Thursday, August 6, 2020

China’s worsening economy leaves Africa in a lurch

Two years ago, China made undertakings to finance Africa by up to $65 billion.Many of the projects were part of the much-vaunted Belt and the Road Initiative.To this date the money has still not been released.Projects have still not been undertaken.And costs are growing.Now with covid-19, it looks like China, by all intents and purposes will go back on its word.To be fair China like the rest of the world has been affected by coronavirus.The country has registered the worst economic contraction in decades.

For Africa it is now every man for himself.Wake up Africa, you are on your own.To prop the stagnant and even sluggish economy, government might have to postpone efforts to reduce budget deficit and instead spend more, especially on infrastructure.Botswana’s infrastructure needs to be revamped. There is need for new infrastructure as well as for maintenance of existing one.That bill would no doubt run into billions.Managing the economy post covid-19 is going to require pragmatism.Botswana got to where it is today on account of discreet frugality.But covid-19 might just have restored Botswana to pre-independence poverty levels.If those in power get things wrong, the economy might easily spiral out of control.

Any such mishap would thereafter mean that recovery would be painful and much longer to achieve after the pandemic.Botswana’s foreign reserves have always provided a buffer against any shocks – regional or international, including against price increases and or sudden changes in exchange rates.We entered covid-19 with those reserves badly depleted.Before and after covid-19 any excessive use of reserves could prove catastrophic.In short, it can only be destabilizing.First because replenishing them is never easy, especially in today’s economic climate.But also because there are numerous competing needs some of which will with time prove more critical that a self-inflicted and indulgent minimum wage.

Botswana’s economy remains vulnerable; firstly, because it is not diversified.A near absolute reliance on diamonds is this economy’s its Achilles Heel.And secondly because the market for those diamonds is again intricately reliant on the global economy recovering after covid19.The outlook is generally not positive, especially against the backdrop of finger pointing dispute between the United States and China over who is to blame for covid-19.

There are indications that the dispute might take a turn for the worse.As we know there is a tight limit of how far Botswana Government can go in using public spending to boost the economy.Resources are very limited.They would be even more lifted on the other side of covid-19.This would force Botswana Government to devise new ways to finance the deficit that is now hovering around P20 billion.SACU (Southern African Customs Union) revenue and also the country’s tax base will be badly lower in this financial year.

Even in good times, none of them come anywhere close to being substitutes to diamonds anyway.But still life must go on.Botswana will need help to restart its economy.It cannot look to China, not to Europe and certainly not to the United States.Like the rest of Africa, Botswana is yet to calculate the costs of coronavirus.Yet the picture already emerging is that of near insurmountable problems.Africa will bear the biggest costs from the pandemic induced damages.

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Sunday Standard August 2 – 8

Digital copy of Sunday Standard issue of August 2 - 8, 2020.