Despite recent progress, industrialization in least developed countries is still too slow to meet the 2030 target. This is according to United Nations 2019 report on Sustainable Development Goals released recently.
According to the report, the growth of manufacturing in both developing and developed regions slowed in 2018, attributed largely to emerging trade and tariff barriers that constrain investment and future expansion. Despite the slowdown, the global share of manufacturing vale added in Gross Domestic Product GDP increased marginally-from 15.9 per cent in 2008 to 16.5 per cent in 2018, when it began to plateau. In LCDs, the share of manufacturing in total GPD increased 2.5 per cent annually between 2015 and 2018.
However, that still falls short of the pace needed to achieve a doubling of the MVA share in GDP by 2030, and calls for accelerated action. The disparities in industrial productivity between rich and poor nations remain stark. For instance, MVA per capita was only 114 US Dollars in LCDs compared to 4.9 in Europe and Northern America, in 2018.
Inclusive and sustainable industrialization, together with innovation and infrastructure, can unleash dynamic and competitive economic forces that generate employment and income. They play a key role in introducing and promoting new technologies, facilitating international trade and enabling the efficient use of resources. However, the world still has a long way to go to fully tap this potential.
LCDs, in particular, need to accelerate the development of their manufacturing sector if they are to meet the 2030 target, and scale up investment in scientific research and innovation. On a positive note, the carbon intensity of manufacturing industries declined at an annual rate of almost 3 per cent from 2010 and 2016, showing a general decoupling of CO2 emissions and GDP growth. Total official flows for economic infrastructure reached 59 Billion US Dollars in 2017, an increase of 32.5 per cent in real terms since 2010. Further, impressive gains have been made in mobile connectivity.
It was noted that small-scale industries in the poorest countries lack the financial services they need to grow and innovate. Such industries are the backbone of industrial development in developing countries. With a relatively small amount of capital investment and a predominantly local resource base, small-scale industries generate a substantial amount of employment and self-employment.
However, one of the biggest challenges those industries face is access to loans or lines of credit for everyday business activities. Adequate financing is crucial for those industries to grow, since it allows them to innovate, improve efficiency, expand to new markets and create new job opportunities. While 31.5 per cent of small-scale industries worldwide benefit from loans or lines of credit, regional differences stand out. For instance, more than half of all small-scale industries in Latin America and the Caribbean receive those types of financial services, compared to 20.7 per cent in Sub-Saharan Africa.
Higher-tech manufacturing is growing worldwide, except in Sub-Saharan Africa, according to the UN report. Recent years have seen a steady shift away from resource-based, low-tech manufacturing activities towards those that are medium-high to high-tech. Those higher-tech manufacturing sectors are often reliant on the latest technologies and produce a wide array of consumer goods, from computers, televisions and other communications devices to appliances and other household equipment. The demand for such products tends to increase as income levels rise.
The share of medium-high and high-tech industries in total MVA increased from 40.5 per cent in 2000 to 44.7 per cent in 2016, with large differences across regions. In Eastern and South-Eastern Asia and in Europe and Northern America, for example, over 47 per cent of total MVA came from higher-tech sectors in 2016. In contrast, the shares in Oceania and Sub-Saharan Africa were only 1.9 per cent and 14.9 per cent respectively. In Sub-Saharan Africa, the proportion of medium-high- and high-tech MVA in total MVA actually fell between 2000 and 2016, but rose in all other regions.
Global spending on research and development has reached 2 trillion US Dollars a year, with wide disparities among countries. The report underlined that the proportion of global GDP invested in research and development increased from 1.52 per cent in 2000 to 1.68 per cent in 2016. In absolute terms, global R and D investment reached 2 trillion in 2016, up from 739 billion in 2000. That represents an average annual growth rate of 4.3 per cent when adjusted for inflation. Wide disparities are found among regions.
In Europe and Northern America, 2.21 per cent of GDP was spent on R and D in 2016, compared to 0.42 per cent and 0.83 per cent, respectively, in Sub-Saharan Africa and Western Asia. Such disparities indicate the continued need for strong policy support for increased financing for R and D in developing regions.
Further, the report noted that fixed-broadband internet connections remain out of reach for many people. But coverage of mobile-cellular signals and mobile-broadband internet has expanded rapidly, now reaching almost the entire global population. In 2018, 96 per cent of the world population lived within reach of a mobile-cellular signal, and 90 per cent of people could access the internet through a third generation or higher quality network.
However, while most live within range of these signals, not all are able to take advantage of them. The cost of accessing internet remains too high for many, particularly the most disadvantaged and at-risk populations groups. In fact, just over half of the world’s population is currently using the internet, with rates much lower in LCDs, about 20 per cent.
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”