The Regional Risks for Doing Business 2018 report published by the World Economic Forum this week has highlighted “unemployment and underemployment’’ as well as water crises as the two biggest risks facing the business sector in Botswana.
Failure of regional and global governance, cyber attacks and as well as failure of critical infrastructure adds to the top five risks faced by business in Botswana. According to the report, out of the 34 countries in sub-Saharan Africa that were surveyed, “unemployment and underemployment” was identified as the most pressing concern for businesses in 22 of them.
The report, which was published for the first time this year indicates that no other region recorded anything like that level of consensus among respondents, highlighting the profound challenges that the region faces on the issue, particularly in light of the demographic changes that lie ahead. The United Nations (UN) projects that the working-age population of Africa will more than double to 1.6 billion by 2050, a trend that could open new economic opportunities for the continent, but only if jobs can be created in huge quantities, the report observes. According to World Bank data, Africa’s official unemployment rate is just 7.3%. However, this figure masks deep-seated problems.
More than 70 percent of the region’s workers are in vulnerable employment – compared to a global average of 46 percent – and 37 percent are in extreme working poverty, which is defined by the International Labour Organization (ILO) as income of less than $1.90 per day. “People in sub-Saharan Africa are still disproportionately likely to enter the labour market at a young age, and the region has the world’s lowest levels of access to higher education – this combination is likely to perpetuate a cycle of low skills and working poverty,” notes the report.
Economic vulnerabilities are also reflected in a number of other risks cited by businesses. “Fiscal crises” ranked number five across the region and was in the top three for four countries (Burundi, Chad, Eswatini, and Namibia). The region’s debt-to-GDP ratio has increased significantly over the past decade (from 23 percent in 2008 to 46 percent in 2017), and the high proportion of public borrowing accounted for by foreign-currency debt (60 percent) is a particular concern against a backdrop of rising US interest rates.
As well as creating the conditions for potential future debt crises, rising levels of indebtedness also limit policy-makers’ short-term flexibility: the IMF and the African Development Bank (AfDB) have already noted that rising debt servicing costs are diverting public spending from investment. The pressing need for investment is highlighted in the fact that respondents ranked “failure of critical infrastructure” fourth across the region.
Economic risks continue to weigh on businesses across the region, as well as concerns about governance and the condition of critical infrastructure. Unemployment or underemployment; Failure of national governance; Energy price shock; Failure of critical infrastructure; Fiscal crises; Failure of financial mechanism or institution; Failure of regional and global governance; Water crises; Food crises; Unmanageable inflation are the top ten risk faced by the sub-saharan region in doing business.
The second-highest risk cited by businesses across sub-Saharan Africa is “failure of national governance”. Although this risk came top in only two countries (Ethiopia and Mozambique), it ranked in the top five for a further 18 countries, including the region’s largest economies (Nigeria and South Africa). The report notes that were interesting political developments during the second half of 2017, with a number of regional leaders stepping down, allowing more reform-minded successors to take their place.
“However, several countries in the region are ruled by ageing leaders or family dynasties that perpetuate their rule through constitutional amendments or postponement of elections,” the report noted. “In the Democratic Republic of the Congo (DRC), for example, elections have been postponed twice since November 2017, and are now scheduled to take place in December 2018.” Vulnerability to energy price shock remains a factor in the region, although business concerns on this front have eased somewhat since last year according to our survey results.
Looking at the region’s most significant oil exporters, this risk ranked fourth this year in Nigeria (down from third last year), while it did not feature in the top ten in Angola. The sharp drop in oil prices in 2014 caused fiscal and balanceof-payments problems for numerous African oil producers, highlighting the need for structural adjustments to boost resilience. However, in its 2018 economic outlook, the AfDB noted that these adjustments are being implemented at a very slow pace.
Water and food crises ranked eighth and ninth respectively across the region, highlighting the continuing challenge of meeting basic needs against a backdrop of – among other things – conflict, drought, rising food prices, weak governance and the strains of rapid urbanization. During 2017, nearly 32 million people were food-insecure and in need of urgent assistance across north-eastern Nigeria, Somalia, Yemen and South Sudan.
“Water crises” ranked number one in Namibia, and number two in Botswana and South Africa. In late 2017, urgent measures were taken to prevent Cape Town running out of water; “day zero” – when taps in the city run dry – has now been pushed back to 2019.
BOTSWANA’S TOP 5 BUSINESS RISKS
1) Unemployment and underemployment 2) Water Crises 3) Failure of regional and global governance 4) Cyber attacks 5) Failure of critical infrastructure
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
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”