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Corruption, spending leakages threaten economic recovery

Dr Matsheka

Corruption, leakage in government spending, and poor implementation of national projects have been listed as some of the salient impediments that will stand in the way of Botswana’s road to economic recovery.

An Economic recovery plan pegged to the reviewed priority areas of the 2020/21 budget is projected to resuscitate Botswana’s economy following the adverse impact of the COVID-19 pandemic. But these concerns about Botswana‘s porous government spending and delayed delivery of national projects has been voiced by various Members of Parliament as glaring pitfalls.

Legislators were deliberating on the National Development Plan (NDP) 11 midterm review this week. Parliament was debating a motion seeking approval of Midterm Review put before Parliament by Minister of Finance & Economic Development, Dr Thapelo Matsheka.

Member of Parliament for Sefhare –Ramokgoname, Dr Kesitegile Gobotswang said Botswana was already facing slow paced economic growth rates even before COVID-19 pandemic, characterized by huge income inequality gaps, youth unemployment, increasing household debt and social ills. According to Gobotswang COVID-19 has just amplified already existing problems engulfing Botswana’s economy.

“We were already experiencing poor implementation of projects, porous and wasteful government spending and institutionalized corruption before COVID-19, our recovery plan is walking right into this crisis. I don’t see any return on investment being realized from this multi- billion pula projects under this wasteful government,” he said.

Dr Gobotswang who is also Botswana Congress Party (BCP) Vice President cast doubt on Botswana’s oversight bodies citing the Directorate on Corruption and Economic Crime (DCEC) and the Ombudsman as toothless organizations remote controlled by the Office of the President.

“We need strong oversight bodies that can institute serious check and balances, autonomously, without fear or favor, so that we can detect corruption and embezzlement of government funds at an early stage before crimpling this economy.” Dr Gobotswang’s views are consistent with concerns expressed by various experts who crafted the Economic Recovery & Transformation Plan (ERTP).

The Economic Recovery & Transformation Plan which is pegged to the Midterm Review plan underscores the need to invest in massive infrastructure projects that would cultivate significant stimuli for the economy. The experts, including amongst others Economists and Finance think tanks from BIDPA and the University of Botswana underlined that for public policy goals to be realized, implementation, monitoring and evaluation needs to be optimized.

“Botswana’s achievements in these aspects have been modest for several years now,” reads an extract from the ERTP. Some of the challenges that have been identified as strong bottlenecks to optimal policy implementation in Botswana include lack of accountability and commitment to reform. For the ERTP to create the intended stimuli to the economy, Ministry of Finance also noted that effective implementation is key.

The paper underscored that effective implementation requires a high level of accountability, project evaluation and monitoring noting that it is necessary to ensure that projects are of high quality and are delivered within budget.

“For that, corruption must be dealt with decisively, for it is partly due to corruption that highly-priced products are either not delivered on time or not delivered at all or if delivered, they are of poor-quality. This is a cost to the nation that should not be tolerated.” Furthermore the ERP paper rubber stamped that honest and serious-minded foreign investors do not invest in corrupt jurisdictions, noting that only the corrupt do.

“Appropriate mechanisms for the oversight of the projects in the ERTP need to be introduced, which may include existing institutions such as the NSO or GICO, along with an appropriate Monitoring and Evaluation Framework,” reads a recommendation in the economic recovery plan.

The plan intends develop a strong Monitoring & Evaluation fragment that would include assessment of progress against agreed implementation timelines and budget, during implementation.
Some of the major indicators to be used for evaluation post-implementation would be output and market impact , incomes and employment impact , environmental, social and governance impact , financial returns and ex-post commercial and economic viability.

Ministry of Finance says all of the post-implementation impact analysis metrics should be compared with the original project projections to determine whether the project has out-performed or under-performed its targets, and whether the pre-implementation analysis was accurate.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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