Monday, October 26, 2020

A budget to look for under Masisi

BY PORTIA NKANI

In his maiden Sate of the Nation Address (SONA) late last year, the President Mokgweetsi Masisi made it clear that transformative adjustments in government developmental planning will be effected during the midterm review of the National Development Plan 11 (NDP 11).

NDP 11 runs from 2017-2023 thus due for midterm review this coming financial year ÔÇô 2019/2020.

At the same time, The 2018/2019 which was the second financial year in the implementation of NDP focused on the broad strategic intervention areas of: promoting growth and economic diversification; investing in human capital for building an inclusive society; and maintaining a sustainable fiscal policy.

Addressing these areas through the 2018/2019 government budget was expected to contribute to improved domestic environment for private sector investment, resulting in economic growth and creation of employment opportunities.

Technocrats have made it clear that Botswana has opted to step up measures to manage and control government expenditures as opposed to spending more.

This also means the Masisi led government has no option but to intensify efforts to increase collections of revenues from existing sources as well as identifying new sources during the 2019/2020 financial year which kick-start in April, six before the country’s general elections.

Between financial years 1988/1989 to 2017/18, there has been a notable change in the composition of Botswana`s gross domestic product.

This is characterised by growth in various non-mining sectors such as: finance, business & services; trade, hotels & restaurants and transport & communications.

These sectors are contributing significantly to value addition, while the contribution by the mining sector has declined from over 50 percent in 1988/1989 to over 20 percent today.

Diversification efforts away from minerals

Despite the structural transformation in the value addition, the country continues to be heavily dependent on exports and revenues from diamonds.

There is need to diversify the country’s exports, which have remained the same and largely dominated by diamonds.

It is for this reason that, the development of diversified sources of economic growth and revenue was identified as one of the priority areas to be pursued during NDP 11.

Hence, besides consolidating on achievements made on structural economic transformation, export diversification should be the main objective going forward.

Recently a local economist, Dr Keith Jefferis, shared the same sentiments but, he overly-emphasized that government needs to pay much more attention on supporting local exporters and less attention paid to substituting for imports.

By so doing, this will help bring the country on track to beat the employment creation and diversification efforts which continue to torment the government in realizing its attempt.

Other critical inputs such as land servicing as well as residence and work permits have of late received attention as basic requirements for business operation.

Dr Jefferis said government also needs to do more to improve the quality of policy making, and ensure that it is based on evidence, high quality data, and analysis of potential impacts. “Finally, government needs to dramatically improve its own efficiency with regard to administration, implementation and the delivery of public services.”

 

Policy environment and investment attraction

The new administration has been making improvements to the policy environment from a business and growth perspective.

This can be attested by the recent Econsult economic review paper that the availability of work permits for foreign investors and skilled workers has greatly improved.

Additionally, President Masisi has been making determined efforts to engage with the domestic and international business community to boost investment.

A range of business environment reforms have been promised, including deregulation and improved co-ordination between different government departments, even though they still require amendments.

Employment creation: Gov’t vs Private sector

Government in the past has been preaching the line that it is working tirelessly to create jobs particularly for the youth.

Many programmes under the 10-year period under Khama’s administration have been formed as a way to create jobs and alleviate poverty.

Ipelegeng, Backyard gardens and Tirelo Sechaba were seen as pet projects that did not provide meaningful long-term solution.

It later turned out in the years that follows that the government now shifted the goal posts and indicated that the private sector should be the one creating jobs.

As it stands government can only provide a conducive environment to facilitate such. But have we seen those job creations? This has not happened; instead it has been a frustrating journey in the private sector almost for the entire ten years.

With the stringent rules on visas and work permits under the Khama administration, some investors were unfortunate not to get their papers renewed and closed shop.

Some who could have considered investing in Botswana looked elsewhere for investment opportunities. The foreign direct investment (FDI) deteriorated. Mass retrenchments were realized in the private sector leaving many going back to the streets to put bread on the table.

Among the strategies meant to be pursued during the 2017/2018 financial year to promote diversified and export led growth, included provision of basic infrastructure such as; ICT, electricity, and water supply, which are critical enablers for setting up a business.

Expectations on the Monday budget delivery

It is important to first consider the economic landscape in which the 2019/20 national budget is prepared.  Economic growth for 2018 will be reported as significantly stronger at 4.4 percent vs. 2.9 percent in 2017, as data already show that cumulative growth in the first 9 months of 2018 was 4.6 percent year on year.

The growth forecasts have been revised down growth forecasts for 2019 from 4.1 percent to 3.9 percent, as global demand for diamonds is likely to be challenged by ongoing trade disputes between the US and China which remain the largest consumers of diamonds).

Additionally, an Anglo American study shows that historically a stronger USD negatively affects global jewellery demand particularly from China, India and Japan.

Therefore, the non-mining sector will have to accelerate at a significant pace if economic prospects are to brighten.

Barclays Botswana Economist Naledi Madala says achieving national priorities such as developing diversified sources of growth and human capital development requires continued investment in infrastructure.

The NDP 11 focuses on increasing capital spending and supporting public private partnerships (PPP) into energy infrastructure investment.

The government also increased capital expenditures in the budget for FY2018/19 in order to provide funding for several infrastructure projects. Madala added, “we can expect to see a similar trend in the 2019/20 budget.”

In terms of the ministerial allocations, the Barclays economist expects the Ministry of Basic Education and Ministry of Health to be allocated the highest recurrent budget while the Ministry of Land Management, Water and Sanitation Services and the Ministry of Mineral Resources, Green Technology and Energy Security to be among leading ministries with developmental budgets.

To facilitate efficiency and effectiveness of the education system, which is instrumental in driving human capital development, there has been a separation of ministerial portfolios resulting in the creation of two Ministries of: Basic Education; and Tertiary Education, Research, Science and Technology.

Meanwhile, government last year indicated that public debt ÔÇô both domestic and external – remains modest within the statutory limit of 40 percent of GDP.

President Masisi administration will have to strive to live within the limit means by producing a budget that is affordable and sustainable, yet responsive to people’s needs.

The 2019 Budget Strategy Paper envisages a six percent increase in total government spending in 2019/20, well ahead of inflation.

There is also a possibility of a substantial pay increase for public sector employees, although it is difficult to see how this can be accommodated within a sustainable budget framework.

Salary negotiations between the government and the trade unions have been taking place in the recent weeks, despite the delay tactics on the government side to resuscitate the bargaining council.

To this end, the Ministry is considering proposals by the Taxation Review Committee of how to diversify the government revenue base.

These proposals include; adjusting various taxes, levies, permits and licences and reviewing some tax expenditures such as VAT exemptions. Matambo is expected to make pronouncements in this regard on Monday.

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