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Small strides made towards Industrialisation

Industrial sectors are underperforming

Botswana economy remains heavily tilted towards mining, tourism and financial services with only a few strides made towards industrialization, despite major efforts to industrialise.

The industrial sectors that are construction, agriculture and manufacturing have been underperforming, over the years. Statistics show that Industrial-based sectors of Agriculture, Construction and Manufacturing contributed 3.1%, 7.6% and 6.4% respectively in the past decade.

The underperformance of these industrial sectors has seen services driving growth in the past decade as they contributed growth of over 51%.

The financial sector and tourism sectors have each contributed around 17% to economic growth in the past decade. “The small strides towards industrialization were mostly boosted by construction which boomed prior to the global financial crisis and became the fastest growing sector by 2011-12, but has since drastically declined,” revealed Moatlhodi Sebabole a research manager with FNB.

The small strides towards industrialization are attributed to a variety of issues that include shortage of infrastructure, modest development budget and implementation challenges amongst other things.

According to Sebabole, the government pipeline has policies that encourage industrialization with the biggest challenge being implementation.

“Issues such as privatization, public-private-partnership (PPP), citizen economic empowerment, and economic diversification drive among others pose an opportunity to encourage innovation and support for economic investments. However, this is only return-worthy if implemented in an efficient and effective manner,” said Sebabole.

He further observed that efforts to industrialise continue to hampered by the economy’s heavy reliance on government activity and thus challenges in infrastructure development and energy provisions hinder full industrialization.

He noted that although the government expenditure is growing, it is mostly on the recurrent budget that grew by 8.9% in the past 5 years mostly wages led, while the development or capital grew modestly at 5.1% in the last 5 years.

Other infrastructure developments which will improve trade and market access such as rail and roads developments are mostly slowed down by maintenance issues, thus making any efforts to industrialise sluggish.

Sebabole also said that the water and electricity shortages have disadvantaged growth prospects in manufacturing, construction, agriculture and mining. Statistics indicate that Manufacturing has contributed only 6.4% to economic growth in the past decade, and in third quarter of 2014, still contributed 6% to GDP. Within manufacturing, the past decade saw growth in mostly meat and meat products, as well as beverages, whereas textiles, tan & leather production remained stagnant.

However though the services sectors are maintaining decent contribution to GDP they are not without their challenges.

 “The alcohol levy and hunting ban are likely impacting the tourism and hospitality industry; liquidity challenges hamper financial intermediation prospects while trade is affected by turnaround times and costs of accessing international markets,” he said.

Sebabole noted that since Botswana is not supported by other marketable and exploitable products in the industry, the economy is bound to shake should the markets become saturated or unstable.

“Although overall economic growth has been decent compared to peers in the SADC region and the continent, the over reliance to mining still make Botswana vulnerable to global demand prospects of the precious stones, the threat to economic well-being also lies in SACU revenues which might decline due to the ongoing SACU renegotiations,” Sebabole said.

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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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