An international research firm forecasts an accelerated economic growth in Botswana, driven by an anticipated rise in campaign spending ahead of a pivotal election in a few months.
Botswana, with a relatively stable political climate in sub–Saharan Africa goes to a watershed election in October to elect a new government. The Business Monitor International (BMI) expects increased election spending to have a direct impact on the country’s economic outcomes.
BMI states in its latest report that Botswana’s GDP growth will pick up slowly in 2024 driven by election-related spending. However, BMI did not explain how this growth will happen and how it will benefit ordinary members of the public. The firm seemed to correctly imply a causality between elections and increased government spending. The firm had earlier projected that real GDP growth in Botswana would slow from 5.8 percent in 2022 to 4.5 percent in 2023, citing data released by Statistics Botswana which showed that the economy expanded by 3.4 percent year-on-year in the second quarter of 2023.
“In 2024, we project that growth will pick up as consistently low inflation supports household spending, while election-related spending will boost government consumption,” said BMI.
The firm forecast an increase in government consumption growth, which it said will quicken to 3.9 percent in 2024, up from 3.0 percent in 2023 and above the 2013-2022 average of 3.3 percent.
“This will see its growth contribution increase from 1.0 percentage points (pp) to 1.3pp.”
BMI also forecasts a decline in average inflation from 4.8 percent in 2023 to 3.3 percent in 2024 which, alongside an anticipated 25 basis point cut in the Bank of Botswana’s policy rate to 2.40 percent in the fourth quarter of 2023, will support real incomes and credit demand. As such, BMI forecast that private consumption growth will remain strong at 4.7 percent, above the 2013-2022 average of 3.6 percent, contributing 1.8pp to headline growth.
“At the same time, we expect government consumption growth to pick up in 2024. While we expect fiscal expenditure growth to slow to just 2.8 percent in the 2023/2024 fiscal year. We forecast that it will accelerate to 10.2 percent in the 2024/2025 fiscal year, driven by an increase in capital expenditure as well as spending in the run-up to the October 2024 general election,” the report says.
“At the same time, the diamond marketing deal between the government and De Beers will see fixed investment growth pick up, supported by the company’s P1 billion (approximately $73 million) investment in Botswana’s economic diversification,” the report says.
It says the slowdown in 2023 was in line with “our expectations and was driven by weak global demand for diamonds, which prompted a 22.4 percent contraction in diamond trading activity.”
Critically, the report says, growth in the dominant mining and quarrying sector slowed markedly, from 10.8 percent from January to March in 2023 (referred to as the first quarter or Q1) to 5.9 percent in Q2 of 2023 (which includes the period between April to June in 2023).
“This comes despite favourable base effects (mining and quarrying output contracted by 3.5 percent in Q2,2022), reflecting ongoing headwinds to output growth in the all-important mining sector,” said the report.
Researchers at BMI expect that low inflation and fairly low-interest rates will sustain private consumption growth in the second half of 2023.
In 2023, the report said, inflation fell from 9.3 percent year-on-year in January to 1.3 percent in August, underpinned by a sharp fall in domestic fuel prices.
“As a result, transport– which dominates Botswana’s consumer price inflation basket – has fallen into deflationary territory, pushing headline inflation down. At the same time, the Bank of Botswana has held rates at a relatively low 2.65 percent, sustaining credit demand and supporting private consumption,” BMI says. It added: “While we expect inflation to pick up slightly to 2.5 percent by year-end, driven by the recent oil price rally and fading base effects, we do not expect this to significantly erode real incomes.”
It says exports will be capped by weak global demand for diamonds and a slowdown in copper output growth.
“In recent years, supply constraints in the global diamond market have benefitted Botswana, with the COVID-19 pandemic and Russia’s invasion of Ukraine distorting supply chains and pushing buyers to seek alternative sources,” the report says. However, the report says, weaker demand in key markets – including the US – and increasing competition from the lab-grown diamond sector will keep diamond output subdued over the coming quarters and weigh on export growth.
“While the revival of the copper mining sector in 2021, driven by investments in the Khoemacau and T3 Motheo mines, provided support to export growth in 2021, we note that these favourable base effects are now fading. Indeed, copper output growth moderated from 224.4 percent y-o-y in Q4 of 2022 to 50.9 percent in Q2 of 2023,” said BMI.
Meanwhile, the report says, robust private consumption growth, alongside a recovery in fixed investment, will elevate demand for imported consumer goods and capital inputs over the coming quarters. Given these dynamics, BMI forecasts that net exports’ contribution to headline growth will fall from 4.3pp in 2022 to 0.6pp in 2023.
