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Masisi waging war against high wages amidst political pressure

President Mokgweetsi Masisi’s first year to lead the country into general elections comes with heavy burdens on his shoulders.

A respected think tank, Moody’s Investors Service sees a challenge of higher wages and protruding capital expenditures against an economy chiefly dependent on mineral revenue while it shows no further attempt of implementing drastic revenue-raising measures. In a bar graph representation, Moody’s demonstrates that Botswana has a higher wage bill as a percentage of the GDP. The think tank also shows that the capital expenditure and this could be due to investment on mineral projects like the recently launched P21.4 billion Cut 9 project.

Moody’s new presentation shows Botswana wage bill to be around 12 percent as almost equating with that of South Africa but lower than that of eSwatini and Namibia. The latest Moody’s report was focused on sovereigns in sub-Saharan Africa (SSA) which the think tanks said they plan further fiscal consolidation to stabilize their elevated debt burdens and reduces pressures on their credit profiles.  

It further stated that these plans are generally set under assumptions of broadly stable economic and financing conditions. In the event of shocks, scope to cut government spending rapidly and significantly, or spending flexibility, allows sovereigns to broadly adhere to their plans and lends resiliency to fiscal strength. In the latest report, Moody’s proposed a measure of spending flexibility in SSA consistent with its earlier work for other regions, to inform our assessment of the resilience of fiscal strength to potential shocks.

“Expenditure flexibility, the result of structural features and recent measures, partly determines the resilience of fiscal strength. While SSA sovereigns are generally planning to consolidate their budgets in a way that should stabilize debt, they now face potential negative economic and financing shocks with a weaker starting fiscal position than five years ago.

Expenditure cuts are often easier to implement quickly than revenue-raising measures. Fiscal strength will likely be more resilient for those with capacity to cut expenditure quickly and significantly in the face of a shock,” says Moody’s report. For this country when looking at expenditure on borrowings, Moody’s says Botswana saw only a marginal increase in their interest expenditures.

  The agency also said in some cases, higher interest expenditure offset a significant amount of the reduction to spending on wages and transfers, the other components of mandatory spending. Therefore, with Botswana having less interest expenditure pundits may argue that expenditure on wages may be raised as many believe this country’s salaries are below what is expected. Other pundits may cite Botswana’s high capital expenditure as the reason why Masisi’s regime may remain cautious when spending. In this year of elections, calls on spending remain deafening.

Moody’s shows Botswana currently lingers deep in between flexible and severely constrained SSA countries when it comes to mandatory spending. Moody’s measure expenditure flexibility as the share of discretionary spending (capital expenditures and spending on goods and services) in total expenditure. The remainder consists of spending on parts of the budget that governments generally cannot cut rapidly or which can be adjusted more easily over a longer period of time (interest payments, salaries & wages, and transfers).

The rating agency further states that higher borrowing costs and increased debt burdens saw interest expenditures increase over the four year, like it’s a case for Botswana. The time for the polls has become almost ripe with only a matter of weeks Batswana will be lined up to vote for what they expect and what they were promised. Botswana’s elections are held after every five years and Moody’s has noted that this country together with most SSA sovereigns plan to consolidate their budgets to stabilize debt as they are now more vulnerable to potential negative economic and financing because they are in a weaker fiscal position than five years ago.

In January this year Moody’s said Botswana was going at a snail’s pace in fiscal consolidation efforts and this could increase policy uncertainty ahead of the 2019 general elections. This was before Masisi increase salaries in April. According to the rating agency, ahead of elections in Botswana, the authorities have been envisaging a more gradual pace of fiscal consolidation.

The mandatory spending factor and political pressure

While Masisi may have increase salaries in April this year and adjusted wages of disciplined or armed forces later, something which some of his critics call political gimmick, he has a bigger headache of managing high wages and walking along the boundaries of mandatory spending. The International Monetary Fund (IMF) has always advised Botswana to reduce its wage bill which has been seen to be higher than expected.

April this year, the season of the national polls, Masisi led a government initiative to increase public servants salaries for financial year 2019/20 with an increment of 10 percent for scales A and B and 6 percent for scales C and D. Last year IMF suggested that Botswana cut the size of its civil service, something which Masisi appeared to have almost heeded to when he faced the international media on the issue when he said, “we are more efficient, we are leaner, meaner, and we can do business and we are more attractive to the private sector for them to invest”.

However this was quickly tackled by critics including legislator-cum-economist Ndaba Gaolathe, who said there is no compelling evidence that can suggest that Botswana is in a desperate anomaly that requires it to cut off the size of its civil service. Masisi may have toyed with the idea of trimming jobs despite him being a self-proclaimed “Jobs President” just as he assumed office. He is yet to implement National Employment Policy and has been promising jobs in the time when Botswana faces worst record of income inequality and high unemployment rate.

Meanwhile it has been reported that the April salary increment adds additional cost of a little more than P1 billion per annum to government. It is also said the government wage bill is high by international standards, as it currently stands at 11.3 percent of GDP, against the international threshold of 5.0 percent of GDP. Moody’s places the wage bill at around 12 percent of the GDP and recognizes its loftiness when compared to its Sub-Sahara Africa counterparts. Observers believe Masisi is going to be careful with his spending despite a further call for wage hike.

On the dark-point the budget proposals for the 2018/2018 overall balance is estimated at a deficit of P6.35 billion (or 3.3 percent of GDP), which is expected to worsen to P7.79 billion (or 3.8 percent of GDP) in 2019/2020. A major factor when government considers further spending, an add to Masisi’s headache. Also, government acknowledges positive growth of 4.5 percent in the domestic propelled by non-mining sectors but points to a declining global economy which grew by 3.6 percent in 2018 and is anticipated to only grow at 3.3 percent in 2019.

Bank of Botswana however has said the new salary hike will not in anytime have any inflationary effect or cause a collapse. The central bank also said the wage increase will not shake the domestic economy. Already trade unions are seeking for a further increase of salaries.

PEMANDU RECOMMEDATIONS

A Malaysian private firm Performance Management and Delivery Unit(PEMANDU) who conducted a salary adjustment on behalf of the Directorate of the Public Service Management (DPSM) “remunerations system project report for grades A to D” was unfazed by government’s lack of funds to spend on increase of wages.  Government hired PEMANDU as a consultant at a tune of P 17, 6 million.

On the issue of high wage bill, PEMANDU sees that as an excuse by government to avoid motivating its workforce. “The increase in wage bill represents approximately 10.3 percent of the country’s Gross Domestic Products (GDP), the current wage bill being 9.4 percent of GDP. This is still below the regional Sub-Saharan bench mark of 11 percent,” states the report.

The PEMANDU proposal if implemented will add an additional P1.23 billion per annum. PEMANDU has made a proposal of a salary hike of 20 percent for grades A and B; 10 percent for grades C and D and 15 percent for grade E and F. According to the Malaysian firm the new implementation was to bridge the widening gap between lower and higher paid civil servants, while higher grades of E and F should receive no increment in the proposals and keeps their range.

Government before increasing salaries for the public sector in April has always promised that the PEMANDU report will be implemented. However recently something seems to have changed, Vice President Slumber Tsogwane made an announcement suggesting that government is constrained to put more funds for increment of civil servant wages as per the PEMANDU report.

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Banking on Your Terms: Exploring the World of Self-Service Banking

23rd February 2024

In today’s digital age, banking is no longer just about visiting a branch during business hours. It’s about putting you, the customer, in the driver’s seat of your financial journey. But what exactly is self-service banking, and how do you stand to benefit from it as a customer?

Self-service banking is all about giving you the power to manage your finances on your terms. Whether you want to check your account balance at midnight, transfer money while on vacation, or deposit cash without waiting in line, self-service banking makes it possible. It’s like having a virtual branch at your fingertips, ready to assist you 24/7.

This shift towards self-service banking was catalyzed by various factors but it became easily accessible and accepted during the COVID-19 pandemic. People of all ages found themselves turning to digital channels out of necessity, and they discovered the freedom and flexibility it offers.

Anyone with a bank account and access to the internet or a smartphone can now bank anywhere and anytime. Whether you’re a tech-savvy millennial or someone who’s less comfortable with technology, you as the customer have the opportunity to manage your finances independently through online banking portal or downloading your bank’s mobile app. These platforms are designed to be user-friendly, with features like biometric authentication to ensure your transactions are secure.

Speaking of security, you might wonder how safe self-service banking really is. Banks invest heavily in encryption and other security measures to protect your information. In addition to that, features like real-time fraud detection and AI-powered risk management add an extra layer of protection.

Now, you might be thinking, “What’s the catch? Does self-service banking come with a cost?” The good news is that for the most part, it’s free. Banks offer these digital services as part of their commitment to customer satisfaction. However, some transactions, like wire transfers or expedited bill payments, may incur a small service fee.

At Bank Gaborone, our electronic channels offer a plethora of services around the clock to cater to your banking requirements. This includes our Mobile App, which doesn’t require data access for Orange and Mascom users. We also have e-Pula Internet Banking portal, available at https://www.bankgaborone.co.bw as well as Tobetsa Mobile Banking which is accessible via *187*247#. Our ATMs also offer the flexibility of allowing you to deposit, withdraw cash, and more.

With self-service banking, you have the reins of your financial affairs, accessible from the comfort of your home, workplace, or while you’re on the move. So why wait? Take control of your finances today with self-service banking.

Duduetsang Chappelle-Molloy is Head: Marketing and Corporate Communication Services

 

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Business

Botswana records over P6 billion trade deficit

7th February 2024

Botswana has recently recorded a significant trade deficit of over P6 billion. This trade deficit, which occurred in November 2023, follows another deficit of P4.7 billion recorded in October of the same year. These figures, released by Statistics Botswana, highlight a decline in export revenues as the main cause of the trade deficit.

In November 2023, Botswana’s total export revenues amounted to P2.9 billion, a decrease of 24.3 percent from the previous month. Diamonds, a major contributor to Botswana’s exports, experienced a significant decline of 44.1 percent during this period. This decline in diamond exports played a significant role in the overall decrease in export revenues. However, diamonds still remained the leading export commodity group, contributing 44.2 percent to export revenues. Copper and Machinery & Electrical Equipment followed, contributing 25.8 percent and 10.1 percent, respectively.

Asia emerged as the leading export market for Botswana, receiving exports worth P1.18 billion in November 2023. The United Arab Emirates, China, and Hong Kong were the top destinations within Asia, receiving 18.6 percent, 14.2 percent, and 3.8 percent of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia.

The Southern African Customs Union (SACU) received Botswana’s exports worth P685.7 million, with South Africa being the main recipient within SACU. The European Union (EU) received exports worth P463.2 million, primarily through Belgium. Australia received exports worth P290 million, while the United States received exports valued at P69.6 million, mostly composed of diamonds.

On the import side, Botswana imported goods worth P9.5 billion in November 2023, representing an increase of 11.2 percent from the previous month. The increase in imports was mainly driven by a rise in Diamonds and Chemicals & Rubber Products imports. Diamonds contributed 23.3 percent to total imports, followed by Fuel and Food, Beverages & Tobacco at 19.4 percent and 15.0 percent, respectively.

The SACU region was the top supplier of imports to Botswana, accounting for 77.7 percent of total imports. South Africa contributed the largest share at 57.2 percent, followed by Namibia at 20.0 percent. Imports from Asia accounted for 9.8 percent of total imports, with Diamonds, Machinery & Electrical Equipment, and Chemicals & Rubber Products being the major commodity groups imported. The EU supplied Botswana with imports worth 3.2 percent of total imports, primarily in the form of Machinery & Electrical Equipment, Diamonds, and Chemicals & Rubber Products.

Botswana’s recent trade deficit of over P6 billion highlights a decline in export revenues, particularly in the diamond sector. While Asia remains the leading export market for Botswana, the country heavily relies on imports from the SACU region, particularly South Africa. Addressing the trade deficit will require diversification of export markets and sectors, as well as efforts to promote domestic industries and reduce reliance on imports.

 

 

 

 

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Business

Business sector optimistic about 2024

7th February 2024

The business sector in Botswana is optimistic about the year 2024, according to a recent survey conducted by the Bank of Botswana (BoB). The survey collected information from businesses in various sectors, including agriculture, mining, manufacturing, construction, and finance, among others. The results of the survey indicate that businesses expect trading conditions to improve in the first quarter of 2024 and remain favorable throughout the year.

The researchers found that firms anticipate improvements in investment, profitability, and goods and services exported in the fourth quarter of 2023 compared to the previous quarter. These expectations, combined with anticipated growth in all sectors except construction and real estate, contribute to the overall confidence in business conditions. Furthermore, businesses expect further improvements in the first quarter of 2024 and throughout the entire year.

Confidence among domestic market-oriented firms may decline slightly in the first quarter of 2024, but overall optimism is expected to improve throughout the year, consistent with the anticipated domestic economic recovery. Firms in sectors such as mining, retail, accommodation, transport, manufacturing, agriculture, and finance are driving this confidence. Export-oriented firms also show increased optimism in the first quarter of 2024 and for the entire year.

All sectors, except agriculture, which remains neutral, are optimistic about the first quarter of 2024 and the year ending in December 2024. This optimism is likely supported by government interventions to support economic activity, including the two-year Transitional National Development Plan (TNDP) and reforms aimed at improving the business environment. The anticipated improvement in profitability, goods and services exported, and business investment further contributes to the positive outlook.

Firms expect lending rates and borrowing volumes to increase in the 12-month period ending in December 2024. This increase in borrowing is consistent with the expected rise in investment, inventories, and goods and services exported. Firms anticipate that domestic economic performance will improve during this period. Domestic-oriented firms perceive access to credit from commercial banks in Botswana to be relaxed, while export-oriented firms prefer to borrow from South Africa.

During the fourth quarter of 2023, firms faced high cost pressures due to increased input costs, such as materials, utilities, and transport, resulting from supply constraints related to conflicts in Ukraine-Russia and Israel-Hamas. According to the survey report, the firms noted that cost pressures during the fourth quarter of 2023 were high, mainly attributable to increase in some input costs, such as materials, utilities, and transport arising from supply constraints related to the Ukraine-Russia and Israel-Hamas wars. “However, firms’ expectations about domestic inflation decreased, compared to the previous survey, and have remained within the Bank’s 3 – 6 percent objective range, averaging 5.4 percent for 2023 and 5.4 percent for 2024. This suggests that inflation expectations are well anchored, which is good for maintenance of price stability,” reads the survey report in part.

However, firms’ expectations about domestic inflation decreased compared to the previous survey, and inflation expectations remained within the Bank’s objective range of 3-6 percent. This suggests that inflation expectations are well anchored, which is beneficial for maintaining price stability.

In terms of challenges, most firms in the retail, accommodation, transport, manufacturing, construction, and finance sectors considered the exchange rate of the Pula to be unfavorable to their business operations. This is mainly because these firms import raw materials from South Africa and would prefer a stronger Pula against the South African rand. Additionally, firms in the retail, accommodation, transport, and mining sectors cited other challenges, including supply constraints from conflicts in Russia-Ukraine and Israel-Hamas, as well as new citizen economic empowerment policies that some firms considered unfavorable to foreign direct investment.

On the positive side, firms highlighted factors such as adequate water and electricity supply, a favorable political climate, an effective regulatory framework, the availability of skilled labor, and domestic and international demand as supportive to doing business in Botswana during the fourth quarter of 2023.

Overall, the business sector in Botswana is optimistic about the year 2024. The anticipated improvements in trading conditions, supported by government interventions and reforms, are expected to drive growth and profitability in various sectors. While challenges exist, businesses remain confident in the potential for economic recovery and expansion.

 

 

 

 

 

 

 

 

 

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