The Botswana Millers Association has rubbished the process, findings and the recommendations by Business Botswana on the impact of the 15 percent wheat levy.
Millers have disregarded the recommendations from the two studies conducted by Dr. Oupa Tsheko and Sweet Fountain. The two studies have termed the levy as problematic and have said it needed to be phased out. They further literally accused Bolux and Bokomo, the two largest millers in the country of collusive behavior.
The 15% Wheat Levy was introduced by the Government of Botswana in 2003 through the Control of Goods, Prices and Other Charges Regulations. It is levied on all wheat flour imported into the country.
This week the Chairman of the Millers Association, Nkosi Mwaba said as millers they are not in agreement with Business Botswana’s position.
“ Our opinion is that Business Botswana is clearly not balancing members interests in this instance nor is it keen to handle these sensitive issues with the discretion and diligence it deserves,” said Mwaba.
In 2013 BOCCIM commissioned a study on the Impact of Commercial Levies on Business. Amongst the levies in question was the 15% Wheat Levy on Flour Imports. Some millers responded to this study and cautioned BOCCIM not to proceed with this position as it was not researched sufficiently nor was it representative of its members.
Last week, yet another similar study was conducted by Sweet Fountain , which although addressing the same subject, seemed to overrule the first study by Dr. Tsheko which has now been ignored completely.
“This 8 page document by Sweet Fountain draws numerous baseless conclusions on what are termed as ‘problematic levies’,” Mwaba said.
The 15% levy was introduced on all wheat flour imported into the country, in order to develop the local industry. The levy was an effective tool to curtail dumping and to address predatory pricing from South African millers.
Botswana millers, controlling 85 percent of the market, have warned that phasing out the levy will not only affect the confectionery industry but also extend to livestock rearing, trucking business, and small-scale farmers of wheat, food security and human resource development.
“One must take their time to understand the history, reasoning and full implications of the Wheat Levy before drawing premature conclusions in such a public manner,” Mwaba said.
He added that extensive research and consultation has been conducted on the Wheat Levy and there are fundamental facts and implications that Business Botswana has chosen to ignore.
“The results of this approach by Business Botswana could be catastrophic not only to the milling industry but other sectors affected by this study,” stated the Chairman.
BOCCIM’s position is that the plurality of levies raises the costs of doing business and therefore undermines competitiveness of firms in general. Based on this perspective, it is the opinion/suggestion of BOCCIM that any proven detrimental effect of levies be removed.
Business Botswana believes that the levy negatively affects all industries which are linked to the wheat and flour sector such as bakery, dairy and the beverage sector. The levy does not only affect producers but also hurts households’ welfare through price escalations.
“Unless evidence of its benefit to the wider economy can be demonstrated with historical and verifiable evidence, which supports the assumptions which were initially made, it is recommended that Government should discontinue the levy altogether, or consider rapidly phasing it out. This is due to its negative impact on the wheat related sectors and the potential to create anti-competitive behavior by the two protected firms – Bokomo and Bolux,” reads one of the study recommendations.
Millers have distanced themselves from any position or recommendation made by Business Botswana on the study conducted on the Impact of Levies on Businesses in Botswana.
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”