Botswana Investment & Trade Centre (BITC), the country‘s integrated investment & trade promotion agency has made some significant progress with regards to resourcing its budget requirements internally.
BITC was established in 2012 to lead Botswana‘s national economic transformation journey through facilitation of both Foreign and Domestic Investment, employment creation and growing the country‘s export earnings amongst others. The agency was established through an act of parliament as a merger between Botswana Export Development and Investment Authority (BEDIA) and the Botswana International Financial Services (IFSC) to become an integrated Investment and Trade Promotion Authority (ITPA).
The underpinning act of BITC establishment is that the organization operates as a parastatal reporting and financed u government under the Ministry of Investment, Trade & Industry (MITI), with a window provided for the agency to generate funds and finance its budget internally. Since take off in 2012 BITC has been receiving subvention funding from government in the region of P100 million annually, resourcing 90 % of its budget. The figure has been reducing to 85 % over the year as the agency developed more internal income generating base as well as declining of government funding.
Last year during 2017/18 performance review BITC posed an intent to grow its internal income in an effort to gradually relieve government of subvention constraints. The Chief Executive Officer, Keletsositse Olebile noted that it was on his organization‘s new path to self-generate funds for its budget from in-house revenue sources such as 47 000 hectors of industrial factory shells rented to BITC accredited investors.
“Our aspiration also as per encouragement from our principals being government is to increase our self-generated income by exploring various avenues such as industrial property space, we seek to increasingly move towards winning ourselves from government funding, we believe with some of these targeted investments in property and other asset portfolios as permitted by the underpinning act that established us we can ultimately with time relieve the government of the subvention funding,” said Olebile in 2018.
During the financial year 2018/19 BITC cruised on an impressive path towards achieving this goal. The center managed to rake in over 24 million pula generated from internal revenue, a 25 % increased when weighed against the 2017/18 figure. However Mr Olebile noted that government funding was reducing at an accelerating pace. “As of recent financial years government has been decreasing its funding given to us as subvention , we will be engaging with government more because to sizeble fund allocation is critical to achieving the BITC mandate,” he said at the Media Briefing last week.
Taking a recap on previous financial years BITC funded 82 % of its 2017/18 budget from Government subvention while 18% was generated from internal revenue from rental of factory shells, Global Expo and interest generated from financial market investments. This surpassed the Centre’s annual target of 15% which was largely contributed by increase in interest generated from investments and Government subvention. In the financial year ended March 2018, BITC received a total subvention of BWP100, 330,560 which was 1.5% decrease from the initial subvention of BWP101, 830,560. The 1.5% was reduced during the beginning of quarter four by Government.
Government has been reducing its funding to parastatals as wave of merging some of them is taking shape. As the main source of funding for these agencies government is of the view that some parastatals mandates are overlapping and in the worst situations a duplicate of some.
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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”