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Botswana faces colossal trade deficit amid weak diamond trading

Latest released statistics shows Botswana choking at a trade deficit of more than P3 billion. And this current drift is contributed mostly by the dwindling diamond exports, a red flag for the diamond dependent economy.

The latest released International Merchandise Trade Statistics which covers the last quarter of 2019 until now for Statistics Botswana and released in December, shows signs of an economy with a niggling trade deficit. The last time Statistics Botswana compiled information on trade during October 2019, Botswana registered a trade deficit of P3, 425.1 million. During October 2019, Botswana’s total imports were valued P5, 587.0 million, resulting in an increase of 3.8percent compared to the revised September 2019 value of P 5, 383.4 million.

According to Statistics Botswana total exports for the period under review were valued at P2, 161.9 million, registering a decrease of 49.3 percent from the previously revised period which had a value of P4, 260.2 million. During the current period according to the national statistics body Botswana exported Diamond accounting 79.2 percent of total exports. Machinery & Transport Equipment and Meat & Meat Products followed with 5.7 percent and 3.9 percent respectively.

According to Statistics Botswana, India and United Arab Emirates were the major destinations for Botswana exports, having received 28.8 percent and 18.7 percent respectively, of total exports during October 2019. Statistics Botswana says Belgium and South Africa received 14.7 percent and 12.2 percent respectively. The fall of 49.3 percent of exports was mainly attributed to the 54.2 percent (P2, 026.6 million) decline in Diamonds exports during the current month compared to the value recorded for the previous month.

The diamond was not the only culprit to this country’s low export rate, it is lined up with Salt & Soda Ash which dropped by P25 .3 million or 41.6 percent from the previous quarter which is Q3. Salt & Soda Ash had dropped from P60.9 million during September 2019 to P35.6 million during the period under review. In the latest international merchandise trade statistics, Botswana exports P623.2 million worth of diamonds to India which is a leading buyer of Botswana stones.

United Arab Emirates bought diamonds worth P403.5 million while Belgium, Botswana’s biggest EU partner imported rough diamonds worth P317.5 million. The world’s biggest economy USA even trails Israel as it bought P47.2 million of diamond while Israel paid Botswana P178 million for its precious stones. Currently riddled by political protests Hong Kong remains in the top five of Botswana’s top diamond buyers as it imported diamonds worth P83 million.

Botswana’s neighbor and one of Africa’s leading economy is not a big fan of Botswana diamonds as it only bought P10 million worth of the stones in the period under review. South Africa mostly buys machinery and electrical equipment from Botswana which was worth at P104.7 million in the period under review. Most of Botswana’s exports, mostly diamonds, in the just ended quarter of 2019 were transported by air and they were worth P1, 8 billion or 82.6 percent of the entire export bill. Road transport accounted for 16.5 percent (P356.0 million) of total exports during the month under review.

Botswana dogged by trade deficit as it is currently an import dependent economy

The trade deficit of P2 billion which was recorded by Statistics Botswana shows a continue trend of the country living at a negative trade balance. Last year the trade deficit rose from P1 billion in October to P2 billion in December. For October 2019 it was already at P3 billion and trade expects said it is going to soar to more than P4 billion in December 2019 given the bad year that was last year.

In 2017 Botswana’s trade balance has been flip flopping and fluctuating with quarters of the year and months. Botswana ended the first quarter of year 2017 with a trade deficit and continued to the next quarter with a trade balance running at a negative before recovering in the third quarter albeit flip flopping between getting trade surplus and trade deficit.

The story of bad trade balance did not end three years ago, it even continue to 2018, with some months having trade surplus while some experiencing. This trend was inherited by Botswana trade dynamics towards last year where the country only experienced trade surplus only in January and June. In other months Botswana was grappling with a huge trade deficit. Statistics Botswana is yet to release the November and December trade statistics.

According to Statistics Botswana, a trade balance refers to the total value of goods exported minus the total value of goods imported by a given economy in a given period of time. A positive trade balance (trade surplus) indicates that a country is exporting more in value terms than it is importing. A negative trade balance (trade deficit) indicates that the country is importing more than it is exporting.

High import bill

The Botswana imports which were more than exports, causing a huge trade deficit in the year under review amounted to P5.6 billion. This resulted in an increase of 3.8 percent when compared to the previously revised period of 2019 where they were valued at P 5, 383.4 million.

According to Statistics Botswana, Diamonds contributed the most to the total imports, at 24.8 percent (P1, 385.5 million) followed by Food, Beverages & Tobacco and Machinery & Electrical Equipment at 14.6 percent (P813.1 million) and 12.9 percent (P722.2 million) respectively. Fuel contributed 12.4 percent (P693.3 million) while Chemicals & Rubber Products contributed 10.2 percent (P569.2 million) to total imports during the period under review.

Most of the imports from SACU came from South Africa followed by Namibia, accounting for 65.4 percent and 10.5 percent respectively, according to Statistics Botswana. South has a contribution of 65.4 percent (P3, 7 billion) of total imports during the month under review. Botswana is known to be dependent on its southern neighbor for Food, Beverages & Tobacco and Fuel and in the period under review these commodities were the top most imported goods from South Africa, with contributions of 20.8 percent (P759.6 million) and 16.1 percent (P588.1 million) respectively.

A lot of Botswana’s import bill shows that most of the commodities were also sourced from Asia and these main commodities imported from the region were Diamonds and Machinery & Electrical Equipment with contributions of 28.9 percent (P157.5 million) and 17.7 percent (P96.4 million) respectively. According to Statistics Botswana Asia also sold Chemicals & Rubber Products and Vehicles & Transport Equipment made contributions of 14.9 percent (P81.1 million) and 13.9 percent (P75.6 million) respectively. India and China were the main sources of imports from Asia, having supplied 3.1 percent (P175.7 million) and 2.4 percent (P132.2 million) respectively, of total imports during the season under review.

Also seen on Botswana’s import bill is the European Union (EU) which supplied imports valued at P372.5 million, accounting for 6.7 percent of total imports during October 2019. In the region Belgium and the United Kingdom were the main sources of imports from the EU, having contributed 3.0 percent (P165.4 million) and 1.3 percent (P70.6 million) in that order, to total imports during the month under review.

During October 2019, Canada supplied 4.5 percent (P250.5 million) of total imports to Botswana. Most of the imports from Canada were unsorted Diamonds at 98.9 percent (P247.7 million) of total imports from that country, according to Statistics Botswana. Statistician General, Burton Mguni recently said as a result, international merchandise trade statistics remains one of the major contributing indicators of the performance of a country’s economy and its competitiveness on the world market. He said the report is a compilation of the country’s national accounts and balance of payments percent and 12.2 percent respectively.

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Botswana’s development agenda in jeopardy

21st September 2020
Botswana’s-development-agenda-in-jeopardy--water-construction

Stanbic Bank Botswana Quarterly Economic Review indicates that Botswana will fail to meet some of its Vision 2036 targets, particularly unemployment reduction and reaching high-income status.

The report says this is mainly due to the slow economic growth that the country is currently experiencing. This Quarterly Economic Review focuses on the 2020 Budget Speech.

The first paper reviews the entire budget with its key observations being that this budget is prepared as prescribed by the Public Finance Management Act; the priorities it seeks to address are drawn from Vision 2036 and the eleventh

The 2020 budget Speech, which was the maiden speech by the Minister of Finance and Economic Development, Dr. Thapelo Matsheka, and the first after the 2019 general elections, was delivered to Parliament on the 4th of February 2020.

It has been well received by the labour unions, business community, and the public at large as well as international organisations such as the International Monetary Fund (IMF).

It mainly derived its support from key facets including, emphasis on changing the business-as-usual approach to development; outlining the transformation agenda; fiscal reform that minimizes the negative impact on economic development and human welfare, competiveness and the decision to implement the 2019 negotiated and agreed public sector.

The budget’s progress review shows that economic growth was consistent with the NDP 11 projections, with growth of around 4 percent. At this growth rate, the country would neither ascend to a high-income status nor reduce unemployment towards the Vision 2036 target of a single digit.

Simple calculations of this review confirm that the economy will need to grow the Vision 2036’s target of 6 percent over the next 16 years for per capita income to increase from around USD 8,000.00 to above USD 12,000.00 in current prices.

Further, the population is anticipated to grow by only 2 percent per annum.

For this reason, the focal areas for the forthcoming FY’s budget include measures to increase economic growth towards an average of 6 percent per annum.

Economic diversification is reportedly progressing fairly well. The report says, the share of the non-mining private sector in value added has risen to 66 percent in 2018 from to 63 percent in 2015.

The sectoral pattern of growth showed that the performance of services sector (particularly transport & communications, trade, hotels & restaurants, and finance & business services) has been the silver lining and that of mining sector was subdued whilst the utility sector disappointed.

The drive towards the service sector of the economy, especially to low-productivity activities (tourism, public administration, wholesaling and retailing) does not bode well for the country’s development aspirations.

In the previous versions of this Quarterly Review, it was noted that there is need for the rethinking of economic diversification. Since the country’s domestic market is small, it is inevitable that economic diversification not only focus on broadening the product mix, but also the composition of exports and markets.

This understanding of economic diversification has not been embraced by this year’s budget. Consequently, Botswana’s exports are still overwhelmingly diamonds, which means that the rest of economic sectors are still highly dependent on foreign-exchange earnings from diamonds. Thus, “the transformation programme requires a review of the country’s entire ecosystem”.

The budget review of the economic context also depicts that an economy with positive medium-term prospects, with growth expected to recover to 4.4 percent in 2020 from the expected growth of 36 percent in 2019 largely due to faster growth of services sectors and, thereafter, to slow-down to 4 percent in 2021.

These projected growth rates are comparable to those of the IMF staff’s baseline scenario of 4.2 percent in 2020 and 4 percent in 2021. Thus, the business-as-usual scenario produces growth rates that are still too low to achieve Botswana’s development objectives and create enough jobs to absorb the new entrants into the labour market.

Trade tensions between the two major markets for diamond exports, viz., the United States of America and China, is one of the factors that are cited as contributing to, indeed, undermining not only the domestic growth, but also the fiscal position.

Another notable downside risk to both global and domestic growth is outbreak of the coronavirus in China around January 2020. This has been declared as a global health emergency. In an attempt to contain the spread of the novel coronavirus pneumonia, the Chinese authorities have ordered city lockdowns and extended holidays, of course, at the expense of near- term economic growth, according to the new Stanbic Bank Botswana report.

According to Nomura Holdings Inc., fewer migrant workers returned for work than in previous years and business activities have been slow to pick up. The havoc wreaked by the virus on the world’s second largest economy is likely to spill over to the global economy. In fact, it has resulted in a glut in crude oil and, thereby placed oil markets into a contango, i.e., a market structure where near-term prices trade at a discount to future contracts.

It also presents significant risks one of Botswana’s main drivers of economic growth, diversification and foreign exchange earnings. According to the Financial Times (February 13, 2020), Chinese tourists spent $130 billion overseas in 2018. Regardless of whether the growth materializes, the projected domestic growth rate would not transform the economy to a high-income one.

Progress towards reduction of unemployment, to a target of single digit, and poverty and achieving inclusive growth has also been relatively slow, the Stanbic Bank Botswana Review says.

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OP leases Orapa House

21st September 2020
Orapa House

Ministry of Presidential Affairs, Governance and Public Administration (MOPAGPA) has through the Office of the President (OP) proposed to avail Orapa House for use by private training institutions as well as research institutions involved in the area of technology development.

For a very long time the monumental building located in the heart of the city has been a white elephant, despite government purchasing it for nearly P80 million from De Beers in 2012.

However, government has now identified a productive use for the iconic building. “The overall vision is for the building to be transformed into a hub for digital technology research and development to be carried-out by institutions, such as; Limkokwing University, BIUST, BITRI and other relevant stakeholders.”

The decision was taken as government traverse a new path of transforming the economy from a mineral led economy to a knowledge based economy through the promotion of research and innovation. However, the facility will need major maintenance to be carried-out in order to meet the requirements of the proposed change in use.

“The work will include provision of laboratories, work stations, production areas and seminar rooms; audio visual centre, high speed internet connectivity, exhibition areas and offices,” reads the proposal note for the development.

These developments will be done through the refurbishment and maintenance of the main building, workshop, and ablution block, gate house, parking area, grounds, and access control and security service.

“There will be minimal modifications to the structure as it stands. The project is estimated to cost approximately P50, 000, 000,” says the report. In this regard, it is said, the initial scope of the OP facility will be modified to accommodate the envisaged digital technology research and development hub.

With funds needed to improve the building, OP has requested that; “the 2020/21 annual budget provision for Orapa House will need to be increased by P37,500,000 from P2,500,000 to P40,000,000 to kick start the maintenance works.” Funds will be sourced from the projects that have been delayed due to Covid-19 protocols during the 2020/21 financial year.

The building has been a thorny issue for government for years. Initially, OP was expected to move there but the move never materialised. At one point it was a question of whether the Office of the President and the Ministry of Finance and Economic Development were planning to override a decision by Parliament which rejected the proposal to buy Orapa House under the belief that government may be buying its own property. The building was to be bought at a negotiated cost of P79 million.

Again in 2012, Government had wanted to buy Orapa House for a negotiated P79m but the Finance and Estimates Committee of Parliament had rejected the request because of the inconsistencies realised in the supporting documents of the proposed procurement. The valuation of the building was put at P74 million.

The Ministry of Lands and Housing had initially offered De Beers P73, 000,000 as the purchase price. However, De Beers countered with P85, 000,000. On negotiation and converging of the minds, the selling price was finally agreed at P79, 000,000.

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Sad state of Brigades: dumped and ignored!

21st September 2020
Brigades

Auditor General, Pulane Letebele, has expressed discontentment at the worrying and deteriorating state of brigades in the country.

In an audit inspection which was carried out at Tshwaragano Brigade in Gabane, a number of observations showed weaknesses and shortcomings in the conduct of the financial affairs of the institution.

According to Letebele’s report, former students of the brigade had been engaged to carry out maintenance works on the school premises, comprising of painting, tiling, plumbing and electrical works, which covered the period from July 2017 to June 2018.

Although the agreed maintenance period had elapsed, the works had not been completed because of unavailability of funds and this situation had persisted up till the time of inspection in November 2019.

Auditor General says arrangements should have been made in time for funds to be available to complete these relatively minor works even before the works commenced.

Various contractors had been engaged for clearing the bush and for the supply of concrete stones, pit and river sand and hiring equipment for digging the trench towards the construction of an auto mechanics workshop, the report said.

It stated that the cost of services and supplies provided totalled P117 949.80. However, despite the services and the supplies having been paid for, the construction works had not commenced for a long period afterwards, resulting in the trench filling back in.

The audit inquiries had not elicited satisfactory responses as both the institution and the Ministry had not accepted the responsibility for the project, although orders for the provision for the supplies had been made. For their part, the Ministry had stated that they had sub warranted funds for the purchase of porta cabins.

Letebele indicated that it is therefore confusing that a project which is critical to the functioning of an institution such as this one would commence without a well-defined plan.

Furthermore, the accounting and maintenance of records for the supplies items were not of the standard prescribed by the Supplies Regulations and Procedures in that the supplies ledger cards, the main accounting records for Government assets, were not properly maintained for the recording of receipts and issues.

This had resulted in significant discrepancies between physical and ledger balances, while in other instances the supplies items had not been recorded at all.

The report says 24 of the 91 new computers found in the computer laboratory at Kumakwane ABC campus were not recorded anywhere, as were the other computers in the storeroom which could not be counted due to the disorderly storage conditions.

The institution had entered into a contract agreement with a security company for the provision of security services at Tshwaragano Brigade, ABC and Horticulture campuses at Kumakwane for a 2-year period which ended in June 2018, WeekendPost learnt.

After the contract expired in June 2018, an extension was granted till the 30th September 2018. Since then, there has been no security service coverage for the institution to-date. According to Auditor General, in the face of prevailing crimes, it is of paramount importance that government properties be protected by provision of security services at all times.

At Tlokweng Brigade, it was noted that the kitchen staff were working under difficult conditions as the kitchen facilities and equipment, such as the cold room, tilting pot, food warmers and solar power for hot water were dysfunctional. The kitchen roof was leaking and men’s restrooms was not working. All these need to be brought to a reasonable and functional state of repair.

The kitchen staff should use a purpose-designed Rations Ledger for the recording of receipts and issues of foodstuffs to reflect the usage of those items. As far back as 2014 the Department of Buildings and Engineering Services had found that the house occupied by the bursar was uninhabitable on account of structural defects, the report said.

A site visit during the audit had established that the house was indeed unfit for occupation as there were cracks on the walls, power switches were not working and the roof was leaking. On a sadder note, there were a number of finished items of clothing, such as dresses, shirts, and jackets from students’ practical exercises from the Fashion Design Textiles Workshop.

Auditor General shared her take on this, saying: “I have not been able to ascertain the policy on the disposal of products from these practicals. A trace of 103 green acid-proof overalls which had been purchased in August 2018 had indicated that there was no record of these items having been recorded or issued, nor were they available in stock. I was not able to obtain any explanation for this situation.”

Kgatleng brigade was also audited and inspected by Auditor General who observed that the brigade has 26 institutional houses at Bokaa, both old campus and new campus. Some of these houses are very old and dilapidated, with two declared uninhabitable. The condition of the houses is a clear indication of lack of care and maintenance of these properties.

At the time of the audit, there was no contractor engaged for the provision of security guard services at the new campus, after expiry of the previous one in July 2019.  It is hoped that steps would be taken to safeguard the security of the premises and government properties against any acts of hooliganism.

In August 2019, there was a break-in at the electrical and at the plumbing maintenance workshops and a number of high value items, such as drilling machines, bolt cutters, spanners and cables, were stolen. The break-in and theft were reported to the police.

“However, at the time of writing this report I was not aware of the outcome of the police investigation, nor of any loss report submitted in terms of the Supplies Regulations and Procedures,” Letebele said.

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