Services pull economy out of red
Brian Benza | Friday April 7, 2017 18:00
Figures published by Statistics Botswana (SB) recently showed that from a 1.7% negative growth in 2015, the economy registered positive growth last year mainly due to significant contributions from trade, hotels and restaurants and transport and communications industries which recorded an increase in value added of 13.5% and 5.6% respectively.
All other industries recorded a positive growth with the exception of mining and agriculture, which declined by 3.7% and one percent respectively.
According to SB, an increase in the real value added of the trade, hotels and restaurants was mainly due to the significant growth from downstream diamond industries due to the recovery in the global markets. In 2016, diamond production increased by 0.3% as opposed to a decline of 15.6% recorded in 2015.
A decrease in the real value added of the mining industry was attributed to a decline in copper/nickel value added by 21.2% in 2016 due to the closure of BCL Mine and Tati Nickel.
In the year under review, copper production decreased by 22.4% due to the provisional liquidation of BCL in October 2016. Mowana and Thakadu copper mines were put on provisional liquidation in the fourth quarter of 2015.
On the other hand, a decrease in the real value added of the agriculture industry was attributed to a decline in other agriculture value added by 0.6% in 2016.
“The sub sector is mainly driven by horticulture activities. In 2016, production for both fruits and vegetables decreased by 19.5%,” said SB.
The 4.3% growth for 2016 is however much higher than initial forecasts.
Presenting the 2017 budget speech in February, Finance minister Kenneth Matambo said he expected the domestic economy to recover and record a growth rate of 2.9% in 2016, and forecast to reach 4.2% in 2017.
“The optimistic outlook is based on the anticipated slight improvement in the mining sector, and positive growth prospects for the non-mining sectors.
However, there are downside risks to 2016 and 2017 growth prospects, such as the slow recovery of the global economy, and falling commodity prices,” he said.
The continued growth in contribution by the services sector show that Botswana’s economy has now reached a relatively diversified position in terms of gross domestic product (GDP) but diamonds still precariously dominate exports.
Latest statistics show that the economy is now diversified in production terms with mining’s contribution to GDP having fallen to 19% from over 50% 20 years ago.
On the other hand, the services sector, which comprise trade, finance and business services, transport and communications, has also significantly shored its contribution to GDP to about 50% from about 21% two decades ago.
According to analysts, government policy should now shift to facilitating diversification of exports, which are dominated by diamonds.
Latest SB figures show that both polished and rough diamonds contribute 70% of exports, a trend experts said leaves the country highly susceptible to balance of trade shocks.
With the structure of the economy shifting from mining driven to services driven, economists say that the prevailing trend where services dominate growth but not exports will result in long-term sustainability problems.
The latest statistics reflect that while the services sector contributes about half of GDP, its contribution to export stands at a mere seven percent.
While the trade, transport, financial and business sectors have grown significantly, the services sector has primarily targeted the domestic market resulting in the sector’s low contribution to the exports.