Political Risk Analysis - Botswana To Remain An Investor Favourite - MAY 2018


BMI View: Botswana is likely to benefit from continued political stability in the run up to the 2019 general election, as a broad-based economic recovery will likely temper social tensions in the short-term. Meanwhile, with the new government - headed by vice president Mokgweetsi Masisi - likely to increase spending on major capital development in a bid to distance himself from his predecessor, this will also bolster the country's business environment.


Botswana will likely enjoy continued broad-based political stability following the formation of a new government led by vice president Mokgweetsi Masisi, as robust economic recovery and increased fiscal spending will assuage popular discontent in the short term. Masisi is set to take office in April 2018 after Ian Khama, the incumbent president, steps down 18 months before the general elections. This is in line with tradition in Botswana, wherein presidential terms are not aligned with the national election. Population's frustrations with the country's ruling Botswana Democratic Party (BDP) partially stem from the perceived failure to ensure adequate sharing of the wealth generated from the country's vast diamond reserves. This discontent is at least partially reflected in faltering approval ratings for the ruling BDP, which has done successively worse in each election since independence in 1965, now holding only a small majority in parliament (see chart below). That said, broad-based economic growth will go part of the way toward cooling dissatisfaction, generating employment opportunities for the youthful. We also believe that efforts to implement a government development plan, which will focus on addressing Botswana's energy generation shortcomings, will have a positive impact on perceptions of the ruling party and temper concerns over the direction of the economy. While we believe the government will be focused largely on its domestic audience as it attempts to push forward infrastructure development, we note that such projects will also help to address key gaps in logistics, boosting Botswana's attractiveness to foreign investors.

Support For BDP Steadily Declined
Botswana - Share Of Vote And Proportion Of Parliamentary Seats Won By BDP
Source: Independent Electoral Commission, BMI

Economic Recovery To Maintain Short-Term Political Stability


A recovery in real GDP growth in 2018 will help to bolster popular sentiment. Indeed, we expect growth to come in at 4.5% in 2018, marking a sharp acceleration from the estimated 1.5% growth in 2017 (see 'Mining Growth To Drive Economic Recovery In The Next Two Years', January 25 2018). While it will not address the root of the problem, the uptick in growth may help assuage some of the long-standing public discontent over continued economic inequality. Indeed, according to a January 2018 Afrobarometer poll, 73.0% of Botswanan cited a lack of employment as one of their most important concerns that the government should address. This likely reflects the limited economic opportunities on offer, as with high unemployment rates and a Gini coefficient of 60.5% in 2016, Botswana has the world's third highest level of inequality, according to the World Bank. Our beliefs for the economic recovery to temper popular discontent are reflected in the country's relative outperformance in our proprietary Short-Term Political Risk Index, which ranks Botswana third amongst Sub-Saharan African countries with a score of 75.4 against a 53.7 average for the region.

New Government To Raise Expenditures To Win Back Popular Support


On top of improving economic growth, increasing fiscal expenditures in FY2018/19 will also support popular sentiment as current Vice President Mokgweetsi Masisi steps into the role of acting president and attempts to rehabilitate the image of the ruling BDP ahead of the 2019 general election. We believe that the 'fresh start' offered by Masisi will see the government focused on pushing through to completion a number of major development projects.

We would normally expect the government to raise recurrent expenditures, increasing wages and expanding public-sector employment in a bid to secure short-term popular support. However, in this instance, we think Masisi's administration will more likely boost capital expenditures under its eleventh National Development Plan (NDP11), a programme meant to support economic diversification through heightened investment into energy infrastructure. We see the move as largely aimed at helping to distance the new administration from the current government, showcasing Masisi's ability to deliver on his predecessor's unfulfilled promises. Indeed, Khama's cabinet was responsible for halting or delaying the construction of several infrastructure projects such as the Sir Seretse Khama International Airport or the Morupule B Power Station, often due to the lack of sufficient strategic planning. As such, we see Masisi as keen to differentiate himself from his predecessor.

Botswana To Outperform SSA In Operational Risk
Botswana - Operational Risk Index, Subcomponents, scores out of 100
Source: BMI. Note: Highest Scores Mean Lower Risk

While we see the ramp up in infrastructure spending as largely an attempt to boosting popular support, we believe that Masisi's commitment to energy infrastructure investment will also strengthen the business environment in the longer term. Indeed, while Botswana already benefits from a relatively robust operational environment, the country's significant shortcomings in domestic energy generation have long weighed on mining and business operations. This has seen a number of companies forced to rely on energy imports from neighbouring countries or expensive diesel generators to supply for their activities. An improvement in Botswana's energy infrastructure factors will contribute to keep the country's amongst the favourite investment destinations in Sub-Saharan Africa.