MATSHEKA targets industrialized sector for growth

Botswana’s trade deficit more than doubled in 2019 as exports fell on the account of weaker diamond market, prompting the government to promise a new export led - growth model premised on diversification, away from diamonds which have anchored the economy for the past five decades.

MATSHEKA targets industrialized sector for growth

Botswana’s trade deficit more than doubled in 2019 as exports fell on the account of weaker diamond market, prompting the government to promise a new export led - growth model premised on diversification, away from diamonds which have anchored the economy for the past five decades.
The balance of payments showed a huge deficit of P10 billion last year, up from the P4.8 billion deficit in 2018, with huge gap attributed to the spike in imports against declining exports, which were pulled down by weaker trading conditions in the diamond industry, with rough diamond sales falling. The government has since said that it will intensify diversification efforts, focusing on agriculture and manufacturing.
The tone for the new economic agenda was spelled out by Dr. Thapelo Matsheka, minister of Finance and Economic Development, during his maiden budget speech on Monday. The former economics lecturer, who is three months in his position, said the government is committed to transforming the economy, setting his first priority as “promotion of export-led growth.”
Dr. Matsheka said growth in imports has continuously outpaced that of exports in recent years, resulting in trade deficits, which have recently emerged as a constraint to economic growth. The minister added that greater effort is required in implementing the country’s export strategy to improved balance of trade position and replenish the country’s foreign exchange reserves, which last year fell to P70.6 billion from 2018’s P74.5 billion, after the government tapped into the reserves to meet the widening budget deficits.
“The transformation programme requires a review of the country’s entire ecosystem for promoting exports, including regulatory environment, fiscal incentives, and provision of basic infrastructure,” said Dr. Matsheka, adding that measures will also be required to reduce on imports through the implementation of a robust import substitution strategy.


It will be an uphill battle  to diversify from diamonds, which have long taken centre stage since their discovery in the late 1960s, becoming the country’s top main export, and propelling Botswana from low income to upper middle-income country. Much of the efforts to diversify in the past have been a mixture of success. Though the share of non-mining sector’s contribution to the gross domestic product (GDP) has risen to above 60 percent, diamonds are the single main foreign revenue earner, accounting for over 90 percent of trade exports.
The influence of diamonds in Botswana’s trade patterns were evident last year as the diamond industry went into a slump on the combination of weaker demand for rough diamond stones - which Botswana is the top producer by value - and trade tensions between USA and China, both biggest markets for diamonds, negatively affected supply.
Dr. Matsheka during his speech kept emphasising that it will not be business as usual, revealing that the volatility in the diamond industry and global trade has heightened the need to promote diversified exports to reduce the impact of external shocks on the domestic economy. He said as part of the transformation agenda, government will focus attention on agriculture and manufacturing sectors, which are expected to boost economic growth while unlocking job opportunities.


Still, the government’s newfound sense of focus comes amid a downturn in the country’s budget, also wrecked by the fall in diamond sales. The country’s National Development Plan (NDP) , which runs from 2017 to 2023, has been marred by massive budget deficits which have constrained the government from ratcheting up on expenditure. In 2018/2019, the government spent  P8.8 billion more than it had, while the current financial year, 2019/2020, is expected to turn in a budget deficit of P7.9 billion.


Dr. Matsheka’s budget for 2020/2021, which runs from April to March, is set against an expenditure of P67.62 billion and revenue of P62.39 billion, creating another deficit of P5.2 billion. The proposed budget is slightly three percent lower than the previous, showing that the government is feeling the strain.
“The actual budget outturn for the first three  years of NDP 11 recorded budget deficits. Therefore, it is imperative that, while the 2020/2021 budget proposals were prepared in line with the economic transformation agenda, government is conscious of its commitment to fiscal discipline and maintenance of long-term fiscal sustainability,” Matsheka said.
“In putting together the 2020/2021 Budget Proposals, we have therefore, been guided by the philosophy that the government budget should support the country’s economic transformation agenda, while preserving fiscal sustainability. The underlying strategic intent is to see all Batswana benefiting from the economic prosperity of this country,” he added.