To redeem the economy from the deepening economic decline that has characterized it from 2008 to date, there is need to come up with new engines of growth as well as enhancing private sector led growth, as the country moves into the next 50 years.
Currently, the local economy is undergoing sobering realism as heavy reliance on a single export diamonds commodity has made the economy susceptible to external shocks to the extent of 8% contraction of growth during the global crisis period. In the eight years leading to 2015, growth averaged 3.8% compared to 8% averages during the 1970s, 1980s and 1990s
In an interview with the award winning economist and a Research manager at First National Bank Moathlodi Sebabole he highlighted the need to revisit current policy initiatives and foster in new ideas to change the current course of the economy.
Botswana’s economy since 1966 can be divided into four phases, where Phase one (1966 – 1971) economic growth was mostly concentrated in the agricultural sector prior to diamond discovery. Phase two (1972 – 2001) was characterized by decades of rapid economic growth followed by the beginnings of economic slowdown. Phase three (2002 – 2007) was a period of moderate economic growth and mixed fortunes, whereas, phase four (2008 – 2016) is generally a period of stagnation and mild recoveries, comprising of negative and general decline in economic performance followed by some economic recovery.
Sebabole clearly stated that if the economic woes are to be overcome, policy-making must be rational, based on evidence and implemented consistently and transparently in the national interest.
“There is need for regulatory reforms and such should focus on promoting less, but better and more targeted regulation. Such reforms should remove current barriers to regional and global integration that have the effect of blocking Botswana from attaining high-income status,” he noted.
Sebabole highlighted that existing policies like the National Export Strategy, Botswana Excellence Strategy and Special Economic Zones Strategy should be implemented and more importantly, create a conducive environment for attracting and retaining FDI in the country.
He added that the private sector must drive productivity growth and look for external markets rather than depend on government contracts.
“Promotion of public private partnerships and transformation into a private sector led economic will provide a solid foundation for future growth that is sustainable. Government has to change its approach towards the private sector by facilitating rather than controlling the sector,” says Sebabole.
Botswana has not experienced the same industrialization as other parts of the World. The growth is narrow-based and comes mostly from mining, making the economy very vulnerable to external shocks as the necessary diversification has not taken place. The impact of the recently fluctuating diamond prices has shown the danger.
He said as we move into the next 50 years, the focus should be on new engines of economic growth in the service sector, the promotion of new mining technologies and products, establishment of the transport hub for SADC region, new mineral products, agricultural innovations, locally manufactured products and services.
“The development of the value chains along these economic activities and fostering of linkages across them will play a significant role in achieving growth, diversification and sustainability and hence open more opportunities for economic prosperity,” he said.
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”