Botswana’s GERD or Gross domestic spending on research and development has dropped from 0.43 to 0.26 percent of the Gross Domestic Product (GDP) over the years. The low GERD is a significant factor that is contributing to the country’s slow diversification of the economy.
The Vice Chancellor of the Botswana International University of Science and Technology (BIUST), Professor Otlogetswe Totolo has advised that investment in research and development is a critical factor in driving diversification. Botswana has a very small S&T HR base which is estimated at about 2160 employees; while the Research and Development personnel as percentage of employment is below optimal at about 2.7 researchers for every 1000 people employed.
Gross domestic spending on R&D is defined as the total expenditure (current and capital) on R&D carried out by all resident companies, research institutes, university and government laboratories, etc., in a country. It includes R&D funded from abroad, but excludes domestic funds for R&D performed outside the domestic economy. This indicator is measured in million USD and as percentage of GDP.
According to Professor Totolo countries that have been successful at turning their economies from resource based to knowledge based invested significantly in research and development. “If we are to see results in the diversification area we must look at the research output, if there is nothing coming out, we will struggle to move significantly,” observed Professor Totolo.
Botswana per capita output in terms of research is at 0.4 percent which is very low when compared to that of Stellenbosch University at 1.2 percent. Professor Totolo said research is meant to influence industry. Botswana’s GERD or gross expenditure on Research and Development as a percentage of GDP is very low. Furthermore some research has focused on wrong areas that do not have long term high value such as agriculture and manufacturing, shared Professor Totolo. It is also evident that local universities are biased towards teaching as compared to research.
Totolo shared that “consensus is emerging among policy makers and economists that at least half, if not more, of the economic growth in countries is directly attributable to science and technology.” The BIUST VC said in a globalizing, knowledge driven world with increasing importance of service industries and technological competitiveness, this contribution can only become higher.
THE POSSIBLE BIG BREAK
He cited countries such as Malaysia and South Korea which use about 5 percent of their Gross Domestic Product on research and development. Professor Totolo opined that Botswana has a big opportunity to shift its gears because of her participation in the Square Kilometre Array project.
The Square Kilometre Array (SKA) project is an international effort to build the world’s largest radio telescope, with eventually over a square kilometre (one million square metres) of collecting area. The scale of the SKA represents a huge leap forward in both engineering and research & development towards building and delivering a unique instrument, with the detailed design and preparation now well under way. As one of the largest scientific endeavours in history, the SKA will bring together a wealth of the world’s finest scientists, engineers and policy makers to bring the project to fruition.
Professor Totolo, whose institution, BIUST has been chosen to spearhead the project on behalf of Botswana Government noted that Botswana could take advantage of being a partner in the SKA project and buy telescopes which could be used to harvest information and sell it to those who need it. “By so doing we will be moving from the natural resource based economy to a knowledge based economy,” he said. He emphasized the need to train more Batswana scientists so that the country could rip the benefits of being a host country to the SKA.
SKA Phase 2 will start mid-2020s and will see over 2000 dishes installed across 3500km of Southern Africa. National super-computing centres will also be set up in partner countries. Professor Totolo said as BIUST they are ready to accept the opportunities and challenges that will be presented to it so as to make a key contribution towards economic development, competitiveness and quality of life of the country, as well as making its mark regionally and globally.
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.