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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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KBL shut down operations indefinitely

20th January 2021
KBL

Kgalagadi Breweries Limited (KBL) has suspended its operations indefinitely owing to the tough trading conditions occasioned Government decision to ban the sale of alcohol at the beginning of this month.

The brewer announced the decision today (Wednesday). KBL Corporate Affairs Manager Madisa said from the 25th January 2021 only a minimal number of critical roles will continue to be staffed and all other operational activity will stop.

KBL also acknowledged the impact this will have on the overall supply chain and those whose livelihoods depend on the beer industry and requests their understanding.

The current ban is expected to end on 31st January 2021, KBL said should the ban be extended past this date, suspension of its operations will continue.

KBL explained that its Tuesday meeting with suppliers was to align with them that due to the current situation, the brewer will suspend payments as of 6th February 2021, up for review pending the outcome of the current alcohol ban.

“However, it is regrettable that this latest total ban on alcohol sales has resulted in the suspension of KBL’s operations, which will remain in place for as long as the alcohol ban persists. KBL continues its efforts to engage government on this critical issue, which is having an enormous impact on the industry and its extensive value chain,” said Madisa.

On Tuesday afternoon, KBL conducted an ‘emergency meeting’ with its suppliers addressing some business decisions the company has made amid the current alcohol ban. Botswana has several alcohol bans since the first lockdown of March.

Mostly alcohol has been banned as a measure of curtailing the spread of Covid-19 and government then lived with putting stringiest operating hours for alcohol sales and distribution for a long time. Next week Monday KBL will be shutting down its operations, after a two weeks ban on liquor.

Sources say ever since the 4th of January 2021 when the December curfew regulations were extended, KBL has been brewing stacks of liquor for stockpiling. This is solely the reason why the brewer decided to close shop and stop manufacturing alcohol, because KBL’s depots no longer needed supply. On Tuesday suppliers were told to stop supplying KBL as next week the plant will be closing.

Air of uncertainty was hovering in the KBL plant premises on Tuesday as many workers feared mostly for their jobs. No one knows when alcohol ban will be lifted or if Botswana is going for a hard lockdown following the recent surge of Covid-19 infections. Botswana has 18,630 coronavirus cases, with 88 deaths and 14,624 recoveries.

KBL owner Botswana Stock Exchange (BSE) listed Sechaba Holdings came into contact with response to Covid-19 in March when Botswana recorded its first cases and that was the time when the company was doing well for years since the shedding of alcohol levy.

Sechaba associates, KBL and Coca Cola Beverages Botswana (CCBB), that time according to the holding company in its abridged financial results for the year ended 31 December 2019, continued to forecast growth in 2020 notwithstanding the challenges related to COVID-19.

Sechaba that time saw the business environment has been generally positive including relationship with stakeholders and the associates continue to manage the performance and business continuity risks.

Ten months ago the brewer underestimated the damage that can come with the pandemic and expected Covid-19 disruptions to be “temporary and the business will survive.”

That time Sechaba’s sole associate, KBL operates traditional beer breweries, alcoholic fruit beverages and a clear beer brewery.

In the period that just ended in December 2019, KBL contributed 72 percent to Sechaba’s revenues while CCBB contributed 28 percent. KBL also performed high in contribution to profit after tax with a share of 74 percent while CCBB contributed 26 percent.

Sechaba holds 49.9 percent in the local headline alcohol brewer KBL and 49.9 percent in the non-alcoholic drinks associate, CCBB. Sechaba holds 60 percent of the shares of KBL while SABMiller Botswana B.V. holds 40 percent. SABMiller Plc has management control in the operating company. The Botswana Development Corporation has a 25.6 percent shareholding in Sechaba Breweries Holdings Limited.

The glitter on the glass of KBL or Sechaba, is of December 2019 financial results which was downplayed and turned into a bearish affair in the financial results for the half year ended 30 June 2020. For those results, there was a spill in profit by Sechaba cash cow KBL by 72 percent while CCBB recorded a decline in profit by 15 percent, both and respectively in correspondence with the same period in 2019. All this downfall comes down to a loss of 60 percent of profit by the parent company. That was more than the 60 percent fall expected before the release of results.

In September during the release of the June 2020 results, Sechaba admitted that the intervention put by government since April, to fight the Covid-19 pandemic, negatively impacted its business performance and its associates, KBL and CCBB bore the full brunt. Revenue collected for KBL was lower by 37 percent while for its sister associate; CCBB, the numbers were down by 7.1 percent. This is the time when sale of alcohol was banned and manufacturing of soft drinks was not part of essential services.

Sechaba Chairman, Bafana Molomo last year said even though Covid-19 interventions would have an impact on the associates, this impact is expected to be temporary and the businesses will survive.

“However, it is advised that the situation is changing constantly and that it will be monitored closely. The Group’s associates continue to forecast growth in 2020 notwithstanding the challenges relating to Covid-19. The business environment has been generally positive, and the Group continues to enhance relationships with all stakeholders. The associates continue to manage the performance and business continuity risks,” he said.

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South Afrincan 501. V2 curfew blinds 2021 prospects

20th January 2021
Machines

Lockdown is back, but now with less stringent measure of curfew restrictions, and will affect the economy whose bounce back was expected to be this year.

Economic projections saw 2021 with glimmer of hope, where all the past Covid-19 ruins will be offset by things going back to normal. An anomaly of curfew has since come to this country’s shores after the discovery of a new Covid-19 variant.

Some Botswana’s trade partners are on complete lockdown ever since the beginning of the festive season when the new variant was reported to be spreading rapidly and uncontrollably.

Measures were since put in place to tame the new high spreading and uncontrollable coronavirus variant called South African 501. V2 which was discovered in Botswana’s neighbor South Africa and the similar variant also known as E484K discovered in the UK.

After South Africa put in a curfew restriction following a response to a second wave of infections driven by a new Covid-19 variant, also called 20C/501Y.V2

President Mokgweetsi Masisi announced on national television Botswana’s first restrictions which was a curfew from 7pm to 4am from 24 December 2020 to 4 January 2021.

This month curfew regulations were extended from 8pm to 4am until end of January and many business operations were either stopped or closed earlier, hence slowing of economic activity in Botswana.

Latest data showing how business operations are being affected is not yet available. But many businesses are already crying foul and showing frustrations.

Lining of economic data with Covid-19 measures shows that at a time when there were lockdowns the economy slumped by 24 percent.

The GDP data of the second quarter of 2020, a time when Botswana got into its first lockdown amid national panic, shows that the real Gross Domestic Product contracted by 24 percent “due to the impact of measures that were put in place to combat the spread of the Covid-19 pandemic.”

But Botswana expected a 7.7 percent rebound and growth in 2021 from the 8.9 percent contraction forecast of last year.

This was pinned on expected improved sentiment in the global diamond industry and overall improved economic activity when the domestic economy goes back to normal.

Bank of Botswana’s Monetary Policy Committee in December last year also projected that inflation will go back to within the objective range in the second quarter of 2021.

Initially, in October last year, the central bank projected that inflation will be within 3-6 percent by the third quarter of 2021.

Two months later Bank of Botswana projections changed with the reversion to the objective range now expected to come earlier than the previous forecast as the domestic and the international economies were opening.

“Overall, risks to the inflation outlook are assessed to be balanced. Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand, as well as possible supply constraints due to travel restrictions and lockdowns, though abating,” said Bank of Botswana last month.

When the meeting of Monetary Policy Committee which was held on 3 December 2020 decided to maintain the Bank Rate at 3.75 percent inflation had increased from 1.8 percent in September to 2.2 percent in October 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6percent.

With the curfew which is place this whole month, spending or economic activity is expected to slow down and inflation will remain below the lower bound of the Bank’s objective range.

According to the last Monetary Policy Statement, the real GDP contracted by 4.2 percent in the 12 months to June 2020 compared to a growth of 3.9 percent in the corresponding period in 2019.

Mining and non-mining sectors registered a steep decline in output and this is blamed on Covid-19 containment measures.

The curfew regulation, despite being of a lesser sting than total lockdown, will have a slight or nominal impact on the domestic economy which is also affected by lockdowns in some of Botswana‘s trading partners.

Uncertainty looms on Botswana as reports continue that the 501. V2 seems to be uncontrollable and is spreading quickly in Botswana population.

While the country is on curfew restrictions, a possible lockdown looms if the disease continue to spread with this much prevalence, according to sources at government enclave.

This means the economic recovery, a rebound or leap in 2021, could remain a big pipeline dream.

The International Monetary Fund (IMF) had forecast the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook.

While the domestic eyes projected the economic to rebound to a growth of 7.7 percent, IMF had higher lenses of a growth of 8.6 percent in 2021. But the expected growth is set to be offset by the new elephant in the room, South African 501. V2.

The central bank and other international bodies have not ruled any chances of the pandemic remaining resilient or standing stubborn against countries, meaning possibility of future containment measures remains.

Now in Botswana a stubborn variant of the pandemic has caused panic and curfew regulations.

In December 2020, Monetary Policy Committee said: “Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of growth in output. The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand.”

Q3:2020 GDP decrease eases, but still remains in the negatives

The data for Q4: 2020 is yet to be released. Economic data available is the recent Q3:2020 released last month showing that real GDP for the third quarter of 2020 decreased by 6.0 percent compared to a deep contraction of 24.0 percent registered in the previous quarter.

As mentioned by Bank of Botswana in the last Monetary Policy Committee meeting of 2020 which was held in December just few weeks before the release of the Q3:2020 GDP data, the economy was expected to have performed better in the third quarter of 2020 compared to the second quarter given the gradual easing of COVID-19.

In Q3:2020 the economy tried to jump up out of the dark hole, but could move up 18 times and still remain in the fringes of economic hell. Many saw this movement as the one towards the recovery of 2021.

According to Statistics Botswana, the improvement in the third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.

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Moody’s already gloomy SSA report not yet infected by 501.V2

20th January 2021
Diamond

The latest report on Sub Sahara Africa (SSA) by rating agency Moody’s was prepared before the global panic of a new coronavirus variant which has already been detected in Botswana following its discovery in South Africa, the country’s major trade partner. 

Latest reports are that the new variant, now christened South African 501.V2 or E484K, was detected from the local tourism hub of Maun, and the Covid-19 task team have borrowed credence from the high rate of infections prior to the festive season as vindication of the new virus mutation being in Botswana.

The local task team is not the only one missing on full scientific data of how this new corona virus variant is in Botswana and its carriers or patients — renowned rating agency released a report on Wednesday with absence of any mention of South African 501.V2.

Moody’s made a study on “2021 outlook negative as debt costs intensify amid limited institutional capacity to adjust post pandemic.”

However, the current affairs suggest that “post pandemic” there are mutations or new variants of the virus which should be dealt with, now forcing countries like Botswana, South Africa and some in Southern Africa into coming up with curfew regulations to curb the new form of Covid-19.

The Great Pandemic seems to be here to stay in the midst of humankind if reports coming from next door South Africa about Covid-19 taking new forms to survive vaccine hence spreading uncontrollably is anything to go by.

Optimism has been brought the vaccine which is currently being rolled out, but scientific theories being conducted suggest that the new variant of Covid-19 might prove to be more resistant to vaccination.

Moody’s released a report this week on the outlook of SSA creditworthiness in 2021 which is deemed to be negative. With the new variant sweeping across Botswana and its influential trade partner South Africa, curfew regulations that are currently in place in the two countries could lead to further economic injury.

That Moody’s expectation for the fundamental conditions that will drive sovereign credit over the next 12-18 months to be severe, could be less far-reaching and short sighted given the lack of the new variant factor on the latest report.

“We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt,” said Moody’s on Wednesday.

Higher debt levels, weaker debt affordability (amid both lower revenue and higher interest payments) and low buffers will challenge SSA sovereigns’ institutional capacity to manage economies, public health, budget positions, financing strategies, reserves and social discontent, thus elevating event risk.”

According to Moody’s latest report on SSA, commodity producers and tourism-dependent countries like Botswana were hit particularly hard.

Currently no tourist can come to Botswana lest they want to brave the ‘new Covid-19’, incidentally borders have been closed save for goods transportation.

The change in outlook on Botswana (A2 negative) was driven by a fall in demand for diamonds, its principal export commodity, said Moody’s. This has affected Botswana’s GDP which on the third quarter of 2020 was -6 percent, moving from -24 percent in the second quarter which mirrored all the hallmarks of an economy down spiraled by Covid-19 negative ripple effects.

Moody’s furthered its report by picking on overall growth in the SSA region to be associated with lasting impact of the economic contraction, which the rating agency said it will be greater in 2021.

“The region’s long-term recovery is more precarious given that SSA sovereigns have little fiscal space to counter the pandemic’s negative impact on economic activity and preserve productive capacity, and given that structural factors are generally less conducive to fostering a rebound in SSA than in other Emerging Markets,” said Moody’s.

Moody’s said although favourable base effects will help the recovery, real GDP growth will remain lower than historical averages in most countries. Botswana was at last given a glimmer of hope by the Moody’s report, optimism was that non-energy exporters like this country will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates, and a rebound in demand for non-energy commodities.

“Public investment that addresses infrastructure gaps can raise growth both over the near and longer term. However, the impact of public investment on boosting long-term growth potential is determined in part by investment efficiency, which is generally weak in the region. Public investment efficiency is constrained by weak institutional quality, which affects project selection, appraisal and monitoring, as well as high rates of corruption, which can lead to rent-seeking and cost overruns,” said the rating agency.

Moody’s projected that Botswana will average economic growth of 6.5 percent in 2021 as a global growth recovery drives greater demand for coffee and diamonds. This is despite much uncertainty wearing on this country’s prospect of a big leap, the discovery of the new coronavirus variant believed to be at large in Botswana’s shores.

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