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Balance of Payments and International FDI Position in Botswana: FY2019/20

Botswana BoP and FDI Position: FY2019/20

Botswana’s merchandise export earnings have been volatile since 2016. The volatility in exports has not resulted in deterioration of gross official reserves due to the persistent current account surplus which has improved the balance of payments. The balance of payments recovered from a deficit to a surplus in 2017 supported by the current account surplus and inward foreign direct investment (FDI) flows; despite the persistent outward FDI outflows. These capital flows have improved Botswana’s balance of payments and the country’s net international FDI position. Botswana’s balance of payments surplus is projected to continue growing consistently, which is projected to support a strong recovery in gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in Botswana (2016-2023)

Current Account Balance in Botswana (2016-2023)

Sources: BoB 2019, 2018 Annual Report Statistics Section; IMF 2018, Botswana 2018 Article IV Consultation. Note: (*) Figures from 2018 onwards are projections from the IMF, 2018.

 

Total merchandise imports to Botswana increased to USD 6.2 billion in 2018, from an annual average of USD 6.3 billion for 2015 to 2017[1]. Exports increased to USD 6.6 billion in 2018 from an annual average of USD 6.5 billion for 2015 to 2017[2]. Volatility in export earnings deteriorated Botswana’s current account balance slightly from a surplus averaging USD 2.0 billion (approx. 11.8% of GDP) for 2016 to 2018, to a surplus of USD 1.7 billion (approx. 8.8% of GDP) in 2019[3]. The volatility in export earnings has not negatively affected the balance of payments and gross official reserves.

 

Figure 2: Capital and Financial Account Balance in Botswana (2016-2023)

Capital and Financial Account Balance in Botswana (2016-2023)

Source: IMF 2018, Botswana 2018 Article IV Consultation. Note: (*) Figures from 2018 onwards are projections from the IMF, 2018.

 

Botswana’s capital and financial account balance improved slightly from a deficit (net outflows) averaging -USD 1.0 billion (approx. -7.0% of GDP) for 2016 to 2018, to a deficit of -USD 1.4 billion (approx. -7.1% of GDP) in 2019[4]. The balance of payments improved from an average of USD 106.3 million (approx. 0.5% of GDP) for 2016 to 2018, to USD 338.0 million (approx. 1.7% of GDP) in 2019[5]. Hence, Botswana’s gross official reserves increased from USD 7.2 billion in 2016 to USD 7.9 billion in 2018, before continuing to increase to USD 8.2 billion in 2019[6]. During this period, Botswana experienced declining inward and outward FDI outflows.

 

Figure 3: Gross Official Reserves and Balance of Payment in Botswana (2016-2023)

Gross Official Reserves and Balance of Payment in Botswana (2016-2023)

Source: IMF 2018, Botswana 2018 Article IV Consultation. Note: (*) Figures from 2018 onwards are projections from the IMF, 2018.

 

Inward FDI inflows decreased from USD 378.6 million in 2015 to USD 177.1 million in 2017, before improving slightly to USD 228.7 million in 2018[7]. However, Botswana’s inward FDI stock decreased from an average of USD 5.2 billion for 2015 to 2017, to USD 4.8 billion in 2018[8]. In addition, Botswana citizens increased their investments abroad as inward FDI to the country moderated.

 

Figure 4: Inward Foreign Direct Investment in Botswana (2015-2018)

Inward Foreign Direct Investment in Botswana (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Outward FDI outflows increased from USD 180.3 million in 2015 to USD 332.9 million in 2017, before deteriorating to USD 228.7 million in 2018[9]. As a result, Botswana’s outward FDI stock increased from an average of USD 953.3 million for 2015 to 2017, to USD 1.0 billion in 2018[10]. These capital flows have improved Botswana’s balance of payment and the country’s net international FDI position.

 

Figure 5: Outward Foreign Direct Investment from Botswana (2015-2018)

Outward Foreign Direct Investment from Botswana (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Botswana’s balance of payment has been supported by persistent inward FDI inflows despite the fluctuations in the level inflows to the country in the period from 2015 to 2018. However, outward FDI flows have also been persistent which has improved Botswana’s net international FDI position. Botswana’s net international FDI position improved from net liabilities amounting to an average of -USD 4.2 billion (approx. 29.1% of GDP) for 2015 to 2017, to net liabilities amounting to -USD 3.9 billion (approx. -27.1% of GDP) in 2018[11].

 

Figure 6: International Foreign Direct Investment Position in Botswana (2015-2018)

International Foreign Direct Investment Position in Botswana (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels Botswana’s foreign liabilities remain sustainable yet significant as a proportion of GDP. Given the relatively narrow domestic capital markets, Botswana should focus on attracting inward FDI inflows in sectors that increase productive capacity and will diversify its exports because the country is still heavily dependent on diamond exports. Nevertheless, Botswana’s balance of payments surplus is projected to continue growing in the medium-term, which is projected to support continued growth in gross official reserves.

 

Improvements in inward FDI inflows and the consistently growing current account surplus should support continued improvement of Botswana’s balance of payments in the forward-looking medium-term. The current account balance is projected to improve from a surplus of USD 1.7 billion (approx. 8.8% of GDP) in 2019 to a surplus averaging USD 2.2 billion (approx. 9.5% of GDP) from 2020 to 2023[12]. Botswana’s capital and financial account balance is also projected to improve to a deficit (net outflows) averaging -USD 1.2 billion (approx. -5.3% of GDP) from 2020 to 2022[13]. Therefore, the balance of payment is projected to continue growing from a surplus of USD 561.0 million in 2020 to USD 1.5 billion in 2023, which is equivalent to an average of USD 1.0 billion (approx. 4.2% of GDP)[14]. Thus, Botswana’s gross official reserves are projected to increase from USD 8.2 billion in 2019 to an average of USD 10.3 billion from 2020 to 2023[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2018. Botswana 2018 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2018. Botswana 2018 Article IV Consultation, ibid.
[5] IMF 2018. Botswana 2018 Article IV Consultation, ibid. There are relatively significant errors and omissions in Botswana’s balance of payments data equivalent to -USD 1.9 billion in 2017 and -USD 857.0 million in 2018.
[6] IMF 2018. Botswana 2018 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2018. Botswana 2018 Article IV Consultation, ibid.
[13] IMF 2018. Botswana 2018 Article IV Consultation, ibid.
[14] IMF 2018. Botswana 2018 Article IV Consultation, ibid.
[15] IMF 2018. Botswana 2018 Article IV Consultation, ibid.

 

 


Siyaduma Biniza

Siya is the Executive Director at PESA.

Siyaduma Biniza

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