China, the world‘s second largest economy after the United States in one of Botswana’s key economic partners. China spends over 300 million pula annually on Botswana’s key economic resource, diamonds.
On the other hand figures indicate that Botswana imports goods predominantly in the textile and electronic sectors worth over 2 billion pula yearly. China is also a major player in Botswana’s construction industry, especially in public infrastructure development. The World’s number 2 was underscored as a key partner in Botswana’s economic transformation quest by the Minister of International Affairs and Cooperation Dr unity Dow at the Botswana-China business forum in Gaborone this Monday.
The forum was attended by 70 business delegates mobilized by the China Council for the Promotion of International Trade (CCPIT) drawn from several sectors amongst them; Agribusiness, Transport, Construction, Energy, Manufacturing, Financial Services, with keen interest to explore trade and investment opportunities in Botswana.
Minister Dow noted that the objective of the forum was to strengthen Botswana and China's bilateral relations; facilitate increased trade and businesses between the two nations; and promote foreign direct investment in both countries and to create a platform for the formation of mutually beneficial business partnerships between Botswana and Chinese entrepreneurs and companies.
“The business community gathered here this morning understands the imperatives of this joint effort, and share in the vision of freeing our people from unemployment and under-development,” observed the minister. In 2016, Botswana exported goods worth US$33 million to China which were predominantly diamonds whilst during the same period China exported to Botswana US$233 million worth of goods such as Electrical Equipment, Boilers, Televisions, Footwear, Bedding, Textile and Garments as well as mechanical appliances.
“Therefore Botswana runs a huge trade deficit with China. You will all concur that these figures are low and present an opportunity to further boost trade between our respective countries,” noted Minister Dow. Minister Dow also reiterated that Botswana was keen to attract investment from China in the construction Energy, Manufacturing, ICT, Innovation led business, Textile amongst other where China had comparative advantage.
Currently investment in the Manufacturing sector from Chinese companies in Botswana is in excess of BWP 600million creating more than 1000 job opportunities. “The important part in the broadening of these relations is the issues around VISAs. We will be engaged in the facilitation of official or diplomatic travel by removing the VISA requirements for those passport holders. We will also be facilitating travel by regular travelers as tourism is important to us. Our slogan is ‘Our Botswana Your Destination’, and we want to make Botswana the world’s destination,” Dow said.
Also at the forum the two countries through their investment promotion agencies signed Memorandum of Understanding (MoU) to strengthen trade and investment ties.â€¨ Botswana through its investment wooing vehicle Botswana Investment & Trade Center (BITC) alongside private sector mouth piece Business Botswana (BB) did court the China Council for the Promotion of International Trade (CCPIT) on the areas of infrastructure development, manufacturing, financial services, energy, mining, agribusiness and Information Communications Technology (ICT).
Chief Executive Officer of BITC, Mr Keletsositse Olebile noted that through Botswana Special Economic Zones Chinese investment companies can explore abundant resources and opportunities that Botswana was sitting on. He said one of Botswana’s abundant resources, coal was increasingly demanded by the global market despite the world shift to green energy. China is the largest consumer of coal and early this year it prospected to up its coal demand. The country is also producing its own coal but cannot meet demand.
China is the largest coal consumer, accounting for 49% of the world's total coal. The next largest, the United States, consumes 11% of the world's total. China's coal consumption increased by more than 2.3 billion tons over the past 10 years, accounting for 83% of the global increase in coal consumption.
In 2017, China’s micro-economy has been growing steadily in a rising momentum, and coal consumptions in main industries like power, heating supply, steel & iron and chemicals (excluding building materials) have kept rising. Decapacity in coal industry continued moving forward, outstripping the targeted tasks set in 2017 setting high prospects for increased demand on this year.
Speaking at the MoU singing ceremony China Ambassador to Botswana, Zhao Yanbo said the China-Botswana economic and trade cooperation was a win-win principle with a common goal of improving the people's livelihoods. Meanwhile the Chief Executive Officer of BITC, said CCPIT, BITC and Business Botswana collaboration would provide a platform for mutually beneficial business partnerships between Botswana and Chinese companies.
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”