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Mismatch in economic growth and job creation

The Botswana National Human Development Report 2014 draft report of March 2015 submitted to the United Nations Development Programme Botswana Office (UNDP) by the University of Botswana academics indicates that the current challenge for Botswana’s economy has been and is still about finding appropriate policies and strategies to sustain the economic growth beyond the diamond era.
 
The report suggests that country therefore needs to work with development partners to find the appropriate economic policies and strategies to sustain the levels of growth. While economic growth is not sufficient to achieve economic development, it is nonetheless a necessary requirement for the same.

“While Botswana has been successful in maintaining a robust macroeconomic environment albeit with lower growth than in the previous period, its weakest major link has been the lack of connection between the economic growth and employment creation,” reads the report.

According to the report, this has to do with the fact that the sector that contributes significantly to growth is highly capital intensive and contributes less than 5 percent to total employment.

The report notes that the largest sector in terms of employment is agriculture which employs about 30 percent of total labour. And yet the agricultural sector in Botswana is dominated by subsistence farming and pays the lowest in terms of average wages. The sector also has problems of low productivity.

The second largest employment is in the Wholesale and Retail Trade Industry with 14 percent contribution to total employment. Mining and Quarrying was in 2005/06 employing 3 percent of the labour force even though it has over years been contributing the most in terms of GDP share.

There is therefore need to shift employment from the low productivity low pay subsistence agriculture to other high productivity high pay sectors. This is in addition to creating employment to the currently unemployed who were estimated at 19.8 percent in 2013.

“With the inadequate link between growth and employment growth the result has been a high unemployment rate that has been around 20 percent.

The unemployment is higher than most comparable countries that are classified as upper middle income countries. It is however lower than some comparable countries in the region in particular South Africa and Namibia which recorded 24 percent and 27 percent unemployment rates in the current period respectively.”   

In addition the UNDP report states that Botswana’s unemployment is however at quite a level that is worrisome for policy makers and requires urgent attention. With a population of about two million people, unemployment of about 180 thousand people reflects quite a big challenge. Added to these are those discouraged who may have stopped looking for a job due to unavailability of new jobs and also those who are underemployed who were estimated at 5 percent in the 2005/06 Labour Force Survey.

“The unemployment in Botswana is distributed unequally amongst different social groups. It is generally highest for youth and for women and for urban villages and rural areas than for cities/towns and for those with no training. The Botswana Core Welfare Indicators Survey (BCWIS) results estimate total unemployment of 13.1 percent, 23.4 percent and 16.2 percent for cities/towns, urban villages and rural areas respectively.”  

From the same data, the report says women were facing an unemployment rate of 21.4 percent in 2009/10 and that of males was 14.6 percent. In 2013 estimates from the Botswana HIV/AIDS Impact Survey women unemployment was estimated at 22.3 percent compared to men of 17.8 percent, a trend that is similar in all estimates from all the surveys.  

“Unemployment is generally highest for the youth with those at age 15-19 facing an unemployment rate of 41.4 percent and females in that age group facing unemployment rate of 50.5 percent. Unemployment generally declines with increases in age.  The youth are likely to be highly unemployed in an economy not generating many new jobs given that they do not have the required on the job experience and most of them have no training beyond formal school.”

“This may also be a reflection that the education is not producing graduates with the required skills especially vocational type of education. Employment creation to absorb these youth and also make the youth employable from an appropriate training are key challenges to the current Botswana economy.

This is an area that requires efforts in many forms from development partners. Despite the country being classified as upper middle income, this challenge seems to be one that is elusive in terms of solutions and clearly requires appropriate policies and programmes that can be developed by government and other stakeholders with the assistance of development partners.”

BOTSWANA ECONOMY AT GLANCE

Meanwhile the UNDP draft report notes that Botswana’s economy has also undergone structural change from an economy that was dominated by agriculture which made 43 percent of output in 1966 to one that was to later be dominated by mining.

From the 1980 to the early period of the 2000 decade mining was making more than 40 percent of GDP. Figures 1.2 and 1.3 summarise sectorial share of GDP for 2005 and 2012. Mining was contributing the largest share at 43 percent of GDP and agriculture the smallest share with about 2 percent share. In 2012 mining was now contributing a relatively smaller share to GDP at 20 percent. Agriculture was still among the lowest contributors to GDP making 2.7 percent of 2012 GDP.

The figures show some degree of diversification from mining to the other sectors particularly those in the services sector. Mining however still dominates in terms of contribution to GDP indicating that there is still need to intensify efforts towards economic diversification away from mining particularly diamond mining. This is important given the fact that diamond production in Botswana is highly capital intensive and therefore generates less employment creation.

Modest employment of about 3,000 have however been created from current efforts to further process diamond in the in terms of further cutting and polishing. This is however still not adequate to deal with the current employment challenges especially among the youth.

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

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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