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.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.