Jobs statistics in Africa continue to show shocking high unemployment rates across countries which will take some doing to correct. Concerns about the high levels of youth unemployment and the social mayhem this might cause have been widely expressed.
A recent report (2017) shows that Botswana has the lowest unemployment rate in Africa, something that economists do not dispute but rather they suggest what is termed employment in Botswana amounts to underemployment. This basically means that Botswana has workers who are highly skilled but working in low paying jobs, workers who are highly skilled but working in low skill jobs and part-time workers who would prefer to be full time.
Botswana has a population of about two million people. It is one of the fastest growing economies in the world with unemployment rate reported to be around 18 percent. At 25.9% in 2016 and 26.7% in 2018 South Africa's rate is higher than other African countries also classified by the World Bank as upper-middle-income countries. Botswana’s unemployment rate is at 18.4%, Gabon at 18.5% and Namibia at 25.5%.
The government increased its goods and services exports by 7.2 per cent in 2015 to boost employment. The introduced initiatives to fight unemployment include Ipelegeng, a project that was initially made to hire unskilled people but over the years the situation changed due to the reported unemployment and even the skilled are now part of the programme. Livestock Management and Infrastructure Development and Integrated Support Programme for Arable Development was one of the initiatives introduced through the years and a host of other initiatives have been added to the list.
The country awaits the release of the 2018/2019 minimum wage rates. Scores of workers in various industries are optimistic that under the presidency of Mokgweetsi Masisi the rates will change for the better. The current minimum wage has raked in a 6 percent increment across industries. Indications are that the world’s unemployment and underemployment rate remain high as reported by the Global risk Report 2018.
The report shows that headline economic indicators suggest that the world is finally getting back on track after the global crisis that destabilized economies 10 years ago. A broad-based pickup in Gross Domestic Product (GDP) growth rates is under way, stock markets have never been higher and the world’s major central banks are cautiously preparing to unwind the exceptional policies of the post-crisis period.
However, the Global Risk report states that this relatively upbeat picture masks numerous concerns. This has been the weakest post-recession recovery on record, it noted. The report says that productivity growth remains puzzlingly weak. Investment growth has been subdued, and in developing economies it has slowed sharply since 2010. In many countries the social and political fabric is reported to have been badly frayed by many years of stagnating real incomes.
The reassuring headline is explained to be indicators mean that highlight that economic and financial risks are becoming a blind spot: business leaders and policy-makers are less prepared than they might be for serious economic or financial turmoil. The risks can be divided into two categories consisting of familiar vulnerabilities that have grown, mutated or relocated over time; and newer fragilities that have emerged in recent years.
The report further shows that the third long-standing risk is the health of the financial system, even though much has been done to restore the banking system to stability after its near-collapse in 2008. The report says regulators have overseen an increase in the core capital ratios of 30 globally systemic banks, from 10.3 percent at the end of 2011 to 12.6 percent at the end of 2016.
Widespread changes in the structure of the sector include collapses, mergers, and a politically sensitive supranational “banking union” in the Eurozone. Restrictions such as the Volcker Rule, which since 2015 has prohibited banks in the United States from making market bets with their own capital have been put on the risks that banks are allowed to take. And there has been a winding down of the sector’s reliance on wholesale inter-bank lending, a potentially volatile source of funding that evaporated in 2008 as banks began to lose trust in each other’s credit worthiness.
Bond valuations are reported to be even more dramatic. In mid-2017, around 9 trillion US dollars’ worth of bonds were trading with a negative yield, meaning that investors were, in effect, paying bond issuers for the privilege of holding their risky financial instruments. This reflects anomaly to the impact of the huge asset-purchase programmes launched by central banks in the wake of the crisis, which seem to have divorced asset prices from assessments of their underlying riskiness. In Europe it has been explained that during 2017, yields on high-risk corporate bonds converged with yields on US government debt, the global financial system’s risk-free benchmark.
It is not just stocks and bonds that have seen their prices rise. The International Monetary Fund (IMF)’s index of global house prices is explained to be close to its pre-crisis peak again and signs of stretched valuations are evident in numerous cities including Hong Kong, London, Stockholm, and Toronto. Inflation in all these traditional asset classes has been dwarfed by more speculative assets such as the crypto currency Bitcoin, which increased in value by around 1200 percent in 2017.
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”