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Diamond market woes reinforce the need for export-led growth Introduction

The second quarter of 2019 has been a very mixed one in terms of economic performance, with the main feature being a marked deterioration in conditions in the global diamond industry, and poor performance by exporters in general.

On the domestic front, data releases for the first quarter show some improvements, with reasonably robust economic growth, continued low inflation and interest rates, and some easing of pressure in the financial sector. If the weakness of the global diamond market continues, however, this will show up in growth, export and government budget figures later in the year.

Economic growth Real GDP growth in the year to March 2019 was 4.4%, very similar to the 4.5% recorded in 2018. Growth was reasonably broad-based, across both the mining and nonmining sectors of the economy, and was largely in line with expectations.
The main weakness was in the wholesale sub-sector, which is dominated by diamond trading activities, and where negative growth reflects a lower level of activity compared to 2018. Our estimate of real non-diamond private sector growth was resilient at 5.2%, year-on-year.

Diamond markets Sales of rough diamonds in the first quarter of 2019 were weaker than in 2018, and the trend appears to have intensified even further in the second quarter of the year. Sales of rough diamonds through De Beers Global Sightholder Sales (DBGSS) in Gaborone were 17.5% down, by value on the same period in 2018.

This reflects a number of influences, including weak final demand for diamond jewellery in the major markets (the USA and China), overstocking in the midstream (diamond cutters and polishers) and a lack of profitability due to narrow margins between rough and polished prices, a lack of bank liquidity in India to finance diamond stocks, and the continued downward pressure on prices of lower-value diamonds due to competition from supplies of lab-grown diamonds.

The weak market for rough diamonds will in turn have an impact on the mining sector, and hence on economic growth, as major diamond mining companies – including Debswana – adjust production levels in line with demand. It also intensifies the fiscal challenges facing government. Revenues have been in structural decline for several years, relative to GDP, and weak diamond sales will make it difficult to achieve the 2019/20 revenue targets set out in the February 2019 Budget. Looking further ahead, some very large investments are required to extend the productive lives of the major diamond mines at Jwaneng (Cut 9) and Orapa (Cut 3).

These investments will reduce government mineral revenues in the short-run, although by extending the period of diamond production will increase revenues over the longer term. But while the investments are being financed – during the second half of NDP 11 – budgetary constraints will be a major challenge, especially given the spending commitments made by all political parties in the run-up to this year’s general election.

Government will need to respond to this challenge by prioritising the competing demands on public spending, and cutting back spending on unproductive or low priority programmes, projects and institutions. Monetary and Financial Conditions Inflation has remained at very low levels by historical standards, and is still below the lower end of the BoB’s inflation objective range of 3-6%, despite a slight increase during the quarter.

Low inflation reflects a lack of price pressures, including low food price inflation, although this is now beginning to tick up due to low rainfall and poor harvests in Southern Africa. To some extent, however, low inflation may be artificial, as many regulated prices have not been increased as costs have risen, thereby requiring subsidies that may not be sustainable.

Inflation is likely to rise modestly over the next 12 months, as food prices increase, some administered prices are adjusted, and as the impact of the recent 18% rise in minimum wages feeds through to costs. There may also be demand-side pressures if the proposed substantial increase in public sector salaries is implemented.

Alongside low inflation, policy interest rates have been kept low, and remain at the lowest ever levels in Botswana. In the banking sector, credit growth is weak, which may be an indicator of slowing activity in the non-mining business sector of the economy. More positively, arrears on outstanding loans are declining. Furthermore, banking liquidity is improving, but this mainly reflects the very slow growth of bank lending during recent months. If the rate of growth credit picks up, banking liquidity could soon become an issue, and this would in turn push interest rates up, independently of monetary policy rates.

EXTERNAL SECTOR

Export performance was poor during the first quarter of 2019, with all categories of exports registering major declines, according to data from Statistics Botswana. For diamonds, this is in line with known developments in the global market, but it is surprising that export weakness has also been manifested across all other commodity groups; for instance, exports of beef, plastic products and vehicle parts were all down by 50% or more in Q1 2019 as compared to Q4 2018, as well as when compared to Q1 in 2018.

This is of great concern, given the importance of export-led growth (see feature later in this Review). Closer monitoring of export performance over the coming months will be necessary to determine whether this is a short-term problem or reflective of a deeper export malaise that needs policy attention.

OUTLOOK

Although 2019 has started reasonably well in terms of economic growth performance, there are some worrying clouds on the horizon. Already, we have seen a weakening of the global diamond market during 2019, which is unlikely to be reversed in the second half of the year. 

Outside of diamonds, there are many risks in the global economy. Amongst the big, negative risks are the prospect of an escalating trade war between the USA and China; potential recession in the US – as indicated by the inverted US treasury yield curve – and growth slowdown in China, both of which would be made more likely by a trade war; a “no-deal” Brexit, which would be disastrous for the UK and bad for the European Union; and potential hostilities in the Persian Gulf, with escalating tensions between the USA and Iran, which could easily send global oil prices well over $100 a barrel and trigger global inflation, recession and tumbling financial markets.

A further concern, but this time a domestic one, is the government’s decision – now approved by Parliament – to increase the rate of transfer duty on property purchases by non-citizens from 5% to 30%. This is likely to undermine the property market, with fewer transactions and lower prices, as well as negatively affect the banking system and reduce the availability of mortgages.

To give the government credit, they have softened some of the more egregious elements of the original transfer duty proposals, following extensive consultations with the private sector. However, even though the proposed increase in the transfer duty rate for foreigners – including foreign-owned companies – is likely to have an adverse impact on the economy and deter much-needed inflows of foreign direct investment, the political environment of an election year made any further concessions impossible.

The move emphasizes (adversely) the distinction between Botswana and Mauritius, where a new Property Development Scheme has been described as “the latest in a series of initiatives geared at opening up the economy to foreigners and providing them with the opportunity of becoming property owners in an enviable and stable country, if they so wish.” Extracted from econsult Economic Review – second quarter april-june 2019

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The case for Botswana to ratify the ACDEG

6th March 2023

The Ibrahim Index of African Governance (IIAG) is the most comprehensive dataset measuring African governance performance through a wide range of 81 indicators under the categories of Security & Rule of law, Participation, Rights & Inclusion, Foundations of Economic Opportunity, and Human Development. It employs scores, expressed out of 100, which quantify a country’s performance for each governance measure and ranks, out of 54, in relation to the 54 African countries.

The 2022 IIAG Overall Governance score is 68.1 and ranks Botswana at number 5 in Africa. In 2019 Botswana was ranked 2nd with an overall score of 73.3. That is a sharp decline. The best-performing countries are Mauritius, Seychelles, Tunisia, and Cabo Verde, in that order. A glance at the categories shows that Botswana is in third place in Africa on the Security and Rule of law; ninth in the Participation, Rights & Inclusion Category – indicating a shrinking participatory environment; eighth for Foundations of Economic Opportunity category; and fifth in the Human Development category.

The 2022 IIAG comes to a sweeping conclusion: Governments are less accountable and transparent in 2021 than at any time over the last ten years; Higher GDP does not necessarily indicate better governance; rule of law has weakened in the last five years; Democratic backsliding in Africa has accelerated since 2018; Major restrictions on freedom of association and assembly since 2012. Botswana is no exception to these conclusions. In fact, a look at the 10-year trend shows a major challenge. While Botswana remains in the top 5 of the best-performing countries in Africa, there are signs of decline, especially in the categories of Human Development and Security & Rule of law.

I start with this picture to show that Botswana is no longer the poster child for democracy, good governance, and commitment to the rule of law that it once was. In fact, to use the term used in the IIAG, Botswana is experiencing a “democratic backsliding.”

The 2021 Transparency International Corruption Perception Index (CPI) had Botswana at 55/ 100, the lowest ever score recorded by Botswana dethroning Botswana as Africa’s least corrupt country to a distant third place, where it was in 2019 with a CPI of 61/100. (A score closer to zero denotes the worst corrupt and a score closer to 100 indicates the least corrupt country). The concern here is that while other African states are advancing in their transparency and accountability indexes, Botswana is backsliding.

The Transitional National Development Plan lists participatory democracy, the rule of law, transparency, and accountability, as key “deliverables,” if you may call those deliverables. If indeed Botswana is committed to these principles, she must ratify the African Charter on Democracy Elections and Governance (ACDEG).

The African Charter on Democracy Elections and Governance is the African Union’s principal policy document for advancing democratic governance in African Union member states. The ACDEG embodies the continent’s commitment to a democratic agenda and set the standards upon which countries agreed to be held accountable. The Charter was adopted in 2007 and came into force a decade ago, in 2012.

Article 2 of the Charter details its objectives among others as to a) Promote adherence, by each State Party, to the universal values and principles of democracy and respect for human rights; b) Promote and protect the independence of the judiciary; c) Promote the establishment of the necessary conditions to foster citizen participation, transparency, access to information, freedom of the press and accountability in the management of public affairs; d) Promote gender balance and equality in the governance and development processes.

The Charter emphasizes certain principles through which member states must uphold: Citizen Participation, Accountable Institutions, Respect for Human Rights, Adherence to the principles of the Rule of Law, Respect for the supremacy of the constitution and constitutional order, Entrenchment of democratic Principles, Separation of Powers, Respect for the Judiciary, Independence and impartiality of electoral bodies, best practice in the management of elections. These are among the top issues that Batswana have been calling for, that they be entrenched in the new Constitution.

The ACDEG is a revolutionary document. Article 3 of the ACDEG, sets guidance on the principles that must guide the implementation of the Charter among them: Effective participation of citizens in democratic and development processes and in the governance of public affairs; Promotion of a system of government that is representative; Holding of regular, transparent, free and fair elections; Separation of powers; Promotion of gender equality in public and private institutions and others.

Batswana have been calling for laws that make it mandatory for citizen participation in public affairs, more so, such calls have been amplified in the just-ended “consultative process” into the review of the Constitution of Botswana. Many scholars, academics, and Batswana, in general, have consistently made calls for a constitution that provides for clear separation of powers to prevent concentration of power in one branch, in Botswana’s case, the Executive, and provide for effective checks and balances. Other countries, like Kenya, have laws that promote gender equality in public and private institutions inscribed in their constitutions. The ACDEG could be a useful advocacy tool for the promotion of gender equality.

Perhaps more relevant to Botswana’s situation now is Article 10 of the Charter. Given how the constitutional review process unfolded, the numerous procedural mistakes and omissions, the lack of genuine consultations, the Charter principles could have provided a direction, if Botswana was party to the Charter. “State Parties shall ensure that the process of amendment or revision of their constitution reposes on national consensus, obtained, if need be, through referendum,” reads part of Article 10, giving clear clarity, that the Constitution belong to the people.

With the African Charter on Democracy Elections and Governance in hand, ratified, and also given the many shortfalls in the current constitution, Batswana can have a tool in hand, not only to hold the government accountable but also a tool for measuring aspirations and shortfalls of our governance institutional framework.

Botswana has not signed, nor has it acceded or ratified the ACDEG. The time to ratify the ACDEG is now. Our Movement, Motheo O Mosha Society, with support from the Democracy Works Foundation and The Charter Project Africa, will run a campaign to promote, popularise and advocate for the ratification of the Charter (#RatifytheCharter Campaign). The initiative is co-founded by the European Union. The Campaign is implemented with the support of our sister organizations: Global Shapers Community – Gaborone Hub, #FamilyMeetingBW, Botswana Center for Public Integrity, Black Roots Organization, Economic Development Forum, Molao-Matters, WoTech Foundation, University of Botswana Political Science Society, Young Minds Africa and Branding Akosua.

Ratifying the Charter would reaffirm Botswana’s commitment to upholding strong democratic values, and respect for constitutionalism, and promote the rule of law and political accountability. Join us in calling the Government of Botswana to #RatifyTheCharter.

*Morena MONGANJA is the Chairperson of Motheo O Mosha society; a grassroots movement advocating for a new Constitution for Botswana. Contact: socialcontractbw@gmail.com or WhatsApp 77 469 362.

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Opinions

The Taiwan Question: China ramps up military exercises to rebuff US provocations

18th August 2022

US House Speaker Nancy Pelosis visit to Taiwan has violated the One-China policy, and caused the escalation of tensions across the Taiwan Strait. Experts and political observers across the spectra agree that Pelosis actions and subsequent pronouncements by US President Joe Biden gave impetus to an already simmering tension in the Taiwan Strait, provoking China to strengthen its legitimate hold on the Taiwan Strait waters, which the US and Taiwan deem as international waters.

Pelosis visit to Chinas Taiwan region has been heavily criticised across the globe, with China arguing that this is a serious violation of the one-China principle and the provisions of the three China-US Joint Communiqus. In response to this reckless move which seriously undermined China’s sovereignty, and interfered in China’s internal affairs, the expectation is for China to give a firm response. Pelosi visit violated the commitments made by the U.S. side, and seriously jeopardized peace and stability across the Taiwan Strait.

To give context to Chinas position over Taiwan region, the history behind gives us perspective. It is also important to note that the history between China and Taiwan is well documented and the US has always recognized it.

The Peoples Republic of China recognises Taiwan as its territory. It has always been the case even before the Nationalist Republic of China government fled to the previously Japanese-ruled Island after losing the civil war on the mainland in 1949. According to literature that threat was contained for decades first with a military alliance between the US and the ROC on Taiwan, and after Washington switched diplomatic recognition to the PRC in 1979 by the US One China policy, which acknowledges Beijings position that Taiwan is part of One China. Effectively, Taiwans administration was transferred to the Republic of China from Japan after the Second World War in 1945, along with the split between the Peoples Republic of China (PRC) and the Republic of China (ROC) as a consequence of the Chinese Civil War. Disregarding this history, as the US is attempting to do, will surely initiate some defence reaction on the side of China to affirm its sovereignty.

However, this history was undermined since Taiwan claimed to democratise in the 1990s and China has grown ever more belligerent. Furthermore, it is well documented that the Biden administration, following the Trump presidency, has made subtle changes in the way it deals with Taipei, such as loosening restrictions on US officials meeting Taiwanese officials this should make China uneasy. And while the White House continues to say it does not support Taiwanese independence, Bidens words and actions are parallel to this pledge because he has warned China that the US would intervene militarily if China attacked Taiwan another statement that has provoked China.

Pelosi, in her private space, would know that her actions amount to provocation of China. This act of aggression by the USA seriously undermines the virtues of sovereignty and territorial integrity which has a huge potential to destabilize not only the Taiwan Strait but the whole of the Asia- Pacific region. The Americans know very well that their provocative behavior is deliberately invoking the spirit of separatism masqueraded as Taiwan independence. The US is misled to think that by supporting separatism of Taiwan from China that would give them an edge over China in a geopolitics. This is what one Chinese diplomat said this week: The critical point is if every country put their One-China policy into practice with sincerity, with no compromise, is going to guarantee the peace and stability across the Taiwan Strait. Therefore, it was in the wake of US House speaker Nancy Pelosis visit to Taiwan, that China, in a natural response revealed plans for unprecedented military exercises near the island, prompting fears of a crisis in the Taiwan Strait and the entire Asia-Pacific region. The world community must promote and foster peace, this may be achieved when international laws are respected. It may also happen when nations respect the sovereignty of another. China may be in a better space because it is well capacitated to stake its territorial integrity, what about a small nation, if this happens to it?

As to why military exercises by Beijing; it is an expected response because China was provoked by the actions of Pelosi. To fortify this position, Chinese President, Xi signed a legal basis for Chinas Peoples Liberation Army to safeguard Chinas national sovereignty, security and development interests. The legal basis will also allow military missions around disaster relief, humanitarian aid and peacekeeping. In addition the legal changes would allow troops to prevent spillover effects of regional instabilities from affecting China, secure vital transport routes for strategic materials like oil, or safeguard Chinas overseas investments, projects and personnel. It then follows that President Xis administration cannot afford to look weak under a US provocation. President Xi must protector Chinas sovereignty and territorial integrity, of which Taiwan is a central part. Beijing is very clear on One-China Policy, and expects all world players to recognize and respect it.

The Peoples Liberation Army has made it clear that it has firepower that covers all of Taiwan, and it can strike wherever it wants. This sentiments have been attributed to Zhang Junshe, a researcher at the PLA Navy Research Institute. Zheng further said, We got really close to Taiwan. We encircled Taiwan. And we demonstrated that we can effectively stop intervention by foreign forces. This is a strong reaction from China to warn the US against provocation and violation of the One-China Policy.

Beijings military exercises will certainly shake Taiwans confidence in the sources of its economic and political survival. The potential for an effective blockade threatens the air and shipping routes that support Taiwans central role in global technology supply chains. Should a humanitarian situation arise in Taiwan, the blame would squarely be on the US.

As Chinas military exercises along the Taiwan Strait progress and grow, it remains that the decision by Nancy Pelosi to visit Chinas Taiwan region gravely undermined peace and stability across the Taiwan Strait, and sent a wrong signal to Taiwan independence separatist forces. This then speaks to international conventions, as the UN Secretary-General Antnio Guterres explicitly stressed that the UN remains committed to the UN General Assembly Resolution 2758. The centerpiece is the one-China principle, namely, there is but one China in the world, the government of the Peoples Republic of China is the sole legal government representing the whole of China, and Taiwan is a part of China. It must be noted that the US and the US-led NATO countries have selectively applied international law, this has been going on unabated. There is a plethora of actions that have collapsed several states after they were attacked under the pretext of the so-called possession of weapons of mass destruction illuminating them as threats – and sometimes even without any valid reason. to blatantly launch military strikes and even unleash wars on sovereign countrie

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Opinions

Internal party-democracy under pressure

21st June 2022

British novelist, W. Somerset Maugham once opined: If a nation values anything more than freedom, it will lose its freedom; and the irony of it is that if it is comfort or money that it values more, it will lose that too.

The truism in these words cannot be underestimated, especially when contextualizing against the political developments in Botswana. We have become a nation that does not value democracy, yet nothing represent freedom more than democracy. In fact, we desire, and value winning power or clinging to power more than anything else, even if it harms the democratic credentials of our political institutions. This is happening across political parties ruling and opposition.

As far as democracy is concerned, we are regressing. We are becoming worse-off than we were in the past. If not arrested, Botswana will lose its status as among few democratic nations in the Africa. Ironically, Botswana was the first country in Africa to embrace democracy, and has held elections every five years without fail since independence.

We were once viewed as the shining example of Africa. Those accolades are not worth it any more. Young democracies such as South Africa, with strong institutions, deserves to be exalted. Botswana has lost faith in democracy, and we will pay a price for it. It is a slippery slope to dictatorship, which will bring among other excess, assault on civil liberties and human rights violations.

Former President, Festus Mogae once stated that Botswanas democracy will only become authentic, when a different party, other than the Botswana Democratic Party (BDP) wins elections, and when the President of such party is not from Serowe.

Although many may not publicly care to admit, Mogaes assertion is true. BDP has over the years projected itself as a dyed-in-the-wool proponent of democracy, but the moment its stay in power became threatened and uncertain, it started behaving in a manner that is at variance with democratic values.This has been happening over the years now, and the situation is getting worse by the day.

Recently, the BDP party leadership has been preaching compromise and consensus candidates for 2024 general elections. Essentially, the leadership has lost faith in theBulela Ditswedispensation, which has been used to selected party candidates for council and parliament since 2003. The leadership is discouraging democracy because they believe primary elections threaten party unity. It is a strange assertion indeed.

Bulela Ditswewas an enrichment of internal party democracy in the sense that it replaced the previous method of selection of candidates known as Committee of 18, in which a branch committee made of 18 people endorsed the representatives. While it is true that political contest can divide, the ruling party should be investing in political education and strengthening in its primary elections processes. Democracy does not come cheap or easy, but it is valuable.

Any unity that we desire so much at the expense of democracy is not true unity. Like W. Somerset Maugham said, democracy would be lost in the process, and ultimately, even the unity that was desired would eventually be lost too. Any solution that sacrifice democracy would not bring any results in the long run, except misery.

We have seen that also in opposition ranks. The Umbrella for Democratic Change (UDC) recently indicated that its incumbent Members of Parliament (MPs) should not be challenged for their seats. While BDP is sacrificing democracy to stay in power, UDC is sacrificing democracy to win power. It is a scary reality given the fact that both parties ruling and opposition have embraced this position and believe democracy is the hindrance to their political ambitions.

These current reality points to one thing; our political parties have lost faith in democracy. They desire power more than, the purpose of power itself. It is also a crisis of leadership across the political divide, where we have seen dissenting views being met with persecution. We have seen perverting of political process endorsed by those in echelons of power to manipulate political outcomes in their favour.

Democracy should not be optional, it should be mandatory. Any leader proposing curtailing of democracy should be viewed with suspicion, and his adventures should be rejected before it is too late. Members of political parties, as subscribers of democracy, should collectively rise to the occasion to save their democracy from self-interest that is becoming prevalent among Botswana political parties.

The so-called compromise candidates, only benefits the leadership because it creates comforts for them. But for members, and for the nation, it is causing damage by reversing the gains that have been made over the years. We should reject leaders who only preach democracy in word, but are hesitant to practice it.

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