Despite a series of supportive policies over the years, economic diversification drive remains sluggish for Botswana. The economy remains heavily dependent on Diamonds, while the private sector, considered pivotal in the strategy for diversification, continues to be shallow and narrow, with weak inter-sectoral diversity and production links, Research manager with First National Bank (FNB) Moatlhodi Sebabole has stated.
Moatlhodi said efforts are being made towards diversifying the economy however; the results have been sluggish as the supply side of the economy remains weak, yet diamonds by far outshine any other industry in Botswana, accounting for one-third of GDP, 70% of export earnings, and about one-third of the government's revenues.
The country is looking to diversify the economy by strengthening existing sectors like tourism and cattle farming, and investing in burgeoning industries spawning from technology and entrepreneurship.
The key to the country’s economic diversity, many believe, lies in private sector development, and attracting foreign direct investment. Compared to other countries, like Mauritius, the march to diversification for Botswana has been rough and bumpy due to its dependency on mining sector for too long.
Moatlhodi highlighted that what’s needed to address the sluggishness of the EDD drive is a continuous revision and audit of EDD. “The government needs to match targets with achievements to see if there is return on investment and whether policies designed with good intent, are actually being implemented fully and timely,” he said.
He highlighted that there is potential for growth in other sectors and diversification within mining itself which should reduce reliance on diamonds revenue. Diamond production is expected to start declining significantly in 2030 and thus the country has to significantly reduce over-reliance on diamonds.
He noted that the attention that the diamond sector has received over the years at the expense of other sectors has somehow have made implementation and expansion of newer, alternative industries difficult. Diamond industry has been a cash-cow for government and efforts were aggressively made to maximize on diamonds revenue and prudent management of the sector, even bringing DTC to Botswana for more economic vibrancy.
However, he said it is worth noting that other avenues were made to boost other sectors like Agriculture through the EPAs and subsidies. The focus on industrialised sectors also indicates an effort to boost the supply side of the economy. “Efforts have been made it is unfortunate that progress remains sluggish,” he said.
Since the inception of Economic Diversification Drive (EDD) in 2010, 28 000 jobs have been created for Batswana from over one thousand registered enterprises. Between April 2014 and February 2015, BITC recorded 19% increase in investment expansions which were worth P1.1 billion; domestic investment did not register any change and stood at P182.3 million, while FDI increased 48% and was worth P586. 9 million.
He encouraged government to measure investment against return to establish if the monies are used on profitable terms and medium-term expenditure analysis and medium term budget review will assist in maximizing on return on investment.
The EDD plans to leverage the government's purchasing power, estimated at $2.1bn per annum, to stimulate local production and consumption by buying from locally based manufacturers and service providers.
Moatlhodi said further improvements need to be done in the doing business environment, which, to some extent, affected and impacted on attracting the much needed foreign direct investment.
To his understanding , long-term sustainable development in Botswana and diversification hinge on the diversity of exports and growth factors which depend, to a larger extent, on investment opportunities that can be realised through promoting factors that improve efficiency enhancers, technology, innovation and business sophistication.
Economic diversification remains fundamental in the context of Botswana’s future long term sustainable growth and key in unlocking the growth potential besides the mining sector.
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”