The International Monetary Fund (IMF) forecasts show that Sub Saharan Regional Economic Growth will pick up from 3 percent in 2018 to 3.5 percent in 2019, before stabilizing at close to 4 percent over the medium term.
The Washington Based global economic observer makes these projections in their 2019 Sub Saharan Africa Regional Economic Outlook launched in Abuja Nigeria on Tuesday 30th April 2019. Headlined “Recovery Amid Elevated Uncertainty”, the report says the economic recovery in sub-Saharan Africa continues, with about half of the region’s countries mostly non resource intensive countries expected to grow at 5 percent or more, which would see per capita incomes rise faster than the rest of the world on average over the medium term.
In depth the IMF says about 21 countries, mainly the region’s more diversified economies, are the once expected to sustain growth at 5 percent or more and remain on the impressive per capita convergence path they have been on since the early 2000s. On the other hand, 24 other countries, most of which are resource dependent economies, including the largest economies of Nigeria and South Africa, the growth will remain anemic in the near term.
“With about two -thirds of the region’s population residing in these countries, this implies much slower improvement in standards of living for the lion’s share of sub-Saharan Africans. Against the backdrop of a complex and less-supportive external economic and geopolitical environment, the implications for policies in the broadest of terms are twofold,” explains the report overseen by Anne-Marie Gulde-Wolf Deputy Director of IMF Africa.
IMF Africa further notes that for the fast-growing economies, there is need to hand over the reins of growth from the public to the private sector. According to the Regional Outlook, high growth in many of these countries has in part been spurred by higher levels of public investment, leading to a steady increase in public debt levels, notwithstanding rapid growth.
“This is a sign that fiscal policy has been procyclical, and the focus should switch toward limiting the increase in public debt and looking for alternative approaches to create fiscal space for further development spending, including through higher revenue mobilization, strengthening public financial management, and enhancing the efficiency of public investment,” says Papa N’Diaye Deputy Division Chief in the IMF Strategy, Policy, and Review Department.
Furthermore, the Sub Saharan economic outlook highlights that in the more resource-intensive countries and slower growing economies, there is a pressing need to complete the required fiscal and external account adjustments to lower commodity prices, for reforms to facilitate economic diversification, and to promptly address the policy uncertainties that are holding back growth particularly in Nigeria and South Africa. “Weaknesses in public and private balance sheets are weighing on credit to the private sector and growth,” observes IMF economists.
For all other countries, mostly resource-intensive countries, the International Monetary Fund says improvements in living standards will be slower explaining that most countries share the challenge of strengthening resilience and creating higher, more inclusive and durable growth. “Addressing these challenges requires building fiscal space and enhancing resilience to shocks by stepping up actions to mobilize revenues, alongside policies to boost productivity and private investment,” advices the global finance cooperation foster.
On current plans the IMF say Sub Saharan Africa macroeconomic policies are reasonably well calibrated in most countries in the region observing that most sub-Saharan African countries have either a neutral or a tight monetary policy stance and have announced fiscal consolidation plans, which if implemented would contain their debt trajectories. “These macroeconomic policies may need to be recalibrated to support growth in the event downside external risks materialize”. In addition the outlook recommends that countries would need to ensure that any shift in their policy stance is consistent with credible medium-term macroeconomic objectives, available financing, and debt sustainability
When launching the outlook in Abuja Nigeria on Tuesday Director of IMF Africa Department, Abebe Aemro Selassie shared that fast-growing countries that face elevated debt vulnerabilities would need to prioritize rebuilding their buffers. He said in the face of shocks that are deemed temporary, slow growing countries could seek additional financing to accommodate a more gradual macroeconomic adjustment adding that where this additional financing is not available, they should design the composition of macroeconomic adjustments with the least damage to near- and medium-term growth prospects.
“Such policies, together with measures to raise productivity growth and ensure more equitable sharing of the benefits of increased prosperity, would help sub-Saharan African countries strengthen resilience and create the conditions for sustained high and inclusive growth,” said Aemro Selassie. IMF envisions elimination of tariffs on most goods, liberalization of trade of key services, addressing nontariff obstacles that hamper intraregional trade, and eventually creating a continental single market with free movement of labor and capital.
The international Monetary Fund also observes that Africa’s new trade proposition, The African Continental Free Trade Area will likely have important macroeconomic and distributional effect in the year 2019 and beyond. IMF Africa Director Abebe Aemro Selassie says it can significantly boost intra-African trade, particularly if countries tackle nontariff bottlenecks to trade, including physical infrastructure, logistical costs, and other trade facilitation hurdles. “The picture is not uniform,” reads the report.
Furthermore, IMF says more diversified economies and those with better logistics and infrastructure will benefit relatively more from trade integration. “Fiscal revenue losses from tariff reductions are likely to be limited on average, with a few exceptions. Moreover, deeper trade integration is associated with a temporary increase in income inequality,” observed Aemro Selassie.
The AfCFTA agreement envisions elimination of tariffs on most goods, liberalization of trade of key services, addressing nontariff obstacles that hamper intraregional trade, and eventually creating a continental single market with free movement of labor and capital. The IMF suggests that, in addition to tariff reductions, policy efforts to boost regional trade should focus on reforms to address country-specific nontariff bottlenecks. “To ensure that the benefits of regional trade integration are shared by all, policymakers should be mindful of the adjustment costs that integration may entail” said IMF Africa Head on Tuesday.
Abebe Aemro Selassie said less developed and agriculture-based economies, trade policies should be combined with structural reforms to improve agricultural productivity and competitiveness advising that governments should facilitate the reallocation of labor and capital across sectors. “Active-labor market programs such as training and job-search assistance, and measures that enhance competitiveness and productivity and bolster safety nets income support and social insurance programs to alleviate the temporary adverse effects on the most vulnerable”.
The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.
In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.
“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.
“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”
Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.
“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.
“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.
“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”
Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.
“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.
While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.
“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.
Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.
PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.
In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.
Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.
Maturing VAT system and upskilling SARS
“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”
Broadening the tax base and digital economy
In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.
South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.
ESG and carbon tax
Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.
In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.
Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.
With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”
The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.
Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.
Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.
Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.
According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.
The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.
She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.
The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.
Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.
In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.
According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.