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Botswana ‘dangerously’ looked through agrarian economy – economist

An economist at one of the top investment banks has listed Botswana amongst tcountries that have looked through an agrarian economy, based purely on agriculture and other subsistence farming, only targeting tertiary services. Daniel Kavishe, Africa Economist at RMB cautioned that such move was ‘absolutely dangerous’

mm by Kitso Dickson
February 16, 2022
in Economy, News
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Botswana ‘dangerously’ looked through agrarian economy – economist
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  • Ignored secondary industries
  • Gives limited investment in ICT

“We did not spend sufficient time improving the technology process in the agricultural sector and even more importantly, we didn’t spend sufficient time building the secondary industry,” Kavishe lamented during the FNBB budget review.  During Q3 2021, the Agriculture sector recorded a negative growth together with Accommodation & Food Services.

On the budget, the Ministry of Agricultural Development and Food Security was allocated the 9th largest cut. The proposed allocation to this Ministry is P1.44 billion, which is an increase of P51.30 million or 3.7 percent over the current year’s approved budget. The proposed budget will support the agricultural sector in pursuit of improved domestic food production to achieve a higher degree of self-sufficiency in agricultural products, according to finance minister Peggy Serame.

“We have negated our secondary industries. So, we have not really built strong manufacturing basis or resilience with respect to provision of electricity and water,” said Kavishe. In addition, he observed that there are minimal investments into the ICT sector which has been “very surprising”.

The Ministry of Transport and Communications was allotted the 7th largest budget share. During the budget speech, Serame announced that the ministry was allocated P1.82 billion, 3.4 percent of the total. The proposed budget shows a decline of P4.22 million or 0.2 percent from the 2021/2022 approved budget. The operational costs of the Ministry are driven by the core mandate, mainly, the development and utilization of Information Communication and Technology (ICT) and integrated transport services. These include provision of timely, reliable and smart transport and communication services anchored on world class infrastructure platforms.

While making a detailed presentation, Kavishe compared Botswana’s economy with that of Ghana precisely because both countries are forced to rely on the output from the mining sector. “Ghana had to capitalise on agriculture. A lot of people have debated whether Botswana and Namibia could really benefit from agriculture,” Kavishe said, with concerns that there has not really been any significant change in the way that Botswana earns revenue. “If you think about it, it’s like running a cash flow. Some of the bigger economies have recognized this,” he said and continued; “Ghana has pretty much tried to diversify export growth. They are trying to enter the cocoa industry.”

He said top economies in east Africa have fully diversified export earnings which ensures that even in periods like these they can manage to survive. According to revised estimates, Botswana revenue is anticipated to have increased to P63.4 billion in 2021/22 (from P49.4 billion in 2020/21), against expenditure of P73.6 billion (compared to P65.8 billion in 2020/21) — resulting in a much narrower budget deficit of approximately 5.1 percent of GDP. The improvement in revenue stems from a surge in diamond sales over the course of 2021, resulting in elevated levels of mineral revenue.

Like many economists, Kavishe emphasises the need for structural reforms. Economists at Econsult also observed this; “despite the strong growth recovery experienced in 2021, evidence of serious structural problems within Botswana’s economy remain,” Sethunya Kegakgametse and Kitso Mokhurutshe wrote in their report. They said the economy has continued to run “twin deficits” i.e. internal (fiscal deficits) and external (balance of payments) deficits which indicate persistent macroeconomic imbalances. “There is a desperate need for a change of course in terms of policies to correct them. Whilst the emergence of the COVID-19 pandemic exasperated these problems, it did not cause them, as the twin deficits existed prior to 2020.”

There is a particularly alarming problem with deficits under the direct investment section of the financial (capital) account of the BoP, according to the two economists. They point out that the data suggests that residents are exporting capital whilst there are minimal capital inflows through sources such as FDI. Net FDI inflows have declined from 3.3 percent of GDP in 2014, to 0.6 percent of GDP in 2019, accoridng to Econsult research. “The deficits in the current account of the BoP highlight the need for Botswana to pursue economic growth policies that are anchored on both export-led growth and export diversification,” they said. Government has not changed its aim of transforming growth model to be export orientated under its NDP and vision 2036.

Kegakgametse and Mokhurutshe argue that such policies would reduce both the magnitude and frequency of trade deficits, subsequently leading to more sustainable BoP current account balances. “The need to tighten spending and bring government budget balances back to a surplus is more pressing than ever,” they said. Government has embarked on a rationalisation program where some parastatals/ministries would be merged or some shut down. Government is also in the process of reducing subventions given to parastatals and cut back on allowances of civil servants.

The financial buffers – government savings and the foreign exchange reserves – that were present prior to COVID-19 have now been reduced and there is an urgent need to replenish them in order to provide the economy with some measure of protection against future economic shocks, Kegakgametse and Mokhurutshe said.

 

 

Tags: COVID-19Daniel KavisheFNBBMinistry of Agricultural Development and Food SecurityRMBThe Ministry of Transport and Communications

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