The World Economic Forum (WEF), a global non-governmental organization creating a platform for views exchange on investment, economic and developmental issues across the world last week gathered African Head of States, business leaders and think tanks in Cape Town, South Africa for the Africa 2019 Edition.
The Forum came at a time where Africa and the world were still struck by the attacks on foreign nationals by South Africans in Johannesburg, popularly known as Xenophobia or Afrophobia. The attacks were concentrated on middle class commercial outposts, targeting foreign traders and hawkers who according to South Africans were taking up their jobs and trading space.
On Nigerians in particular the horrific burning down of trading facilities, business properties and assets was reported to be fueled by Nigerian alleged dealings on illicit drugs and organized criminal activities in turn eroding community ‘s moral fabric sending South African youngsters to sorry state of addiction and disorganized lives .
Conversations at the forum have attributed these attacks on inequality and inability of African governments to create significant and sustainable means of livelihood for its people. “It is corruption, poor administration, unequal distribution of resources and high levels of poverty that fuels this influx of Nigerians and other nationals out of their home countries in the first place,” said Obiageli Katryn Ezekwesili, former World Bank Africa Vice President during a panel discussion on unemployment.
The renowned Nigerian scholar, researcher and global think tank further added that it was South African government’s failure to create meaning jobs for its citizens as well that builds up its citizen frustration “Crime is a result of inequality and frustration that comes with clear segregation in resources allocations and the means of production,” she said.
The panel which President Dr Mokgweetsi Masisi was part of underscored that remedies to African unemployment crises must focus on the post millennial generation, a crop of youngsters aged between 15 and 25. Current statistics according to the World Economic Forum indicates that South Africa’s unemployment rate is at 29 % with unofficial statistics understood to be at around 40 %. The continent’s largest economy Nigeria is home to around 23 % unemployed citizens, with the figure projected to reach levels of 30 % next year.
This week the World Bank released staggering figures signaling Africa’s largest economy will run short of funds to finance its national budget because of eroded domestic revenue generation base caused by poor and ineffective tax collection mechanism. In Kenya, the largest East African economy unemployment rate is 11 %, one of the continent’s lowest, whereas next door in Ethiopia the figure is well around 20 %.
“In the entirety, on average, in every African population, a quarter is far away from finding a job by any means or whatsoever” underscored the World Economic Forum. In particular Botswana’s high income equality and high unemployment rate was highlighted as a seriously ticking bomb for an economy of just over 2 million people.
Last week during the build of the Cape Town Forum, another global anti-poverty and injustices confederation Oxfam International released African inequality analysis report titled “A Tale of Two Continents”. In the report Oxfam highlights that three African billionaires today have more wealth than the poorest 50% or 650 million people across the continent.
Wealth of the bottom 50% of the African population is 22.98 billion US dollars while wealth for the three richest billionaires in Africa is 28.8 billion US dollars, being Nigerian industrialist Aliko Dangote at USD 14.1 billion, South Africa –British diamond and mining magnet Nicky Oppenheimer at USD 7.7 billion while South Africa’s luxury goods business tycoon and diversified investment magnet Johann Rupert brings USD 7 billion dollars to the trio-elite pie. This is according to Forbes 2019 Billionaires List.
The report also shows how rising and extreme inequality across Africa is undermining efforts to fight poverty. “A Tale of Two Continents” reveals that while the richest Africans fortunes are increasing, extreme poverty is rising in the continent. The report also looks at how unsustainable levels of debt and a rigged international tax system are depriving African governments of billions of dollars in lost revenue each year – money that could otherwise be invested in education, healthcare and social protection.
Oxfam says the continent is rapidly becoming the epicenter of global extreme poverty. While the number of people living on less than $1.90 a day has plummeted in Asia, this number is rising in Africa. The World Bank estimates that 87% of the world’s extreme poor will be in Africa by 2030, if current trends continue.
"Africa is ready to rise – but only once its leaders have the courage to back a more human economy that works for the many and not a few super-rich men. They can achieve this by investing in inequality-busting, universal and quality public services like health and education and by developing truly progressive tax systems. These are particularly powerful for women and girls living in poverty. They can also back a transformation towards decent and dignified work that protects the rights of workers, especially in the age of the African Free Trade Area and the new digital era.” Said Winnie Byanyima, Executive Director of Oxfam International.
The report features a first-ever ranking of African nations on their commitment to tackling inequality. The Commitment to Reducing Inequality Index, developed by Oxfam and Development Finance International, ranks countries on their policies on social spending, tax, and labor rights – three areas the organizations say are critical to reducing inequality.
South Africa and Namibia take first and second place respectively, with their strong social spending and a progressive tax system. Nigeria meanwhile has an unenviable distinction of being at the bottom of the Africa ranking, as well as the global ranking for two years running. In other staggering highlights Oxfam‘s “Tale of Two Continents” shows that the most unequal country in Africa, Swaziland, is home to one billionaire, Nathan Kirsh, who is estimated to have $4.9bn.
If he worked in one of the restaurants that his wholesale company supplies on a worker’s minimum wage, it would take him 5.7 million years to earn his current level of wealth. In Africa’s largest economy the combined wealth of the 5 richest Nigerians is more than enough to end poverty in Nigeria. Nigeria’s girl population makes up 60% of the more than 10 million children who do not go to school.
Furthermore Oxfam notes that 75% of the wealth of African multi-millionaires and billionaires is held offshore, as result the continent is losing $14billion annually in uncollected tax revenue. Dangerous and unsustainable levels of debt are hurting social spending. In 2018, Angola spent 57% of government revenue on debt repayments while public spending was cut by 19% between 2016 and 2018. Similar trends are present in Ghana, Egypt, Cameroon and Mozambique. In addition the report says African women and girls are also most likely to be poor. They also stand to lose the most when public services like healthcare and education are underfunded.
In Kenya, a boy from a rich family has a one-in-three chance of continuing his studies beyond secondary school. However, a girl from a poor family has a 1-in-250 chance of doing so. Women and girls also bear the brunt of failing healthcare systems, clocking in hours of unpaid care work looking after sick relatives. In Malawi, women spend seven times the amount of time on unpaid care work than men.
"African political and business leaders face a clear choice. They can stay on the path of increasingly extreme inequality, where poverty continues to rise while wealth in the hands of a tiny elite and foreign companies’ spirals. Or they can choose another way: towards a more prosperous and equal Africa that invests in and respects the dignity of its entire people,” added Ms Byanyima
At the Africa World Economic Forum, Karan Bhatia Google Vice President, Global Public Policy and Government Affairs noted that African government needs to invest in the right infrastructure and put in place the right policy and legal frameworks, “African states need to build a digital culture where its young people can tap into technological advancements and the digital revolution, the right regulation climate will also be key in achieving any meaningful results” he said.
Nigerian Tycoon, Founder and Executive Chairman of Zennith Bank, the country’s largest commercial banking outfit by market capitalization highlighted that it was high time governments and domestic private sector come together to mobilize resources for their economic transformation “The government needs to come up with policies, bespoke for earmarked economic sectors and that can only happen if the private sector itself was part of the policies formulation,” he said.
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”