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Botswana: South Africa’s trade partner or economic neo-colony?

Former cabinet minister and Phakalane Estates proprietor, David Magang once opined that Botswana’s poor manufacturing sector and importation of more than 80 percent of the foodstuffs from South Africa, effectively renders Botswana a neo-colony of the former.

Various stats available indicate that the trade between two countries is a one-sided affair, lending credence to Magang’s view that, “In fact so beholden are we to the South African economy we are effectively its neo-colony.” Both countries are former British colonies and members of the African Union, the Commonwealth of Nations and the Southern African Development Community (SADC). The foundation for the trade relationship between South Africa and Botswana dates back to the establishment of the Southern African Customs Union (SACU) in 1910.

South Africa’s Economic Strength

South Africa is the 67 most competitive nation in the world out of 140 countries ranked in the 2018 edition of the Global Competitiveness Report published by the World Economic Forum. Mauritius and SA rank first and second as most competitive economies in Africa. Meanwhile ranks Botswana 90th most competitive economy out of 140 countries.

South Africa’s greatest competitive advantages are its financial system (ranked 18th), market size (35th) and level of innovation (46th) and sound infrastructure with a road connectivity ranking of 5 out of 140 countries, efficiency of clearance policies (34th) meanwhile Botswana fares badly in same areas, due to inadequate infrastructure, for ICT adoption and innovation among others.

According to Ernest Mahlaule, Group Chairman of Gauteng Growth and Development Agency, who is also former President of Johannesburg Chamber of Commerce and Industry, 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 R 28.2 billion (P20.5 billion) worth of goods and services from Botswana.

“During the period under review 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,” Mahlaule told conference delegates at South Africa-Botswana Business Forum, which was part of the just ended Global Expo.

“Over the same period, 2014 and 2018, Gauteng and Botswana traded R169.4 billion. Botswana received R 152.0 billion worth of goods and services from Gauteng, whilst  the  City  region  received  R  17.4  billion  worth  of  goods  and  services  form  its  SACU neighbour.”
During the period under review Gauteng enjoyed a trade surplus of R 134.6 billion. However,  trade  between  the  two  regions  has  been  muted,  growing  at  a  compound annual growth rate of 1.3  percent per annum since 2014, according to Mahlaule.

“It is worth noting  that  the Gauteng city  region accounts for 62.1 percent of all Botswana bound SA  exports  and  similarly    57.6  percent of  Botswana  sourced imports  are bound for Gauteng. Gauteng exports mainly Mineral Fuels, advanced machinery and vehicles to Botswana. Botswana exports mainly Precious stones and inorganic chemicals to Gauteng.

Mahlaule stated that, since 2014, South African companies have invested R 2.1 billion (P1.5 billion) in Botswana generating 497 direct jobs. Gauteng accounts for 81 percent of SA FDI into Botswana. Notable companies who have invested in Botswana since 2014 include Carrick Wealth, Standard Bank, and Open House Management. While Botswana has mandated Botswana International Trade Centre (BITC) to lure investors to set-up in Botswana, another mandate entails promoting and facilitating the promotion of locally manufactured goods to foreign markets.

Mahlaule believes Gauteng present a better business climate for Botswana ventures to set-up in South Africa. Already, owing mainly to the proximity of the Gauteng to Botswana, and its economic strength, Botswana has developed a good trade relationship with the region. The Gauteng province is home Pretoria, the capital city of South Africa, as well as Johannesburg, the country’s largest city. Gauteng City Region is home to a quarter of South Africa’s population and generates 35 percent of the country’s GDP.

The concentration of national population and growth makes the Gauteng City Region pivotal to the national agenda of Transformation, Modernisation and Re- Industrialisation. Between 2014 and 2018 exports of goods and services from Gauteng, accounted for 55 percent of total exports into South Africa. Over the same period Imports amounted to 65 percent of total goods and services imported into South Africa. Total trade in the province was approximately 87 percent of the total provincial GDP. Highlighting more accentuated trade openness relative to the whole country.

During the Global Expo, Botswana’s Minister of Investment, Trade and Industry, Bogolo Kenewendo indicated that Botswana wants to work closely with the Emerging Markets as they want to learn from them strategies of economic transformation which is Botswana’s aspiration for the next 10 years. “We also want to industrialise our economy and leap-frog into Fourth Industrial Revolution, which will require new markets for our new products and sourcing of intermediate inputs and raw materials. Emerging Markets will provide us with such opportunities,” said Kenewendo.

Kenewendo, who assumed the reins as Minister of Investment, Trade and Industry last year at the beginning of April in 2018, indicated that as part of efforst to lure investors to Botswana, government has made efforts to improve its doing business environment through reforms of business processes and legal framework. “We are also in the process of improving our regulatory framework through the implementation of the Better Regulation Strategy to introduce Impact Analysis that will ensure that laws introduced have positive impact rather than introduce bottlenecks,” she said. 

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Mowana Mine to open, pay employees millions

18th January 2022
Mowana Mine

Mowana Copper Mine in Dukwi will finally pay its former employees a total amount of P23, 789, 984.00 end of this month. For over three years Mowana Copper Mine has been under judicial management. Updating members, Botswana Mine Workers Union (BMWU) Executive Secretary Kitso Phiri this week said the High Court issued an order for the implementation of the compromise scheme of December 9, 2021 and this was to be done within 30 days after court order.

“Therefore payment of benefits under the scheme including those owed to Messina Copper Botswana employees should be effected sometime in January latest end of January 2022,” Kitso said. Kitso also explained that cash settlement will be 30 percent of the total Messina Copper Botswana estate and negotiated estate is $3,233,000 (about P35, 563,000).

Messina Copper was placed under liquidation and was thereafter acquired by Leboam Holdings to operate Mowana Mine. Leboam Holdings struck a deal with the Messina Copper’s liquidator who became a shareholder of Leboam Holdings. Leboam Holdings could not service its debts and its creditors placed it under provisional judicial management on December 18, 2018 and in judicial management on February 28, 2019.

A new company Max Power expressed interest to acquire the mining operations. It offered to take over the Mowana Mine from Leboam Holdings, however, the company had to pay the debts of Leboam including monies owed to Messina Copper, being employees benefits and other debts owed to other creditors.

The monies, were agreed to be paid through a scheme of compromise proposed by Max Power, being a negotiated payment schedule, which was subject to the financial ability of the new owners. “On December 9, 2021, Messina Copper liquidator, called a meeting of creditors, which the BMWU on behalf of its members (former Messina Copper employees) attended, to seek mandate from creditors to proceed with a proposed settlement for Messina Copper on the scheme of compromise. It is important to note that employee benefits are regarded as preferential credit, meaning once a scheme is approved they are paid first.”

Negotiated estate is P35, 563,000

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Councilors’ benefits debacle-savingram reveals detail

18th January 2022

A savingram the Ministry of Local Government and Rural Development sent to Town Clerks and Council Secretaries explaining why councilors across the country should not have access to their terminal benefits before end of their term has been revealed.

The contents of the savingram came out in the wake of a war of words between counselors and the Ministry of Local Government and Rural Development. The councilors through the Botswana Association of Local Authorities (BALA) accuse the Ministry of refusing to allow them to have access to their terminal benefits before end of their term.

This has since been denied by the Ministry.  In the savingram to town councils and council secretaries across the country, Permanent Secretary in the Ministry of Local Government and Rural Development Molefi Keaja states that, “Kindly be advised that the terminal benefits budget is made during the final year of term of office for Honorable Councilors.”  Keaja reminded town clerks and council secretaries that, “The nominal budget Councils make each and every financial year is to cater for events where a Councilor’s term of office ends before the statutory time due to death, resignation or any other reason.”

The savingram also goes into detail about why the government had in the past allowed councilors to have access to their terminal benefits before the end of their term.  “Regarding the special dispensation made in the 2014-2019, it should be noted that the advance was granted because at that time there was an approved budget for terminal benefits during the financial year,” explained Keaja.  He added that, “Town Clerks/Council Secretaries made discretions depending on the liquidity position of Councils which attracted a lot of audit queries.”

Keaja also revealed that councils across the country were struggling financially and therefore if they were to grant councilors access to their terminal benefits, this could leave their in a dire financial situation.  Given the fact that Local Authorities currently have cash flow problems and budgetary constraints, it is not advisable to grant terminal benefits advance as it would only serve to compound the liquidity problems of councils.

It is understood that the Ministry was inundated with calls from some Councils as they sought clarification regarding access to their terminal benefits. The Ministry fears that should councils pay out the terminal benefits this would affect their coffers as the government spends a lot on councilors salaries.

Reports show that apart from elected councilors, the government spends at least P6, 577, 746, 00 on nominated councilors across the country as their monthly salaries. Former Assistant Minister of Local Government and Rural Development, Botlogile Tshireletso once told Parliament that in total there are 113 nominated councilors and their salaries per a year add up to P78, 933,16.00. She added that their projected gratuity is P9, 866,646.00.

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Households spending to drive economic recovery

17th January 2022

A surge in consumer spending is expected to be a key driver of Botswana’s economic recovery, according to recent projections by Fitch Solutions. Fitch Solutions said it forecasts household spending in Botswana to grow by a real rate of 5.9% in 2022.

The bullish Fitch Solutions noted that “This is a considerable deceleration from 9.4% growth estimated in 2021, it comes mainly from the base effects of the contraction of 2.5% recorded in 2020,” adding that, “We project total household spending (in real terms) to reach BWP59.9bn (USD8.8bn) in 2022, increasing from BWP56.5bn (USD8.3bn) in 2021.”  According to Fitch Solutions, this is higher than the pre-Covid-19 total household spending (in real terms) of P53.0 billion (USD7.8bn) in 2019 and it indicates a full recovery in consumer spending.

“We forecast real household spending to grow by 5.9% in 2022, decelerating from the estimated growth of 9.4% in 2021. We note that the Covid-19 pandemic and the related restrictions on economic activity resulted in real household spending contracting by 2.5% in 2020, creating a lower base for spending to grow from in 2021 and 2022,” Fitch Solutions says.

Total household spending (in real terms), the agency says, will increase in 2022 when compared to 2021. In 2021 and 2022, total household spending (in real terms) will be above the pre-Covid-19 levels in 2019, indicating a full recovery in consumer spending, says Fitch Solutions.  It says as of December 6 2021 (latest data available), 38.4% of people in Botswana have received at least one vaccine dose, while this is relatively low it is higher than Africa average of 11.3%.

“The emergence of new Covid-19 variants such as Omicron, which was first detected in the country in November 2021, poses a downside risk to our outlook for consumer spending, particularly as a large proportion of the country’s population is unvaccinated and this could result in stricter measures being implemented once again,” says Fitch Solutions.

Growth will ease in 2022, Fitch Solution says. “Our forecast for an improvement in consumer spending in Botswana in 2022 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 5.3% over 2022, from an estimated 12.5% growth in 2021 as the low base effects from 2020 dissipate,” it says.

Fitch Solutions notes that “Our Country Risk team expects private consumption to be the main driver of Botswana’s economic growth in 2022, as disposable incomes and the labour market continue to recover from the impacts of the Covid-19 pandemic.”
It says Botswana’s tourism sector has been negatively impacted by the Covid-19 pandemic and the related travel restrictions.

According to Fitch Solutions, “The emergence of the Omicron variant, which was first detected in November 2021, has resulted in travel bans being implemented on Southern African countries such as South Africa, Botswana, Lesotho, Namibia, Zimbabwe and Eswatini. This will further delay the recovery of Botswana’s tourism sector in 2021 and early 2022.”  Fitch Solutions, therefore, forecasts Botswana’s tourist arrivals to grow by 81.2% in 2022, from an estimated contraction of 40.3% in 2021.

It notes that the 72.4% contraction in 2020 has created a low base for tourist arrivals to grow from.  “The rollout of vaccines in South Africa and its key source markets will aid the recovery of the tourism sector over the coming months and this bodes well for the employment and incomes of people employed in the hospitality industry, particularly restaurants and hotels as well as recreation and culture businesses,” the report says.

Fitch Solutions further notes that with economies reopening, consumers are demanding products that they had little access to over the previous year. However, manufacturers are facing several problems.  It says supply chain issues and bottlenecks are resulting in consumer goods shortages, feeding through into supply-side inflation.  Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods.

It says the spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs, the report says adding that while this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over the 2022 year.

“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations and thereby experience a notable drop in Covid-19 infections and a decline in hospitalisation rates,” says Fitch Solutions.
Both these factors, it says, will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales.

“As of December 6 2021, 38.4% of people in Botswana have received at least one vaccine dose. While this is low, it is higher than the Africa average of 11.3%. The vaccines being administered in Botswana include Pfizer-BioNTech, Sinovac and Johnson & Johnson. We believe that a successful vaccine rollout will aid the country’s consumer spending recovery,” says Fitch Solutions.  Therefore, the agency says, “Our forecasts account for risks that are highly likely to play out in 2022, including the easing of government support. However, if other risks start to play out, this may lead to forecast revisions.”

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