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CanadaDemand for diamonds is set to rise again in 2025
In 2024, growth is expected to accelerate slightly. It will be supported by domestic demand and, to a lesser extent, by the mining sector (around 16 % of GDP in 2023 ), with high copper and silver prices supporting investment in new capacity and maximising production. Nevertheless, the diamond sector will come up against sluggish global demand. The Transitional National Development Plan (TNDP), a pre-election recovery plan put forward by President Masisi for the 2024 fiscal year, provides for the development of infrastructure projects to improve access to markets and reduce transport costs, as well as improving the skills of the population to combat unemployment. In addition, inflation fell considerably in 2023 due to lower prices for imported raw materials. As a result, the Bank of Botswana lowered its key rate by 25 basis points in December 2023, followed by a second cut in June 2024 to 2.15%. However, the reduction in water supply due to the El Niño weather phenomenon is compromising agricultural yields, which could lead to inflationary pressure on food products.
By 2025, sales of diamonds (95% of the mining sector) are expected to have risen by and, therefore, growth. In addition, diamond production is set to increase with the extension of the 50/50 partnership in Debswana (the country's largest diamond mining company) between the Botswana government and De Beers for a further 35 years. The new agreement will facilitate expansion projects at the Jwaneng and Orapa mines by providing access to deeper diamond deposits. Initial work is due to start in May 2024. However, Botswana's dependence on South Africa (faced with an energy deficit) for a quarter of its electricity supply represents a risk for the performance of the mining sector. Upscale tourism (10% of GDP) will also benefit from the upturn in global economic activity. In addition, the 12ème Five-Year National Development Plan will be launched in April 2025. This plan aims to lead the country towards higher and sustainable growth, and therefore to stimulate investment. It is based on a number of areas, including development of the financial sector, innovation, green transition and education.
Temporary deterioration of public accounts in 2024
The budget deficit is expected to widen in the 2024 financial year, due to the government's pre-election commitment to increase development spending (particularly under the TNDP). This temporary deficit will be financed from the reserves of the Pula Fund (a sovereign wealth fund created in 1994 to preserve part of the revenues from diamonds for future generations), valued at USD 3.7 billion (19% of GDP in 2023), and by issuing domestic bonds. Following this expansionary budget, the government aims to introduce fiscal consolidation. Given the economic growth expected in 2025, with the recovery of the diamond market, the effort is not expected to be significant. The ratio of public debt to GDP, which is already well below the statutory ceiling of 40%, should decrease. In addition, the current account surplus should improve slightly by 2025. An upturn in global demand for diamonds should offset the rise in imports linked to mining, while revenues from SACU (¼ of total revenues) should increase, despite their expected slight decline. Despite the price of Brent crude oil remaining above USD 80 a barrel, the trade balance should return to a surplus. Foreign exchange reserves (equivalent to 8 months of imports from 2023, at May 2024), underpinned by rising export revenues and foreign investment. This comfortable level lends credibility to the currency's sliding exchange rate regime, indexed to a basket of currencies dominated by the rand.
Unsurprising elections in 2024
Parliamentary elections will be held in October 2024. The Botswana Democratic Party (BDP), led by President Mokgweetsi Masisi, has held a majority in Parliament since the country gained independence in 1966. It is expected to retain this majority, although it is likely to be reduced, thanks in particular to support from country voters. The main opposition party, the center-left Coalition for Democratic Change (UDC), despite its popularity in urban areas and among young people, is unlikely to make sufficient inroads. In addition, its former partners (the Botswana Patriotic Front and the Botswana Congress Party) have withdrawn from the opposition coalition. The UDC currently holds just 12 of the 57 seats, compared with 38 for the BDP. However, the weariness of part of the population after nearly sixty years of power by the BDP, poverty and persisting inequalities despite a rather favorable economic context, could favour the opposition. Unemployment, infrastructure spending and the low level of representation of women and young people will be central issues in these elections.
Ties with South Africa are expected to remain significant due to trade links and cross-border infrastructure projects (mainly in the transport and energy transmission sectors). Botswana will also continue to enjoy good relations with its traditional trading partners in Europe and North America thanks to its stable democracy. Last, boasting 200 trillion tons in coal deposits, Botswana is looking to diversify its economy away from dependence on the diamond sector and towards energy self-sufficiency. In particular, the country plans to start building a new 600MW thermal power station from 2025. However, Botswana's plans for coal are at odds with the global trend towards renewable energy sources.
