Botswana’s real GDP growth is projected to expand by 7.4 per cent in 2021, after contracting by an estimated 10.7 per cent in 2020, according to Fitch Solutions.

Based on data released by Statistics Botswana, real GDP expanded by 0.7 per cent year-on-year in Q1 2021, up from a downwardly revised contraction of 4.6 per cent in Q4 2020. Although rising modestly, the growth trend is improving, with quarter-on-quarter expansion of 5.0 per cent, as against 0.2 per cent in Q4 2020.

“This will mainly reflect a positive contribution to growth from net exports and recovering private consumption as external and domestic Covid-19 headwinds recede.”

According to Fitch solutions, this growth trajectory is buoyed mainly by next exports, adding 4.6 percentage points (pp) to headline growth. As the global economy recovers, this will boost demand for diamonds, which comprise over 90 per cent of total exports in Botswana. As a result, Botswana’s diamond production is projected to rise by 25 per cent in 2021 as global demand for luxury, high-end discretionary spending increases.

Following this, the next main growth driver in 2021 will be private consumption, Fitch Solutions indicates. This is expected to add 2.9 percentage points to headline real GDP growth. This is likely to materialize as the Covid-19 pandemic recedes domestically, at a faster rate especially in H2 2021. And currently, Botswana’s vaccination programme is so far ahead of regional peers.

Given the most recent data available, 7.4 per cent of the population had received at least one dose of vaccine as of July 10, 2021. Fitch solutions expect that a majority of the adult population will be inoculated by end-2021.

That said, this will allow for any remaining Covid-19 restrictions to be eased, and for commercial activities to return to some form of normality. Also, Fitch Solutions is of the view that household incomes will also be supported in 2021 by an expansionary fiscal stance, with the budget for fiscal year 2020/21 including a 20 per cent increase in development expenditure.

Meanwhile, Botswana growth outlook is likely to improve further in 2022, and real GDP to grow by 5.9 per cent. This represents a much more sustainable economic recovery given that the growth is taken from a much higher base than the previous year. Thus, Fitch Solutions forecast real GDP to surpass pre-coronavirus levels in the first half of 2022. Several factors will drive a solid economic recovery over the year.

Furthermore, fixed investment is also considered as among the major drivers of this growth, which will add 2.8 percentage points to growth in 2022. According to Fitch solutions, this forecast benefits from base effects and also supported by a reduction positive sentiments towards emerging markets.

Furthermore, capital investments in the diamond sector will also increase as the sector recovers. This reflects an increase in production of diamond by a further 5 per cent. There is likelihood for increased investments as Botswana’s National Development Plan focuses heavily on infrastructure spending.

There are however, downside risks to the forecast. Fitch Solutions indicates that any large delays in the domestic vaccination programme could derail the recovery in private consumption that we currently expect.

Moreover, the emergence of vaccine-resistant strains of Covid-19 could also threaten the re-imposition of tighter restrictions in developed markets, which would pose large headwinds for Botswana’s crucial mining sector.

Fitch Solutions hints that the GDP forecast may be revised downwards if these two conditions play out.