ESGs critical for economic diversity

John Cairns, a Client Strategist at Rand Merchant Bank (RMB), has sounded the warning bells. Leading a panel discussion at an FNBB Budget Review Seminar in Gaborone on Tuesday evening this week, Cairns described Botswana as a small economy that is highly dependent on the global environment. “Unfortunately, the cyclical nature of where we stand at the moment is that we are heading into a period of slower growth,” said Cairns. “We have a weakness in the world’s two major economic areas – the US and the Euro Zone, and a little more of a positive picture from China.”

Cairns emphasised that not only is there an economic downturn to worry about, but also substantial financial market stress that he said was witnessed in the last three global economic downturns. “Available information suggests that we would probably get through a very mild global recession without substantial financial market stress,” he said. “Nevertheless, it does remain a risk.” Cairns, however, warned that in the previous downturns, negative financial stress repercussions were witnessed flowing through into the economy via the diamond market.

“Unfortunately, Botswana’s problems don’t stop with the US and Europe,” he said, adding that South Africa’s problems such as load shedding pose an economic threat to the domestic economy. But as the economic recession risks loom, Cairns said a silver lining is in the pressure by central banks to hike interest rates further to counter inflationary burdens. “Interest rates globally seem to be reaching a peak,” he said. “So the silver lining of the downturn is the easing of inflation and interest pressures.”

Even so, the effects of this year’s economic downturn will not match those of the 2008/09 global financial crisis, Cairn asserted. “It is not expected to be dramatic,” he said. “It is not 2008 or COVID-19 but of course there will be repercussions in Botswana from what is probably going to be a long sustained period of weak growth.” Though he predicted the downturn not to be the same as in 2008/09, Cairns warned that the global environment will be less supportive of Botswana in the year ahead and possibly a few more to come.

“There are tail event risks that we may see in the financial market stress,” Cairns said. “But the analysis from the International Monetary Fund (IMF), the New York Fed and the Bank of International Settlements suggests that it is not going to be the case.” Also taking part in the same panel discussion but focusing on amalgamation of the Environmental, Social and Governance (ESG) principles and the value chain, the Chief Financial Officer of De Beers Global Sightholder Sales, Susanne Swaniker-Tettey, spoke of how Botswana could use ESG to achieve economic diversification.

“The budget speech indicated that the EU is supporting Botswana’s green transformation initiatives with EURO3 million . In addition, the government has allocated a budget of P1.63 billion in this area,” Swaniker-Tettey said, adding that the assumption is that most of this budget will go to solar generation. “The question is, with all these power stations coming up, and it will get to a stage where all of us will be putting solar at home, what is going to be the cost of solar?” Answering the question herself, Swaniker-Tettey said she believes people will not be paying for solar or electricity but will only pay connection fees to their homes.

“If we think about diversifying the economy and put all our money into solar plants, would that help diversify the economy?” But even then, she said, countries like Botswana can benefit from the carbon market. The carbon market is described as a decentralised market where private actors voluntarily buy and sell carbon credits that represent certified removals or reductions of greenhouse gases in the atmosphere. It is said that the current price of a carbon credit can range from US$10 to US$100 per carbon equivalent.

“The issue here is that unpredictable prices make it impossible for lower-income African countries that have limited funds and technical capabilities to participate in this carbon market,” Swaniker-Tettey noted. Regarding economic diversification from an ESG perspective, she said the carbon market allows investors and corporations to trade both carbon credits and to offset them. “This mitigates environmental crisis,” she said. “But at the same time, it is creating new market opportunities.”

Further, Swaniker-Tettey asserted that there are many different types of businesses that can create and sell carbon credits by reducing, capturing and storing emissions through several processes. She said the carbon market is currently worth US$400 million and is forecast to reach US$25 billion by 2030. “That is where the opportunity lies,” said Swaniker-Tettey. “We need to create renewable energy products.”