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For Botswana, a reciprocal investment method is key for development

China’s latest play for greater influence in Africa involves advancing $60 billion in aid and loans to African nations. Announced at the Forum on China-Africa Cooperation (FOCAC) last month in Beijing, the summit drew the attendance of more than 40 African Heads of State, including H.E President Mokgweetsi E.K Masisi –  the first visit by a Motswana head of state in over 12 years.

The summit came hot on the heels of high-profile state visits to Africa by key Western leaders, including the UK’s Theresa May, Germany’s Angela Merkel and France’s Emmanuel Macron. For most observers, these developments are clear signals that competition for influence in Africa is intensifying. Over the past few months the continent has played host to Heads of State and senior diplomats from Brazil, Argentina, Russia, India and Turkey, to name just a few.

Botswana can leverage off this competition for her own advantage, but to truly understand Botswana’s options today, we must look beyond the East vs West dichotomy and first consider Botswana's own needs and ambitions. Like most countries on the continent, Botswana has a clear development and growth strategy but faces complex political and operational challenges in executing its plans.

What is less well understood is the array of options Botswana now has in addressing some of these challenges. Between 2010 and 2017, more than 65 countries increased their overall trade with sub-Saharan Africa, according to data from the International Trade Centre. All these countries, despite their divergent interests, seem to understand one thing: the future of their nations is linked to the partnerships they forge in Africa today.

This is a continent where 60% of the population is below 25 years of age and expected to double from 1.2 billion in 2017 to 2.4 billion in 2050 (representing a quarter of the world’s population), with 60% of the world’s uncultivated arable land, and which is growing robustly against the backdrop of tepid global economic growth – six of the ten fastest growing economies in 2018 are African, according to the IMF.

There are obvious challenges to overcome, which require proper policy and planning to address the urgency of job creation, climate change mitigation and adaptation and dismantling systemic inequality; but the fundamentals are compelling, particularly when viewed long term.

Amidst the surge in foreign interest in Africa, traditional partners such France and the US are finding it harder to protect and expand their spheres of influence on the continent. Aggressive nationalism within the current US administration has shaped a more inward-looking policy agenda which can appear indifferent – often even hostile – to interests outside US borders.

Meanwhile, the UK is trying to marry complex negotiations around Brexit with a concerted push to lay the foundations of stronger trade and investment ties outside Europe, including Africa, where the UK has set a goal to become the largest  investor among the Group of seven most industrialized nations (G7) by 2020.  The UK’s pivot away from Europe and her reinvigorated focus on partnerships with other parts of the globe – including Africa – presents good medium and long-term opportunities for nations like Botswana. It is noteworthy that President Mokgweetsi E.K Masisi  will visit the UK this week.

In such a crowded landscape, competitive edge among bilateral partners will not be determined purely by capital or favourable trading terms but also by meaningful commitments to reciprocity. Nations and companies that want to succeed in Africa will need to think beyond what they want to export and access, and must seek to address the priorities of their African partners.

Botswana's long held agreement with DeBeers and the creation of Debswana remains a model which many seek to this day, For their part, foreign partners eager to gain traction in African markets should align their strategies with that of their local partners, and in so doing they will build the grounds for sustainability. They will experience less friction, build more brand equity and find doors open for constructive dialogue on  operational issues, policies and regulations.
 

Companies’ ability to design and promote strategies that recognise the need for developmental impact and long-term commitment over quick-wins and fast-bucks will perform better. Such an approach moves relationships from transaction to transformation. Investors and senior management teams must put people, not just numbers, at the heart of decision-making and be equipped to communicate impact and create buy-in from the right stakeholders – governments, suppliers and communities. For their part, African governments must spend more time looking at long term development impact, not just short term commercial terms and outcomes.

Manufacturing holds great trans-formative potential for societies, provided the right approach is taken. In Gabon at the start of the decade, President Ali Bongo Ondimba announced the cessation of exports of raw timber. His announcement was met with a lot of criticism, but eight years later the benefits are clear for everyone to see. Manufacturers of processed wood and finished goods have emerged and new local value chains have been created for foreign investors and Gabonese SMEs, resulting in 10,000 new jobs. Gabon's shift in policy was accompanied by government interventions to equip the labour force with suitable skills for the industry.

In Botswana, economic diversification and manufacturing sector growth are being pursued with rewed vigor by this administration. They are matched by efforts to forge greater alignment between the private sector and government priorities. The last decade witnessed China becoming an increasingly active manufacturer in Africa. Western firms are following suit – their global strategies increasingly feature African nations as markets to service and export from.

Much of the appeal of African nations is being created by shifts in the economies of India and China. China’s evolution from an investment-led economy to a consumption-led economy has led to domestic wage growth, resulting in manufacturers leaving the country for other low-cost destinations. China is expected to lose between 85 million and 100 million low-cost labour-intensive manufacturing jobs by 2030, according to the World Economic Forum.

Some of the Chinese companies leaving the country are establishing operations in Africa, where the Chinese government has already rolled out infrastructure projects that make it easier for Chinese companies to do business and price their products competitively for global markets. In this vain, Zhao Yambo, the Chinese Republic's ambassador to Botswana recently encouraged Botswana to take advantage of China’s Belt and Road Initiative. This multi-billion dollar plan will see Chinese companies engaging in construction work in Africa and globally, on a scale never seen before.

The quest for jobs in Botswana, where the aspirations of Batswana youth are still not catered for by the employment market, has forged a deep desire by the Botswana government to play a more active role in diversifying the nation's economy.
 This is where the Chinese approach sometimes has its limits. Although China readily builds badly-needed infrastructure, they use their own financing, contractor firms, technology and even labour in some instances from end-to-end.

This deprives Batswana of meaningful stakes in projects or ownership of certain value chains and can fuel resentment and mistrust. There are many anecdotes about Chinese firms paying their employees offshore and sourcing goods and services from China. The extension of Sir Seretse Khama airport and Morupule B power station are two well-publicized examples of disaffection. While China has funded over 40 major projects in Botswana and is one of the country’s largest project contractors, Chinese companies have created 2,000 jobs in local communities- a small number given the scale of these projects.

Western companies generally have a better track record of working with local staff, including integrating them in key management positions. By being purposeful about skills, knowledge and technology transfer, and by asking African governments and companies what they need, then creating the right business models, products and services to achieve these goals, these companies will prosper. Only companies that exhibit these traits and deliver against them, should be granted access to African resources and markets, I believe.

Foreign companies wishing to succeed in African markets today must evolve their models of doing business from traditionally extractive ones, to ones that are additive. African governments that secure these terms of trade will take up their positions as a globally significant manufacturing hubs, consumer markets, talent pools and trading partners. With so much competition, it behoves African governments to establish clear visions for their economies and be selective when choosing their partners.

The stellar  economic performance of Rwanda, Morocco and Ethiopia over the last decade did not happen by chance. It resulted from deliberate and concerted measures by their governments to pursue policies and strike agreements that opened new  growth opportunities and export markets for their industries and their citizens.

About the authors:

Natalie Maule is a London-based Director at africapractice Group, a pan-African advisory firm headquartered in Botswana. Tigele Nlebesi is an Analyst at africapractice, based in Gaborone.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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