Global growth has stabilized, with world output estimated to have grown by 3.7 per cent in 2018 and projected to grow by the same magnitude in 2019.
With the volatility of commodity prices and the rise of trade tensions between the United States and its main trading partners, the external environment has created increasingly adverse conditions for Africa’s growth. According to African Development Bank, higher interest rates in the United States and the strengthening of the US Dollar have put pressure on the currencies of developing countries and increased the costs of borrowing.
While the increase in energy prices gave relief for oil producers, it also worsened the terms of trade for oil importers. African Development Bank said in 2018, Africa’s Gross Domestic Product GDP growth reached an estimated 3.5 per cent, roughly the same as in 2017 and up by 1.4 percentage point from 2.1 per cent in the previous year 2016. In the short term, growth is projected to accelerate to 4 per cent in 2019 and 4.1 per cent in 2020. These projections are higher than those of other emerging and developing regions.
However, domestic risks, in addition to external constraints, could limit the continent’s growth. These include climate change, security and migration concerns, increasing vulnerability to debt distress in some countries, and uncertainties associated with elections and political transitions. In 2018, ADB reported, while East Africa remained the fastest growing region at 5.7 per cent, North Africa contributed the most to overall African GDP growth, accounting for 37 per cent.
The general drivers of Africa’s economic growth have been gradually rebalancing, moving from consumption to investment and exports. The recent commodity price rebound and particularly the increase in oil prices supported the recovery of commodity exporters. Overall, 17 African countries achieved real GDP growth higher than 5 per cent in 2018, and 21 between 3 and 5 per cent.
Only five African countries recorded a recession in 2018, down from eight in the two previous years. Six of the world’s ten-fastest growing economies (Burkina Faso, Cote d-Ivoire, Ethiopia, Libya, Rwanda and Senegal) are African countries. Some of the non-resource-rich countries had high growth rates in 2018, including Cote d’Ivoire (7.4 per cent), Rwanda (7.2 per cent) and Senegal (7 per cent), supported by agricultural production, consumer demand and public investment.
Economic fundamentals in most African countries continued to improve, thanks to fiscal consolidation along with massive investments in infrastructure, major roads in financial innovation, increased domestic demand, and substantial improvements in the investment climate (more than a third of global reforms). On average, Africa’s fiscal deficit declined from 5.8 per cent in 2017 to an estimated 4.5 per cent in 2018, while inflation fell from 12.6 per cent in 2017 to 10.9 per cent in 2018.
However, growth rates remain insufficient to address the persistent challenges of high unemployment, low agricultural productivity, inadequate infrastructure and fiscal and current deficits as well as debt vulnerabilities. Although tax revenues and spending efficiency have improved, domestic resource mobilization has generally remained well short of potential. For instance, 16 African countries were classified as being in debt distress or at high risk of debt distress at the end of 2018.
Debt in Africa has risen steadily in recent years after having declined and stabilized under the Heavily Indebted Poor Countries Initiative, and the Multilateral Debt Relief Initiative. Africa’s public debt represented 58 per cent of GDP in 2017, up from 36 per cent in 2008. The drivers of the rise in debt include low commodity prices, higher infrastructure spending, depreciating exchange rates, rising costs of foreign currency borrowing and greater defence and security spending. The report said there is, however, significant heterogeneity across countries and regions. At the end of 2017, the government debt-to-GDP ratio was below 40 per cent for 16 of 52 countries with data and above 100 per cent for six.
According to ADB, to ensure a high social return on debt-financed public investment, it is important to strengthen the debt-investment link. In this regard, the Bank’s multidimensional approach to mitigating the risk of debt distress in Africa will include tapping new sources of funding to lower the cost of debt; engaging in policy dialogue to raise awareness of debt sustainability at the highest political level; laying the foundation for efficient use of existing resources to limit recourse to additional debt; strengthening country capability to manage debt; supporting efficient and productive use of debt; and building fiscal capacity for increased domestic resource mobilization.
ADB further indicated that Africa has the world’s fastest growing population. The continent’s young labor force is projected to grow at an average rate of 2.75 per cent a year between 2016 and 2030, so an inclusive and pro-employment growth path is crucial to creating enough jobs. In addition, the adverse impacts of climate change, now pronounced, are projected to become even starker by 2050, undermining Africa’s agricultural performance and water and energy security.
These challenges, ADB stressed that call for significant investment and external funding, involving the private sector, particularly in regional infrastructure development and financing. The continent faces a large annual gap of between USD 68 billion and 108 billion in meeting its infrastructure investment needs, estimated at USD 130 to 170 billion a year. African countries must therefore fast-track economic transformation and structural reforms and continue to tap into identified opportunities.
Fostering regional integration would increase trade and economic cooperation and enhance the delivery of regional public goods, according to African Development Bank. The bank said this will also enable countries to move up the ladder through socialization and reverse external imbalances. The African Continental Free Trade Agreement, upon entry force, will contribute to the creation of the world’s biggest free trade area in terms of the number countries involved, and will be an important driver of sustained economic growth.
In line with its High 5 priorities, the Africa Development Bank is ideally placed to enhance social and economic inclusiveness in Regional Member Countries through infrastructure development, agro-industrialization, and improved access to finance and support for regional integration. As a knowledge institution with an overview of Africa, the bank helps to produce and manage knowledge, build capacity and provide sound policy advice to member countries’ decision-makers. It also aims at boosting blended finance for attracting private investment at scale. In this context, the results of the first Africa Investment Forum, organized by the bank in Johannesburg in November 2018, exceeded expectations, resulting in 49 deals totalling 38.7 Billion US Dollars.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.