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Phasing out of Wheat levy will promote dumping

Local millers have warned that the 10 year phase out of the Wheat levy through a statutory instrument by government will cripple the industry as it will promote dumping.

The statutory instrument has peeved local millers who feel the phasing out of the import levy marks the collapse of the industry. In 2003 Botswana Government enforced a 15 percent levy on all wheat flour imported into the country to develop local industry.

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.

Nonetheless, some expects put it that the levy undermines the potential role of imports, which is essential in preventing collusion. However local millers maintain that there is a need for government to reassess the statutory instrument.

“If a substantive decision has been made to effectively remove the only anti-dumping mechanism that has been put in place, how then will the issue of dumping, which still exists, be addressed .Our concern is that this was our only tool against dumping and dumping still exists as s major threat to local industry,” said Nkosi Mwaba the Chairman of the Maize and Wheat Millers Association of Botswana.

Botswana has always been a dumping ground for South African wheat flour because Gauteng market consumes mostly cake flour. As such white bread flour being an additional component of the milling process, South African millers have excess white bread flour to dispose of.

 Mwaba said the levy was effective at 15% and the strength of this tool has been diluted within a short space of time.  

In a letter addressed to the minister of Trade and Industry, local millers have noted that the effective removal of the wheat levy places the entire milling industry in Botswana under imminent existential threat.  

“Botswana’s milling outputs only make up 4% of the South African Milling capability and as such, milling in Botswana will no longer be viable without an anti-dumping tool.  The market will simply be flooded by imports that are made available at dumped prices and local millers will be forced to adjust their business models to traders and divest from milling operations,” reads the letter.

Mwaba added that this will have a significant impact on employment figures as wheat millers employ over 800 Batswana.

“This goes against the grain of economic diversification and industrialisation efforts and will have an overall detrimental effect on the economy in our view. This has a significant impact on investor confidence as the future of this business in Botswana is now uncertain,” he said.  

Mwaba said this move government will force millers to adjust their business models. “Chances are there will be more imports and less local produce in the short term,” he said.

Millers have also highlighted that with the statutory instrument in place they will be forced to import finished products through traders and distributors as this is more viable in an environment where dumped products are allowed without counter measures.

Mwaba said millers will be forced to participate more aggressively in bakeries themselves as this will boost their margins and completely overshadow the very bakeries that currently exist as they are more resourceful and already have linkages in the trade.

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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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