Botswana

Résumé pays

Economic performance and outlook:  Botswana continued to recover from setback in 2015, when the economy contracted 1.7% due to weak demand for diamond exports, severe drought, and persistent electricity and water supply shortages. Real GDP growth increased from 4.3% in 2016 to an estimated 4.5% in 2017, driven largely by broad-based expansion in nonmining activities, notably water and electricity; trade, hotels, and restaurants; transport and communication; and construction. The nonmining sector’s buoyancy was underpinned by improvements in the diamond trade and the continuation of countercyclical policies. Although diamond prices gradually rebounded, mining output contracted again, albeit less than in 2016. Extraction and processing of diamonds for export remain Botswana’s main growth driver.

Macroeconomic evolution: Inflation was estimated at 2.8% in 2016, outside the medium-term objective range of 3%–6%, due to low domestic demand and a modest increase in foreign prices. Monetary policy continues to take advantage of the prevailing low inflation rate. Authorities reduced the policy rate by 50 basis points to 5% in October 2017 to support domestic growth. The budget balance swung from three years of surpluses to a deficit in 2016 and back to a modest surplus in 2017. A modest budget deficit is projected for 2018, reflecting lower mining revenues, reduced revenues from the Southern African Customs Union (SACU), and higher spending associated with the economic stimulus program. Return to a surplus is projected in 2020. Public debt fell to 22.3% of GDP in 2017 and remains well below the statutory ceiling of 40%. The current account had an estimated surplus of 12% of GDP in 2017; international reserve coverage stood at 17 months of imports at end of 2016. 

Tailwinds: The economy is projected to see a sustained pickup in the medium term, with real GDP growth projected to rise to nearly 5% in 2018. The good performance in nonmining and the continued recovery in mining are expected to support growth. Although mineral exports are likely to continue to rebound gradually, growth in nonmining is driven largely by service-oriented sectors, notably trade, hotels and restaurants, and transport and communications, supported by accommodative fiscal and monetary policies. The continued expansion of construction, associated with the economic stimulus program and planned upgrades of electricity and water infrastructure, is expected to further boost growth. Manufacturing will recover moderately, benefiting from improvements in electricity generation and water supply. The performance of these sectors will outweigh the sluggish performance in agriculture. Despite good weather, agricultural output will remain subdued as crop production continues to be hampered by traditional farming methods, erosion, and disease. 

Headwinds: Downside risks to the positive medium-term outlook remain elevated. The dependence on diamonds for export and growth makes Botswana extremely vulnerable to external shocks. Key risks include the sluggish recovery of the global economy and uncertainty surrounding global trade and openness, which could reduce export earnings. The underwhelming economic conditions in South Africa could adversely affect SACU receipts, and adverse weather could further weaken agricultural growth and lead to water supply challenges. Delays in construction projects in electricity and water and a slow pace of structural reforms are also downside risks and underscore the need to resolve the energy and water crises and accelerate structural reforms—including reforms to reduce skill mismatches to facilitate economic diversification and increase productivity. Accomplishing these initiatives will promote economic transformation and enhance the resilience of medium-term growth prospects.

Source: African Economic Outlook 2018

Revenu fixe

Summary

The government securities yield curve extended to 25 years with five benchmark points along the curve (2-5-10-15- and 25 years). 

Botswana is 2nd in the ABMDI 2017 Ranking Report.

Issuance strategy 

The government issues debt primarily for capital market development and not to fund the budget. The issuance program is capped at 40% of GDP apportioned as follows: 20% for domestic debt and 20% for external debt. Bonds and Treasury bills are issued through quarterly auctions.   

Benchmark issues 

Constructing a government yields curve is one of the considerations in the government issuance strategy in terms of both new and reopening of existing benchmarks. This helps with repricing and price discovery. There are currently 5 benchmarks with large issue amounts: 2-5-10-15-20 and 25 years. 

Yield curve 

Yield curve calculation models 

Primary dealers quote rates from the markets. Bloomberg also provides yields in real time for individual bonds.   

Interpolation methods 

To fill the gap between two benchmark points, the linear interpolation method is used for reporting purposes. 

Yield curve managed by

The Bank of Botswana (Central Bank) is in charge of calculating the yield curves on a daily basis. 

Display platform 

The yield curve can be accessed from Bloomberg and Reuters. 

Challenges in building an efficient yield curve 

  • Narrow investor base: there are few investors (mainly institutional investors) who buy and hold. 
  • Limited and illiquid secondary market: bonds are illiquid, because of the limited stock investors buy and hold. 
  • Limited competition: the only primary dealers are local commercial banks (5).

Guide d’achat des obligations

Procedures for market participation

Individuals can participate in the auction process (if they have access to timely information).  Alternatively, they can contact one of the Primary Dealers (PDS) appointed by the Central Bank to invest in government securities.

The minimum investment amount in any government securities is P 10,000.

Settlement cycle

The settlement cycle is T+3 days.

Taxation

In accordance with the 7th schedule to the Income Tax, non-residents are subject to a 15% withholding tax; residents, except those exempted from tax, on the other hand must pay 10%

There is no capital gains tax.

Botswana has double tax agreements with the following countries:

  • Barbados
  • France
  • India
  • Mauritius
  • Swaziland
  • Luxembourg
  • Mozambique
  • Namibia
  • Seychelles
  • South Africa
  • Sweden
  • UK
  • Zimbabwe
  • Belgium
  • Lesotho

Market restrictions

Openness to international investors 

Botswana has been lauded for creating an investor friendly environment. In 2014, the country was rated 52th out of 189 countries in the World Bank Ease of Doing Business. The government is engaged in promoting its private sector; a number of measures have already been taken such as the enactment of the Companies Act regulation and the passing of the new Industrial Development Bill.

The Botswana Export and Development Investment Authority (BEDIA) is the institution that is in charge of promoting the local and international competitiveness of the country. The Ministry of Finance is finalizing a new Foreign Direct Investment Strategy.

Foreign investors are given equal access to investment incentive schemes (grants and loans) for medium and large projects provided they partner with a citizen of Botswana. Grants and loans designed for small and medium enterprises (involving less than P 75,000) are however reserved for citizens of Botswana. Foreigners are allowed to engage in any kind of financial investment (bonds or equities); however, they can only trade and issue debentures of over one year.

Capital Controls

Since 2005, the Bank of Botswana (BoB) embraced a strict exchange rate policy. The value of the national currency, the Pula, is maintained within a narrow range from a basket of currencies.

Restrictions on foreign exchange and profit repatriation

Foreign exchange controls were abolished in February 1999. Consequently, any capital or interest can be remitted without limitations or restrictions (subject to availability of foreign currency reserves).

Credit rating

In February 2015, S&P confirmed Botswana foreign long and short-term foreign currency sovereign ratings, with a stable outlook

List of Primary Dealers

The Primary Dealers authorized to operate in Botswana are:

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