This class of the population is generally perceived to be the ‘secret sauce’ for economic and social development for many countries due to its contribution to tax revenue. For Botswana, the importance of creating middle-class jobs is particularly crucial given that the days of mineral based revenue has gone past its sell-by date. The country’s central bank says the contribution of mining sector to employment is relatively low and decreasing. At the same the difficulty of getting jobs outside mining sector, the low pay if one manages to get work, and the job insecurity that the productive populace is facing comes out as a ready recipe to the government’s revenue collection headache. Add all these to the Covid-induced recession – the end result is a shrinking economy at a rate of -7.9% (2020).
This week at the launch of the Bank of Botswana (BoB) annual report the Director of Financial Markets Department – Lesego Moseki said that due to Covid-19, Botswana’s diamond revenues are likely to be subdued, placing more strain on the level of the country’s foreign reserves.
The latest BoB statement of financial position for the month of March 2021 shows that the reserves declined for two straight months, in another sign that the road to economic recovery will be much steeper as long as the diamond industry remains in limbo.
Botswana’s foreign reserves are made up of the liquidity portfolio, the Pula Fund, and the International Monetary Fund (IMF) reserves.
The funds that can be withdrawn and used by the government are held through the Government Investment Account (GIA) – part of the Pula Fund established some 27 years ago as a long-term investment portfolio. At the time of establishment, the fund was to be used to preserve part of the income from diamond exports for future use.
This past week, Bank of Botswana’s Moseki said that, “Prudential measures may be required to preserve the Pula Fund”
Pushing against the envelope
Away from the foreign reserves, the central bank says the country needs to grow a vibrant middle-class. The bank governor – Moses Pelaelo says it is early days to provide conclusive empirical evidence on the extent of the damage done by COVID-19 pandemic on the local economy.
He however admits that, “Botswana’s economy is at a critical juncture where mineral led and public sector-led growth model can no longer generate sufficient growth, at least an average of 8 percent per annum over the next 15 years, to address the current development imperatives”.
According to the ‘perception on wellbeing’ stats brief published by Statistics Botswana recently, atleast 51.2 percent of the households’ in Botswana rate themselves as middle class followed by those who rate themselves as poor at 33.9 percent and very poor at 13.4 percent.
With only 0.9 percent of Botswana households rating themselves as “rich”, the country surely has a long way to move away from the state of paycheck-to-paycheck economy.
But what will pick the “Not-Quite-Right” economy…?
The central bank is convinced that in order to become a high-income country by 2036, Botswana needs to create more middle-class jobs. Labour market numbers however have sent an early warning that it is heading into a state of paralysis. The latest official data depicts an increase in the number of people eligible to work while at the same time the economy is adding jobs at a snail pace. A Statistics Botswana’s survey that seeks to capture the impact of COVID-19 on jobs and businesses in Botswana estimate that the total number of persons who lost jobs or businesses due to COVID-19 in 2020 reached 67,132 while those who gained employment because of COVID-19 was 19,112.
The jobs trend goes against what the central bank suggests as a way out of the upper middle-income trap. Its governor told financial journalists and cabinet over the past week that the importance of creating middle-class jobs is particularly crucial for Botswana given that, “The country needs to grow a vibrant middle-class; and have more tax-paying citizens by investing more on innovation, empowerment and home ownership”.
Pelaelo said that with respect to Botswana’s Vision 2036 aspirations, notably to achieve high-income status and inclusive diversified growth, a sustained focus on structural and economic transformation remains necessary.
“The country will need to continue to upscale investment on digital infrastructure to improve availability and affordability of IT equipment, internet and development of a critical mass of digital skills”.
But as the country’s tailwind of favourable economic demography wane, it is becoming clear that the middle class should play a critical role in its economic jumpstarting. At the same time, there are clear signs that the so-called consuming class is however facing an unprecedented economic crisis.