Identifier
Created
Classification
Origin
09GABORONE123
2009-02-12 13:48:00
UNCLASSIFIED
Embassy Gaborone
Cable title:
BOTSWANA ECONOMIC BRIEFS JANUARY 2009
VZCZCXRO0228 RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN DE RUEHOR #0123/01 0431348 ZNR UUUUU ZZH R 121348Z FEB 09 FM AMEMBASSY GABORONE TO RUEHC/SECSTATE WASHDC 5557 INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE RUEAIIA/CIA WASHDC RHEFDIA/DIA WASHDC RHMFISS/HQ USAFRICOM STUTTGART GE RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 03 GABORONE 000123
SIPDIS
STATE FOR AF/S, AF/EPS, EEB
STATE PLEASE PASS USTR WJACKSON
E.O 12958: N/A
TAGS: ECON ETRD EFIN KHIV BC
SUBJECT: BOTSWANA ECONOMIC BRIEFS JANUARY 2009
UNCLAS SECTION 01 OF 03 GABORONE 000123
SIPDIS
STATE FOR AF/S, AF/EPS, EEB
STATE PLEASE PASS USTR WJACKSON
E.O 12958: N/A
TAGS: ECON ETRD EFIN KHIV BC
SUBJECT: BOTSWANA ECONOMIC BRIEFS JANUARY 2009
1. This is the first edition of U.S. Embassy Gaborone's Botswana
Economic Briefs, covering economic and commercial news from January
2009. Topics of this edition are:
- Botswana Stock Exchange Awaits GOB Budget News
- Consumers and Businesses Brace for Tough Year
- Botswana's Economic Freedom Ranking Improves
- Inflation Down by 1.3 Percent
- Analyst: Botswana to Come out of Recession in Bad Shape
- World Bank Loan Helps Botswana Combat HIV/AIDS
BSE Looking for Hope from the Budget Speech
--------------
2. For the first time in at least five years, the domestic board of
the Botswana Stock Exchange (BSE) closed the year down in 2008.
With confidence levels at an all-time low on the market, investors
awaited the Government of Botswana's financial year 2009-2010
national budget, as they were eager to learn how the GOB would
respond to the global recession. Given that the government is the
biggest driver of the Botswana economy, investors are hoping that
the budget will restore confidence in the economy. Industry
analysts believe the all-important diamond market will withstand the
international financial storm, but expect it will take up to two
years before there is a real turnaround. Since Botswana's economy
relies heavily on diamonds, this has generated a huge loss of
confidence throughout the economy. Although stocks across the
board suffered last year, the mining counters were worst hit,
primarily because of their exposure to developments on the
international markets while, unlike domestic counters, they had
inherited no gains in 2007. Although there have been a few bargain
hunters, most investors are lurking on the sidelines and are still
reluctant to commit themselves in a volatile environment. COMMENT:
The GOB unveiled its budget on February 2. Post will report on the
budget septel. END COMMENT. (Mmegi; January 21, 2009)
Consumers & Businesses Brace for a Tough Year
--------------
3. Botswana's consumer prices are expected to drop in the first
half of 2009, but the effects of the global economic recession will
continue to bite. The mining industry has been hit hard and giants
such as Debswana and the copper/nickel mine Bamagwato Concessions
Limited (BCL) have resorted to retrenchment in order to cut costs.
The credit crunch in the latter half of 2008 and depressed metal
prices brought uncertainty, indicating a tough start to the new
year. For BCL, the year ended on a low note with a forced shut-down
that will cost the company millions of pula. A pile up in the flash
furnace halted production on December 3, 2008, resulting in the mine
declaring a 45-day shutdown to refurbish the smelter. Against the
backdrop of falling metal prices, BCL also announced a 7 percent cut
in its workforce late December 2008. Metal prices are down and the
latest shutdown is the last thing management wanted. COMMENT: Dozens
of contractors at the mine also face a bleak future as the mine has
recently announced that it will not increase salaries this year. END
COMMENT. (Mmegi; January 08, 2009)
Economic Freedom Ranking Improves
--------------
4. According to the Heritage Foundation's 2009 Index of Economic
Freedom, Botswana improved its economic freedom ranking, moving up
to number 34 from its 2008 position of 36 on the annual list.
"Botswana's overall business climate is stable, superior for Africa,
and a model for the region", said the Heritage Foundation report for
2009. The assessment also notes that "Botswana's competitiveness is
founded on a sensible business regulatory environment, openness to
foreign investment and relatively flexible employment regulations."
However, the Foundation also suggests that Botswana could improve
its scores for trade freedom and freedom from corruption. For
example, points were deducted from Botswana's trade score because
"the government maintains import bans and restrictions on some
products, a cumbersome standards regime, domestic bias in government
procurement, and weak enforcement of intellectual property rights."
The country scored higher in fiscal freedom due to tax rates that
are among the lowest in southern Africa. The report also notes that
Botswana's investment regulations are transparent and bureaucratic
procedures are streamlined and open but somewhat slow. The
country's banking system was ranked as very competitive and one of
Africa's most advanced. Botswana fared relatively poorly in the
category of labor freedom because employers are still not required
to make pensions, health insurance and unemployment insurance
contributions. (Business Week Mmegi; January 16, 2009)
GABORONE 00000123 002 OF 003
Inflation Down by 1.3 Percent
--------------
5. Consumer inflation slowed to 13.7 percent in December 2008, down
by 1.3 percentage points from 15.0 in November as fuel costs fell.
The slower inflation follows a leap to 15 percent in November when
the GOB imposed a 30 percent levy on alcoholic beverages. Four
group indices recorded changes of more than 1.0 percent between
November and December - Alcohol beverages, tobacco and narcotics
(1.1 percent),clothing and footwear (1.1 percent) and Restaurants &
hotels (1.0 percent). Inflation started easing in September 2008
after an upward trend spanning nearly a year on the back of high
food and fuel prices. The Bank of Botswana cut its bank rate by 50
base points to 15 percent in December 2008, saying it expected
inflation to move towards its 3 - 6 percent target in 2009.
Analysts believe that the central Bank's 3 - 6 percent inflation
target range will be attainable during the last quarter of 2009, as
long as food and fuel prices remain at the current levels.
(Business Monitor; January 19, 2009)
Botswana to come out of the recession in bad shape - BIDPA
-------------- --------------
6. A senior official at the Botswana Institute of Development and
Policy Analysis (BIDPA) said Botswana will emerge from the current
credit crunch with some dents, as the mineral sector will be hard
hit, blighting the growth prospects of the real economy. Professor
H. Taye said what happened in the last three months raises concern,
but the country is still in better shape compared to other African
states. Botswana's financial sector has experienced some downturn
with the foreign companies' index in a decline and at the same time
sluggish diamond prices. The current account is positive for
Botswana and the foreign exchange reserves represent an import cover
of about 30 months. He said in order to understand the extent of
the credit crisis it is important to establish where the bulk of the
pensions and the foreign exchange reserves are invested. Analysts
said it is difficult for anyone in Botswana to guess the extent of
the impact since there is no readily available data that could be
used to map the way forward. (Sunday Standard; January 26, 2009)
World Bank Loan Helps Botswana Combat HIV/AIDS
-------------- -
7. Botswana's Finance Minister Baledzi Gaolathe signed a US $50
million loan agreement with the World Bank on January 29. The
money, repayable over the next 25 years, will be used by the GOB for
its HIV/AIDS programs. As a middle-income country, Botswana is not
eligible for concessionary financing from the Bank, but the European
Union has agreed to "buy down" the interest on the loan, essentially
making it a no-cost transaction for Botswana. This innovative
design is being looked at as a potential model for donors to support
development projects in other middle-income countries in future.
Botswana's national HIV prevalence rate is estimated at 24%, and an
estimated 283,000 adults are suffering from the disease. However,
Botswana, in partnership with the USG and other donors, is making
impressive gains against the disease. It was the first African
country to provide free anti-retroviral therapy to its citizens in
need, and as of June 2008 about 93% of citizens in need were
receiving lifesaving drugs. Thanks to near-universal treatment and
extensive HIV testing, Botswana has reduced AIDS-related deaths by
50%. (World Bank press release, January 29, 2009)
8. COMMENT: Since 2004, the USG has provided over 300 million
dollars to Botswana under our PEPFAR program. During the second
phase of PEPFAR (2009-2014),we will continue to provide strong
support for Botswana's struggle with HIV/AIDS. However, PEPFAR
funds for Botswana are expected to decline over the next five years,
and we appreciate the GOB taking proactive steps such as securing
this World Bank loan, which should enhance the government's ability
to respond to the crisis. However, it is strange that the GOB has
chosen to take out a WB loan rather than take advantage of their
Global Fund eligibility with a strong proposal there instead. There
are also nuances to this loan agreement that are worth watching.
The EU's agreement to buy down the interest is conditional and
depends on the GOB meeting performance targets. GOB AIDS program
staff will be under significant pressure to meet all targets, which
may be difficult given their lack of experience with WB rules and
conditions. This could have a negative impact on the GOB's ability
to implement programs funded by other donors, including the USG. To
reduce the possible negative impact of the WB loan project on other
ongoing HIV activities, the Botswana PEPFAR Team hopes to find ways
to link with and collaborate on Bank-funded activities so that we
create synergy between activities funded by these two sources (WB
and PEPFAR). END COMMENT.
GABORONE 00000123 003 OF 003
NOLAN
SIPDIS
STATE FOR AF/S, AF/EPS, EEB
STATE PLEASE PASS USTR WJACKSON
E.O 12958: N/A
TAGS: ECON ETRD EFIN KHIV BC
SUBJECT: BOTSWANA ECONOMIC BRIEFS JANUARY 2009
1. This is the first edition of U.S. Embassy Gaborone's Botswana
Economic Briefs, covering economic and commercial news from January
2009. Topics of this edition are:
- Botswana Stock Exchange Awaits GOB Budget News
- Consumers and Businesses Brace for Tough Year
- Botswana's Economic Freedom Ranking Improves
- Inflation Down by 1.3 Percent
- Analyst: Botswana to Come out of Recession in Bad Shape
- World Bank Loan Helps Botswana Combat HIV/AIDS
BSE Looking for Hope from the Budget Speech
--------------
2. For the first time in at least five years, the domestic board of
the Botswana Stock Exchange (BSE) closed the year down in 2008.
With confidence levels at an all-time low on the market, investors
awaited the Government of Botswana's financial year 2009-2010
national budget, as they were eager to learn how the GOB would
respond to the global recession. Given that the government is the
biggest driver of the Botswana economy, investors are hoping that
the budget will restore confidence in the economy. Industry
analysts believe the all-important diamond market will withstand the
international financial storm, but expect it will take up to two
years before there is a real turnaround. Since Botswana's economy
relies heavily on diamonds, this has generated a huge loss of
confidence throughout the economy. Although stocks across the
board suffered last year, the mining counters were worst hit,
primarily because of their exposure to developments on the
international markets while, unlike domestic counters, they had
inherited no gains in 2007. Although there have been a few bargain
hunters, most investors are lurking on the sidelines and are still
reluctant to commit themselves in a volatile environment. COMMENT:
The GOB unveiled its budget on February 2. Post will report on the
budget septel. END COMMENT. (Mmegi; January 21, 2009)
Consumers & Businesses Brace for a Tough Year
--------------
3. Botswana's consumer prices are expected to drop in the first
half of 2009, but the effects of the global economic recession will
continue to bite. The mining industry has been hit hard and giants
such as Debswana and the copper/nickel mine Bamagwato Concessions
Limited (BCL) have resorted to retrenchment in order to cut costs.
The credit crunch in the latter half of 2008 and depressed metal
prices brought uncertainty, indicating a tough start to the new
year. For BCL, the year ended on a low note with a forced shut-down
that will cost the company millions of pula. A pile up in the flash
furnace halted production on December 3, 2008, resulting in the mine
declaring a 45-day shutdown to refurbish the smelter. Against the
backdrop of falling metal prices, BCL also announced a 7 percent cut
in its workforce late December 2008. Metal prices are down and the
latest shutdown is the last thing management wanted. COMMENT: Dozens
of contractors at the mine also face a bleak future as the mine has
recently announced that it will not increase salaries this year. END
COMMENT. (Mmegi; January 08, 2009)
Economic Freedom Ranking Improves
--------------
4. According to the Heritage Foundation's 2009 Index of Economic
Freedom, Botswana improved its economic freedom ranking, moving up
to number 34 from its 2008 position of 36 on the annual list.
"Botswana's overall business climate is stable, superior for Africa,
and a model for the region", said the Heritage Foundation report for
2009. The assessment also notes that "Botswana's competitiveness is
founded on a sensible business regulatory environment, openness to
foreign investment and relatively flexible employment regulations."
However, the Foundation also suggests that Botswana could improve
its scores for trade freedom and freedom from corruption. For
example, points were deducted from Botswana's trade score because
"the government maintains import bans and restrictions on some
products, a cumbersome standards regime, domestic bias in government
procurement, and weak enforcement of intellectual property rights."
The country scored higher in fiscal freedom due to tax rates that
are among the lowest in southern Africa. The report also notes that
Botswana's investment regulations are transparent and bureaucratic
procedures are streamlined and open but somewhat slow. The
country's banking system was ranked as very competitive and one of
Africa's most advanced. Botswana fared relatively poorly in the
category of labor freedom because employers are still not required
to make pensions, health insurance and unemployment insurance
contributions. (Business Week Mmegi; January 16, 2009)
GABORONE 00000123 002 OF 003
Inflation Down by 1.3 Percent
--------------
5. Consumer inflation slowed to 13.7 percent in December 2008, down
by 1.3 percentage points from 15.0 in November as fuel costs fell.
The slower inflation follows a leap to 15 percent in November when
the GOB imposed a 30 percent levy on alcoholic beverages. Four
group indices recorded changes of more than 1.0 percent between
November and December - Alcohol beverages, tobacco and narcotics
(1.1 percent),clothing and footwear (1.1 percent) and Restaurants &
hotels (1.0 percent). Inflation started easing in September 2008
after an upward trend spanning nearly a year on the back of high
food and fuel prices. The Bank of Botswana cut its bank rate by 50
base points to 15 percent in December 2008, saying it expected
inflation to move towards its 3 - 6 percent target in 2009.
Analysts believe that the central Bank's 3 - 6 percent inflation
target range will be attainable during the last quarter of 2009, as
long as food and fuel prices remain at the current levels.
(Business Monitor; January 19, 2009)
Botswana to come out of the recession in bad shape - BIDPA
-------------- --------------
6. A senior official at the Botswana Institute of Development and
Policy Analysis (BIDPA) said Botswana will emerge from the current
credit crunch with some dents, as the mineral sector will be hard
hit, blighting the growth prospects of the real economy. Professor
H. Taye said what happened in the last three months raises concern,
but the country is still in better shape compared to other African
states. Botswana's financial sector has experienced some downturn
with the foreign companies' index in a decline and at the same time
sluggish diamond prices. The current account is positive for
Botswana and the foreign exchange reserves represent an import cover
of about 30 months. He said in order to understand the extent of
the credit crisis it is important to establish where the bulk of the
pensions and the foreign exchange reserves are invested. Analysts
said it is difficult for anyone in Botswana to guess the extent of
the impact since there is no readily available data that could be
used to map the way forward. (Sunday Standard; January 26, 2009)
World Bank Loan Helps Botswana Combat HIV/AIDS
-------------- -
7. Botswana's Finance Minister Baledzi Gaolathe signed a US $50
million loan agreement with the World Bank on January 29. The
money, repayable over the next 25 years, will be used by the GOB for
its HIV/AIDS programs. As a middle-income country, Botswana is not
eligible for concessionary financing from the Bank, but the European
Union has agreed to "buy down" the interest on the loan, essentially
making it a no-cost transaction for Botswana. This innovative
design is being looked at as a potential model for donors to support
development projects in other middle-income countries in future.
Botswana's national HIV prevalence rate is estimated at 24%, and an
estimated 283,000 adults are suffering from the disease. However,
Botswana, in partnership with the USG and other donors, is making
impressive gains against the disease. It was the first African
country to provide free anti-retroviral therapy to its citizens in
need, and as of June 2008 about 93% of citizens in need were
receiving lifesaving drugs. Thanks to near-universal treatment and
extensive HIV testing, Botswana has reduced AIDS-related deaths by
50%. (World Bank press release, January 29, 2009)
8. COMMENT: Since 2004, the USG has provided over 300 million
dollars to Botswana under our PEPFAR program. During the second
phase of PEPFAR (2009-2014),we will continue to provide strong
support for Botswana's struggle with HIV/AIDS. However, PEPFAR
funds for Botswana are expected to decline over the next five years,
and we appreciate the GOB taking proactive steps such as securing
this World Bank loan, which should enhance the government's ability
to respond to the crisis. However, it is strange that the GOB has
chosen to take out a WB loan rather than take advantage of their
Global Fund eligibility with a strong proposal there instead. There
are also nuances to this loan agreement that are worth watching.
The EU's agreement to buy down the interest is conditional and
depends on the GOB meeting performance targets. GOB AIDS program
staff will be under significant pressure to meet all targets, which
may be difficult given their lack of experience with WB rules and
conditions. This could have a negative impact on the GOB's ability
to implement programs funded by other donors, including the USG. To
reduce the possible negative impact of the WB loan project on other
ongoing HIV activities, the Botswana PEPFAR Team hopes to find ways
to link with and collaborate on Bank-funded activities so that we
create synergy between activities funded by these two sources (WB
and PEPFAR). END COMMENT.
GABORONE 00000123 003 OF 003
NOLAN