Power crisis could be the bane of growth
WANETSHA MOSINYI
Staff Writer
| Friday June 13, 2008 00:00
In its Annual Report for 2007, the Central Bank says in the short-term, the economy, which grew by 6.1 percent in 2006/2007, will receive several sector-specific stimuli that should boost growth.
These include momentum arising from the beneficiation of diamonds and other minerals, as the new Diamond Trading Company Botswana comes into full operation.
Accelerated government spending at the end of NDP 9 will become another stimulus, as will recent decisive efforts to further develop tourism.
Although the expansion of the economy continues to be lower than the rates required to meet growth objectives of NDP 9 and Vision 2016, growth in 2006/07 indicates generally positive prospects in the medium-term, the BoB report says.
But it warns that these will only be realised if several potential constraints, such as the availability of electricity and the diversion of resources to infrastructure projects in South Africa in preparation for the 2010 World Cup, are overcome.
Notably, BoB says temporary disruptions caused by power cuts in early 2008 signalled the potential for the emerging regional electricity shortages to undermine growth prospects.
But in the short-term, this problem is expected to intensify as the supply of electricity is largely fixed at a time when energy-intensive mining developments get underway and several mines increase operations.
The report says for growth to be maintained, this will need to be countered by effective measures to encourage power conservation and efficiency.
These should involve price-based incentives (both penal rates and, if appropriate, subsidies) which are more likely to sustain production, rather than an arbitrary and disruptive programme of load shedding.
The BoB report notes that renewed growth in 2006/07, led by the non-mining private sector, is consistent with the view that recent reforms, including the stabilisation of the real effective exchange rate (REER) at a more competitive level, are starting to have a positive effect.
Other reforms are those aimed at removing administrative bottlenecks that impede business, including improving the efficiency of the public sector.
On the downside, BoB says risks to domestic economic performance include the prospect of a significant slowdown in the world economy following the onset of the sub-prime crisis in the US in the second half of 2007.
However, the prospect of a recession in the United States is to a large extent counterbalanced by continuing growth in major emerging economies such as India and China, which are increasingly important markets for minerals, diamonds included.
'For Botswana, the downside risks to performance of the mining sector reinforce the need to promote other sources of growth,' says the report.
Meanwhile, the rapid acceleration in government spending during 2007/08 has provided an immediate stimulus to domestic demand - notably in the construction industry - which may feed through to the wider economy.
The biannual BES has confirmed increased optimism in the local business community.
But there could be supply-side constraints to a rapid expansion in demand.
The accelerated programme to develop additional public infrastructure - including construction of roads and dams and airport redevelopment - is being undertaken in the context of rapidly growing regional demand for construction and related services.
If associated bottlenecks - including the supply of skilled labour and materials - should tighten, careful prioritisation of project implementation may be necessary.
Demand by the Government for construction should also accommodate the requirement to maintain existing public infrastrustre and avoid crowding out investment by the private sector.
From the perspective of the private sector, mining development may also be impeded by rising costs and shortages of both skilled labour and equipment.