Brian Benza
31 October 2008
If the current global economic recession and financial market turmoil persist for another eight months, Botswana's real economy will be heavily affected, calling for the government to adjust consumption and expenditure patterns.
Analysts believe Botswana's economy, which is heavily reliant on diamond export revenues, will be hard hit by the slowdown of the global economy as diamond sales will decline sharply.
Although many economic pundits across the world have projected that African economies are largely safe from the crisis as their economies are insulated from the events on the global markets, economist Dr Keith Jefferis believes that while financial markets and foreign reserves may be relatively safe, the real economy is vulnerable if the crisis is prolonged."The real economy is not safe if this problem persists because we are a small country that is largely dependent on trade," he says, "and when the global economy goes into recession, we are going to be affected as there will be less demand for our exports.
"History has shown that in the past three occasions when there has been a recession in the United States and Europe, diamond sales in Botswana went down drastically, leading to thinner revenues for the government.
"Diamonds account for about two thirds of our exports, and if we look at what has happened to our diamond exports when there has been a severe global crisis, it's not a pretty picture."
The US is the biggest (single) market for Botswana's diamonds and has had three recessions in the past 30 years. In 1981, the US had a deep recession, and although the volume of Botswana's diamond exports was not as big as it is now, diamond exports fell by 50 percent over 12 months and government revenues from exports fell by two thirds.
"If there is a prolonged recession in the US, then the same is going to happen to Europe and Japan which collectively consume 75 percent of our diamonds."
Jefferis, who was speaking at a panel discussion on the effects of the global financial crisis on Botswana at the University of Botswana recently, also said he believes if figures were available, they might show that the effects began as early as the beginning of the second half of this year."Official statistics of diamond exports show that figures are still very strong," he continued, "but these only go up to July and I believe in the second half of the year, export levels might start going down."The magnitude of the problem, Jefferis reckons, will be determined by how long the global recession takes. If the problem persists for a long time, this could lead to budget and balance of payments deficits and put pressure on foreign exchange reserves.
"If our diamond exports fall for a prolonged period, we will have to adjust to lower levels of income and consumption, and that will reflect in our living standards," said Jefferis.
"If the US economy is still under this heat by the middle of next year, we are going to have to start making some adjustments, which might include less government expenditure and a tighter monetary policy."
While the US economy is in recession already, the UK has been hit by two consecutive quarters of negative growth, leading analysts to predict it is on the brink of a recession which could last for at least two years.The IMF's last forecasts from mid-July were for global growth of 4,1 percent in 2008 and 3,9 percent in 2009.
For the United States, where housing markets continued to weigh on consumption, growth would slow to about 1 percent in 2008 on a fourth-quarter-on-fourth-quarter basis and recover gradually to about 1,5 percent in 2009. In the euro area, the IMF projected growth on the same basis at about 0,75 percent in 2008 and about 1,5 percent in 2009, from 1,3 percent and 1,7 percent respectively in mid-July.Growth in emerging and developing economies was projected at just over 6 percent in 2008 before re-accelerating to more than 7 percent in 2009. In July, the IMF saw emerging economies growing at 6,3 percent this year and 7,5 percent next year.
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