Botswana’s has ended the previous year with a huge trade surplus in over sixteen years despite a weaker fourth quarter ended in deficit. The weak performance in December was underpinned by a 29.8 percent decrease in total exports. This information is contained in the latest International Merchandise Trade Statistics for December released by Statistics Botswana.
According to the monthly report, the total imports for December were valued at P5.175 billion, showing a decrease of 11.4 percent (P664.8 million) from the revised November 2016 value of P5.8 billion. The decrease was mainly influenced by Machinery & Electrical Equipment which decreased by 22.1 percent (P204.2 million) from P922.6 million in November 2016 to P718.4 million in December.
Other commodity groups that contributed significantly towards the decrease were Food, Beverages & Tobacco with a decrease of 22.6 percent (P181.5 million) from P804.0 million to P622.5 million and Chemicals & Rubber Products with a decrease of 16.6 percent (P92.1 million) from P555.7 million to P463.6 million during the periods under consideration.
Comparison of import figures for December 2016 and December 2015 shows a decrease of 19.2 percent (P1.2 billion), from P6.4 billion recorded during December 2015 to P5.175 billion recorded during the month under review. The decrease was mainly due to the 29.9 percent (P703.2 million) decrease in the import value of diamonds, from P2.3 billion during December 2015 to P1.6 billion in December 2016.
The total exports were valued at P5.151 billion, showing a decrease of 29.8 percent (P2.2 billion) from the November 2016 revised value of P7.3 billion. This decrease was mainly due to a decline of 29.2 percent (P1.96 billion) in diamond exports, from P6.7 billion in November 2016 to P4.7 billion in December 2016
The total exports value for the period under review, compared to that of December 2015 shows a decrease of 2.8 percent (P146.7 million) from P5.2 billion recorded during December 2015 to P5.151 billion recorded during December 2016. The decrease is mainly attributed to the fall in exports of Copper & Nickel, which dropped by 99.8 percent (P406.9 million) from P407.5 million in December 2015 to P0.6 million during the period under review. The decline in Copper & Nickel is due to the closure of the main mine producing these minerals in October 2016. Copper & Nickel group includes products of the two minerals and the P0.6 million is the value for Copper waste & Scrap.
The weak performance in December accentuated what was already a weak quarter to deliver the first quarterly trade deficit of 2016. Figures show that the country recorded a trade surplus in the last three quarters. However the fourth quarter opened with a massive P2.5 billion trade deficit in October. This was later followed by soft recovery in November after recording P1.4 billion in trade surplus. For the month under review, the country recorded a trade deficit of P24 million to end the fourth quarter down with a P1.1 billion trade deficit.
A trade deficit was widely expected in the fourth quarter following major developments that included the government’s decision to shut down the BCL group operations. The decision to close the mines in October wiped hundreds of millions from the economy. In the previous trade report, Copper and Nickel contributed about 2% to the total exports.
Despite the slump in the fourth quarter of 2016, Botswana finished the year strongly with a trade surplus of P13.4 billion, a stark reversal from the P9.7 billion trade deficit recorded in 2015. This is the largest yearly trade surplus in over sixteen years. Botswana’s rough-diamond exports bounced back last year after a plunge in 2015, helping the country return to economic growth. The nation shipped about P40 billion of rough diamonds in 2016, a jump of 54 percent, according to the Bank of Botswana.
Fourth-quarter diamond exports leapt to P4.5 billion, making 92% of total exports. In 2015, orders dived 34 percent because of a slump in demand due to oversupply of polished and inflated rough prices. This dented the performance of Botswana focused miners such as De Beers, whose sales fell 36 percent that year. Botswana’s total exports, of which 83 percent are diamonds, grew by an estimated 26.4 percent in 2016, mainly as a result of the recovery in the diamond market.
Earlier this year when giving the budget speech, Mr. Kenneth Mathambo, Minister of Finance and Economic Development, said that the domestic economy contracted by 1.7 percent in 2015, compared to a positive growth rate of 4.1 percent recorded in 2014. This negative growth was mainly due to weak performance of the mining sector, as a result of the reduction in diamond and copper production by 15.6 percent and 35 percent, respectively, during the year. The non-mining sectors also registered a lower growth of1.7 percent in 2015 compared to 4.9 percent in 2014, reflecting the impact of water and electricity disruptions on the rest of the economy.
“The outlook for 2016 is however positive, with the domestic economy expected to recover and record a growth rate of 2.9 percent for the year, and forecast to reach 4.2 percent in 2017. The optimistic outlook is based on the anticipated slight improvement in the mining sector, and positive growth prospects for the non-mining sectors,” the minister added.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”