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FM AMEMBASSY GABORONE
TO RUEHC/SECSTATE WASHDC 5691
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJO/AMCONSUL JOHANNESBURG 0932

UNCLAS SECTION 01 OF 03 GABORONE 000275 
 
SIPDIS 
 
STATE FOR AF/S, AF/EPS, EEB 
STATE PLEASE PASS USTR WJACKSON 
 
E.O 12958: N/A 
TAGS: ECON ETRD EFIN EAIR PGOV BC
SUBJECT: BOTSWANA ECONOMIC BRIEFS APRIL 2009 
 
GABORONE 00000275  001.2 OF 003 
 
 
 
¶1.  This is the fourth edition of U.S. Embassy Gaborone's Botswana 
Economic Briefs, covering economic and commercial news from March 
¶2009.  Topics of this edition are: 
 
- Moody's Downgrades Botswana 
- Botswana Inflation likely to hit Single Digit in 2009 
- Botswana Ranked No. 1 in Africa for Mining Investment 
- Relief as BCL Mining company Reduces Retrenchment 
- Diamond Trading Company Reverses Sales Initiative 
- Aviation News: Changes in SAA and Air Botswana Service 
- Botswana Tax Revenues to fall 
- Botswana to come up with Anti-dumping Regulations 
 
 
Moody's Downgrades Botswana 
--------------------------- 
¶2. Botswana's foreign currency rating outlook has been cut from 
positive to stable because of the slump in global diamond demand, 
the country's main source of budget and export revenue.   According 
to Moody's, the current crisis represents a serious risk for 
Botswana's diamond dependent economy.  Moody's statement says that 
the country's reserves are at a risk of being depleted by an 
extended decline in diamond output and large ongoing budget 
deficits.  Last month Standard and Poor's reaffirmed Botswana's 
investment grade sovereign credit rating of 'A/A-1' for foreign 
currency and 'A+/A-1' for local currency but revised the outlook 
from 'stable' to 'negative'.  (Botswana Gazette, March 18-24 March 
2009) 
 
 
Botswana Inflation likely to Hit Single Digit in 2009 
--------------------------------------------- -------- 
¶3. Data from the Central Statistics Office released this week 
indicate that in the month of February, the inflation rate stood at 
11.7 percent, down by 1.1 percentage points from 12.8 percent in 
January 2009.  Observers say the falling numbers are in line with 
expectations as food and energy prices have been stabilizing.  The 
Fund Manager of Investec, Bakang Seretse pointed out that the 
February 2009 inflation stood at 11.7 percent much better their 
expectations of 12.2 percent from a previous 12.8 percent with the 
biggest contributors being food and alcoholic beverages.  The CSO 
data showed that the urban villages inflation rate registered a 
decrease of 0.6 of a percentage point, from 12.5 in January to 11.9 
in February while the rural villages inflation rate dropped by 1.6 
percentage points from 16.3 percent in January to 14.7 percent in 
February.  The cities and towns' inflation rate also went down by 
1.0 percentage point from 11.5 percent in January to 10.5 percent in 
February.  Investec said with inflation coming down, it gives Bank 
of Botswana an opportunity to cut rates aggressively.  Their policy 
setting is now geared towards stimulating non-inflation growth. 
(Sunday Standard, March 22-28, 2009) 
 
 
Botswana Ranked No. 1 in Africa Mining Investment 
--------------------------------------------- ---- 
¶4.  Botswana has once again been named the foremost preferred 
destination for mining and mineral investment in Africa, according 
to the recently released Fraser Institute Survey.  This year's 
Fraser Institute Survey of Mining companies involved more than 3000 
mining entities.  2009 marks the fourth year in a row that Botswana 
has been ranked the preferred mining destination in Africa starting 
from the 2005/06 survey.  According to the survey, mining companies 
throughout the world ranked Botswana first in Africa in terms of 
political stability, security, labor/employment agreements, taxation 
and environmental regulations, though she ranked poorly in the 
infrastructure development category.  Botswana was rated ahead of 
many African countries and eclipsed many developed countries with an 
index score of 64.9.  The survey of Mining Companies 2008/09 also 
indicates that mining companies have a gloomy outlook for the 
industry, with at least 30 percent of exploration companies expected 
to shut down this year and in years to come.  (Mmegi March 17, 2009) 
 
 
 
Relief as BCL Mining Company Reduces Retrenchment 
--------------------------------------------- ---- 
¶5.  Botswana's mining sector continues to sink deeper into trouble, 
but there was relief at BCL in Selebi Phikwe after the mine reduced 
the number of employees to be retrenched from 348 to 200.  The BCL 
Public Relations and Communications Superintendent Mr. Tirelo 
Kganela said the numbers were reduced after the mine froze external 
recruitment for positions affected by the retrenchment.  Despite the 
 
GABORONE 00000275  002.2 OF 003 
 
 
reduction in the number of retrenched employees, BCL remains in the 
grips of a crippling recession caused by a sharp drop in metal 
prices.  An economic analyst said while the number of employees to 
be retrenched at BCL is a lot less than expected, the town of 
Selebi-Phikwe remains in dire need of new investment away from 
mining.  According to the General Manager Mr. Montwedi Phathi, the 
BCL mine is tapping into its reserve for survival.  He said 
depressed copper and nickel prices are another factor which makes 
diversification paramount.  Comment: Economic analysts predict the 
recession will last between 18 and 24 months, but also warn it will 
take longer for the mining sector to recover. End comment. (Mmegi 
March 13, 2009) 
 
 
Diamond Trading Company (DTC) Reserves Sales Initiative 
--------------------------------------------- ---------- 
¶6.  Botswana's Diamond Trading Company (DTC) has reversed a recent 
sales policy initiative to sell diamonds outside its Sightholder 
system.  The DTC Managing Director Varda Shine announced the company 
would explore options of making available to the secondary market 
goods that are not taken up by the DTC Sightholders or selected 
clients.  The rough diamonds offered in this additional sales period 
will include boxes remaining unsold from Sight week and will be made 
available to all Sightholders wishing to inspect them.  DTC is 
estimated to have sold about US$ 125 million during its second 2009 
Sight in February, bringing the first two months of 2009 to US$ 220 
million.  (Mmegi, March 10, 2009) 
 
 
Aviation News: Changes in SAA and Air Botswana Service 
--------------------------------------------- --------- 
¶7.  On March 23 South African Airways began offering flights from 
Johannesburg to Gaborone twice daily Sunday to Friday and once on 
Saturdays.  The airline is using an Airbus 319 on the route, 
equipped with both economy and business class cabins and with a 
passenger capacity of 110.  SAA's sister airline South African 
Express also continues to serve the Johannesburg-Gaborone route 
daily using much smaller regional turboprops.  Air Botswana 
announced this month that it has purchased two new ATR 72-500 
aircraft and began service on new routes March 31.  Air Botswana has 
added a roundtrip twice a week between the tourist destinations of 
Maun and Kasane as well as new roundtrip service from Johannesburg 
to Francistown and Johannesburg to Kasane.  Kenya Airways opened an 
office in Gaborone in late March and announced that they intend to 
begin direct service from Nairobi to Gaborone in the near future. 
 
¶8.  COMMENT:  Until this month, South African Express and Air 
Botswana flights to Johannesburg were the only real options for 
travelers who need to connect from Gaborone to the rest of the 
world.  The introduction of daily service on SAA using larger jets 
has improved options for both tourists and business travelers.  The 
Airbus 319 has a much larger passenger and cargo capacity and this 
brings new competition into the lucrative Gaborone-Johannesburg 
route.  SAA may also be priming the pump for the 2010 World Cup, as 
its new service could allow some soccer fans to stay in Gaborone 
hotels and also get to Johannesburg quickly.  If Kenya Airways 
follows through on its intent to offer direct service from Gaborone 
to Nairobi, that would also give Botswana passengers a welcome new 
option.  Certainly some tourists may wish to see Botswana and Kenya 
without transiting busy Oliver Tambo airport in Johannesburg, and 
Botswana residents with business in East Africa or even North 
Africa/Middle East may find a Nairobi connection very convenient. 
END COMMENT. 
 
 
Botswana's Tax Revenues to fall 
------------------------------- 
¶9.  Analysts have painted a gloomy picture for Botswana's earnings 
in 2009.  An analyst at Motswedi Securities said the current 
economic situation will have an impact on the country's tax revenue. 
 The analyst said as the economy continues to slow down companies' 
profitability will decline and thus pay lower taxes to the 
Government.  Corporate tax and Value Added Tax (VAT) earnings will 
be low this year and will also fall largely because of the squeeze 
on income which could reduce consumer purchasing power.  The 
analysts explained that the government will have to tap into the 
foreign reserves in order to cover the deficit.  He advised that in 
order to counter the possible consequences of drawing on foreign 
reserves the government should consider raising bonds in the local 
markets to raise revenue so that if the crisis is prolonged the 
government would not have to draw everything from the reserves. 
(Botswana Gazette, March 11-17, 2009) 
 
 
GABORONE 00000275  003.2 OF 003 
 
 
 
Botswana to come up with Anti-Dumping Regulations 
--------------------------------------------- ----- 
¶10.  The Government intends to implement the Standard Import 
Inspection Regulations (SIIR), in an attempt to effectively deal 
with the dumping of substandard goods on Botswana's soil.  The 
Botswana Bureau of Standards (BOBS) warned that it had come to the 
realization that Botswana is now being used as a dumping site 
because of her dependence on foreign commodities.  BOBS will be 
implementing the SIIR with effect from April 1, 2009. The purpose of 
these regulations is to reduce importing of substandard goods into 
the country and also to health and safety of the people, animals, 
plants and environment.  The move is expected to get an overwhelming 
support from the Southern African Customs Union (SACU), the Southern 
African Development Community (SADC) and the European Economic 
Partnership Agreements (EPAs), which want to level trading 
arrangements between Botswana and its trading partners.  The 
Director of Regulatory Compliance at BOBS, Botsile Kebapetse said 
the aim of the law is to align the government to good regulatory 
practices applied world-wide, which call for the safety of products 
for consumption.  (Sunday World March 8-14, 2009) 
 
 
NOLAN