The Botswana economy grew by 1.6 percent in the three months to the end of June, largely propelled by the services sector, data from Statistics Botswana has revealed. Second quarter gross domestic product maintained the same rate as the one recorded in the same quarter of 2015.
The statistics agency attributed the increase to the real value added of Trade, Hotels and restaurants and transport and communications which increased by 7.3 and 5.0 percent respectively. During the second quarter, all other industries recorded positive growth with the exception of Manufacturing, Agriculture and Mining sectors which decreased by 0.2, 2.5 and 13.8 percent respectively during the quarter under review.
The estimated GDP at current prices for the second quarter of 2016 was P40, 694.2 million compared to a revised level of P39, 233.7 million registered in the first quarter of 2016. The estimated GDP at constant 2006 prices for the second quarter of 2016 was P21, 792.1 million compared to P22, 086.6 million registered in the first quarter of 2016.
The statistics agency noted that the slow growth in real GDP was attributed to real Mining value added which decreased by 13.8 percent in the second quarter of 2016 compared to a decline of 8.2 percent registered in the same quarter of the previous year.
In the quarter under review, copper/Nickel and diamond production decreased by 26.6 and 12.1 percent respectively. The Mowana and Thakadu copper mines have been on provisional liquidation starting from the fourth quarter of 2015 to date.
Despite the decline in growth in the mining sector in 2016, comparing the two quarters to the same period in 2015 there has been some due to positive recovery in the global markets, particularly in the major markets for diamonds.
The non-mining GDP increased by 4.4 percent in the second quarter of 2016 compared to 3.6 percent registered in the same quarter of the previous year.
Water and Electricity value added at constant 2006 prices for the second quarter of 2016 was P139.6 million compared to P97.3 million registered in the first quarter of 2016. Although Electricity continued to record negative value added, it showed some improvement. In the second quarter of 2016, Electricity recorded a negative value added of P74.4 million compared to a negative value added of P192.9 million registered in the second quarter of 2015.
The statistics agency stated that the decrease in the Electricity real value added is attributed to a decline in local electricity production by 20.0 percent and an increase of 24.6 percent in electricity imports. The decrease in local Electricity production was largely driven by plant failure at the coal operated Morupule B Power Station. At the end of quarter under review, only two units were in operation at the power plant while the other two were undergoing remedial works.
Water sector showed some improvement in the first and second quarters of 2016. In the second quarter, it registered an increase of 40.6 percent compared to an increase of 23.8 percent in the first quarter of 2016.
Agriculture sector registered a decrease of 2.5 percent in the second quarter of 2016. The decline was attributed to a decrease in real value added of Horticulture and Livestock by 2.3 percent and 0.4 percent respectively.
Total final consumption expenditure recorded an increase of 5.4 percent in the second quarter of 2016, whereas in the same quarter of the previous year it rose by 7.4 percent. Household final consumption increased by 7.1 percent in the second quarter of 2016 while Government final consumption rose by 1.3 percent in the same quarter. Fixed capital formation decreased by 7.8 percent in the quarter under review.
In the case of foreign trade, real exports of goods and services increased by 1.7 percent in the second quarter of 2016 compared to a decrease of 3.2 percent recorded in the same quarter of 2015. Imports of goods and services registered a decrease of 8.2 percent in the second quarter of 2016 compared to 3.1 percent increase registered in the same quarter of 2015.
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”