Botswana insulated from Trump victory�s shockwaves
Brian Benza | Friday November 11, 2016 15:59
After Trump, who in the build up to the election threatened to renegotiate trade deals, impose high import tariffs and stirred fears of a currency war with China, was announced winner on Wednesday, stock and currency markets in South Africa and other emerging markets went into panic mode.
Analysts however feel that although Botswana’s currency is exposed to the rand, the impact will be minimal in the short-term.
Asked if there will be any significant implications on Botswana after the conservative politician won the polls, prominent economist Keith Jefferis responded: “Nothing much”. “In the short-term it just adds to risks and instability in the world economy, e.g. currency and financial market volatility. But things will only become clearer once the dust settles,” said Jefferis.
Botswana is currently enjoying duty free and quota free access to the US market under the African Growth Opportunities Act (AGOA), which is expected to run until 2025. It is however unlikely that Trump will call for a renegotiation of the AGOA, which remains largely untapped by Botswana exporters.
Research manager at First National Bank of Botswana, Moatlhodi Sebabole said although there was uncertainty for world economies and markets at the moment, primarily because of the policy stance, his victory speech was a complete opposite of the trade policy rhetoric he had during the campaign.
“The effects for Botswana if any, are likely to be minimal. On a currency perspective, any dollar/rand volatility will be inherited on the dollar/pula cross-given 50% weighting of the rand and 21% of the dollar in the pula basket.
“Although terms of trade might remain unclear under his presidency and again that is not a major issue for Botswana given that the US primarily consumes our diamonds and the demand and trade there is dependent on market recovery and stability - not necessarily trade policy dynamics such as tariffs,” he said.
Sebabole however said Trump’s trade policy will be of interest to establish if the terms of trade could favour an untapped potential of textile and manufacturing industry under AGOA.
On a regional scale, there might be uncertainty for the next two years especially around debt-levels and budget deficit - thus the grant programmes to Africa and other parts of the world might be at risk of a cut as the US might undergo fiscal consolidation on expenditure side, especially if there is a political will for lowering the tax rates.
The future market on the other hand is now pricing in much less probability of a December US Fed hike - thus pointing to volatility increase and uncertainty on economic prospects.
“Thus the hiking cycle for interest rates in the US looks to be pushed further and gives breathing room for other markets, Botswana included, to stay put on their monetary policy setting,” Sebabole said.