Duma Boko’s State of the Nation Address (SONA) came at a time when Botswana was facing a storm of uncertainty, with predictions of a potential recession in 2024.
While experts considered the speech solid, they were hoping for more insight into the country’s current situation, including specific figures, the reasons behind cash flow issues, and an estimate of how long these challenges might persist.
This was particularly important since the new government had pledged to implement an immediate increase in student allowances, wages for Ipelegeng workers, and the old age pension fund. Though not committing to a specific timeline, it seems these changes will take place later than initially planned. However, no concrete details were provided, aside from a previous promise that they would not abandon these commitments.
The current state of economic stagnation and public finances has clearly altered the new administration’s plans. Both Boko and Vice President Ndaba Gaolathe have agreed to take pay cuts. Gaolathe previously stated that they found the economy and public finances in a worse state than anticipated.
Similarly, Saleshando’s pledge to introduce a P4000 minimum wage and build the economy first, with the promise to deliver this minimum wage within the next five years, contrasts with the new government’s stance on immediate implementation.
In response to the deferral of certain promises, Member of Parliament Dumelang Saleshando remarked, “When we prepared our manifestos, we were aware of the economic situation. You can’t pretend it’s a new discovery, worse than we had anticipated.”
Currently, the government is still operating under a budget plan set by the previous administration, which drained public funds. Although it’s unclear where the necessary funds will come from, the president did mention fast-tracking certain projects to transform the economy. However, there are concerns that development expenditure may be significantly reduced until 2026, with only high-priority projects receiving funding.
There is an expectation that these key projects, along with the recently announced policy measures, will be incorporated into the country’s National Development Plan (NDP) 12, set for implementation in April 2025.
The government has also pledged to introduce a medium-term fiscal framework to ensure fiscal sustainability. This framework will align available resources with planned spending while enabling the government to rebuild the fiscal buffers needed to support long-term economic growth. Similar frameworks in countries like the UK and South Africa have promoted accountability, allowing their parliaments to reassess and realign expenditures with actual revenue flows.
The challenges in Botswana’s diamond industry have exposed significant flaws in the budgeting process, as the government has not been forced to reassess spending even when revenues fall short. With uncertainty surrounding the diamond sector and no clear indication of where the new government will generate revenue, Boko is likely to focus on capping spending. Boko has also pledged to combat corruption by conducting forensic audits to identify and trace revenue leakages over the next 100 days. Public procurement is another area of focus, with the government aiming to implement standard pricing for essential items to control procurement costs and ensure fair pricing.
Boko faces significant challenges in cutting recurrent expenditure unless substantial structural reforms are made, particularly in terms of the public wage bill and financial support to state-owned enterprises (SOEs).
The previous government depleted reserves as diamond revenues fell short, using the funds to cover subventions to SOEs and the Revenue Support Grant (RSG) to Local Authorities, among other expenses. SOEs, often seen as inefficient with low employee productivity, will undergo reviews aimed at enhancing their governance and operational efficiency. Improving the performance of these SOEs is expected to reduce government subventions.
A World Bank report suggests that a combination of sector reforms and the listing of SOEs could significantly improve the delivery of public goods and services. This aligns with one of Boko’s key goals for the first 100 days, which is to reform the civil service and improve trust and efficiency in service delivery. This will be achieved through the implementation of a code of conduct for public servants, along with training focused on performance and accountability.
The World Bank report noted that countries that successfully listed multiple large SOEs and encouraged private companies to go public have maintained strong growth over prolonged periods. Kopano Bolokwe, Acting Chief Executive Officer of the Botswana Stock Exchange (BSE), views the listing of SOEs on the Stock Exchange as a crucial strategy for driving economic transformation and fostering private sector growth. As part of its transformative plan to steer Botswana’s economy onto a strong growth path, the new government intends to create large-scale sustainable enterprises.
Boko is aware of the need to diversify Botswana’s economy to reduce its reliance on diamond revenues. The key sectors earmarked for development include tourism, agriculture, manufacturing, information technology, and healthcare.
While these proposed strategies were well-received, Boko faces significant challenges in these sectors. The government aims to modernise agriculture by implementing precision farming, smart water management systems, soil enhancement technologies, and regenerative agriculture techniques to optimise crop yields amidst climate change. This initiative is expected to boost food security, stimulate the growth of local food processing industries, and create new jobs. Additionally, small-scale farmers will receive training and financial support to improve their livelihoods and reduce poverty in rural communities. However, the ongoing drought is likely to present challenges to policies intended to boost agricultural output.
Tourism also faces significant revenue leakages. BMI expects Botswana to encounter difficulties in expanding its tourism sector as the government seeks to position the country as a luxury ecotourism destination. The manufacturing sector is expected to benefit from export promotion initiatives through the National Export Strategy.
Despite these efforts, Boko’s economic strategy may still heavily depend on diamonds, which suggests that the road ahead could remain difficult for the foreseeable future. Given the time needed for reforms to take effect, the new government may rely on diamond revenues to fund its initiatives while addressing underlying issues.
Economists predict that Botswana’s economy may begin to pick up in 2025, supported by an improvement in global conditions and rising demand for diamonds. However, the overall growth potential will be constrained by continued high levels of diamond inventories throughout most of the year.
The growing presence of lab-grown diamonds presents a significant risk to future growth, particularly if it leads to a lasting decline in demand for natural diamonds. Experts predict this shift will reduce mineral taxes and royalties due to lower diamond production and sales, which could hinder Botswana’s development goals in the medium term.
The diamond sector remains significant, though not as dominant as it once was. It continues to be highly profitable and is taxed at a substantial rate. Economist Dr. Keith Jefferis estimated that the sector has a profit margin of 80 percent, which is taxed at 80 percent. He also argued that nothing can replace diamonds, leaving the responsibility on the new government to prove him wrong. With limited specifics provided by Boko, some experts are waiting to review the budget and national development plan before making any final judgments on where funds will be allocated and the impact on the economy.
