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Botswana bets on AGOA extension to increase Exports

Having previously failed to reap much through the African Growth and Opportunity Act (AGOA) initiative, which offers a huge market for African products duty and quota free into the US market, Botswana is betting on the new extension to increase exports.

The number of companies participating in the scheme has pared down over the years. Initially 15 members participated, being in textiles and apparel and furniture, but now only two companies are exporting through this scheme.

While other African countries like Lesotho managing to sustain the economy through the scheme, Botswana’s has failed recording a trade deficit with the United States (US) of $265 million in 2014million in 2014.

Minister of Investment, Trade and Industry, Vincent Seretse bemoaned that Botswana companies were not utilising the African Growth and Opportunity Act (AGOA opportunity to increase their exports.

“Currently only two companies are exporting under AGOA out of the 13 companies that benefitted initially and this has led to Botswana experiencing a negative trade balance,” said Seretse Speaking at a AGOA seminar in Gaborone.

The AGOA is a United States Trade Act, enacted in 2000 as Public Law 106 of the 200th Congress and the legislation significantly enhances market access to the US for qualifying Sub-Saharan African countries. Qualification for AGOA preferences is based on a set of conditions contained in the AGOA legislation. In 2014, Botswana exported goods worth around US$9 million to the AGOA market.

In 2011 was Botswana’s finest year after it managed to export goods worth $16 million. Botswana companies have reportedly failed to take advantage of AGOA because of high utility costs and supply constraints, insufficient telecommunications infrastructure, and highly inconsistent transportation costs, augmented by distance to current or potential markets, and regional infrastructure constraints.

Seretse said initiatives are in place to diversify the economy and sustain the Botswana industries to ensure competitiveness in the international markets.

“We have among other programmes such as the National Export Strategy, the Industrial Development policy, the Economic Diversification Drive and the Private Sector Development Programme, of which, we only need to implement to ensure that our manufacturers can capitalise in order to benefit from the renewed AGOA,” said the minister.

He said despite Botswana minimal benefit in the past 15 years, there is still hope for local manufactures as the will be launching the Vision 2036 and the 11th National Development Plan which is set to given the country direction to address the needs of industries.

Seretse said AGOA is the best opportunity for promoting industrialisation, diversify the economy and increase exports and create jobs in the country. The minister said increased benefits under ago would result increased export to the US and enhance Botswana economic growth through employment creation and industrial development. “It will further contribute to the efforts of regional integration objectives as you are aware that SADC has focused its efforts on the industrialisation of the region,” said the minister.

Advising Botswana on how to fully benefit from the scheme, Lesotho’s Minister of Trade and Industry (MTI Joshua Setipa said Botswana should look into improving conditions of doing business.

Setipa added that Botswana should also look into the issue of permits to lure more investors into the country as well as bring in the much needed expertise. Lesotho is the leading exporter into the US under the AGOA scheme in the sub-Saharan region.

The AGOA Act went through a series of extensions and was to elapse in September 2015. It was however extended for ten years until September 2025. Under the AGOA Preferences currently apply to approximately 7 000 tariffs lines which include approximately 5 000 tariff lines covered under the United States Generalised System of Preferences (GSP) plus a further 1800 tariff line items added by the AGOA legislation including footwear, luggage, handbags, watches, certain automotive components. To date, about 39 countries from sub-sahara Africa, are participating in the AGOA.

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

21st September 2020

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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