The downside risks to social stability

Research Shows Waning Support for Domkrag Elections could lead to an increase in protest activity Inflationary pressures posing downside risks to social stability Economists disappointed economic growth did not lead to net increase in employment Fitch Solutions has warned that the 2024 elections could lead to an increase in protest activity in Botswana. The research firm has observed that during previous election cycles, there have been noticeable increases in protests. “As such, we highlight potential upcoming risks to social stability,” it says. Fitch notes that risks to social stability remain elevated, given persistent inflationary pressures, high structural unemployment and income inequality. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] Annual inflation rate stood at 7.9 percent in April 2023, a drop of 2.0 percentage points from the March rate of 9.9 percent, according to Statistics Botswana. “Without any further fuel price adjustments in the near future, inflation is expected to dip within (the Bank of Botswana) BoB’s 3-6 percent objective range as early as next month (May) due to strong base effects but increase beyond it again in Q4 2023 as the base effects dissipate,” Kitso Mokhurutshe, Investment Analyst at Kgori Capital commented. “Inflation is still expected to trend sustainably with the 3-6 percent range in 2Q24.” In Q223, Fitch expects exchange rate pressures and the increase in the value-added tax rate to 14.0 percent in April (from 12.0 percent previously) to exacerbate existing inflationary pressures, posing downside risks to social stability. “Furthermore, high unemployment, especially among young people, has the potential to stoke anti-government sentiment, especially in the context of increasing living costs.” Like inflation, economists worry that unemployment remained worryingly high. Notwithstanding the generally positive economic developments reported in Q1 2023, Sethunya Kegakgametse, an economist at Econsult, is concerned that the slow pace of employment creation and the continued high rate of unemployment remains the economy’s Achille’s heel. The unemployment rate has regrettably risen during NDP 11 from 17.5 percent of the labour force in 2015 to 22.2 percent in 2019 and further to 26 percent in 2021, according to finance minister Peggy Serame, who attributes the increase in particular to the impact of COVID-19 even though unemployment had been rising before then. Preliminary data released by Statistics Botswana in January 2023 showed that unemployment declined slightly to 25.4 percent in the fourth quarter of 2022. While this is a small change, Finance minister Serame argued that this was encouraging, given that the unemployment rate is moving in the right direction. However, according to Kegakgametse, this decline was mainly due to a shrinkage in the estimated labour force rather than jobs being created, as the employed population remained largely unchanged over this 12-month period. “The fact that economic growth of almost 6 percent did not lead to any net increase in employment is disappointing,” she says. Botswana has been churning out university graduates with no jobs and no prospects. Labour economists have previously warned that graduates will become very angry, hence a danger to the peace and tranquility of the nation. When he ascended to the country’s top post, President Mokgweetse Masisi was asked to share the number of jobs he expected to create together with timelines. He would not be drawn into discussing this but said he could only be measured at the end of his term. In a 2022 survey, a pan-African research institution Afrobarometer found that 38.3 percent of Batswana considered unemployment to be the most important problem facing the country, far higher than the second most cited issue (crime and security, 10.5 percent). All told, Fitch expects risks to social stability to remain elevated, reflected in Botswana’s score of 47.5 in the ‘social stability’ component of “our” Short-Term Political Risk Index (STPRI). “However, this remains well above the sub-Saharan African (SSA) average of 38.8.” With high unemployment and lack of job creation, Botswana is currently one of the most unequal countries globally, having the 9 th highest Gini coefficient, indicating the degree of inequality of incomes, according to the most recent UNDP report (2020). In the report, UNDP said both theoretical and empirical studies have shown the negative effect of inequality on long-run growth, poverty reduction, and social and political stability. “The issue of inequality in Botswana has received limited attention historically from both research and policy perspectives,” UNDP noted. But while Fitch says the ruling Botswana Democratic Party (BDP) faces considerable challenges in the run-up to the 2024 election, it believes that opposition weakness will lead to a BDP victory, ensuring broad policy continuity over the coming years. According to the international research firm, support for the BDP has declined steadily since 1979, for the first time falling below 50.0 percent of the popular vote in the 2014 general elections. Indeed, the 2022 Afrobarometer survey found that just 22.3 percent of respondents would vote for the BDP in a national election, with 29.4 percent opting for the Umbrella for Democratic Change (UDC), an alliance of centre-left political parties. The survey found that a large majority of Batswana (nearly 80 percent) believe that the Office of the President is corrupt, a view which was unfortunately prevalent among young people (26-35yrs). That said, Fitch notes that risks to President Masisi’s position have heightened since his predecessor, Ian Khama, vowed to oppose his re-election campaign. Khama left the BDP in 2018 after continued public disagreements with Masisi’s policy agenda, joining the newly formed Botswana Patriotic Front (BPF) which had split from the BDP earlier that year. “While the BPF won just three seats in the 2019 general election, we note that the rift between Masisi and his predecessor may signify a shift towards greater factionalism within the BDP, potentially heightening risks to policy continuity over the coming years,” Fitch observes. Khama is reportedly in the process of forming a breakaway party of the BPF. Nevertheless, Fitch retains its view that the BDP will win the 2024 election. In April 2023, unity talks between the Botswana Congress Party (BCP), the Alliance for Progressives (AP), and the Botswana Labour Party (BLP) broke down after the AP refused to commit to a working arrangement with the BCP. This followed the BCP’s January departure from the UDC, an alliance that in 2019 secured the highest vote share for an opposition party in a national election since 1994. Given the fractured nature of opposition parties, Fitch believes that the ruling BDP will retain its legislative majority in the 2024 elections. “We therefore retain Botswana’s score of 72.5 in the ‘policy continuity’ component of our STPRI, well above the SSA average of 53.6.” Against this background, Fitch sees limited risks to policymaking in Botswana over the coming quarters, supported by the ruling Botswana Democratic Party’s (BDP) strong parliamentary majority. In the 2019 general election, the BDP won 38 out of 57 elected seats in the National Assembly, alongside six members nominated by President Mokgweetsi Masisi and two ex-officio seats. Given this strong majority, Fitch says the BDP has been able to pass key legislation with limited opposition. “As such, we retain Botswana’s score of 73.3 out of 100 (higher score = lower risk) in the ‘policymaking process’ component of our Short-Term Political Risk Index (STPRI), well above the Sub-Saharan African (SSA) average of 54.4,” the firm says, adding that this “supports Botswana’s strong overall score of 70.0 in our STPRI, making it one of southern Africa’s most politically stable markets”. “We also note that Botswana’s security/external threats score of 86.7, underpinned by low domestic and regional security risks, strongly supports the overall STPRI score,” says the research firm. [/ihc-hide-content]

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The downside risks to social stability

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