Will Masisi magic “stitch” the economy back together?

15 Apr 2018

Motswedi Securities, a local stock brokering firm opines that the business community in Botswana regards the new President as “more business-friendly”. The same sentiment has been made about Masisi’s counterpart in South African Cyril Ramaphosa who also ascended to Presidency less than three months back. This week Masisi visited Ramaphosa amongst other regional leaders as part of his self introduction to the international community.

Whilst he was away, Motswedi Securities’ Garry Juma opined that the new President is widely expected to come up with policies that enable more economic activity to grow the domestic economy which has been expanding at a smaller pace of late.

The local economy has been growing at a slower space over the past few years with rising unemployment which stands at around 18 percent and is the highest especially among the youth.

However latest Gross Domestic Product (GDP) official figures from the Statistics Botswana (SB) shows that tables might just turn in favour of Masisi and his administration.

The SB data show that the economy expanded 5.5 percent quarter-on-quarter in the last quarter of 2017 (Q3:2017) following a 1 percent contraction in the previous three months. Still during the same period, the non-mining GDP increased by 7.2 percent compared to 5.7 percent registered in the same quarter of 2016.

At the same time, capital markets figures from the Botswana Stock Exchange (BSE) shows that the Domestic Company Index (DCI) continued its downward trajectory since the beginning of this year.

During the year-to-end-of-March, the DCI depreciated by 3.1 percent compared to a 1.9 percent decrease realized during the same period in 2017. On the other hand, the Foreign Company Index (FCI) registered a marginal depreciation of 0.05 percent in Quarter 1 of 2018 relative to a decrease of 0.2 percent over the same period in 2017.

Despite the downward movement at capital markets in the first quarter of 2018, which also marked the last days of Masisi’s predecessor – Ian Khama in office, Juma opines that new presidency is likely to spur economic growth.

“It is not surprising that his presidency has been well received and is expected to bode very well for the markets and the economy in general, particularly with respect to areas such as job creation, economic growth and diversification”, says Juma.

He however also note that some sectors of the business community are sceptical that Masisi

may not move very far from Khama's socialist policies, especially ahead of the 2019 general elections.

Amongst other things, Masisi intends to prioritise the implementation of a combination of strategies required to stimulate accelerated economic growth. These practical and realistic strategies, he says will be implemented as a matter of urgency.

“As you all know, Botswana faces a myriad of challenges such as unemployment, poverty, crime, HIV and AIDS, alcohol and drug abuse, amongst others. Therefore, one of my top priorities as the President of this country will be to address the problem of unemployment especially amongst the young people who constitute the majority of our population. The young people, who make 60% of the population of this country, are the future leaders and therefore investing in them is building the bridge to the future”, reads part of the President’s maiden speech.

His speech was made hardly a few weeks after the United Nations’s reproductive health and rights agency – United Nations Population Fund (UNFPA) said that Botswana does not have the luxury of long-term planning to maximise its first demographic dividend.

Entitled “Opportunities and Policy actions to maximise the demographic dividend in Botswana”, the study was carried in conjunction with the African Institute for Development Policy (AFIDEP) supported by the Development Policy Research Unit (DPRU) of the University of Cape Town and national consultants from the University of Botswana (UB).

The Demographic Dividend refers to the temporary economic benefit that can arise from a significant increase in the ratio of working-age adults relative to young dependents that result from fertility decline.

As part of their recommendations, the economic think tanks who compiled the report cautioned Botswana government and all development actors “to act with urgency and implement game-changer interventions”.

The UNFPA report, which was launched in the capital Gaborone in mid March 2018 state that interventions will enable Botswana to take full advantage of the demographic dividend to achieve its long-term development aspirations as articulated in Vision 2036 to become a fully modernised high-income country.

In his speech, Masisi also made reference to the demographic dividend admitting that its realisation is of paramount and strategic importance since the success of the youth is the only guarantee of the long term economic prospects for Botswana.

“It is imperative therefore, for Government to redouble its effort to optimise the participation of our youthful population in the economy of this country”, Masisi said.

University of Botswana economic lecturer, Professor Brothers Malema says the problems of poverty, unemployment and income inequality are serious undeniable socio-economic problems starring Masisi’s government right at the face.

Malema says these problems have been there for long and Masisi shall now, as the torch bearer, be expected to do better than his predecessor in addressing them.

“These problems are compounded by Botswana’s apparent entry into the window of opportunity, often referred to as the demographic dividend.

This window of opportunity demands that for any meaningful dividends to be harnessed, the government as the major stakeholder should aggressively address the problem of unemployment particularly, youth unemployment”, says Malema.

Malema adds that failure to harness the dividend fully will usher the current working population into a state of lack and poverty, both in their working and old ages.

FAILURE TO DIVERSIFY

As part of correcting his predecessor’s misalignment of the economy, Masisi needs to help the country shift away from dependence on minerals, precisely diamonds income.

Diversification has been a challenge for the country. Past administration have failed to wean the economy off diamonds, consequently the private sector has been largely dependent on government expenditure as government is dependent on mining revenues. As seen in the last two years of Khama administration, a slowdown in the economy resulted in subdued business activities and widespread retrenchments. In the last two years the private sector has bleed more than 10,000 jobs.

Masisi admitted in his maiden speech that the government’s Economic Diversification Drive will give Batswana an opportunity to set up industries to empower themselves and, in turn, to create the much needed employment.

“In order to give concrete effect to our economic diversification aspirations, Government will prioritise the implementation of Cluster Development across various sectors, particularly the prioritized sectors of diamond beneficiation, tourism, beef, mining and financial services”, says Masisi.

He also adds that his government will also expedite the implementation of the Special Economic Zones which will contribute immensely to the socio economic development of the country.