The domestic economy increased by 1.2 percent in the third quarter of 2017 compared to an increase of 6.9 percent recorded in the same quarter of 2016. The increase was attributed to real value added of Water & Electricity, Finance & Business Services, Transport & Communications and Mining industries which increased by 15.7, 4.8, 4.5 and 4.4 percent respectively.
The estimated GDP at current prices for the third quarter of 2017 was P43, 067.9 million compared to P43, 146.6 million registered in the second quarter of 2017. The estimated GDP at constant 2006 prices for the third quarter of 2017 was P22, 689.2 million compared to P22, 884.4 million recorded in the second quarter of 2017.
All other industries recorded positive growths of more than 2.0 percent with the exception of Trade, Hotels and Restaurants which decreased by 9.3 percent (See table 4). Water and Electricity value added at constant 2006 prices for the third quarter of 2017 was P98.3 million compared to P84.9 million registered in the same quarter of 2016, recording an increase of 15.7 percent. In the third quarter of 2017, Electricity recorded a negative value added of P103.2 million compared to a negative value added of P117.8 million registered in the same quarter of 2016 recording an increase of 12.4 percent.
The improvement in the Electricity real value added is attributed to an increase in local electricity production by 10.7 percent and a decrease of 62.1 percent in electricity imports. Water sector recorded a positive value added of P202.9 million compared to P209.0 million registered in the same quarter of the previous year amounting to a decrease of 2.9 percent. Water consumption in kilolitres went down by 10.9 percent during the quarter under review.
The increase of 4.8 percent in the real value added of the Finance and Business Services industry was mainly due to the rise in the value added of Banks, Real Estate and Business Services by 6.4, 5.9 and 5.4 percent respectively. Transport and Communications growth of 4.5 percent was attributed to the increase in real value added of Air transport, Road transport and Post & Communications by 7.2, 5.1 and 5.0 percent respectively.
The increase in the real mining value added of 4.4 percent was mainly driven by Diamond and Other Mining value added which increased significantly by 32.9 and 37.4 percent respectively. Other Mining comprises of Gold Mine and quarrying activities. Diamonds production in carats increased by 33.0 percent in the third quarter of 2017 compared to an increase of 9.3 percent recorded in the same quarter of 2016. Gold production in kilograms increased by 52.6 percent.
In the quarter under review, Orapa diamond mine production increased by 60 percent mainly driven by the upgrading of Plant 1, which was previously on partial care and maintenance in response to trading conditions in late 2015. Jwaneng diamond production increased by 23.0 percent as a result of planned increases in feed to plant. Mining sector growth without Copper/Nickel stood at 29.7 percent. The year on year growth compares the third quarter of 2016 value added which has copper contribution and the current period without copper value added.
Copper/nickel production was zero due to the provisional liquidation of the BCL mine in October 2016. Trade, Hotels and Restaurants real value added decreased by 9.3 percent in the third quarter of 2017 compared to an increase of 16.3 percent registered in the same quarter of the previous year. The negative growth is attributed to the decrease in real value added of wholesale sub sector by 79.3 percent. Wholesale value added decreased because downstream diamond industries contributed negatively to the industry during the quarter under review.
Non-mining GDP increased by 0.9 percent in the third quarter of 2017 compared to 5.6 percent registered in the same quarter of the previous year. On quarterly basis, Trade, Hotels and Restaurants remained the major contributor to GDP by 17.0 percent followed by Mining at 15.9 percent while General Government came third at 15.3 percent. Trade, Hotels and Restaurants contribution increased because of inclusion of diamond aggregation processes under wholesale sub sector.
Components of GDP by Type of Expenditure
Total final consumption expenditure recorded an increase of 5.2 percent in the third quarter of 2017, whereas in the same quarter of the previous year it rose by 2.6 percent. Household final consumption increased by 6.1 percent, Government final consumption increased by 3.2 percent and Fixed capital formation decreased by 8.0 percent in the quarter under review. Imports of machinery & equipment and transport & equipment also decreased by 16.2 and 35.4 percent respectively.
In the case of foreign trade, real exports of goods and services decreased by 14.1 percent in the third quarter of 2017 compared to an increase of 50.6 percent realized in the same quarter of 2016. Diamond is the major export commodity. Exports of diamonds in Pula decreased by 5.6 percent in the third quarter of 2017 compared to a decrease of 18.7 percent registered in the same quarter of 2016. Imports of goods and services recorded a decrease of 16.3 percent during the quarter under review, compared to 9.0 percent decline realized in the same quarter of the previous year.
GDP at current prices stood at P170, 588.9 million in 2016 compared to a revised level of P146, 065.8 million in 2015, recording an increase of 16.4 percent. Real GDP increased by 4.3 percent in 2016 compared to 1.7 percent decrease in 2015. The increase in real GDP was mainly attributed to Water & Electricity, Trade, Hotels & Restaurants and Transport & communications industries which recorded an increase in value added of 95.2, 13.5, and 6.6 percent respectively.
Water and Electricity value added at constant 2006 prices for the year 2016 was P623.5 million compared to P319.4 million registered in the previous year, recording an increase of 95.2 percent. The sector recorded the highest growth but it is the lowest in terms of contributions to Gross Domestic Product. In 2016, Electricity recorded a negative value added of P183.1 million compared to a negative value added of P195.5 million registered in the previous year, recording an increase of 6.3 percent.
The improvement in the Electricity real value added is attributed to an increase in local electricity production by 8.4 percent and a decrease of 0.7 percent in electricity imports in 2016. In 2016, the water sector registered a highest growth of 57.4 percent because water consumption in kilolitres January 2016, Water Utilities Corporation introduced dual billing system. Consumers were charged for both portable water and waste water.Trade, Hotels & Restaurants increase in real value added of 13.5 percent is attributed to the increase realized in the downstream diamond industries.
In 2016, their value added increased by 74.1 percent compared to 48.7 percent decline registered in 2015. During 2016, diamond prices remained relatively stable and therefore the diamond industry had not been significantly impacted by the commodity pricedownturn. A decrease of 3.5 percent in the real value added of the Mining sector was mainly due to Copper and Coal value added which declined by 21.2 and 9.4 percent respectively.
Copper/Nickel production decreased by 22.4 percent in 2016. BCL copper mine was placed under provisional liquidation in October 2016. Coal production went down by 9.4 percent in the year under review. Diamond production increased slightly by 0.3 percent in 2016. Contribution to GDP by industry is shown in table 2. In 2016, Mining and Trade, Hotels & Restaurants remained major contributors to GDP, their contributions stood at 20.5 percent and 18.2 percent respectively.
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.