The World Bank has projected that Sub-Saharan Africa’s economy will grow by 3.1 percent in 2018 and will average 3.6 percent in 2019–2020, this is according to Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the Bank.
The document was released this Wednesday (18th April 2018) at the ongoing World Bank’s Springs meeting in Washington DC. The meeting in United States of America is held in conjunction with the International Monetary Fund (IMF). Also in attendance is Botswana Minister of Finance & Economic Planning Kenneth Matambo.
Mr. Albert Zeufack, Chief Economist for the Africa Region and Ms. Punam Chuhan-Pole, Lead Economist in the Africa Region held a discussion on Africa’s recent economic progress and future challenges in sustaining Africa’s economic growth in a changing global environment. The discussion was aired across African countries by means of a video conference. World Bank Botswana organized the same arrangement for finance and economic journalists at their Gaborone Offices.
Economic growth in Sub-Saharan Africa is estimated to have picked up to 2.6 percent in 2017 from 1.5 percent in 2016. This upswing reflected on the supply side, rising oil and metals production, was encouraged by recovering commodity prices, and improving agricultural conditions following droughts. On the demand side, growth was supported by a rebound in consumer spending as inflation moderated, and a recovery in fixed investment as economic activity picked up among oil and metals exporters.
According to the forecast by the Global lender the economic growth projections are also predominantly premised on expectations that oil and metals prices will remain stable, and that governments in the region will implement reforms to address macroeconomic imbalances and boost investment. Instability of oil and metal commodity prices in the international market space has been a blow for most of African countries in the past years. In the case of Botswana, the drastic plunging of base metal prices, precisely copper & nickel resulted in massive job losses in 2016 when Botswana’s traditional copper & nickel Mine BCL was put shut down following poor performance by metal prices in the global market.
Zeufack says the 3.1 percent growth projection signals a rebound in Sub-Saharan Africa, but warns against celebrations just yet. “We are still far from pre-crisis growth levels. African Governments must speed up and deepen macroeconomic and structural reforms to achieve high and sustained levels of growth,” he advised.
The moderate pace of economic expansion reflects the gradual pick-up in growth in the region’s three largest economies, Nigeria, Angola and South Africa. Elsewhere, economic activity will pick up in some metals exporters, as mining production and investment rise. Among non-resource intensive countries, solid growth, supported by infrastructure investment, will continue in the West African Economic and Monetary Union (WAEMU), led by Côte d’Ivoire and Senegal.
The World Bank observes that growth prospects have strengthened in most of East Africa, owing to improving agriculture sector growth following droughts and a rebound in private sector credit growth. In Ethiopia, growth will remain high, as government-led infrastructure investment continues.
World Bank Lead Economist and the author of the Africa Pulse Chuhan-Pole reiterated that for many African countries, economic recovery is vulnerable to fluctuations in commodity prices and production. She underscored the need for countries to build resilience by pushing diversification strategies to the top of the policy agenda. In Botswana’s context Word Bank Country representatives underscored and emphasized on economic diversification to push the economy’s dream of autonomy from mineral revenue, the latter has evidently proven not to be sustainable and clearly a ticking time bomb; especially in the area of employment. Botswana’s government revenue still heavily depends on mineral income generation with diamonds, still the country’s lead cash cow.
The Washington headquartered Global lender says public debt; relative to Gross Domestic Product is currently rising in the sub Saharan region, and the composition of debt has changed as countries have shifted away from traditional concessional sources of financing towards more market-based ones. Higher debt burdens and the increasing exposure to market risks raise concerns about debt sustainability. 18 countries were classified at high-risk of debt distress in March 2018, compared with eight in 2013. “By fully embracing technology and leveraging innovation, Africa can boost productivity across and within sectors, and accelerate growth,” highlighted Zeufack.
This issue of Africa’s Pulse has a special focus on the role of innovation in accelerating electrification in Sub-Saharan Africa, and its implications of achieving inclusive economic growth and poverty reduction. The report says that achieving universal electrification in Sub-Saharan Africa will require a combination of solutions involving the national grid, as well as “mini-grids” and “micro-grids” serving small Concentrations of electricity users, and off-grid home-scale systems.
Improving regulation of the electricity sector and better management of utilities remains central to success. “A well-thought-out, evidence-based plan for national electrification is crucial,” states the report. Such a plan should include staged rollouts for grid extension and targeted investments in mini-grid development to expand electricity access for productive uses. In areas with high potential for expanding energy intensive productive uses, new industrial zones could be grid-connected sooner to foster economic development, while other areas with lower potential demands for productive uses could be served by mini-grids.
Over time, as incomes rise and populations agglomerate in higher-productivity locations, the national grid can spread out. Last year Botswana launched the 4.6 billion pula electrification project termed the ‘The North West Transmission Grid (NWTG)’ that will extend the transmission grid to the North West, Chobe and Gantsi Districts of the country. World Bank Country representatives indicate that Botswana is in the right track with Africa’s Impulse recommendations citing that main focus and deliberate efforts needed to be channeled to rigorous economic diversification from mineral revenue.
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.