Impact of Political Uncertainty on Batswana Growth

Impact of Political Uncertainty on Batswana Growth

Botswana is a parliamentary representative, democratic republic with multiple parties. The President is both the head of state and government. The Botswana Democratic Party (BDP) has remained in power since independence in 19661. The main opposition parties to the BDP are the Botswana Congress Party (BCP) and Umbrella for Democratic Change (UDC)2. Botswana has a stable economic environment and has moved from being one of the poorest low-income countries to being a middle-income country. The economy is primarily characterised by a large portion of its revenue coming from diamond sales. But the drop in commodity prices caused volatility in the market and adversely affected the diamond sector, which is why economic diversification is needed, so as to cushion the country from vulnerabilities to external shocks.

 

Botswana as a nation has developed a reputation over the past few years for its stable political system. This is attributed to good policies, firm institutions and mature democratic processes. All of this has also led to rapid economic development for over four decades. The ruling party, BDP, won 37 out of the 57 seats in the last parliamentary elections, held in October 20143.

 

Botswana is part of the Southern African Customs Union (SACU), formed for the purposes of economic development through regional coordination of trade. Some of the agreements of this customs union include a common external tariff on all the goods which are imported into the Union from the world; free movement of the products which are manufactured within SACU without imposing any restrictions, and a revenue-sharing formula which is for the purpose of the distribution of customs and excise revenues which are collected by the union4.

 

Despite the signing of the EU-SADC Economic Partnership Agreement (EPA) on 10 June 2016, it is possible that the economies of the SADC region (including Botswana’s) could be adversely affected by the recent Brexit decision. However, a recent statement published by SACU confirms that for as long as the UK is a part of the EU, the EU-SADC EPA will apply to the UK and SADC EPA countries.

 

On 28 July 2017, the International Monetary Fund (IMF), concluded its Article IV consultation with Botswana. One of the issues that this consultation also touched on was the country’s position in terms of SACU and provided recommendations to deal with the challenges facing Botswana. There have been volatilities in the revenues from SACU, as well as the diamond sector, and a low domestic tax revenue. Some of the recommendations given by IMF include the implementation of the new Tax Administration Act and strengthening the large payers’ tax unit. The IMF further recommends streamlining value-added tax exemptions, providing a more simplified personal income tax, and also speeding up the plans of registering and re-evaluating properties5.

 

Botswana’ relatively stable political environment has led to rapid economic growth. This stability is attributed to the disunity which characterizes the opposition and generally sound governance from the government. Some of the issues faced by the current government are the small market size in the country; infrastructure bottlenecks, such as the recent shortages in water and electricity; and the outdated basic education and healthcare system6. This rapid growth experienced by the country can be attributed to the revenues received from diamond sales – the rare gem currently accounts for one quarter of GDP, and approximately 83.1% of export earnings and one third of the government revenues7. Botswana is the largest producer of diamonds in the world, and a large part of their revenue comes from the diamond sales and the major diamond trader, De Beers. De Beers entered into a 10-year deal with Botswana in 2012 and moved its rough stone sorting and trading division from London to Gaborone in 2013. The main aim of the move was to support the development of Botswana’s emerging diamond industry8. However, these diamonds are regarded as a mixed blessing for the economy. The diamond sales have contributed to ensuring positive GDP growth, however the recent volatility in the market has put the economy in a vulnerable position. According to the 2017 Budget speech, the mining sector performed poorly, with the production of diamonds decreasing by 15.6% and copper by 35%. This means that Botswana’s leadership is faced with the challenge of diversifying its economy, in order to mitigate such vulnerabilities.

 

Botswana has been home to one of the world’s fastest growing economies, where we have seen its sound macroeconomic policies and good governance transform the country from one of the poorest countries to one that falls under the middle-income range. Diamond revenues and high mineral prices have both contributed to the large fiscal and external surpluses experienced by the country. However, despite these achievements, social challenges still exist, such HIV/AIDS and the triple threat of poverty, unemployment and income inequality. Positive growth prospects are possible for Botswana, but will depend on a continued rebound in the diamond sector. The recent Brexit saga raised concerns, but the UK has reassured the region that it will honor current trade agreements and will continue trading with the region under EPA.


1 The Commonwealth
2 Independent Electoral Commission
3 African Economic Outlook
4 Southern African Customs Union
5 International Monetary Fund
6 African Economic Outlook, ibid.
7 Republic of Botswana
8 African Economic Outlook, ibid.


Share the Love

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.