Ministry of Investment Trade & industry (MITI) will in the remaining part of the National Development Plan 11 spend over P1.7 billion on developing enabling infrastructure and facilities for the highly anticipated Lobatse Leather park and various projects under Special Economic Zones
This was revealed by Minister Peggy Serame when delivering the Ministry’s Budget estimates for NDP 11 Midterm review. Serame told lawmakers that in the 2 and half financial years remaining, the ministry will pump in all the necessary resources to ensure the full operationalisation and implementation of the Special Economic Zones (SEZ) and the Leather Industry Park. She said the two projects will create thousands of jobs – during construction and operation. The members shared that SEZ Airport projects are already underway.
LOBATSE LEATHER INDUSTRY PARK
Conceptualized in the previous National Development Plans the much anticipated Leather Park was conceived from various studies undertaken by the Local Enterprise Authority (LEA) that uncovered many blockages in the leather value chain.
The purpose of establishing the Leather sector park is to unblock those limiting factors in the value chain and revive the leather industry in Botswana. The leather industry has relied on imported finished leather and hence making it difficult to quickly develop the SMMEs.
The leather park is expected to catalyze manufacturing of all leather products in the country. This project is aimed at processing all the hides and skins generated locally into finished leather. The leather sector park with a common effluent treatment plant was adopted as a development model to address lack of finished leather for our SMMEs and create enabling environment for them. It is envisaged that the project, once fully operational, will create more than 5 000 jobs.
Minister Serame told parliament that her ministry intends to spend a whooping P890 million in the Leather project. Business case review was completed in November 2019 the tender for construction of facilities was closed on 21s August 2020 and construction is expected to commence next year.
SPECIAL ECONMIC ZONES
The Special Economic Zones (SEZ) policy was adopted by the Government of Botswana to attract world class domestic and foreign investors by offering them serviced land, developed, infrastructure, state of the art technology, beneficial inter-sectoral linkages, improvements in economies of scale, specially trained skilled labour force and targeted economic incentives.
The SEZ policy‘s cardinal aim is to diversify the economic and export base of Botswana beyond the diamond mining sector. Eight strategic areas across Botswana have been identified for promoting the development of a variety of industries that will lead to the diversification of the economy through public sector, private sector and public-private partnerships.
Selibe Phikwe, Francistown are among the areas that will push this agenda. Minister Serame told parliament that implementation of two special economic zones is thus at an advanced stage. Detailed design and land servicing at the Gaborone International Airport Special Economic Zone Boulevard 1 has commenced and is expected to be completed in November 2020.
She said the land servicing will avail 100 hectors and provide access serviced land to investors who wish to set up export focused businesses in Botswana. The other Special Economic Zone at advanced is the Construction of 12 Silos in Pandamatenga, in a bid to develop the area in to a premier arable farming and cereal production hub to feed Botswana and Southern Africa.
Minister Serame revealed that the tender for construction of the silos was awarded in March 2020, while the completion of the project is expected in August 2021. For the remainder of National Development Plan 11 Serame revealed that her ministry will spend over P695, 300.00 million on Special Economic Zones projects.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
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”