Economy faces headwinds, but tourism holds potential for growth

Economic growth could slow down as geopolitical tensions and trade uncertainty continue, a top government policy czar said on Thursday.

Sayed Timuno, Director of Research in the Ministry of Finance cautioned this as the domestic economy fights economic headwinds occasioned by depressing diamond sales amid US-China trade wars. 

Speaking during a presentation at the 40th annual Hospitality and Tourism Association of Botswana (HATAB) Conference 2025, held in Maun, Timuno mentioned that the Sahel region is currently torn by conflict.  The Sahel region, encompassing countries like Burkina Faso, Mali, and Niger, is experiencing a persistent and escalating conflict driven by a jihadist insurgency. This violence is fueled by groups affiliated with al-Qaeda and the Islamic State, leading to widespread displacement, insecurity, and instability. 

“We also still see conflicts in the DRC and Mozambique which have the potential to limit and delay African Continental Free Trade Agreement (ACFTA) implementation,” he said. 

On the domestic economic developments, the domestic economy contracted by 3 percent in 2024 compared to 3.2 percent in 2023.

Timuno said much of the slowdown is really due to the downturn in the diamond industry. 

He added that much of what is pulling down growth is activities in mining and particularly diamonds, as well as diamond traders, which is where the sales are. 

“This has resulted in the build-up of inventories in the midstream, slowing uptake in the downstream activities,” Timuno explained. 

He further said that what is also striking is the growth in the non-mining, non-diamond sector which has, however, not been sufficient to offset the decline. 

His other concern was public administration, which reflects a lot of government footprint in the economy. He said government economic activities are also increasingly overcrowding the private sector, which affects the economy negatively. 

“What is emerging is that we are recording a negative total sector productivity growth. What that means is that we are inefficient. Inefficient in the use of labour and that of capital for productive growth,” he said, adding, “But for us to sustain long-term economic growth, which can generate and absorb more people in the labour market, we need positive total sector productivity growth.”

He said the low efficiency of capital also suggests that capital accumulation has not been channelled towards productive investment. 

“So we are basically just channelling capital to non-productive sectors,” he noted. 

This is why we are experiencing high unemployment growth that we observe, both the general unemployment growth and the youth unemployment growth, he said. 

He said policies and discussions mean nothing when unemployment numbers continue to rise. This, he says, causes social security risks. 

“What we see in the current economic model is that there has been a slow transition or slow absorption of the unemployed into the economy. So what that means is that the structural economic dynamics that we have currently might have run its course,” Timuno explained. 

To him, that is where sectors like tourism need to step up and absorb more people in the labour market.

With respect to prices, inflation has fallen from a high rate in 2022.

The latest inflation for March is 2.8 percent. With that, Timuno said the central bank maintained the monetary policy rates in April at 1.9 percent, to try to stimulate domestic demand, which is currently low. 

But he said other market interest rates have really increased. 

He also mentioned evolving consumer preferences, higher-than-normal inventories within the mainstream markets, with lab-grown diamonds also coming in.

The other problem is the diamond price decline.

“This morning (Thursday), Anglo-American released the Q1 production. Diamond prices declined by 8 percent,” he said. 

According to Timuno, the low production really has implications for the fiscus and the balance of payments, given the low export diversification effects. Diamonds account for about 80 percent of export receipts.

Consequently, Timuno said the ability to generate export receipts is really low. So he said there is an opportunity for the tourism industry to step up and diversify revenue generation. 

With respect to the trade balance, he said if Botswana continues to import more than it exports, it will pile pressure on the foreign exchange reserves. 

The level of reserves has remained low by historical standards. As of December 2024, the reserves stood at P48.1 billion, representing about 5.6 months of imports covered. 

“So what this really means is that if there’s a sudden stop in capital inflow, we’ll be able to import what we’re importing for about five to six months, and then we’ll run out of money,” he further explained. 

He further explained that Botswana’s exchange rate framework is supported by the reserves. 

“The more you have a downward trend in the reserves, your exchange rate is compromised,” he stated. 

The diamond market has put pressure on mineral revenue, leaving the Southern African Customs Union (SACU) receipts as the main contributor of mineral revenue.  Timuno says it allows Botswana to strengthen domestic resource mobilisation, but without burdening the citizens.

“There is a need to strengthen tax collection. In some areas where collection is low, there’s also a need to really digitise some of the efforts for collection,” he noted. 

Government expenses are largely driven by personal emoluments: wages and salaries.  

Botswana has been running consistent fiscal deficits over time. 

Much of this deficit has been largely financed by drawing down on reserves. With declining reserves, domestic and external debt is the only option to finance the rising deficits, according to Timuno. 

“The level of debt has been increasing because of the inability to tap into our savings to finance the fiscal deficit. Now this leaves us with only debt to finance that,” he declared. 

Botswana is still one of the highest rated sovereigns in Africa, but recently its outlook was downgraded by international rating agencies, Moody’s and Standard & Poor’s.

He expressed that tourism has the ability to save the economy because it is one of the most performing or the highest performing sectors in the economy. 

“So if we get it right, we can really speed up economic diversification through the tourism industry, both on the economic side and the export side. But its contribution to growth still remains weak, with slowing growth over the past years,” he noted. 

He projected that economic growth is anticipated to remain above potential, and that it will recover to its pre-COVID-19 level up until 2029. 

He said the latest risk is the global trade fragmentation, looking at the reciprocal tariffs. 

To turn things around, he said there is a need to stop the financial haemorrhaging in government.

He also mentioned the need for driving revenue maximisation, collection, and strengthening of oversight institutions in the first phase. He said the second phase is transforming SOE performances, ensuring that some of them operate according to how they are supposed to operate. 

“The third phase, really diversifying the economy within the mining sector and away from the mining sector, including towards tourism activities,” he noted. 

Timuno said the fourth phase is building the new Botswana, creating a sovereign wealth fund and transforming the creative industry and the agricultural sector.