South Africa, one of Africa’s biggest economies and most advanced is projected to go into significant slowdown in the coming year 2020, this is because of a weak economic growth, deteriorating debt situation and other setbacks for state-owned enterprises currently besieging the over 50 million population country.
Leading global economic think tanks, the International Monetary Fund (IMF) and S&P Global Ratings, have called on South Africa to enact urgent economic reforms. A report issued by the IMF released on Monday following a recent research mission predicted that on current policies, the medium-term growth outlook would remain subdued, accompanied by muted inflationary pressures. According to the IMF, economic growth is set to remain below population growth for the sixth consecutive year in 2020.
In their 2020 Outlook for Emerging market also released this week US rating agency Moody’s revealed that South Africa‘s persisting high unemployment, income inequality and the social and political challenges are proving to be strong obstacles to the government’s plans to raise potential growth. This week at the African Securities and Exchange Association Conference hosted by Botswana Stock Exchange (BSE) in Kasane, First National Bank Botswana (FNBB) Chief Economist, Moathodi Sebabole said the subdued economic growth in South Africa will affect Botswana negatively.
The leading Botswana Economist noted that South Africa is third largest in terms of buying power in the region trailing behind Nigeria and Egypt. When South African economy shakes, households in Botswana feel the imapct, this is because the former is the latter’s biggest trading partner. The trade is a one way street as over 80 percent of Botswana‘s imports and in particular domestic commodities and food supplies are from South Africa.
Between 2014 and 2018, South Africa and Botswana traded R291.9 billion (about P212.2 billion) with Botswana receiving R 263.8 billion (P191.8 billion) worth of goods and services from South Africa, whilst South Africa received only R 28.2 billion (P20.5 billion) worth of goods and services from Botswana. At the South Africa-Botswana Business Forum during the 2019 Global Expo it emerged that between 2014 and 2018 South Africa enjoyed a trade surplus of R 235.7 billion. However, trade between the two countries has been muted, growing at a compound annual growth rate of 1.1 per annum since 2014.
Sebabole observed that the forecasted slow economic growth in South Africa could constrain private investment and household consumption further depressing the country’s ability to produce goods. Potential negative spillovers into Botswana include higher inflation, lower exports and decline in SACU revenue, although the risks are considered to be moderate in the overall depending on growth waves.
Botswana’s trade composition with Africa is relatively concentrated in a few products for exports and diversified for imports. In 2017, intra-Africa exports and imports were valued at about US$757 million and US$3.9 billion, respectively. Intra-Africa exports account for 13% of Botswana’s global exports while intra-Africa imports account for 73% of Botswana’s global imports.
The bulk of exports (90%) were destined to SACU with South Africa accounting for 71% and Namibia 19% of total exports. Other exports were destined to SADC with Zimbabwe Zambia and Malawi as top destinations. Top 10 export destinations accounted for 97% of Botswana’s total intra-Africa exports. In terms of import sources, again SACU members dominated as suppliers with South Africa accounting for 88% share and Namibia another 9% share of total intra-Africa imports. SADC members Mozambique; Zambia and Zimbabwe also feature as top suppliers of Botswana albeit at low base.
Botswana's trade deficit rose to BWP 1,370.8 million in August 2019 from BWP 1,223.5 million in the corresponding month of the previous year. Exports fell 4.2 percent to BWP 3,700.4 million, mainly dragged down by shipments of meat & meat products which declined 48.6 percent , machinery & electrical equipment lowered by 15.4 percent while the main export commodity diamonds reduced by 0.8 percent.
Main export partners were the United Arab Emirates accounting for 25.3 percent of total overseas sales, India coming second at 19.7 percent , Belgium third at 12.6 percent and South Africa just behind at 2.4 percent. This according to Moathodi Sebabole clearly indicates how South Africa is an important trading partner to Botswana
Meanwhile, imports decreased only 0.3 percent to BWP 5,071.2 million, as lower purchases of diamonds -9.3 percent and fuels -9 percent were partly offset by rises in those of food, beverages & tobacco at 19.1 percent; machinery & electrical equipment at 0.4 percent and chemicals and rubber products 8.5 percent.
In the imports fronts South Africa came first at 67.4 percent of total acquisitions, Namibia came second at 10.5 percent and Canada (3.7 percent). Balance of Trade in Botswana averaged -123.06 BWP Million from 2005 until 2019, reaching an all time high of 4102.21 BWP Million in March of 2007 and a record low of -6683 BWP Million in July of 2012.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”