The meetings of high raking government officials, taskforce and ministerial team of the Southern African Customs Union (SACU) which started this Monday has shaped a new path that is aimed at transforming the regional inter boarder trade block into a key player in the industrialization and economic transformation of the member states, Chairperson the SACU Commission, Dr Taufila Nyamadzabo ha said.
Dr Nyamadzabo who is Secretary for Economic and Financial Policy in the Ministry of Finance and Economic Development said that this would help find new ways to reshape SACU and better serve the interests of its member states. According to Nyamadzabo the intention was to review and develop suitable framework on setting and application of tariffs, rebates, refunds or duty drawbacks and trade remedies amongst others. “We have been meeting previously and we are now reporting progress on extensive trade agenda that SACU was embarking on specifically with regard to issues of customs union and common external tariff,” he said.
REVENUE SHARING FORMULA
The SACU meetings also thoroughly deliberated on issues surrounding sharing of revenue collected from intra-SACU trade, including re-exports for its member states which are Botswana, Lesotho, Namibia, South Africa and Swaziland. The need for intense review of the revenue sharing formula came to play when South Africa levelled complaints in several forums that it was not getting the rightful share from the SACU common revenue pool despite being the largest contributor.
SACU Executive Secretary, Paulina Elago noted that the intention of the review was to ensure SACU adequately facilitates cross border movement of goods between member states as well as creating effective, transparent and democratic institutions to ensure equitable trade benefits to member states by promoting conditions of fair competition in the common customs area as well as increase investment opportunities in the common customs area. The current Revenue Sharing Formula which has been used since 2004 has three components; namely the Customs Component, Excise Component and the Development Component.
The Customs share is allocated on the basis of each country's share of intra-SACU imports. The Excise Component is allocated on the basis of each country's share of Gross Domestic Product (GDP). The Development Component, which is fixed at 15 percent of total excise revenue, is distributed according to the inverse of each country's GDP per capita. The structure of the Revenue Sharing Formula is such that Member States get a significant share of their revenue from the Customs Component whilst South Africa gets more than 90 percent of its share from the Excise Component. The Development Component, whilst meant to compensate the least developed economies, is distributed more or less in equal shares among all the Member States.
Elago underscored that the implementation of the current Revenue Sharing Formula has been facing a number of challenges, associated with the data that informs the variables in the formula. “The recent global financial crisis has exposed some weaknesses in the structure of the Revenue Sharing Arrangement. The process of the review of the revenue sharing arrangement has followed a three stage approach which entailed firstly, identification of areas requiring further study in the current revenue sharing arrangement; secondly, an independent examination of the identified areas; and thirdly, a process of negotiation to reach consensus on a new revenue sharing arrangement,” explained the SACU Head of Secretariat.
The Southern African Customs Union is currently also reviewing and renegotiating its trade agreements with other countries and regional blocks. “We are currently also negotiating trade agreements with third parties as a block and therefore we have been engaging and deliberating on how we can harness the continental Free Trade Area signed at the African Union Summit in March last year.”
SACU also engaged and deliberated on how the organization can maximize export and trade opportunities with key trading partners and economic integrations such as the Economic Partnership Agreement with the European Union, the tripartite free trade agreement involving COMESA, the East African Community and SADC.
Amongst other key agreements under thorough review was the relationship between SACU and United Kingdom post Britain‘s Exit from the European Union. This week it was revealed that SACU, Mozambique and European Union have commenced discussions to conclude a new Economic Partnership Agreement (EPA) under the new arrangement which will take full swing in 2020.
Ministers of Trade and Finance from SACU and the United Kingdom last year held discussions and reached a resolution to review and set new guidelines for EU-SADC EPA as an immediate step to avoid trade disruption. Both parties have shared textual proposals on the proposed changes on the main EPA text, annexes and protocols; this includes extensive review of Protocol three on geographical indications which is directly affected by Brexit.
SACU is also said to be progressing well regarding the establishment of a special stabilization fund to address volatility challenges of revenue shares for member states. From several member states ministerial discussions the Union has been informed that inability to save for tough economic times opened it up to various problems such as reduced availability of fiscal buffers needed to stimulate the economy in rough times and also reduced the average portion of public finances available for long term investments in infrastructure, health or education in turn disrupting countries’ long-term development outlook.
Observers note that lack of preparedness for sluggish economic times causes fiscal challenges, all requiring restraining public spending in a period of modest growth, while being increasingly becoming vulnerable to negative external shocks, such as oil price increases. In recent years SACU region has been experiencing challenges of downgrades on sovereign ratings in South Africa and Namibia, sharp reduction of foreign currency reserves in Swaziland and Lesotho, threatening their pegs to the Rand.
The SACU Executive Secretary highlighted that the SACU Stabilization Fund would be crucial to offset the fluctuation of SACU receipts, particularly during those periods when SACU revenue to members states declines. She said fluctuations in the revenue shares brought fiscal challenges which affected government planning. “The benefits to the member states are that they will be able to utilize the Stabilization Fund when the revenue forecast is lower than the actual revenue collected, and revenue shares will not be negatively adjusted,” she said.
SACU which has been in existence since 1910 is a very instrumental institution in the SADC region and predominantly to the economic agendas of its member states. The Union Executives emphasized this week that the whole intention of these proposed reforms was to create a regional financing mechanism to support SACU wide infrastructural projects and industrialization undertakings.
Going forward several task teams from the SACU member state would be deployed to thoroughly engage and assess ways in which the Union can come up with mechanisms to support regional industrialization better. This according to the SACU secretariat would be to come up with a financing mechanism in which the union can collectively resource and fund industrial and mega infrastructural developments such as trade corridors and logistics windows that can better cultivate regional value chains.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.