- Social inequalities and unemployment key risks to the economy
- Diamond reliance remains a challenge
- Public finances under pressure
- But Botswana ironically ranks amongst top African investment destinies
Yet it highlights key challenges that pose a risk to the expansion of the economy. The new report notes the good, the bad, and the ugly while at the same time, at ABSA, a Sub-Saharan Africa research/report points to issues such as anticipated rising inflation and a corrosion of public fiscal buffers which is a total deviation from what an investor is looking for when planning to set foot in Botswana.
All these, and many other issues, come on the backdrop of the budget speech recently delivered by the Minister of Finance and Economic Development, Peggy Serame.
RMB researchers noted that COVID-19 has left devastating implications throughout the world which shall forever be entrenched in history books. Although that is the case, the report places Botswana at number five out of the 20 ranked countries.
Explaining the methodology, economist at RMB David Kavishe said the bank considered factors like government’s ability to aid its economy off a deeper crisis, competitiveness determined by the operating environment score. Therefore, pointing to growth opportunities in Botswana as an investment destination of choice, the report said: “One of Botswana’s greatest strengths remains a key concentration risk.”
RMB economists wrote that diamonds are still a key driver of growth potential. More so that the US$2 billion Cut-9 project which seeks to extend the life of the Jwaneng mine (one of the highest-value mines in the world) has commenced. “This is also expected to encourage the development of related activities, such as construction and mining-related services,” reads the report. “The government aims to pursue its policy of economic diversification and will continue to spend on education, health and the construction of roads and electricity infrastructure.
The Pula Fund, a sovereign fund created in 1994, which finances a large part of the budget deficit, has meant that fiscal dependency on debt has been low. Considerable opportunities exist in the development of infrastructure (production and distribution of water and electricity).”
Meanwhile, at Absa, Ridle Markus and Samantha Singh noted that Botswana’s economy expanded at a brisk pace in the first three quarters of 2021 and that although growth pace is likely to ease, an economic growth of around 5.2 percent remains possible in 2022. “We reported in our previous SSA Viewpoints that the GDP rebasing exercise completed in July 2021 lifted the country’s growth trajectory significantly and we raised our 2021 growth projection at the time from 6.7 percent to 8.3 percent,” they wrote.
Markus and Singh continued to explain that diamond traders’ sector rose by a buoyant 44.8 percent y/y in Q3, coupled with strong growth in the mining, wholesale & retail trade and manufacturing sectors. “The mining sector was led by diamond mining, with De Beers reporting growth of 33 percent y/y in diamond output in Q3. Overall, the economy expanded by a remarkable 13.5 percent y/y in the first three quarters of 2021, driven by a 33 percent surge in mining output (real GDP growth excl. mining: 9.0 percent).”
Rand Merchant Bank highlighted persistent social inequalities as a key risk, ranking Botswana as the 10th most unequal country in the world as per data by the World Bank. According to the RMB report there is high unemployment rate which was at 24.5 percent in 2020 which relative to the population becomes a major concern. Unemployment rose to 26 percent in quarter 4 2021.
To denote a deterioration in economic fortunes, this is what the report said: “the heavy reliance on diamond production (90 percent of exports) could pose serious challenges to the economy if it does not accelerate efforts to diversify.” Moreover, RMB posits that the tourism sector is likely to remain challenged over the next few years given the effects of the pandemic. For their part, Markus and Signh at Absa denoted a deteriorating fiscal position as a worrying factor for the upper-middle income economy situated in Southern Africa.
Reads Absa’s Sub-Saharan Viewpoints Q1 2022 report: “Botswana’s public finances continue to face pressures even as economic activity appears buoyant.” According to the two, after a recorded fiscal deficit of 8.4 percent of GDP in the financial year 2020/21, the Ministry of Finance and Economic Development revised the deficit target for the financial year 2021/22 from 3.1 percent to 3.7 percent “amid indications of revenue shortfalls and some overspending”.
Botswana has generally failed at the idea of economic diversification despite that it has some of the best policies on paper. The need to explore this phenomena further compelled University of Botswana scholar Dr. Lesego Sekwati, to zoom into the topic.
In his paper titled “Economic Diversification: The case of Botswana” pointed that for the longest time the country was regarded as a “beacon of success” in economic management with its economy largely driven by diamonds. Sekwati contended that despite all the good attributes that described the economic prudence therein lied structural weaknesses that are concealed right behind all the shine.
Denoting the structural model of the economy, he said the country has dismally failed to industrialise. “One more peculiar feature of Botswana’s economy is the low level of industrialisation despite government efforts to encouraging the same,” he said. “Over the years the manufacturing sector has received preferential treatment from the government, both in terms of targeted policy and financial support, but the sector has consistently failed to perform to expectations.”
What Dr. Sekwati said more than a decade ago has been repeated by Phazha Butale, Botswana government’s Chief trade negotiator based at the Ministry of Investment, Trade and Industry when sharing insights at the FNBB Budget seminar last week. Butale called upon entrepreneurs to seize the opportunity to venture into several industries like manufacturing in order for the country to industrialise and be inward looking in future pandemics.
Over and above that, other curses that remain are that of the high youth unemployment levels, poverty, HIV/AIDS, income inequality, Gender Based Violence (GBV), and high crime rate. All those have been previously noted in several instances by reputable research institutions across the world many moons ago.
Did the political leadership fail?
While UB dons Professor David Sebudubudu and Mokganedi Botlhomilwe long argued that Botswana’s political leadership played a role in its development, the general consensus has been that in recent years, the standards have fallen.
As a result, observers today blame poor leadership and a lack of political will as the nation’s economic woes deepen. Speaking during the budget speech, the minister of Finance and Economic Development Peggy Serame outlined that the country is at the tail end of the National Development Plan (NDP 11) and that it is gravitating towards Vision 2036 yet still emerging from the COVID-19 pandemic even though it has to build resilience.
Without offering much hope to the unemployed and poor Batswana, she sought to address the lack of policy implementation as one factor that has held the country back. She said: “there are weaknesses in policy and project implementation that have held us back which need to be urgently addressed.” In so far as job creation is concerned, Serame failed to articulate any tangible solution to that effect.
Meanwhile, amidst this agonising times of Botswana’s economy, the civic society has also weighed in on the matter. Addressing the media post the budget speech, the Botswana Federation of Public Private and Parastatal Sector Unions (BOFEPUSU) criticized the minister for her budget. The Union formed the view that it is elitist and failed to address pertinent economic issues. Acting President, Thatayaone Kesebonye said “besides poverty, unemployment and corruption, we have a duty as a country to fight inequality.”
He complained that the budget did not cater for the working class and poor citizens of this country. Once classified as a desert by the British colonial administration, the country transformed from being the world’s poorest country at independence to ranking as an upper-middle income state in the early 90s thanks to its diamonds, tourism and prudent fiscal management.
During its heydays, it got to be classified as an “African economic miracle” or “Africa’s model for success” by local and internationally renowned research economists. The current administration led by President Mokgweetsi Masisi inherited a broken economy from former president Ian Khama but has thus far failed to maneuverer through the tough terrain in spite of electoral promises made in 2019 chief among them being to create an inclusive economy for all.