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CanadaDemand for diamonds is set to rise again in 2025
In 2024, growth slowed sharply. The diamond sector was hampered by sluggish global demand. Nevertheless, domestic demand and, to a lesser extent, investment in copper and silver mining, avoided recession. The Transitional National Development Plan (TNDP), a pre-election stimulus plan led by President Masisi for the 2024 fiscal year, envisages 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 policy rate by 25 basis points in December 2023, followed by a second cut in June 2024 to 2.15%. However, reduced water supplies due to the El Niño weather phenomenon are 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.
The opposition takes power for the first time since independence
Against all expectations, the Coalition for Democratic Change (UDC), the main centre-left opposition party, won the general elections held on 30 October 2024 by winning 31 of the 61 seats in parliament, allowing its candidate, Duma Boko, to become the new president. The Botswana Democratic Party (BDP), led by former president Mokgweetsi Masisi, lost its parliamentary majority for the first time since the country's independence in 1966, winning just one seat. This defeat can be explained by a growing weariness in the face of poverty, unemployment and persistent inequalities. In particular, the UDC enjoyed broad support in urban areas and among young people, while the rural vote, traditionally in favor of the BDP, proved insufficient.
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.
