First National Bank Botswana (FNNB) on Tuesday held its annual budget review a day after the Ministry of Finance and Economic Development unveiled the 2017/2018 budget. The FNBB’s event, in its 24th year of existence, seeks to stimulate discussion and reflect upon some of the key points that were raised during the National Budget Speech.
Mr. Steven Bogatsu, FNBB’s CEO, said there has been a global trend of sustained economic instability, which came to a head in 2016, citing Brexit and the past American Elections as having played a significant part in the markets. “On home front, the ripple effects of some of the occurrences of last year, such as the liquidation of BCL and others, will manifest during the course of this year. Against a backdrop of worldwide and local uncertainty, we have cause to remain cautiously optimistic,” he said.
Mr. Bogatsu says it’s possible to move away from the economic rut by drawing on lessons and strategies learned over time from past gatherings and conferences. He however noted that the key to the success of these strategies will be the grit and dedication with which they are implemented, monitored and adapted.
“Much of this has to do with stepping down out of the ivory tower and having an intimate understanding of what the needs of Batswana are, on the ground. As Government devises policies and drafts legislation with the prosperity of the country at heart, this shift will be instrumental in catalyzing and stimulating our economy.”
He ended his opening remarks by adding that small, medium and macro enterprise (SMMEs) will require efforts both from the private and public sector in ensuring their survival through provision of skills and knowledge as well as a conducive environment to operate in. Mr John Cairns, one of the four panellists at the budget review, said Botswana’s economy remains at risk on the backdrop of global markets. He said the global markets have not sufficiently recovered post the 2008 financial crises, noting that while there has been recovery, the growth pace has been slow and still below the growth trend experienced prior to 2008.
Mr. Cairns, Currency Strategist at Rand Merchant Bank, also explained how Botswana’s dependence on diamonds and close economic ties with South Africa could impact its economy this year. He said South Africa remains under the radar of ratings agencies that are closely monitoring the country’s economic and political manoeuvrings which might impact negatively on the country.
On the issue of diamonds, he says while there was notable recovery in diamond prices and output in 2016, a lesson to be learned is that resources based economies remains at high risk as evidenced by the commodity slump that was felt heavily in 2015 as global demand for commodities waned.
Reformation or regression? That was the rhetoric question asked by Mr. Moatlhodi Sebabole, FNBB’s Research Manager, as part of his contribution to the panel. Mr. Moatlhodi started off, by showing how Africa’s perspective has changed over the years in the eyes of investors. From the break of the millennium, the resources rich Africa was viewed with scepticism, then the financial crisis happened and investors looked somewhere else where the contagion did little damage.
So post 2008, investors were upbeat about Africa, and money was flowing in. Then came the commodity slump in 2015, revenues declined for most African states, and the negative effects tickled down to the households and businesses. At the moment, Mr. Moatlhodi says the sobering reality is Africa remains as vulnerable to the global markets like the rest of the world.
In the case of Botswana, he says the economy remains heavily reliant on mining revenues even though there has been notable growth in other sectors of the economy. He implored the private sector to play a meaningful role in the economy as part of efforts to move away from diamonds.
In order to achieve sustained future growth, it was suggested that Botswana get on with the times and tap on the ongoing fourth industrial revolution. This was suggested by Ms. Bogolo Kenewendo, an especially elected member of parliament and also a trained economist who has been vocal about the country’s slowness in adapting in the rapidly changing global landscape. Ms. Bogolo said the 4th industrial revolution has changed the way we work and live, noting that technology is driving the next economic wave. She explained how early adopters of technology have reaped benefits by investing in the information, communication and technology sector.
Ms. Kenewendo said there is more to technological advances than the internet and broadband. She says countries and companies are now leveraging on the underlying technologies to create value and monetise things in a way never thought possible, giving examples of how traditional models have been usurped by efficient and convenient digital models. She also noted that the buzz word now is internet of things, where the machines can be automated to act as our assistants, powered by artificial intelligence, a new technology that’s being greatly pursued.
Furthermore, Ms. Kenewendo said Botswana can start playing on that field by modernising the government through enhancement of transparency, accountability and good governance. She says government must be more result-oriented, efficient and customer centric, also adding that the country needs secure ICT infrastructure, regulatory friendly laws that will enable innovation. Ms. Kenewendo said it was imperative that the government focuses on equipping its citizens with ICT skills that will see them actively participating in the new economy that will be driven by technology.
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”