The vice president of Botswana Exporters and Manufacturers Association (BEMA), Michael Morapedi
Despite its massive potential to develop its manufacturing sector, Botswana is losing out to its neighbours in the competition for investors because of the red tape and lethargy in resolving issues around ease of doing business.
In a wide ranging interview with BusinessPost, the vice president of Botswana Exporters and Manufacturers Association (BEMA), Michael Morapedi, said that Botswana manucturing industries face a myriad of challenges on issues of ease of doing business.
“Our import bill far supercedes our exports, with 98 percent of our imports coming from South Africa; While we talk about building capacity to export, we should first determine our local consumption and be able to satisfy it,” he revealed.
“Our foreign traders, as a starting point, will always want to know what we have done locally and who we have supplied at home, before they can do business with us so that is critical,” said Morapedi.
Morapedi said that other countries in the region have made deliberate decisions to perk up their ease of doing business ratings, making it easier to arrive in the country and be allocated land, acquire licensing and start operating within a few days.
Morapedi said that the country’s circa 2,000 manufacturers leaving the country will mostly leave if the Government does not move fast to create incentives, citing South Africa as a destination for investors who are attracted by the no less than 22 incentives for the textile industry alone, before considering the rest of the manufacturing sector.
“To do business in South Africa, one needs to have a BEE (Black Economic Empowerment) certificate but here we do not require that, one does not even need to have EDD (Economic Diversification Drive) certification, to ensure that citizens are being empowered,” he decried.
Morapedi pointed out that as far as three years back, Government brought in experts to see how the sector can be developed and one of the developments was a 1 percent industrial upgrading and modernisation programme, a levy that would have helped the industry to train and develop skills of its employees. This idea of the levy was, according to the BEMA spokesperson, welcomed by the industry but the levy is seemingly still in the pipeline, even after more than three years.
He said that the industry is ready to help take up Ipelegeng workers and impart skills to them, if Government agrees and , adding that the lack of employment opportunities has pushed masters, bachelors degrees and diploma holders into simple menial work.
Morapedi also said that security vetting by the Directorate of Intelligence and Security Services (DISS) poses as a challenge for foreign applicants’ residence and work permits and attempts to renew their permits to continue staying in the country and doing business here. He said this creates uncertainties for the manufacturing sector as most rejections come from security reasons which the security arm does not even have to explain.
“We have a bright future, if only we could get rid of the red tape and galvanise our local markets,” he added that “security is very important but we are now too security conscious and we pick this up from our trade partners across the world who want to know what guarantees they can live in the country without being deported.”
“News travels fast and with our record for deportations, we possibly face trade embargoes in future because of what might be seen as human rights violations,” Morapedi noted, adding that this is turn could cause a chain reaction that could affect the whole supply chain in the manufacturing sector.
He said there is a skills mismatch in the country with industries failing to secure labour among locals because they are not being trained at vocational training schools for the skills required by industry.
The Botswana immigration process is too stringent, and has forced investors to leave the country for Zambia and South Africa, as they could not get residence and work permits for their families to join them in Botswana, even after staying in the country for many years and providing employment for hundreds of workers.
He said the policy direction will determine the success or failure of the sector, whether the country strategizes to empower locals.
On the issue of citizen empowerment, he said that the manufacturing sector needs a citizen empowerment law rather than just a policy, saying that contrary to popular belief, this would not chase away investors as they always know where opportunities are and how they can exploit them.
Morapedi cited the estimated 1,800 jobs that have been lost in the manufacturing sector, including 320 who were employed at Teemane Diamond Company, the Serowe based diamond manufacturer which closed its doors in early February this year; Discovery Metals’ Boseto mine , which closed abruptly last week Friday, and laid off 1,000 people, as signs of trouble.
Other challenges that threaten the sector are the shortage of water and electricity costs, an important input whose costs have increased by 75 percent in the last three years.
He said that Botswana should not see itself as being disadvantaged by being landlocked and instead see itself as ‘land surrounded’, meaning that the countries in the region alone present a market of 400 million people for products and services.
“Given our central location in the region, we can turn this country into a cargo hub, as we are an hours flight away from most main centres in region, said Morapedi, giving an example of one of the advantages of being surrounded by other countries.
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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”