Per the country’s Central Statistics Office (CSO), Botswana’s gross domestic product (GDP) contracted by 8.4 percent in the second quarter of 2010 compared to the previous three months.  However, on an annual basis, growth remained positive at 6.5 percent.  Moreover, the contraction was mainly concentrated in the mining sector, where output is estimated to have fallen by 23.5 percent.  In contrast, non-mining GDP grew by 1 percent.  In the first six months of 2010, overall GDP was 7 percent higher than during the same period in 2009.

The IMF estimated at the end of August that Botswana’s economy should expand by 8.4% this year due to higher diamond demand, adding however that country would need to trim its public workforce and promote private industry in order to maintain high growth rates.  During the crisis, Botswana’s central bank cut interest rates by 500 basis points between December 2008 and December 2009, while the government boosted spending to counter the recession.  With inflation at 7.0% year-on-year in July (and thut outside of the central bank’s target range of 3-6%), “it will be important therefore to err on the side of caution before proceeding with further reductions in interest rates and to proceed with fiscal consolidation as envisaged,” the organization noted. 

Yet some analysts maintain that such measures ultimately make the IMF’s forecast overly optimistic.  Motswedi Securities’ Garry Juma, for instance, sees 4-6% growth in 2010 as the mining sector recovers.  “We believe the economy is still vulnerable to downside risks and we anticipate the reduction in government expenditure to negatively affect the non mining sector especially sectors dependant on household consumption,” said Juma.  Furthermore, because the diamond industry is still overly dependent on de-leveraging advanced economies (though, per the BRICs, this paradigm is under assault and may not hold true in ten years), Botswana needed “to speed up the diversification of the economy away from the mining sector for sustainable growth” post-haste.

One area of diversification remains investments in both infrastructure and more pointedly, in power generation.  As I write in October’s Business Diary Botswana, the country’s 200 billion metric tons of coal reserves could be used not only to ween its domestic demand from South African imports, but in turn create an export industry via a coal export terminal in Namibia’s Atlantic coast that could meet the ever-rising demands of China and India.  Long-term contracts with those two could generate as much $5.9 trillion, per some estimates.

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