Despite its stated middle class economy, Botswana continues to struggle with the manufacturing and exporting sectors, importing almost 80 percent of its goods from neighbouring South Africa.
Botswana has the potential to produce goods and services for both its citizens and for export as well. The industry is one of the real wealth creators and is an undoubted contributor to diversification. However, despite many initiatives made available, there has been a problem in elevating the sector to the kind of heights that would auger well for its existence.
The Botswana Exporters and Manufacturing Association (BEMA), a private sector association independent from the government which deals with the improvement of the competiveness of Botswana’s manufacturing and export sectors, said that its members face numerous challenges.
“There is a lack of export incentives, work and residence permits, low preference to local manufactures and finance mechanisms for industry and for financing of specialized equipment,” said Stembile Tawengwa, BEMA’s Executive Director.
She explained that export incentives are vital because, without them, it is difficult to compete with other countries whose governments have introduced these incentives for their manufacturers.
Explaining why the manufacturing and export companies fail to thrive competitively, Keith Jefferis, the Managing Director of E-consult, concurred with Tawengwa. “Many firms have costs of production and distribution that are too high to enable them to compete in export markets, which may be due to high transport costs, low labour productivity, lack of local raw materials, problems with erratic water and power supplies or difficulties in bringing in skilled foreign workers,” said Jefferis.
Asked what could be done to improve the competiveness of the sector, Jefferis said that not enough attention was being paid to assisting firms to reduce costs of production and governments’ many regulatory barriers that added to production costs.
“Government should pay more attention to businesses when they request policy and regulatory changes that would help to reduce costs of production and carry out a general regulatory review to remove costly regulations,” he said.
On her part, Tawengwa said that some of the issues they had tabled with the government could not be resolved in one day. ‘‘The nature of our Association and its activities require that we be in constant engagement with the government so as to increase competiveness and this is done in the form of consultation and suggested changes in policies framed by the government,’ she said.
Initiatives like the government’s Economic Diversification Drive (EDD) are efforts to invest in the growth of the production of goods and services in the country. However, the locally produced goods remain minimal, along with little competition in the manufacturing and exporting sector.
‘‘We need to take bold steps and learn from exporting countries such as Asia where the governments provide direct incentives to make their manufacturing and exporting industries competitive,” said Tawengwa.
“These incentives could include preferential utility tariffs, preferential land allotment, generous tax holidays as well as exclusive procurement from the local manufacturers and training subsidies.”
Asked for a remedy to the stagnant growth of the sector, Jefferis stated that the government “should pay more attention to successful exporting firms and seek to learn what makes them successful, whether these factors can be replicated in other firms, and what barriers can be removed to assist firms”.
“The government needs to address a couple of problems such as the immigration policy, which restricts the ability of firms to create jobs for Batswana, the water and electricity shortage and the exchange rate, which is not supportive of exporters,” he said.
Tawengwa added that programs, such as Industrial Upgrading and Modernization Program (IUMP), ensure the availability to the country of state of the art machinery used in manufacturing. She indicated that there was a growth in the manufacturing sector as more companies had been established which were exporting or ready to export with a $5 million rise of exports between the years 2011-2014.
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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”