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Botswana Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Botswana's economy will be hit by the global diamond price anddemand slump, which slashed real GDP growth in half in 2015. Wehave revised down our near-term real GDP forecast for Botswana,the world's second biggest diamond producer after Russia. Economicgrowth will slow to 3.7% in 2016, compared to our previous forecastof 4.1%, though still a recovery on 2.5% in 2015.The Bank of Botswana will keep rates unchanged in Q216. We expectinflation to remain low due to subdued oil prices, low demandpull pressure due to low real GDP growth and a depreciating SouthAfrican rand.In the continued absence of meaningful economic diversification,the mining sector is set to remain a key engine of growth. Whilenickel, copper and particularly coal will become more prominent inthe country's export base, tourism-related investment will increase.We expect a return to the political status quo in Botswana in 2016,following escalating tensions in the run up to the October 2014general elections.

Table Of Contents

Botswana Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
2016 Year Of Rebalancing For Diamond Supply8
Subdued demand and prices for diamonds - Botswana's key commodity export - will continue to weigh on economic growth in 2016
The drop-off in taxable diamond revenues will also curtail government spending, resulting in lower private consumption as 40% of the
workforce is employed in the public sector Fixed investment into economic diversification strategies will contribute positively towards
real GDP but will only see effects in the long term
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook 10
Budget Deficit Will Continue Into The New Year10
A supplementary budget of BWP134bn will exacerbate Botswana's fiscal deficit for FY2015/16 ,creating a spill-over effect into the
FY2016/17 fiscal budget, leading to a deficit of 16% The government will tap into foreign reserves and its sovereign wealth fund to
stabilise revenues if needs be Capital expenditure will be focused on infrastructure against power and water shortages
Structural Fiscal Position 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Lower Diamond Demand To Depress Trade Balance13
Low diamond prices and demand for the precious metal will narrow the current account surplus for Botswana over 2016 Imports will
remain strong due to the drought However, various infrastructure projects over the next four years will provide a boost to exports
Outlook On External Position 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE14
TABLE: TOP 5 GOODS EXPORTS IN 2014 15
TABLE: TOP 5 GOODS IMPORTS IN 2014 15
Monetary Policy 16
Low Inflation Will Persist Amid Slowing Growth16
Botswana will keep rates unchanged in Q216 We expect inflation to remain low due to subdued oil prices, low demand pull pressure
due to low real GDP growth and a depreciating rand
Monetary Policy Framework 16
Currency Forecast 17
BWP: Depreciation To Continue At Slower Rate17
Despite its close relationship with the South African rand, the Botswanan pula will depreciate at a gentler pace than the rand in 2016
This is due to the inclusion of SDRs in the basket and stable inflation levels, as well as the economic rebalancing of diamond supply We
forecast average depreciation of 38% in 2016, compared to 90% in 2015
TABLE: BMI CURRENCY FORECAST18
Chapter 2: 10-Year Forecast 21
The Botswanan Economy To 2025 21
Long-Term Prospects Still Positive21
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 FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Khama's Authoritarian Approach Will Be Short-Lived24
President Ian Khama's authoritarian ways are causing him to lose popularity in Botswana However, this is just a slight blip in the ruling
party's reign, since his second term will come to an end in 2019 His authoritarianism will pose challenges, such as participating in
teamwork while he manages his role as chairman at the SADC during 2016 and maintaining the ruling party's election prospects in the
long-term
TABLE: POLITICAL OVERVIEW24
Long-Term Political Outlook 25
An Incomplete Miracle25
Botswana's status as one of the most stable and politically progressive countries in Sub-Saharan Africa (SSA) is likely to endure for the
foreseeable future While we see the potential for political or social upheaval as minimal, over the next decade the government will come
under mounting pressure to address the country's extreme inequality, as well as facing the prospect of a reinvigorated opposition
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Trade Procedures And Governance 31
TABLE: TRADE PROCEDURES BREAKDOWN31
TABLE: BOTSWANA IMPORT AND EXPORT DOCUMENTS31
TABLE: SUB-SAHARAN AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 32
Vulnerability To Crime 33
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Unfinished Business In 201637
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %39
TABLE: BOTSWANA - MACROECONOMIC DATA and FORECASTS41

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