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Trade Balance rebounds

Botswana trade balance has rebounded spectacularly after two successive months of recording a deficit. The rebound follows a strong performance in the month of September which was underpinned by a 59.2% increase in total exports.

 

This information is contained in the latest International Merchandise Trade Statistics for September released by Statistics Botswana. According to the monthly report, the total imports for September were valued at P5.2 billion, showing a decrease of 2.2 percent (P117.6 million) from the revised August 2016 value of P5.3 billion.

 

This decrease was mainly influenced by the residual group (Other Goods) and Machinery & Electrical Equipment, with decrease of 38.1 percent (P106.1 million) from P272.2 million to P165.1 million for the residual group and 8.8 percent (P74.1 million) from (P842.4 million to P768.3 million for Machinery & Electrical Equipment.


Comparison of import figures for September 2016 and September 2015 shows a decrease of 18.9 percent (P1, 214.5 million), from P6, 427.7 million recorded during September 2015 to P5, 213.2 million recorded during the reference month. The decrease in import value in this case is mainly due to the low value of Diamond imports during September 2016, having decreased by 56.2 percent (P1, 482.6 million), from P2, 638.5 million during September 2015 to P1, 155.9 million in September 2016. Chemicals and Rubber Products is another commodity group that contributed to the fall in imports level, having decreased by 19.1 percent (P118.2 million) from P617.8 million registered in September 2015 to P499.7 million during September 2016.

The total exports were valued at P8.4 billion, showing an increase of 59.2 percent (P3.1 billion) from the August 2016 revised value of P5.3 billion. This is mainly due to the increase in exports of Diamonds and Vehicles & Transport Equipment. Diamonds exports increased by 68.4 percent (P3.1 billion) from P4.5 billion recorded during August 2016 to P7.7 billion registered in September 2016. Vehicles & Transport Equipment recorded an increase of P35.0 million from P34.3 million recorded during August 2016 to P69.3 million during the month under review. Exports of Vehicles & Transport Equipment are mainly re-exports.

The report revealed that the trade figures for the month’s total exports value to that of September 2015 shows an increase of more than 100 percent (P4.2 billion) from P4.2 billion recorded during September 2015 to P8.4 billion recorded during September 2016. The increase is attributed mainly, to exports of Diamonds and Copper Nickel. Diamonds exports increased by P4.1 billion, from P3.5 billion to P7.7 billion while Copper & Nickel rose by P159.3 million from P13.9 million to P173.1 million during the period under consideration.

The strong performance in September saved what could have been the first quarterly trade deficit of the year. Figures show that the country recorded a trade surplus in the first and second quarters. However the third quarter was marked by two successive trade deficits for the months of July and August. For the month under review, the country recorded a trade surplus of P3.2 billion, reversing the previous two deficits to result in an overall trade surplus of P3 billion for the third quarter.


While the third quarter was saved by a surge in diamonds and Copper Nickel Exports, economists have warned that the fourth quarter will record a lower trade surplus given the prevailing economic sentiments. Chiefly amongst those sentiments is the government’s decision to shut down the BCL group operations. 

 

The decision to close the mines in October is expected to wipe hundreds of millions from the economy. In the latest trade report, Copper and Nickel contributed about 2% to the total exports after 1145% surge in trade value of the base metals. It went up by P159.3 million from P13.9 million to P173.1 million during the period under consideration.  Now with a halt on copper and nickel production, the focus will shift to diamonds.


Diamonds are the main stay of the country’s economy as evidenced by trade figures which show that diamonds contribute more than 85% to total exports. For the month under review, diamonds exports stood at 90.6% of total exports. Economists worry that since diamond trades tend to slow down in the last quarter of the year, so will the exports. Recently, Anglo American Plc has posted the lowest diamond sales for De Beer’s ninth sales cycle of 2016, amounting to $470 million, compared with the $494 million value of the eighth cycle of the same year.

 

The figures fit in with expectations of slowing sales in the second half of the year. The diamond industry is seasonal, with the holiday period from thanksgiving in November through the Lunar New Year in Asia in January or early February the busiest period for jewellery sales. Rough diamond prices have rebounded by 7.4 percent this year, a marked contrast to the slump experienced in 2015 when sales slumped by 18%.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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