Maize and Wheat Millers Association of Botswana, Nkosi Mwaba
Dry weather conditions in South Africa are likely to affect maize prices and this will potentially push for high food prices in Botswana. Botswana millers import most of their maize from South Africa.
According to the chairman of the Maize and Wheat Millers Association of Botswana, Nkosi Mwaba, Hot and Dry weather conditions in South Africa have caused a significant impact on the availability of white maize crop.
“Furthermore, the irrigated maize produce which makes up almost 20% of the crop has also being affected by power cuts. This may result in South Africa having to import maize,” he said.
Mwaba said these concerns have seen corn futures spiking on the Johannesburg Safex (South African Futures Exchange).
At some stage there were concerns that a quarter of South Africa's maize crop could be ruined, as extreme heat and dry conditions sweep through its corn-producing regions.
Reports from South Africa indicates that Africa's biggest grain producer planted 2.656 million hectares for the 2015 season, according to January estimates, and shortages may result in reduced exports to some of its southern African neighbours.
According to Mwaba, the Botswana milling industry is largely dependent on South African maize crop and imports up to 95% of its annual requirements. He said the local milling industry has the capacity to supply the domestic Botswana market with maize meal.
Maize prices have increase by up to 40% since December 2014. In reaction to this, the market should expect an increase in the price of finished product from as early as March 2015, explained the Chairman of Maize and Wheat Millers Association of Botswana.
The Millers Association of Botswana cautions that the market is likely to see high maize meal prices in both countries for the next 12 months. “We would like to caution the market on the likely increase in the price of maize chop (animal feed) to the beef sector.”
In other reports from South Africa, Grain SA cautioned on Friday that some farmers "stated that they deem this their worst harvest in their 30-40 years of planting".
"In some regions, there is already permanent damage, where no amount of rainfall can relieve the damage," the group said, terming the weather over the next few days as "critical", with rain "urgently needed".
The price of white maize, which is a staple among 90 per cent of South Africa's population, has spiked to 2,636 rand (224 dollars) a tonne, its highest level in a year.
Soaring temperatures in the North West and Free State provinces have caused maize and other grains such as sunflower and soya beans to deteriorate. "We have seen large areas where the damage is already irreversible," said Jannie de Villiers, GrainSA Chief Executive of reported.
The rolling power cuts that have gripped Africa's most advanced economy are also affecting the crops as irrigation systems stop when the power is turned off. Eskom which supplies about 95 per cent of South Africa's electricity is battling to meet its daily demand of about 30,000 megawatts and has had to reduce demand through controlled power cuts.
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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”