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Botswana’s COVID-19 spillovers

Botswanas-COVID-19-spillover

In November 2020, President Dr Mokgweetsi Masisi delivered to the first meeting of the Second Session of the Twelfth Parliament the 2020 State of the Nation Address (SONA). This year’s SONA differs from the previous ones in that it was premised upon an extremely challenging economic and health environment.

This is occasioned by the Coronavirus (COVID-19) pandemic. Its adverse impact on human lives and productive sectors of the economy including, mining, manufacturing and tourism, is enormous. The SONA’s key messages are that the Government does not only remain committed to fighting this scourge but steadfast in its promises to create jobs, particularly for the youth.

On the other hand, the Government focuses more sharply on promoting Botswana’s digitization, providing quality education and ensuring that Batswana have reliable electricity, water, roads, hospitals and schools. The SONA was prepared when the global economy showed signs of slowly crawling out from the woods. The economy plummeted during the Great Lockdowns imposed by almost all countries to control the spread of the coronavirus.

With COVID-19 cases continuing to accelerate, reaching 64.6 million cases and 1.49 million deaths, many countries have slowed the reopening of their economies while some are reinstating partial lockdowns to protect susceptible populations. In fact, with the onset of the second wave of the virus, the recovery in 2021 is now doubtful.

In just over a century, the world has seen major viral outbreaks in the 1918-19 Spanish flu, the 2003 SARS outbreak in East Asia, and the 2014-16 Ebola epidemic in West Africa.). Just like other public health crises, the coronavirus has not only had severe impacts on health but has also had adverse and damaging effects on the global economy.

SONA RESTS ON A GLOOMY GLOBAL ECONOMIC OUTLOOK

COVID-19 has triggered a global crisis like no other- a global health crisis that, in addition to an enormous human toll, has led to the deepest global recession since the Second World War. While the ultimate growth outcome is still uncertain, the continued increase in new cases comes with renewed challenges. The pandemic has resulted in output contraction across many economies. In June 2020, the World Bank projected that the global economy would shrink by between 5.2% and 8% in 2020.

On the other hand, the latest estimates from the International Monetary Fund (IMF) ‘s World Economic Outlook (WEO) suggest that the global economy will shrink by 4.4%. The WEO further projects a rebound of the global economy in 2021.

Forecast from the WEO suggests that the global economy will rebound in 2021, with the global economy returning to a positive growth rate of about 5.2%, while Sub Saharan Africa is expected to reach an economic growth rate of about 3.1%. While the current estimates paint a rosy picture about the future economy, the persistent rise in coronavirus cases pose the most significant risk to global economic rebound recoveries. The world economy might have to wait another six months before a vaccine can offer substantial relief.

OUTLOOK FOR DOMESTIC ECONOMY GLOOMY 

Botswana’s economy was not isolated from the effects of the coronavirus pandemic. As of the 2nd December 2020, Botswana reported about 10 742 coronavirus cases, 7 912 recoveries and 34 deaths. Despite Botswana being amongst the countries with the lowest number of cases, the effect of coronavirus on its economy is expected to be huge and long-lasting.

Data from Statistics Botswana shows that Botswana’s economy has been badly hurt by the Government’s lockdowns and social distancing measures to curb the spread of the disease. Projections of the potential COVID-19 impacts on Botswana’s economy for 2020 vary widely.

However, there is a broad agreement that Botswana’s economy will shrink given the sudden production shutdown in critical sectors of the economy and the resulting income loss in the informal and SMME industry, combined with adverse effects on financial markets, consumption and investment confidence.

In his State of the Nation Address (SONA) 2020, the President of Botswana stated that Botswana’s economy is expected to contract by 8.9% in 2020. The slow growth in Botswana’s economy is attributed to an expected sharp contraction in significant sectors such as mining (-24.5%), trade hotels and restaurants (-27.4%), construction (-6%), manufacturing (-3.9%) and transport and communications (-2.5%). The Government of Botswana projections suggests a much larger contraction than the initial -5.4% estimates of the IMF and Moody’s forecast of -7%.

However, estimates from the World Bank and other economists paint a bleak future for the Botswana economy. The latest report by the World Bank of October 2020 projects Botswana’s economy to shrink by at least 9.1% in 2020. A New Dawn Unleashed amid COVID-19 report by Botswana Stock Exchange projects a much larger contraction of between 14.7% and 19.5%.

The report projects that the COVID-19 will have a much more significant impact on the critical sectors of the economy, more specifically, the diamond and tourism sector. It is envisaged that the mining sector will contract by at least 45% while the tourism sector will shrink by a much larger magnitude of at least 55%. External and fiscal pressures will become prominent in 2020, with the overall deficit is expected to double from 4% of GDP in 2019 to about 8% this year.

According to the latest national accounts’ data – Gross Domestic Product: Second Quarter of 2020, released by Statistics Botswana in September 2020, at P18, 848.7 million, the domestic economy shrank 24% year-on-year in the second quarter of 2020, down from a positive growth rate of 2.6% in the first quarter of 2020.

The steep reduction in the economy was mainly due to contractions in the critical sectors of the economy such as mining (-60.2%), trade hotels and restaurants (-40.3%), construction (-36%) and transport and communications (-16.9%). In contrast, Government, Agriculture and Water and electricity grew sharply in the second quarter of 2020 (see Table 2).

Agricultural activity increased by 3% from 0.3% in the first quarter of 2020, mainly boosted by crops (2.1%) and horticultural farming (3.1%). Quarterly, the GDP plunged at a record 24.8%, following a downward revised 0.8% fall in the previous quarter.

DEPLETION OF FOREIGN EXCHANGE RESERVES

The weak global demand due to heightened trade restrictions and change in consumer demand and perceptions due to COVID-19 is expected to have a massive impact on Botswana’s export earnings. Botswana’s export basket is highly characterized by mining activities, with the diamond sector accounting for an average of 80% of total goods exported between 2010 and 2018.

An immediate impact of COVID-19 on export earnings was a 65% fall in rough diamond sales in February 2020 compared to the previous month, as diamond demand slumped following the virus outbreak. Following the measures put in place worldwide to contain the spread of COVID-19, three sights have been cancelled, and it is projected that mineral revenue loss will be at least P20 billion in 2020/21.

The weak trade stance of Botswana is expected to be echoed in the country’s foreign exchange reserves. At US $5420, Botswana’s foreign exchange reserves equalled 11 months of import cover in August 2020. Botswana’s foreign exchange reserves were at lowest in March 2020. Following the virus outbreak, the reserves have been on a falling trend, contracting 15% in March compared to December 2019. The low foreign exchange reserves imply that Botswana finds itself weak to defend against the ravaging COVID-19.

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Mowana Mine to open, pay employees millions

18th January 2022
Mowana Mine

Mowana Copper Mine in Dukwi will finally pay its former employees a total amount of P23, 789, 984.00 end of this month. For over three years Mowana Copper Mine has been under judicial management. Updating members, Botswana Mine Workers Union (BMWU) Executive Secretary Kitso Phiri this week said the High Court issued an order for the implementation of the compromise scheme of December 9, 2021 and this was to be done within 30 days after court order.

“Therefore payment of benefits under the scheme including those owed to Messina Copper Botswana employees should be effected sometime in January latest end of January 2022,” Kitso said. Kitso also explained that cash settlement will be 30 percent of the total Messina Copper Botswana estate and negotiated estate is $3,233,000 (about P35, 563,000).

Messina Copper was placed under liquidation and was thereafter acquired by Leboam Holdings to operate Mowana Mine. Leboam Holdings struck a deal with the Messina Copper’s liquidator who became a shareholder of Leboam Holdings. Leboam Holdings could not service its debts and its creditors placed it under provisional judicial management on December 18, 2018 and in judicial management on February 28, 2019.

A new company Max Power expressed interest to acquire the mining operations. It offered to take over the Mowana Mine from Leboam Holdings, however, the company had to pay the debts of Leboam including monies owed to Messina Copper, being employees benefits and other debts owed to other creditors.

The monies, were agreed to be paid through a scheme of compromise proposed by Max Power, being a negotiated payment schedule, which was subject to the financial ability of the new owners. “On December 9, 2021, Messina Copper liquidator, called a meeting of creditors, which the BMWU on behalf of its members (former Messina Copper employees) attended, to seek mandate from creditors to proceed with a proposed settlement for Messina Copper on the scheme of compromise. It is important to note that employee benefits are regarded as preferential credit, meaning once a scheme is approved they are paid first.”

Negotiated estate is P35, 563,000

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Councilors’ benefits debacle-savingram reveals detail

18th January 2022

A savingram the Ministry of Local Government and Rural Development sent to Town Clerks and Council Secretaries explaining why councilors across the country should not have access to their terminal benefits before end of their term has been revealed.

The contents of the savingram came out in the wake of a war of words between counselors and the Ministry of Local Government and Rural Development. The councilors through the Botswana Association of Local Authorities (BALA) accuse the Ministry of refusing to allow them to have access to their terminal benefits before end of their term.

This has since been denied by the Ministry.  In the savingram to town councils and council secretaries across the country, Permanent Secretary in the Ministry of Local Government and Rural Development Molefi Keaja states that, “Kindly be advised that the terminal benefits budget is made during the final year of term of office for Honorable Councilors.”  Keaja reminded town clerks and council secretaries that, “The nominal budget Councils make each and every financial year is to cater for events where a Councilor’s term of office ends before the statutory time due to death, resignation or any other reason.”

The savingram also goes into detail about why the government had in the past allowed councilors to have access to their terminal benefits before the end of their term.  “Regarding the special dispensation made in the 2014-2019, it should be noted that the advance was granted because at that time there was an approved budget for terminal benefits during the financial year,” explained Keaja.  He added that, “Town Clerks/Council Secretaries made discretions depending on the liquidity position of Councils which attracted a lot of audit queries.”

Keaja also revealed that councils across the country were struggling financially and therefore if they were to grant councilors access to their terminal benefits, this could leave their in a dire financial situation.  Given the fact that Local Authorities currently have cash flow problems and budgetary constraints, it is not advisable to grant terminal benefits advance as it would only serve to compound the liquidity problems of councils.

It is understood that the Ministry was inundated with calls from some Councils as they sought clarification regarding access to their terminal benefits. The Ministry fears that should councils pay out the terminal benefits this would affect their coffers as the government spends a lot on councilors salaries.

Reports show that apart from elected councilors, the government spends at least P6, 577, 746, 00 on nominated councilors across the country as their monthly salaries. Former Assistant Minister of Local Government and Rural Development, Botlogile Tshireletso once told Parliament that in total there are 113 nominated councilors and their salaries per a year add up to P78, 933,16.00. She added that their projected gratuity is P9, 866,646.00.

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Households spending to drive economic recovery

17th January 2022

A surge in consumer spending is expected to be a key driver of Botswana’s economic recovery, according to recent projections by Fitch Solutions. Fitch Solutions said it forecasts household spending in Botswana to grow by a real rate of 5.9% in 2022.

The bullish Fitch Solutions noted that “This is a considerable deceleration from 9.4% growth estimated in 2021, it comes mainly from the base effects of the contraction of 2.5% recorded in 2020,” adding that, “We project total household spending (in real terms) to reach BWP59.9bn (USD8.8bn) in 2022, increasing from BWP56.5bn (USD8.3bn) in 2021.”  According to Fitch Solutions, this is higher than the pre-Covid-19 total household spending (in real terms) of P53.0 billion (USD7.8bn) in 2019 and it indicates a full recovery in consumer spending.

“We forecast real household spending to grow by 5.9% in 2022, decelerating from the estimated growth of 9.4% in 2021. We note that the Covid-19 pandemic and the related restrictions on economic activity resulted in real household spending contracting by 2.5% in 2020, creating a lower base for spending to grow from in 2021 and 2022,” Fitch Solutions says.

Total household spending (in real terms), the agency says, will increase in 2022 when compared to 2021. In 2021 and 2022, total household spending (in real terms) will be above the pre-Covid-19 levels in 2019, indicating a full recovery in consumer spending, says Fitch Solutions.  It says as of December 6 2021 (latest data available), 38.4% of people in Botswana have received at least one vaccine dose, while this is relatively low it is higher than Africa average of 11.3%.

“The emergence of new Covid-19 variants such as Omicron, which was first detected in the country in November 2021, poses a downside risk to our outlook for consumer spending, particularly as a large proportion of the country’s population is unvaccinated and this could result in stricter measures being implemented once again,” says Fitch Solutions.

Growth will ease in 2022, Fitch Solution says. “Our forecast for an improvement in consumer spending in Botswana in 2022 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 5.3% over 2022, from an estimated 12.5% growth in 2021 as the low base effects from 2020 dissipate,” it says.

Fitch Solutions notes that “Our Country Risk team expects private consumption to be the main driver of Botswana’s economic growth in 2022, as disposable incomes and the labour market continue to recover from the impacts of the Covid-19 pandemic.”
It says Botswana’s tourism sector has been negatively impacted by the Covid-19 pandemic and the related travel restrictions.

According to Fitch Solutions, “The emergence of the Omicron variant, which was first detected in November 2021, has resulted in travel bans being implemented on Southern African countries such as South Africa, Botswana, Lesotho, Namibia, Zimbabwe and Eswatini. This will further delay the recovery of Botswana’s tourism sector in 2021 and early 2022.”  Fitch Solutions, therefore, forecasts Botswana’s tourist arrivals to grow by 81.2% in 2022, from an estimated contraction of 40.3% in 2021.

It notes that the 72.4% contraction in 2020 has created a low base for tourist arrivals to grow from.  “The rollout of vaccines in South Africa and its key source markets will aid the recovery of the tourism sector over the coming months and this bodes well for the employment and incomes of people employed in the hospitality industry, particularly restaurants and hotels as well as recreation and culture businesses,” the report says.

Fitch Solutions further notes that with economies reopening, consumers are demanding products that they had little access to over the previous year. However, manufacturers are facing several problems.  It says supply chain issues and bottlenecks are resulting in consumer goods shortages, feeding through into supply-side inflation.  Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods.

It says the spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs, the report says adding that while this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over the 2022 year.

“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations and thereby experience a notable drop in Covid-19 infections and a decline in hospitalisation rates,” says Fitch Solutions.
Both these factors, it says, will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales.

“As of December 6 2021, 38.4% of people in Botswana have received at least one vaccine dose. While this is low, it is higher than the Africa average of 11.3%. The vaccines being administered in Botswana include Pfizer-BioNTech, Sinovac and Johnson & Johnson. We believe that a successful vaccine rollout will aid the country’s consumer spending recovery,” says Fitch Solutions.  Therefore, the agency says, “Our forecasts account for risks that are highly likely to play out in 2022, including the easing of government support. However, if other risks start to play out, this may lead to forecast revisions.”

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