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Striking right balance: Sustainable development vs Sustainable debt

Over the past two decades, sub-Saharan Africa has made considerable economic progress: extreme poverty levels have declined by one third; life expectancy has increased by a fifth; and real per capita income has grown by about 50 per cent on average. Yet, sub-Saharan Africa is still only half way to meeting the Sustainable Development Goals.

To achieve these goals, according to International Monetary Fund IMF Blog, sub-Saharan Africa will need financing. One of the ways to access financing is through borrowing. It makes sense for governments to incur debt if done wisely. If debt is used to finance projects that boost productivity and living standards, such as investing in roads, schools, and hospitals, and if governments can recoup enough of the benefits of these investments to repay the incurred debt, then borrowing is worthwhile, IMF said
However, room for borrowing has become more limited in this region as public debt levels increased rapidly between 2011 and 2016; they have since stabilized at around 55 per cent of Gross Domestic Product GDP on average.

 IMF further indicated that countries in the region have also relied more heavily on commercial borrowing on domestic and international financial markets, such borrowing accounted for more than 70 per cent of the increase in debt stock this decade. This shift to non-concessional financing means more spending on debt service and less on social and infrastructure investment. It is clear that sub-Saharan African countries will not be able to simply “borrow their way” to the Sustainable Development Goals SGDs.

So, what is needed? This was the topic of a conference organized by the IMF together with the Government of Senegal on December 2 2019, in partnership with the United Nations and the Cercle des économistes. Dakar was a fitting venue as Senegal has launched its Plan Sénégal Emergent aimed at transforming its economy, creating jobs, and boosting living standards. It was also apt because, as I told the conference attendees, policymakers can draw inspiration from the Lions of Teranga, Senegal’s national soccer team, which impressed everyone at last year’s Africa Cup of Nations.

IMF stressed that the Lions of Teranga’s success is based on a balanced approach, between the urge to attack and the need to defend, between individual efforts and team performance. Similarly, Africa is seeking to find the right balance between financing development and safeguarding debt sustainability, between investing in people and upgrading infrastructure, between long-term development objectives and pressing immediate needs. In short, a balanced approach is needed; and, in order to get there, all stakeholders will need to raise their game.

There are five powerful tactics that we can all pursue to find the right balance between development and debt, three directed at sub-Saharan policymakers and two at the international community and the private sector. The first tactic is to generate higher public revenue. This is an area where sub-Saharan Africa lags other regions. ‘’We estimate that revenue collection is 3–5 percentage points of GDP below revenue potential. Closing that gap can be done, as shown by the good example of Uganda, where, with technical support from the IMF, reforms helped raise the revenue-to-GDP ratio from 11 per cent in 2012 to almost 15 per cent last year’’.

The second tactic is to make investment spending more efficient, IMD said. The reality is that only about 60 per cent of the region’s infrastructure spending translates into public capital stock. For every dollar spent, you are getting only about 60 cents worth of assets. The third tactic is to strengthen public debt management. A key objective is to boost debt transparency by providing accurate, comprehensive, and timely data. This in turn can help build trust with investors, support domestic capital markets, and reduce debt service costs.

‘’And yet, even as countries pursue the three tactics, we all need to do more. Boosting domestic resources is critical, but not enough. Even strong domestic efforts are likely to cover just a quarter of the estimated SDG needs. So, the global team also needs to do more’’ IMF expert highlighted

So, fourth tactic: Advanced economies can do more, especially when it comes to aid. The goal is to raise official development assistance to 0.7 per cent of donors’ national income. Donors could also focus more on infrastructure by providing grants and concessional financing for projects with credibly high rates of return.

‘’Fifth tactic: We also need to bring in more private-sector players, including more foreign direct investment, to help close the significant financing gap. Responsibility for achieving the SDGs must begin with efforts by the public sector, but it cannot end there. Above all, we need to ensure that private and public players can both end up on the winning side. A good example can be “blended finance,” which brings together grants, concessional financing, and commercial funding’’.

How can we encourage risk-sharing? How can we scale up development finance for the benefit of all? These are just some of the issues that Africa is now grappling with. But it is clear that we all benefit if we act jointly to promote the good of Africa. As the Senegalese proverb puts it: “Whatever one person can do, two people can do it even better.” That is the spirit of the Lions of Teranga. It is the same spirit that lies at the heart of what we are trying to achieve across sub-Saharan Africa.

Other experts close to IMF indicated that those multilateral and advanced economies must help capacitate the emerging economies effective and efficient revenue collection especially from multinational companies who may be understating their bottom line. Additionally politicians in most emerging markets especially in Sub-Saharan Africa are using politics to amass national resources through corrupt means and end up acquiring huge properties in developed countries at the expense of the poor national.

Why don’t assist these poor countries by letting these selfish leaders account for some of the acquired properties through illicit measures. There is also need to increase financing to watchdog institutions in Sub-Saharan Africa who can assist in monitoring the appropriation of national budgets in emerging economies. Another expert indicated that the major problem of the sub-Sahara Africa continent is bad political leadership and followership. Both are contributory factors with the direct consequence of corruption.

Also, the international community has aided these two factors to their self-centred goals. Thus, this region will keep grappling with all factors mentioned in this article until the advance nations and or international community start working for the benefits of Africans as against their self-centred goals

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Dark days as Aviation industry collapses

22nd November 2020
Air Botswana

As the Aviation industry takes a COVID-19 pummeling, for Africa the numbers are staggering, Chief Executive Officer of the International Air Transport Association (IATA), Alexandre de Juniac has observed.

Speaking recently at the African Airlines Association (AFRAA) has been hosting an Annual General Assembly, de Juniac said traffic is down 89% and revenue loses are expected to reach $6 billion. And this figure is likely to be revised downwards in the next forecast to be released later this month. “But the impact is much broader. The consequences of the breakdown in connectivity are severe,” he surmised.

According to de Juniac, five million African livelihoods are at risk while aviation-supported GDP could fall by as much as $37 billion. That’s a 58% fall.

“We have a health crisis. And it is evolving into a jobs and economic disaster. Fixing it is beyond the scope of what the industry can do by itself.”

He said they need governments to act, “And act fast to prevent a calamity.”

“We are in the middle of the biggest crisis our industry has ever faced. As leaders of Africa’s aviation industry, you know that firsthand. Airline revenues have collapsed. Fleets are grounded. And you are taking extreme actions just to survive. We all support efforts to contain the COVID-19 pandemic.  It is our duty and we will prevail. But policymakers must know that this has come at a great cost to jobs, individual freedoms and entire economies,” he said.

de Juniac used the AFRA general assembly platform to amplify IATA’s call for governments to address two top priorities: “The first is unblocking committed financial relief. Airlines will go bust without it. Already four African carriers have ceased operations and two are in administration. Without financial relief, many others will follow.”

Over US$31 billion in financial support has been pledged by African governments, international finance bodies and other institutions, including the African Development Bank, the African Union and the International Monetary Fund.

Unfortunately de Juniac pointed out, in his words, “Pledges do not pay the bills. And little of this funding has materialized. And let me emphasize that, while we are calling for relief for aviation, this is an investment in the future of the continent. It will need financially viable airlines to support the economic recovery from COVID-19.”

The second priority, according to IATA is to safely re-open borders using testing and without quarantines.

“People have not lost their desire to travel. Border closures and travel restrictions make it effectively impossible. Forty-four countries in Africa have opened their borders to regional and international air travel. In 20 of these countries, passengers are still subject to a mandatory 14-day quarantine. Who would travel under such conditions?” de Juniac quizzed rhetorically.

He suggested that countries should adopt systematic testing before departure provides a safe alternative to quarantine and a solution to stop the economic and social devastation being caused by COVID-19.

He admitted that it’s a frightening time for everyone, not least the millions of people whose livelihoods depend on a functioning airline industry. Right now, de Juniac said there essentially is no airline industry. He cited the example that China’s largest airlines sound optimistic, but in a vague way. “They gave no hard data about current yields, loads, or forward bookings, discussing only developments in 2019. Boy, does that seem like ages ago.”

Aviation’s darkest days

The IATA CEO said these are the darkest days in aviation’s history. “But as leaders of this great industry I know that you will share with me continued confidence in the future.

Our customers want to fly. They desire the exploration that aviation enables. They need to do international business that aviation facilitates. And they long to reunite with family and loved ones.”

He said the industry will, no doubt, be changed by this crisis, but flying will return. “Airlines will be back in the skies. The resilience of our industry has been proven many times. We will rise again,” he said.

de Juniac said Aviation is a business of freedom. “For Africa that is the freedom to develop and thrive. And that is not something people on this continent will forget or lose their desire for.”

 

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Inflation increased to 2.2% in October 2020

22nd November 2020

Headline inflation increased from 1.8 percent in September to 2.2 percent in October 2020, but remained below the lower bound of the Bank’s medium-term objective range of 3 – 6 percent, and lower than the 2.4 percent in October 2019.

According to Statistics Botswana, the increase in inflation between September and October 2020 mainly reflects the upward adjustment in domestic fuel prices {Transport (from -3.9 to -2.5 percent)}, which is estimated to have increased inflation by approximately 0.29 percentage points.

“There was also a rise in the annual price increase for most categories of goods and services: Alcoholic Beverages and Tobacco (from 6.2 to 6.6 percent); Clothing and Footwear (from 2.5 to 2.7 percent); Communications (from 0.6 to 0.9 percent); Housing, Water, Electricity, Gas and Other Fuels (from 6.4 to 6.6 percent); Recreation and Culture (from 0 to 0.2 percent); Miscellaneous Goods and Services (from 0.7 to 0.9 percent); Food & Non-Alcoholic Beverages (from 4.2 to 4.3 percent); and Furnishing, Household Equipment and Routine Maintenance (from 2 to 2.1 percent). Inflation remained stable for: Education (4.7 percent); Restaurants and Hotels (3 percent); and Health (1.5 percent). Similarly, the 16 percent trimmed mean inflation and inflation excluding administered prices rose from 1.8 percent and 3.1 percent to 2.2 percent and 3.4 percent, respectively, in the same period.”

[Source: Bank of Botswana]

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BDC injects further P64 million into Kromberg & Schubert

22nd November 2020
BDC

Botswana Development Corporation (BDC) has to date pumped a total of P100 million into the expansion of Kromberg and Schubert, a car harnessing manufacturing company, operating from Gaborone Old Naledi.

At the official ground breaking ceremony of the company‘s new warehouse today, BDC Managing Director, Cross Kgosidiile revealed the wholly state owned investment corporation has pumped P64 million into the expansion which entailed building of the new warehouse.

Kgosidiile explained that this follows another expansion project which was successfully launched in 2017, in which BDC invested P36 million, bringing the total investment into Kromberg at P100 million. The MD also acknowledged Botswana Investment and Trade Centre (BITC) as a partner in the project and for having facilitated the acquisition of the land.

 

Giving a keynote address, Minister of Investment, Trade & Industry, Peggy Serame highlighted the importance of infrastructural development in growing the local manufacturing sector and transforming the economy of Botswana.

Serame underscored the value of strategic partnerships between Government and the private sector, noting that when the two work together and pull together in one direction results will be evident and jobs will be created.

“With the prevailing conditions of depressed economy occasioned by COVID-19 pandemic, government is reliant on entities like BDC to bring in revenue and acceleration of private sector development in line with its mandate and strategic plan. This plan is supported by the need to invest in growth sectors and accelerate the implementation of the Economic Diversification Drive,” Serame said.

Minister Serame noted that the partnership between BDC and Kromberg & Schubert begun in 2017 when the P36 million, 4100 square metres factory expansion for the company was launched.

 

She said the launch of the 7320 square meters factory expansion, to be built at the tune of P64 million signals the continuation of the good partnership between the two companies.

 

“I must commend BDC for their continuous efforts to build partnerships with the private sector geared towards contributing to economic development of this country.”

 

Minister Serame also added that BITC through its robust investor aftercare programme continues to provide value added and red carpet to Kromberg and Schubert under their One Stop Service Centre.

 

“In this regard BITC facilitated acquisition of land to enable this expansion. I therefore would like to commend BITC for their timely facilitation to make this expansion possible,” the minister said.

 

Kromberg & Schubert was incorporated in Botswana in 2009; The Company has grown to asset its position as a significant player in the regional automotive industry value chain.

 

The company is also a critical player in the economic development of Botswana, it currently employs 2100 Batswana across its operations. Kromberg exports on average P2.0 billion worth of goods annually, contributing significantly to foreign exchange.

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