Tuesday, October 20, 2020

As economic rebooting starts, Botswana faces a new reckoning

As attempts to restart the economy begin, it is important for those tasked with managing the economy to have one eye on the all available matrices.A crisis is Botswana’s our way. If not properly managed it would turn a once thriving economy into a rubble of waste. Long before the pandemic set in, Botswana was already struggling in different economic fronts.

Household debt had ballooned to unmanageable levels. Corporate credit was also weighing down on businesses. At a government level, things were not going any smoother.Many development projects had been set aside. Government was grappling with a ballooning budget deficit. And many projects were lagging behind after China postponed honouring its promise to release a suit of grants and loans it had pledged almost three years ago. Indebtedness is on the rise. And the China credit is much more uncertain than ever.

The story of China reticence on releasing money mirrors what Botswana and Africa can expect across former economic partners. United Kingdom has closed International Aid office. America is as inward looking as it ever has been.Unemployment, especially among the youth is at runaway levels.More jobs in the private sector are under threat as businesses trim down.,Getting diamonds off the ground was already an expensive undertaking long before coronavirus, thus significantly raising operation costs and eating on profits.If there is anything positive that can be mentioned it is that Botswana Government has as yet not reached its legislated threshold of debt as a ratio to GDP.But still that offers little solace when looked against the bloodbath that has recently happened across the economy.

The economy of Botswana has literally been non-functional since March when a lockdown started.Diamond sales immediately ceased. And to Botswana’s economy diamonds are like a drug to an addict. Without diamonds. The fact that Debswana diamonds have not been selling for a while will with time prove a painful sting in the tail.The private sector has been routed by the lockdown.Commercial Banks are likely to bear the brunt from impairments. Foreclosures of houses are likely to go wild.The informal sector is no doubt the hardest hit. Tourism is all but in a coma.A lot will depend on how soon the economy opens. Freak disruptions like the lockdown last week spell more long-term gloom.The situation has been further compounded by the fact that no relief was deployed to cushion the sector.

In short, Botswana’s economy was not designed to withstand the kinds of shocks it finds itself up against. Authorities have for too long postponed and procrastinated on key decisions that would have changed the structure of the economy. Privatisation for example has only existed on paper. This despite creating and financing the privatization agency PEEPA.

Whichever side one looks, confidence is at its lowest. High up the list of priorities of businesses is not to spend money on new investments and ventures, but rather to hoard cash. This is because there is no clarity on what the future holds. And that further delays recovery, creating a vicious cycle.One misstep step in the way to recovery might spell an economic disaster for the country.The losses and also the road to recovery will be made all the more difficult by a number of issues, chief of which is lack of economic diversification.Botswana’s economy remains predominantly government controlled.The size of the public service has for years been identified as one of the red-flags going into the future.No president has had the guts, political will or wherewithal to cut it to size.  Where it used to be nimble and agile, the public service has become an albatross around the neck of government.

It has become a handicap to progress. And it has a growing number of enemies who accuse it of the growing corruption.Its productivity levels remain too low. And its maintenance has become unsustainably costs too high.And corruption remains as ever a going concern. Whatever choices the government finally adopts as it grapples will recovery will be consequential.In a way we are back to the era immediately following independence when leaders of the time found themselves faced with stark choices – political and economic. In politics they had a choice to follow what was fashionable in southern Africa at the time like – a one-party-state. They chose a multi-party-system.On the economic front the founding father had an option of exorbitant expenditure. Instead they chose to be prudent. And it paid off.

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The Telegraph October 21

Digital edition of The Telegraph, October 21, 2020.