Botswana economy in pains

Botswana economy in pains

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(Illustration: Phuti Babotlhale)

•  Economic outlook revised to negative
•  Unemployment a great concern
•  Mining continue to bleed jobs

 

Fresh from economic outlook downgrade by Standards and Poor’s (S&P) Rating services from stable to negative, it has also emerged that Botswana economy is failing to create enough jobs for its graduates, and workers are losing jobs at an alarming rate.

 

S&P says the revision of the outlook to “negative” is meant to reflect the downside risks emanating from the possibility of a prolonged commodity price shock, especially in the diamond sector.

 
A research by an independent consulting firm, Econsult Botswana says that after a long period of silence from Statistics Botswana, newly released data on formal employment showed that only 2,207 jobs were created between 2013 and 2015, a growth rate of only 0.7 percent in two years.

 
The firm’s research over this time, there were probably 40,000 net new entrants to the labour force from school and college leavers. “Given this dismal experience with job creation, it is surprising that government policy is not focused more on resolving the problems that lie behind the lack of job creation,” Econsult economists Keith Jefferies and Sethunya Sejoe said.

 
Econsult says it has long been suspected that the record on job creation was poor, with few companies starting up or expanding, and many closing down or contracting. According to the firm, the recent mining downturn has accentuated this trend; whereas Debswana has generally managed to maintain employment even when reducing production.

 

The research says Debswana managed to keep jobs in part because of its status as a profitable and cash-rich mining company, which has not been the case with other mining companies, which have been loss-making or marginally profitable. “Hence there have been hundreds of job losses at Boseto, Mowana and Tati, and there are likely to be one or two thousand more at BCL as it is forced to cut costs.”

 

The depressed global commodities market has also had a severe impact in the country’s mining sector.

S&P observed that the “A-/A-2” ratings have appropriately taken account of the impact of the ongoing commodity price shock on the country’s fiscal position and economic activity, including the accumulated buffers which have enabled absorption of the terms of trade shocks.

 

The assessment also notes that prudent fiscal management and robust institutional framework continue to reinforce the ratings. S&P also notes that the sovereign credit ratings are constrained by the country’s narrow economic base and the continued dominance of the diamond sector in the economy, which makes the country susceptible to external shocks.

 
The depressed global commodities market has also had a severe impact in the country’s mining sector, and observers are still cagey as to whether the prices will rebound soon as China appetite for commodities remain a major concern. Two copper mines, Boseto owned by Discovery Metals and Mowana owned by African Copper closed down last year.

 

Tati Nickel has also halted production, and BCL the country’s largest base metals miner and a key producer of nickel is also experiencing major difficulties. BCL made large financial losses in 2015, and is in need of a bailout from the government, which is the sole shareholder.

 

The mining sector was the main factor behind the country’s economic slump.

Focus Economics, an online publication on economic forecasts from leading worlds economics says Botswana’s economic growth deteriorated considerably and contracted 0.3 percent in 2015 due to the adverse commodity price environment. According to the latest release of Q4 2015 data from Statistics Botswana, in Q4 of last year, the economy decreased 1.9 percent over the previous year, which contrasted the previous quarter’s increase.

 

The mining sector was the main factor behind the country’s economic slump. In fact, it recorded a 19.2 percent drop over the previous year mostly due to falling production of copper and diamonds. Energy and water shortages also contributed to capping 2015’s growth.

 
Focus Economics state that the Sub-Saharan Africa (SSA) region decelerated notably in the final quarter of last year and more recent data show that growth remained under pressure in the first quarter of this year.

 

SSA GDP expanded 3.0 percent annually in Q4, which was down from the 3.5 percent increase tallied in the previous quarter and marked the slowest expansion since Q1 2010. As a result, the SSA region grew 3.5 percent in the full year 2015, which came in below the previous year’s 5.1 percent increase.

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Majube covers the economy and public finance. He also manages production. He has worked in various publications in the last ten years, Specialising in Business and Features. He has held the position of Desk Editor at the weekly the Echo, and most recently was part of the award winning Business team at Mmegi. In recent times Majube has covered the liquidity challenges of the financial sector as well as the Bank of Botswana’s oversight role in the banking sector.