly

Growth of Non-Mining Value Added

0

2

4

6

8

10

% g

row

th

Non-min. 5.6 6.9 7.6 4 4.1 5.8 7.9 4.9 2.4 2.7

NMPS 4.7 6.2 7.9 3.4 3.4 5 5.1 4.7 1.2 2.5

'96/97 '97/98 '98/99 '99/00 '00/01 '01/02 '02/03 '03/04 '04/05 '05/06

NMPS = non-mining private sector (i.e. excludes government

Page 7: 2007:Botswana – Recent Economic Developments and Prospects

7

GDP Growth

-3

0

3

6

9

12

15

'96/97

'97/98

'98/99

'99/00

'00/01

'01/02

'02/03

'03/04

'04/05

'05/06

% g

row

thGDP Non-min. NMPS

Evidence for Economic Recovery?

GDP data (to June 06)Growth indicators in positive territoryBoB Business Expectations survey

Jump in confidence in 2006H2 compared to 2006H1; Confidence now over 50% for first timeMuch improved confidence amongst non-exporters

Page 8: 2007:Botswana – Recent Economic Developments and Prospects

8

BoB Business Confidence Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005H1 2005H2 2006H1 2006H2

Exporters Non-exporters All

Growth Indicators – Real Private Business Credit

-15%-10%

-5%0%5%

10%15%20%25%30%35%

20002001

20022003

20042005

20062007

Rea

l gro

wth

Strong signs of business recovery

Page 9: 2007:Botswana – Recent Economic Developments and Prospects

9

Growth Indicators – Non-Mining Electricity Consumption

-5%

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006

Qu

arte

rly

con

sum

pti

on, y

-o-y

g

row

thSigns of recovery, although weaker

& later

Exchange Rates

Page 10: 2007:Botswana – Recent Economic Developments and Prospects

10

Exchange Rates

50

60

70

80

90

100

110

120

130

140

2002 2003 2004 2005 2006 2007

Inde

x 19

96=1

00

NEERBWP/ZARBWP/USD

Crawling peg

Exchange Rate Volatility

0%50%

100%

150%200%250%300%

350%400%

2004 2005 2006 2007

Page 11: 2007:Botswana – Recent Economic Developments and Prospects

11

Exchange Rates

BWP crawl reduced slightly as forecasts of inflation gap closing and real exchange rate stabilisingNo transparency yet on rate of crawl or basis for calculation, but would be desirable to make exchange rates and inflation more predictableCrawl may be reviewed around mid-year

Real Effective Exchange Rates 1995-2006

80859095

100105110115120125

19951996

19971998

199920

002001

2002

20032004

200520

06

Inde

x 19

96=

100

Devaluations and crawling peg have restored competitiveness

Page 12: 2007:Botswana – Recent Economic Developments and Prospects

12

Exchange Rate Forecasts: 2006

-9.7%0.1500.166USD/BWP

0.9%1.1671.157ZAR/BWP

-10.6%7.806.97ZAR/USD

ChangeForecast,

end Dec-07Actual,

end Dec-06

Forecasts 2006-2011 Pula vs. ZAR

1.021.041.061.081.101.121.141.161.181.201.22

20052006 Q2 Q3 Q4

2007 Q2 Q3 Q42008

20092010

2011

ZA

R p

er B

WP

Page 13: 2007:Botswana – Recent Economic Developments and Prospects

13

Forecasts 2006-2011 Pula vs. USD, EUR

0.100.110.120.130.140.150.160.170.180.19

20052006 Q2 Q3 Q4

2007 Q2 Q3 Q42008

20092010

2011

US

D &

EU

R p

er B

WP

USD/BWP EUR/BWP

Export Developments

Exports have become more diversified (away from diamonds)Wide range of non-diamond exportsModest overall export growth from 2005 to 2005 (3% in USD terms)

Page 14: 2007:Botswana – Recent Economic Developments and Prospects

14

Diamond Exports as % of Total Exports

50%55%

60%65%

70%75%

80%85%

90%

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Rapid diamond export growth

Exports have become more

diversified since 2001Temporary

diversification -Hyundai

Composition of Non-diamond Exports, 2006

Nickel & copper50%

Textiles13% Other goods

14%

Meat etc.7%

Salt & soda ash6%

Machinery3%

Gold3%

Vehicles & parts2%

Iron & steel prods2%

Page 15: 2007:Botswana – Recent Economic Developments and Prospects

15

Change in Exports (US$), 2005-06

-80% -60% -40% -20% 0% 20% 40% 60%

Vehicles & partsTextiles

MachineryGold

DiamondsTotal exports

Iron & steel prodsMeat etc.

Salt & soda ashNickel & copper

Other goods

Exports & Imports

0

500

1000

1500

2000

2500

3000

3500

2004

2005

2006

P'0

00

per

mon

th

Exports Imports Import trend Export trend

Exports growing much faster than imports – as devaluations

intended

Page 16: 2007:Botswana – Recent Economic Developments and Prospects

16

Foreign Exchange Reserves (Pula)

0

10000

20000

30000

40000

50000

2001

2002

2003

2004

2005

2006

Pula

mn

Trade performance resulting in rapid growth of fx reserves – more than doubled since late 2003.

Import cover approx. 30 months

Inflation & Monetary Policy

Page 17: 2007:Botswana – Recent Economic Developments and Prospects

17

Inflation vs Forecast (as at July 06)

0%

2%

4%

6%

8%

10%

12%

14%

16%

2006 F M A M J J A S O N D20

07

BOB target range

Forecast

Actual

Inflation has declined steadily since peak of 14.2% in April 2006Down to 7.4% in January 2007Decline has been faster than expected, due mainly to falling oil pricesNew CPI index will help more accurate measurement of inflation

Crude Oil Prices (Brent)

50

55

60

65

70

75

80

85

90

95

100

Dec 3

0, 2005

Jan 2

7, 2

006

Feb 2

4, 2006

Mar 24, 2

006

Apr 21, 2

006

May 19, 2

006

Jun 1

6, 2006

Jul 1

4, 2006

Aug 11, 2

006

Sep 0

8, 200

6

Oct 0

6, 2006

Nov 0

3, 2006

Dec 0

1, 2006

Dec 2

9, 2006

Jan 2

6, 200

7

Feb 2

3, 200

7

US

D/b

arre

l

250

300

350

400

450

500

BW

P/b

arre

l

USD BWP

Crude oil prices have reversed most of 2006 gainsBy end-Feb down 23% in USD terms and 21% in BWP terms from 2006 peakImpact of falling prices reinforced by larger weight for fuel prices in new basket

Page 18: 2007:Botswana – Recent Economic Developments and Prospects

18

Inflation Forecast (Feb 07)

0%

2%

4%

6%

8%

10%

12%

14%

16%

2002 2003 2004 2005 2006 2007

BOB target range

Actual F’cast

Monetary Policy

No interest rate changes since Feb 2006Declining inflation favours rate reduction, but:

inflation still above BoB target range of range of 4%-7%, which is to be maintained in 2007historically interest rates only reduced when inflation close to targetinflation should fall within range in Q2 2007, but only to around 6.5%main concern now is credit growth – way above range of 11%-14%may see small reduction in rates (50bps) in next 2-3 months, but not much after that

Page 19: 2007:Botswana – Recent Economic Developments and Prospects

19

Real Prime Lending Rate

0%

2%

4%

6%

8%

10%

12%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Real prime rate reaching recent historical peakSupports case for rate reduction

Government Budget 2007

Page 20: 2007:Botswana – Recent Economic Developments and Prospects

20

Govt Revenue & Spending

30%

35%

40%

45%

50%

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

% o

f G

DP

Expenditure/GDP Revenue/GDP

Budget now sustainable –revenue and expenditure in line with long-term trends

Budget Balance

-10%

-5%

0%

5%

10%

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

% o

f G

DP

Large surpluses are back!

Page 21: 2007:Botswana – Recent Economic Developments and Prospects

21

Budget balance – actual vs. forecast

-6%-4%-2%

0%2%4%6%

8%10%

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

% o

f GD

P

forecast

actual

Budget balance more favourable than expected

Budgeted Expenditure

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

P m

n

Persemoluments

Otherrecurrent

Development

2005/062007/08

+36%

+36%

+92%

Development expenditure forecasts for 2007/08 unrealistic

Page 22: 2007:Botswana – Recent Economic Developments and Prospects

22

Allocation of Expenditure by Function, 2007/08

Public order & safety

5%

Defence8%

Education24%

Health13%

Social & comm welfare

4%

Housing & urban dev.6%

Agric3%

Elec & water4%Roads

2%RSGs7%

Other econ serv8%

Gen admin16%

Economic Prospects 2007

Page 23: 2007:Botswana – Recent Economic Developments and Prospects

23

Botswana Economic Prospects 2007

Slow resumption of growthdeclining inflation and – hopefully –interest rates;positive impact of govt. salary increases in 2006 & 2007impact of higher government spending –but slowpositive devaluation impact feeding through – export-led growthimpact of reforms – telecomms etc.major projects

Major Projects – Mining & Related

LionOre/Tati Nickel Activox refinery (Cu/Ni/PGMs) (Francistown)Diamondex mine early 2007 (Tuli Block)African Copper 2008 (Dukwe)Diamond aggregation/cuttingAfrican Diamonds AK6 2007 (Orapa)Mmamabula coal/powerMount Burgess (zinc/silver); Discovery (nickel/copper/silver) & A-Cap Resources (uranium)

Page 24: 2007:Botswana – Recent Economic Developments and Prospects

24

Botswana Economic Prospects 2007

Growth inhibited by:Slow disbursement of govt. spendingSlow structural reforms, privatisation etc.Skills shortagesCapacity constraints in region (e.g. cement)

BEAC reformsFocus on openness, competitiveness, policy and mindset change, supported by major projects

IMF growth forecasts2006 4.2%; 2007 4.3%

SADC GDP Growth 2007IMF Forecasts

-10

-5

0

5

10

15

ZimSwaz

Lesotho

Maur

SA

Botswan

a

Namibia

Mad'gsc

r

Malawi

Zambia

Moz'bq

DRCTan

z

Angola

%

Botswana f’cast growth (4.3%) below SADC average (6.0%)

Page 25: 2007:Botswana – Recent Economic Developments and Prospects

25

Thank You

Email: [email protected]