In the earlier volume, I somewhat rapped manufacturing on the knuckles. Does it follow that it is now a futile proposition as a basis for future development? Some pundits, who include a few of Botswana’s most notable economists, have averred so.
They maintain that having tried manufacturing for the past 30 to 40 years and without seeing it come into flower, there is every reason to read the last rites and devote our energies to more realistic prospects, services for instance. I retain very strong reservations on this take notwithstanding my own, lingering misgivings.
In the first place, the fact that a strategy does not yield the desired results does not necessarily imply it is inherently vain or flawed. The problem might not lie with the strategy itself but with the manner in which it was executed. The strategy could also be hobbled by the absence or impotence of the confluence of factors necessary to make it bear fruit. Let us take a Formula One ace as an analogy.
Mercedes may provide Lewis Hamilton with the fastest and most reliable car, but if he does not have mastery of the car or is so impetuous as to lack a sense of caution, he will be prone to accidents or off-track spins and pole position will frequently elude him in the qualifiers, thus seriously curtailing his chances of winning races.
Hamilton may also be a brilliant driver himself, but if the Pirelli tyres his team chose are ill-suited to the prevailing conditions or the pit-stop calls are out of kilter, he will be hard put to romp to victory.
At the time of writing, our import bill stood at P38 billion, equivalent to about $5 billion. Somebody has scoffed that Botswana imports everything save for meatstuffs! And when we do import, we pay not in our own currency but in the so-called hard currencies, primarily the US dollar, a medium of international exchange we toil to earn.
Over 17 percent of our import bill falls to machinery and equipment. Given that we have a capital intensive spearhead sector in diamond mining and we have neither the capacity nor the expertise to manufacture sophisticated pieces of machinery and electrical equipment, this component of our imports was probably preordained: it is here to stay, particularly that Government has done negligibly little to alter the status quo.
But there are these other items classified in the national accounts as “Chemicals and Rubber Products”, “Metals and Metal Products”, and “Other”: these together account for about 22 percent of the import tab. If we were to produce them on our own turf, we would trim over P8 billion, or $1.15 billion, from our import liability. Much of this money, needless to say, would be spent within the local economy.
The gist of my contention, folks, is that we cannot completely jettison manufacturing. Are we, like most of Africa, condemned to a nation of mere consumers and not producers I wonder? A Chinese roving journalist was surprised to learn that up to 90 percent of the Vuvuzelas, the long, plastic trumpets which aroused so much controversy during the 2010 soccer World Cup in South Africa and which have practically become the sound of Africa, were made in China and this is a fad modelled on the traditional African kudu horn used to alert neighbouring villagers! It is estimated that Chinese exporters raked in $20 million of Vuvuzela revenues in that year alone.
In his diatribe against his own race vexatiously titled Capitalist Nigger, the US-Based Nigerian journalist Chika Onyeani sneers that we, Africans, are “‘highly educated’, yet we cannot even assemble a bicycle – we have to import it; we cannot assemble a radio – we have to import it; we cannot assemble a fan – we have to import it; we cannot assemble a television – we have to import it.” If he were writing in 2010, Onyeani probably would have added that we Africans are “Vuvuzela crazy, yet we cannot even make a crude imitation of this ruddy, uncomplicated plastic horn!”
Those who advocate sidelining manufacturing may as well say we should forget about beneficiation considering that besides cutting and polishing gem diamonds, it also entails jewellery manufacturing. I contend that there is a great deal of potential in manufacturing even for an economy as modest as ours folks.
Besides presenting an opportunity to significantly accelerate the country's growth and development, a platform of manufacturing provides a locus for stimulating the growth of other activities, such as services, and achieving specific outcomes, such as employment creation and economic empowerment.
In neighbouring South Africa, for instance, the manufacturing sector in 2013 contributed 15.2 percent of GDP, three times more than mining and quarrying, and employs 1,7 million people5, again more than three times that of the mining and quarrying sector. If we were to nurture a manufacturing prowess on the magnitude only of South Africa’s, we would, with our population of only 2 million, have zero employment folks.
(Excerpt from Chapter 15, Pages 376-378) lifted from Volume 2 of the book – Delusions of Grandeur
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.