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Protectionist policies or trade wars? 

Trade

South Africa’s decision not to allow foreign nationals to drive a South African registered truck using a foreign professional driving permit has further put into question the commitment of SADC countries to the regional and African integration agenda. Some in the region are of the view that South Africa may indulging in some economic espionage disguised as protectionist trade policy or law.  

Protectionist approaches by many African countries make many doubt statements like these: “The African Continental Free Trade Area (AfCFTA) presents a major opportunity for African countries to bring 30 million people out of extreme poverty and to raise the incomes of 68 million others who live on less than $5.50 per day”. This is expressed in a recent report by the AfCFTA, of which many African countries, including Botswana and South Africa, are party to. Do these beautiful statements mean anything to African leaders, or the very institutions that sponsor such statements?  

Whilst South Africa’s Minister of Transport, Fikile Mbalula made it clear that the foreign permits for truck drivers is the main issue that truck drivers in South Africa are actually raising and lobbying government, the decision has sparked economic and social debate. 

As things stand, the law barring foreigners is before the South African Parliament for comments and should be passed before the end of November. According to media reports from South Africa, tankers fall under this category, this will affect transportation of fuel to other SADC countries such as Botswana. “Currently most of the trucks in the region are South African registered. Botswana has very few locally registered trucks and it will take time to build capacity in time. If not properly managed, the move by South Africa could cripple Botswana when it comes to fuel supply,” observed a truck owner based in Botswana. 

Nevertheless, countries such as Botswana and Zimbabwe have some of the most pronounced protectionist policies meant to ring-fence certain industries for locals. Consequently, the policy direction of other SADC countries are said to be playing a significant role in the attitude adopted by South Africans. However, high unemployment rate and economic competition among SADC countries are said to be other factors that could be pushing the nationalist policies. In South Africa, some politicians blame (illegal) migration, mostly from Zimbabwe, as the source of their problem.

Botswana has a protectionist policy or law seeks to ring-fence business activities reserved for locals, and “perpetrators” can be prosecuted. A statement, dated 3 November 2021, issued by that country’s Ministry of Investment, Trade and Industry highlighted some of the businesses that include wholesale retail and filling stations (petroleum). The protected list has 21 business crafts, ranging from bread and confectionery to furniture.

Furthermore, in South Africa, President Cyril Ramaphosa signed the Private Security Industry Regulation Amendment Act last month. Part of its provisions is that all security companies should retain 51% South African ownership. The act also gives the police minister the power to change the ownership percentage if he deems it a national security issue.

“If foreigners interested in these so-called sub-sectors of the economy reserved for locals are taxed more than the locals that could work. It means that foreigners would have to be exceptionally good at their craft to compete with locals instead of shutting them out, at the same time risking poor service delivery,” Minister Dhlamini said.

Inward looking and narrow policy decisions by some SADC countries, including Botswana, South Africa, and Zimbabwe seriously undermine the regional integration agenda. In addition, they spit on the face of the AfCFTA. For the AfCFTA, it has been observed: “The African Continental Free Trade Area has the potential to increase employment opportunities and incomes, helping to expand opportunities for all Africans.

The AfCFTA is expected to lift around 68 million people out of moderate poverty and make African countries more competitive. But successful implementation will be key, including careful monitoring of impacts on all workers—women and men, skilled and unskilled—across all countries and sectors, ensuring the agreement’s full benefit,” said Albert Zeufack, Chief Economist, Africa. It is evident from the actions of many African countries through their protectionist policies that are not aligned to the regional and continental trade agenda that theirs is just lip service when it comes to institutions such as AfCFTA and others.

Meanwhile, in the case of South Africa’s latest decision, there is another view from countries such as Botswana. While South Africa may from the surface be doing what her SADC counterparts are doing to shield her citizens, the latest actions are viewed as a ploy to take control of the fuel supply situation in the region. Some SADC countries, including Botswana are said to be looking into the idea of improving fuel security by ramping up stock and building more storage facilities. South Africa is said to be cognisant of these developments and is aware that it could affect her trade balance.  

Protectionists usually couch their claims in terms of saving particular industries from imports, the facts show, however, that tariffs and quotas seldom save jobs for long or preserve the competitiveness of the industry to be “saved.” Meanwhile, of course, the consumer suffers through higher prices.

Proponents of protection often claim that it is needed to preserve jobs in particular industries. But this is a very expensive means of saving jobs—it raises consumers’ costs for both imported goods and the domestically produced goods with which they compete. The consumer cost in 1980 per job saved for quotas on imported TV sets was estimated at $74,155; for tariffs and quotas on footwear, $77,155; and for tariffs and quotas on carbon steel, $85,272. In 1984, American consumers paid an estimated $53 billion in higher prices because of the import restrictions levied that year.3

John M. Culbertson (1990), writing in the “The Folly of Free Trade”, says “As high as they are, estimates of the costs for each job saved actually exaggerate the efficacy of protectionist measures in achieving employment objectives. Protection advocates are usually more interested in saving the jobs of those already working in a certain industry than in preserving industrywide employment generally. But quotas do not save specific jobs.

Protectionists tend to believe that by diverting demand to domestic corporations, quotas will improve their profitability and prevent plant closures. Better prospects for profitability that attract investment, however, may induce a change in plant location or the purchase of more automated machinery. To the extent that protection encourages such a response, it can exacerbate dislocation and reduce employment”.

According to the SADC website, “the main objectives of SADC are to achieve development, peace and security, and economic growth, to alleviate poverty, enhance the standard and quality of life of the peoples of Southern Africa, and support the socially disadvantaged through regional integration, built on democratic principles and equitable and sustainable development”.

The former Executive Secretary of SADC, Dr Tax, prefacing a SADC commemoratory publication  noted that a total of 33 regional protocols covering various areas of cooperation have been signed since the transformation of SADC from a Coordination Conference to a Community in 1992. “Following the signing of the SADC Declaration and Treaty in 1992, the Region has shown commitment to deeper integration through strategic plans such as the Regional Indicative Strategic Development Plan 2010- 2020; Strategic Indicative Plan for the Organ on Politics, Defence and Security Cooperation 2010-2020; SADC Industrialisation Strategy and Roadmap 2015-2063; SADC Regional Agricultural Policy 2015; and SADC Regional Infrastructure Development Master Plan 2012”.  However, some argue that SADC leaders are good at presenting ideas on paper but implementation is always a challenge. The protectionist approaches to trade by SADC countries undermines the sentiments carried in a host of SADC literature. 

In conclusion, proponents of protectionist policies claim the unlevel playing field argument, evidently appealing to self-interest.  It is evident that if not guarded, protectionist policies, if implemented by powerful economic players could hurt smaller economies and or sabotage their efforts to even their trade balance. The world is dominated by nationalistic economic policies; the competitive, open environment assumed by international trade economists simply doesn’t exist.  

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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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