The revisions to the national accounts data released in July 2021 show that the economy recorded a larger contraction in 2020 than was originally estimated due to technical adjustments made to the national accounts.
Year-on-year real GDP contracted by 8.5 percent in 2020 rather than the 7.9 percent originally reported. Real GDP contracted by 8.6 percent year-on-year in Q1 2021. E-consult, a private economic think tank, said this week that the decline in real GDP during the year to March 2021 was anticipated as it covers a full 12-month period reflecting the impact of COVID-19.
On a positive note, however, considering just the first quarter of 2021, the encouraging result is that GDP was marginally higher (by 0.7 percent) than it had been in Q1 of 2020, notwithstanding the continuing impact of COVID-19. Sethunya Kegakgametse and Kitso Mokhurutshe the economists who authored the quarterly E-Consult report released this week, are optimistic. They expect economic recovery in 2021, attributable to the improvement in the global demand for diamonds and improvements in the rollout of COVID-19 vaccines locally and globally.
Most financial institutions have revised growth upwards. Razia Khan, the Chief Economist & Head of Research – Africa & Middle East from Standard Chartered Bank, explained that this is very substantially being driven by the recovery, and the reopening of economies in the developed world. Khan was speaking this week during a webinar on “Unlocking Botswana & Africa’s True Potential – Attracting Investment,” hosted by the Botswana Stock Exchange (BSE).
Khan observed that access to vaccines is one single factor that sets apart developed market growth outlooks and that there has not been equal access to vaccines across the board for some economies. “This was a function of having funded the research, having secured supplies a lot sooner, having been able to allow for the vaccine administration to encompass a wider proportion of their populations much earlier on,” she said.
But even though vaccines do seem to play an important role in recovery of economies, in those rich nations that have already been more successful with vaccine rollout economic recovery “is not fully assured”, Naledi Madala, economist at Absa, said in the webinar. “The recovery, even for them, is not fully assured, Madala noted. “For as long as the virus circulates elsewhere, that risk is there and until achieving global herd immunity, it is very necessary to defeat this Covid-19. I think that remains elevated for all of us.”
However, it is important to note that the diamond market, the mainstay of the economy in Botswana, has reflected some recovery of the world’s largest economies. De Beers revealed that in the US, the world’s largest market for diamond jewellery, consumer demand exceeded pre-pandemic levels in the first half of 2021, with retailers in the sector reporting robust double-digit growth on 2019 levels. In China, the second largest market for diamond jewellery, the country’s leading diamond jewellery retailer reported its highest revenue and profit in seven years for the financial year ending 31 March.
Recovery has been supported by implementation of fiscal stimuli across many countries in the world, as well as the rollout of COVID-19 vaccines in some countries, Kegakgametse and Mokhurutshe explained. All industry segments continue to report positive sales while demand has been driven by the two key markets of the United States and China. “The diamond industry has also benefited from the prolonged slowdown of spending on travel and tourism due to movement restrictions, and the diversion of some spending to consumer demand for diamond jewellery,” they said.
De Beers Global Sightholder Sales (DBGSS) increased sales by 178 percent between the two periods, from $906 million in H1 2020 to $2.5 billion in H1 2021. The rebound was chalked up to increased production and sales volumes as well as higher rough diamond prices. During the half year, production across Botswana’s mines increased by 43 percent, from 7.5 million carats to 10.7 million, carats while the average price per carat increased by 13 percent to $135 per carat in H1 2021 from USD119 per carat. “The rebound of the global diamond market from the COVID-19 crisis is important for Botswana and it will provide a boost to export earnings, the external account balance, and government revenues,” Kegakgametse and Mokhurutshe wrote.
There were significant increases in exports to the value of P24.1 billion in Q1 2021, representing an increase of 38.4 percent when compared to Q4 2020. The sharp increase in exports was driven by diamond exports, which rose by 45 percent during the quarter as the global demand for diamonds improved during the period. Imports were valued at P22.8 billion, indicating a marginal decrease of 1.4 percent between Q1 2021 and Q4 2020. This resulted in a trade surplus of P1.3 billion in Q1, the first quarterly surplus since 2018. However, subsequent trade data for April and May 2021 are less positive, and indicate a likely substantial trade deficit in Q2, Kegakgametse and Mokhurutshe noted. They added: “Data on the recent economic developments provide a decidedly mixed picture,