Deputy Managing Director of the International Monetary Fund (IMF), Tao Zhang has called on Botswana to fast-track coming up and swiftly implementing a completely new growth model to transform Botswana’s economy before it is weighed down by increasing external shocks and stagnant domestic growth rate.
Tao Zhang was speaking at a workshop on economic diversification held in conjunction with Bank of Botswana in Kasane this past weekend. Zhang noted that Botswana’s success story from one of the poorest countries in the world before independence to one of the most celebrated rapid economic growth examples today cannot go untold.
The IMF Top Executive however underscored that it is now time to elevate to another level “This has been one of the inspiring transformations in Sub-Saharan Africa, however the need for a new growth model to accelerate Botswana’s convergence and transition to high-income status cannot be over emphasized,” he said.
Zhang cautioned that in the short term Botswana has to guard against external shocks, those to the diamond market and climate change, stressing that these short- and long-term challenges could be addressed by diversifying the economy. “The government of Botswana has made clear its objectives. The question that remains is how best to achieve them, macroeconomic stability and a predictable policy environment are critical to supporting good outcomes from the interventions geared towards realizing these aspirations,” he said.
The IMF’s Second in command posed questions to attendees who included amongst others policy makers, members of the National Economic Transformation Strategy committee and top officials from Ministry of Finance, Bank of Botswana and Ministry of Investment Trade & Industry. “What is the role of the Government? Should it follow sector-neutral or horizontal policies, letting market forces choose sectors and activities, or should it follow a more active approach as many countries have done?” posed the Washington based lender Deputy Chief.
Zhang cited Chile as one of the countries that realized return on investment from their economic growth matrix “Whether Chile followed the standard growth recipe or went beyond it in developing the salmon industry, we need to learn and benchmark on that and see how best we can curtail that to our own economic circumstance and growth requisites,” he said. According to the IMF Executive the notion that markets do indeed fail and government intervention could be warranted is in practice difficult as it often not easy to identify a market failure realistically than it is on paper.
“Even abstracting from market failures, some countries have targeted specific sectors. And there the question arises, which sector should be targeted? Should we stick to the existing perceived comparative advantage and develop vertically along the supply chain of existing products?” Zhang reiterated that if policymakers decide to support a particular sector, then a question on how to support the sector, whether that sector should be regulated or not remain cardinal decisions for leaders to make.
“There is, of course, a wide range of policies including specific tax incentives, tariff and non-tariff barriers, cheap financing for special economic zones, and public research and development, but even tapping on those we need to ensure we do not undermine other economic growth requisites like domestic resource mobilization” Tao said. Tao Zhang’s visit comes after a mission undertaken by IMF team led by Mr. Papa N’Diaye late last year which held discussions for the 2019 Article I Consultation with Botswana.
The discussions focused on macroeconomic policies to increase the resilience of the economy in the face of persistently low mineral revenue and transfers from the Southern African Customs Union (SACU), as well as the structural reforms needed to achieve the authorities’ objective to transition to a knowledge-based economy and high-income status by 2036.
The IMF team noted that after a relatively good performance in 2018, Botswana‘s economy faced headwinds in the year 2019 related to weaknesses in the diamond market, a severe drought, and slower growth in neighboring countries. It was noted that growth would slow to about 3.5 percent in 2019, while inflation would remain low. The Government current account was projected to move to negative territory, contributing to a decline in reserves.
The fiscal deficit was signaled to reach 5.75 percent of GDP due to lower-than-expected revenue, higher-than-expected increase in public wages and other recurrent spending. Despite these challenges, the banking sector was projected to remain well capitalized with improving liquidity. For the year 2020, the IMF team noted that under its baseline scenario, growth is expected to recover to 4.2 percent in 2020, as the diamond market normalizes and copper production comes into stream, and hover around 4 percent thereafter.
This was however noted by N’Diaye’s team to be a level too low to achieve Botswana’s development objectives and create enough jobs to absorb the new entrants into the labor market. N Diaye further noted that infection would accelerate amid accommodative monetary policy but remain in the bottom half of the Bank of Botswana target band. Fiscal consolidation will gradually reduce the deficit and would contribute to a gradual rebuilding of buffers over the medium term.
“The outlook is subject to significant downside risks, including a global rise in protectionism, a faster-than-anticipated slowdown in China and in the euro area, and continued slow growth in South Africa,” he said. Experts say over the medium term, Botswana’s economy remains vulnerable to volatile mineral revenue and SACU transfers and to climate shocks. Economists say upside risks could stem from higher-than-expected mining production such as coal.
Papa N’Diaye’s team noted that Botswana’s objective to return to a ï¬scal surplus over the medium term in line with their track record of ï¬scal discipline was a welcome ambition. “While Botswana still has some ï¬scal space that allows a gradual adjustment, ï¬scal consolidation should start in full year 2020, supported by both revenue and expenditure measures. In advancing consolidation, the composition of the adjustment needs to be carefully calibrated to minimize the impact on competitiveness, growth, and the most vulnerable,” recommended the IMF.
The Global economic think tank further noted that for Botswana to achieve its objectives of moving to a knowledge-based economy and to high-income status by 2036, the country will require changing the growth model from a mining and government-led model to a private sector and export-driven. This entails revamping the macroeconomic policy frameworks to increase the resilience of the economy and accelerating the implementation of supply-side reforms.
Recommended ï¬scal reforms include amongst others modifying the fiscal rule to prevent further erosions in buffers and achieve Botswana’s intergenerational equity objectives. The IMF also recommended that Botswana should increase its revenue mobilization through broadening the tax base and advancing tax reform, as well a public financial management reforms to enhancing the efficiency of spending.
Botswana was also advised to reform parastatals and other extra-budgetary entities, including by enforcing compliance to best governance practices and strengthening their monitoring and accountability, and revamping the debt management framework.“Regarding monetary and exchange rate policy, Bank of Botswana was advised to use the flexibility afforded by its current exchange rate regime to help the economy adjust to the persistent decline in mineral and trade resources and structural transformation.
“Recent reforms to strengthen the monetary transmission mechanism and deepen the domestic financial market should continue, including by further developing the secondary market for government securities, leveraging Fintech, facilitating the attachment of collateral, and improving credit information,” said IMF chiefs.
The Global lender says transitioning to a knowledge-based economy and a high-income status will require prioritizing investment in human capital, upgrading digital skills and deepening Information and Communications Technology penetration, as well as promoting integration in regional and global value chains.
Joint venture between De Beers and Government of Republic of Namibia announces new plan, supporting economic, commercial, employment and community benefit, following receipt of royalty relief Namdeb Diamond Corporation (Proprietary) Limited (‘Namdeb’), a 50:50 joint venture between De Beers Group and the Government of the Republic of Namibia, today announced the approval of a new long-term business plan that will extend the current life of mine for Namibia’s land-based operations as far as 2042.
Under the previous business plan, the land-based Namdeb operations would have come to the end of their life at the end of 2022 due to unsustainable economics. However, a series of positive engagements between the Namdeb management team and the Government of the Republic of Namibia has enabled the creation of a mutually beneficial new business plan that extends the life of mine by up to 20 years, delivering positive outcomes for the Namibian economy, the Namdeb business, employees, community partners and the wider diamond industry.
As part of the plan, the Government of the Republic of Namibia has offered Namdeb royalty relief from 2021 to 2025, with the royalty rate during this period reducing from 10% to 5%. This royalty relief has in turn underpinned an economically sustainable future for Namdeb via a life of mine extension that, through the additional taxes, dividends and royalties from the extended life of mine, is forecast to generate an additional fiscal contribution for Namibia of approximately N$40 billion. Meanwhile, the life of mine extension will also deliver ongoing employment for Namdeb’s existing employees, the creation of 600 additional jobs, ongoing benefits for community partners and approximately eight million carats of additional high value production.
Bruce Cleaver, CEO, De Beers Group, said: “Namdeb, a shining example of partnership, has a proud and unique place in Namibia’s economic history. This new business plan, forged by Namdeb management and enabled by the willingness of Government to find a solution in the best interest of Namibia, means that Namdeb’s future is now secure and the company is positioned to continue making a significant contribution to the Namibian economy, the socio-economic development of the Oranjemund community and the lives of Namdeb employees.” Hon. Tom Alweendo, Minister of Mines and Energy for the Government of the Republic of Namibia, said: “Mining remains the backbone of our economy and is one of the largest employment sectors within our country.
Government understood the fundamental impact of what the Namdeb mine closure at the end of 2022 would have had on Namibia. Therefore, it was imperative to safeguard this operation for the benefit of sustaining the life of mine for both the national economy as well as preserving employment for our people and the livelihoods of families that depend on it.”
Riaan Burger, CEO, Namdeb Diamond Corporation, said: “After more than a century of production, these operations were approaching the end of their life, but the creation of this new business plan means we can continue to deliver for Namibia for many years into the future. This is great news for the hardworking women and men of Namdeb, as well as for all our community partners who we are proud to have worked with over the years. We now look forward to starting a new chapter in Namdeb’s proud history.”
Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.
The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.
Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.
According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.
Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.
A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.
For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.
Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.
These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.
Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.
Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.
The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.
Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.
South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.
In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.
The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.
South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.
Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.
Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).
During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.
Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.
During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).
Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa
The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.