Diamonds are the best mutual friend of the two girls, Botswana and Zimbabwe.
Botswana is the largest producer of diamonds by value on planet earth. Zimbabwe too is said to have the largest reserves of diamonds in the world. While iron is said to sharpen iron, it gives up that might when it comes to the diamond. Diamond sharpens diamond!
The relationship between Zimbabwe and Botswana can be understood on the fundamental basis of the above. Beyond that, the two countries are members of the Southern African Development Community (SADC), whose headquarters is in Botswana and whose incumbent chairman is Zimbabwe's President Robert Mugabe.
Both countries are therefore inspired by the SADC objectives, one of which is to "achieve sustainable utilisation of natural resources and effective protection of the environment."
….The wisdom in this objective is that diamonds don't belong to the current generation. We actually borrow them from the future generations to meet our current needs and have the responsibility to leave enough for the generations to come after us. In utilising the diamonds, we also have to pay particular attention to ensure that we don't distort the environment to the end that it will be unsafe and not healthy to the generations to come. It's almost like that polite messages we read in public toilets: "Please leave the toilet in the state you would like to find it."
But how come is it that public toilets still stink the most, despite the existence of such polite messages? Ok, let's not talk about public toilets – we don't want anybody to lose their hard-earned appetites.
Let's talk about diamonds.
So, diamonds are Botswana's number one export, and number five to Zimbabwe. They play a very significant role in the socioeconomic transformation of the two countries' economies. What is saddening to note, however, is that the two countries, despite owning these precious resources in remarkable quantum, don't have the right to put price tags on them.
They simply carry them to the market, and take whatever ridiculous price the market has to offer on that day – which is the total opposite to that wine you import from France, or that watch you import from Switzerland, or that designer suit from France.
How can we sustainably manage the resources of the future generations when we are condemned to just but price-takers who don't even know what we are going to sell at come next year? What legacy are we going to leave for the future generations? Dungeons and mine shafts exhausted of all the diamonds there were?
The poverty and inequality levels in Zimbabwe and Botswana also prove that diamonds are still not being optimally used for the betterment of the citizenry's quality of lives. The World Bank says that income inequality is very high in Botswana; while a survey conducted by the Zimbabwe Statistical Agency also established that Zimbabwe inequality levels are amongst the worst in the world.
Both countries are still facing fiscal consolidation challenges and have been advised by the International Monetary Fund to reduce the wage bill relative to GDP, broaden the revenue base, amongst a cocktail of other measures.
The same pressure that makes diamonds is apparently threatening to destroy some key aspects of these two countries. Their state owned enterprises are posting losses and the vulnerability to external shocks is apparently inevitable.
We surely cannot continue like this – living as if we are the last generation on planet earth. In any case, it's not like there is no solution to this problem. If a mistake is repeated more than once, it becomes a decision. Have we made the decision to live with this problem and not implement the solution – value addition and beneficiation? The reason why we can't write price tags on the diamonds we sell is that the majority of our diamonds sales occur in their raw state. It is also why we get peanuts for selling these raw diamonds and why we also still have unacceptable unemployment rates.
Value addition is a costly exercise as it requires a lot of money to acquire machinery, training human resources, amongst other costs. This is where these two girls (Zimbabwe and Botswana) need to show that they are not just a bunch of pretty faces – talk of beauty without brains; and brains without beauty too! Why can't these two beauties pool resources together to establish a plant that value-add our diamonds? Doing it together will speedy the process of raising the funds needed and ensure that adequate funds are raised. One of the objectives of SADC is to "promote self-sustaining development on the basis of collective self-reliance and the interdependence of Member States." There is not even a single need to invent the wheel here, we just need to spin it fast.
The Extra-Ordinary SADC Summit to be held this month must emphasize the need for concrete partnerships amongst Member States endowed with similar resources with a view to accelerate value addition in the region. Otherwise the gutter will be our deathbed.
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”