The Southern African Development Community (SADC) 37th Ordinary SADC Summit held last week in Pretoria South Africa has placed industrialization at the top of the regional block action plan in order to realize growth amongst economies of member states.
When accepting the SADC chairmanship from Swaziland, President of South Africa, Jacob Zuma assured SADC head of governments that his country would push the region’s industrialization agenda. Zuma said that the International Monetary Fund (IMF) in its regional economic outlook for Sub-Saharan Africa has forecasted a modest rebound in aggregate growth of 2.6 percent in 2017 saying SADC countries would need to work together to realize integrated economic rebound.
“The economies of the countries in the region continue to be under severe economic difficulty owing to the 2008 global financial crisis and the accompanied decline in global demand for commodities,” he observed. The new SADC Chair also noted that the rising public debt brought about mainly by the budget deficit makes it difficult for SADC economies to finance regional industrial projects like the much needed infrastructure.
Zuma also borrowed from the global economic outlook and projections that uncertainties persist as major players in the world economy were inward looking with evidence of some taking a policy stance which could be characterized as push backs on globalization. “It is therefore imperative that the region focuses inwardly,” he said. President Zuma also reiterated that African economies were small by global standards thus it was imperative for a collective response through regional integration in order to realize structural transformation of SADC economies. “The region cannot continue to be suppliers of primary products in global value chains while remaining with low levels of domestic production with economies that are very vulnerable to global shocks.”
Zuma further highlighted the summit theme “Partnering with the Private Sector in Developing Industry and Regional Value Chains’ saying it intended to promote momentum and continuity in the region’s collective aspiration towards regional sustainable economic development and industrialization. Deliberating on the SADC Industrialization Strategy which was adopted under the chairmanship of Zimbabwe in 2015 Zuma said the implementation of the strategy would ensure successful transformation of regional economies from the commodity dependent growth path to production induced growths. “This will not only raise the living standards of our people but also facilitate the rapid catch-up of the SADC countries with industrialized and developed countries.”
He added that the key activities during South Africa’s Chair-ship will be the development of a high impact Annual Operation Plan with targeted interventions and public policy tools to foster the development of regional value-chains in agro-processing, pharmaceuticals and mineral beneficiation. “We will promote a Member State driven process through the Industrial Development Forum to facilitate the identification of cross-border projects that will strengthen regional value-chains and contribute to the development of the region.”
Zuma also told SADC head of states that as a contribution towards capacity building, South Africa will introduce a new programme to develop capacity in industrial policy making and implementation for senior officials in the SADC region. He also noted Infrastructure as the key driver of industrialization. Zuma lamented the lack of funding for development of bankable projects. “Infrastructure investment is a catalyst to economic transformation and industrial development we therefore, need to leverage infrastructure spent to fast track the process of structural transformation in our economy,” he said.
SADC INDUSTRILIZATION STRATEGY
Inter boarder trade within the SADC region is still very low and its sitting at just above 17 %, this results in very low returns SADC member state solicits from doing business within the region. This is because of among other reasons the fact that most of SADC countries still depend on mineral revenue to sustain their economies, minerals which are sold overseas. As for other sectors like agriculture South Africa’s economy is dominant over other SADC economies. It is under this back drop SADC member states through their head of governments adopted a rigorous industrialization plan in 2014 and approved the proposed undertaking at the Extra-Ordinary Summit in Harare, Zimbabwe in April 2015.
The SADC Industrialization Strategy was birthed after a realization that despite persistent efforts to boost Trade within the region through the SADC Free Trade Area, the value of intra-SADC Trade still remained low making Industrialization a priority at global, regional and national levels. The Industrialization Strategy was developed as an inclusive long-term modernization and economic transformation scheme that enables substantive and sustained rising of living standards; intensifying structural change and engendering a rapid catch up of the SADC countries with industrializing and developed countries. It is anchored on three interdependent and mutually supportive strategic pillars – industrialization as champion of economic transformation; enhancing competitiveness; and deeper regional integration.
PROGRESS OF THE STRATEGY IMPLEMENTATION
SADC member states are currently engaging their trade stakeholders, the private sector and businesses in an effort to collect views and exchange ideas towards the implementation of the strategy. Recently Botswana which houses the SADC headquarters hosted the SADC Coasted Action Plan Workshop as a build-up undertaking to the SADC head of states meetings. When officially opening the workshop Permanent Secretary in the Ministry of Investment, Trade and Industry, Ms. Peggy O. Serame, said the workshop was aimed at sensitizing stakeholders on the SADC Industrialization Action Plan which intends to guide the Implementation of the SADC Industrialization Strategy and Road Map of 2015 – 2030 and to determine the Indicative National Public Coordination costs of the Industrialization Process.
Serame said the strategy was developed taking into consideration what was already happening at Africa level, she highlighted that SADC countries have different abilities in the manufacturing sector depending on resources available at the respective countries. The strategy also appreciates technology and digital migration as a key factor to realizing the industrialized SADC region. Currently SADC countries are moving towards a techno-based manufacturing sector and industries. To meet the competitive global world in the manufacturing and commodities trade space SADC intends to fast track their transformation of members states to knowledge based, export led and consequently diversified economies. Again at the workshop the importance of private sector investment and full participation was highlighted.
Dr Monnana Monnana from the SADC secretariat had told gatherers that the objective of the Industrialization strategy was to use technology in catching up with developed economies; Dr Monnana said it was high time SADC countries moved away from depending on other countries from different regions for commodities and day to day goods. “We have to devise collective ways in which we SADC can become sustainable as an intraregional trade space, knowledge will increasingly become very important as we transform our region and develop our economies,” he said.
All SADC member states penned authorization to the Industrialization strategy and thus it is expected that all countries will implement and observe all the guidelines outlined in the road map in order to realize more diversified, industrialized SADC economies with significant intraregional trade revenue. It is envisioned that by 2063, the SADC region will be fully transformed and will be an important player in the continental and global landscape, premised on the three growth phases. Trade and Finance Ministers also met at last week’s summit to deliberate and further come up with action plans to ensure the implementation of the strategy.
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.