Thursday, June 4, 2020

Economy after Covid-19, a big test for the policy makers

The global slowdown in demand and increased trade restrictions in light of the Covid-19 pandemic is expected to have profound impact on Botswana’s economy, particularly on the main revenue streams being the diamond and tourism industries which have already shown signs of staggering. 

The country has enjoyed strong and stable growth since independence with sizeable fiscal buffers and prudent policies playing a key role in shielding the economy, despite diamond market weakness and volatility. Today the economy is tested by the Covid-19 pandemic which has left many economies in dismay and are struggling to contain its spread. No one at this point knows when shall this invisible monster disappear and have economies return to normal again, should there ever be ‘return to normal.’

With the diamond industry still an important driver of growth and single largest contributor to government coffers accounting to 80 percent of expert earnings, the expected reduction in activity is estimated to result in a 1.2 percent growth contraction in 2020. Growth is expected to stabilise at just over 4 percent by 2022 as global demand recovers. 

Unfortunately, for Botswana like almost all countries in the world has to re-budget, as all current revenue sources are negatively impacted, whether its diamond, Southern African Customs Union revenues (SACU), tourism, financial services or taxes amongst other income channels. 

Checking out the few scenarios on the ground already just to mention a few; tourism activities and bookings have since been cancelled, DeBeers sightholdings suspended and production reduced. Earlier this year Finance and Economic Development Minister, Dr Thapelo Matsheka set a P44.4billion as a minimum that Botswana Unified Revenue Services could collect in the 2020/21 financial year to end budget deficits and boost government revenue. This has now turned into a fading dream, all due to Covid-19. 

 The government has since deferred tax payments to afflicted taxpayers that have an annual turnover of less than P250 million. As this may be seen as a positive move to relief the burden on the affected businesses and individuals, this will put pressure on the country’s dwindling projected revenue. Dr Matsheka has since revised Botswana’s forecasted revenue for the 2020/21 financial year from P62.4 billion to P48.8 billion.

The revision was on the basis that minerals royalties and taxes are estimated to also register a decline from the projected P20 billion to P12 billion, while the value added tax (VAT) which was anticipated to increase to P8.6 billion has been revised to P7.6 billion. Though the non-mineral income tax, which is made up of individual and corporate taxes, was expected to increase by 7.6 percent to P14.2 billion, this is unlikely to be. Besides the tax deferment, companies are expected to register lower earnings, resulting in decreased tax liabilities.

Given these turn out of events, it is now the test of time for policy makers to give its citizens hope of how to recover the economies after Covid-19 life. 

The business community strongly believes that, it is high time Botswana has refocuses and invests in areas where its strength lies. Trying to compete with one of Africa’s powerhouses, South Africa on manufacturing may proof futile, hence it is a must to look at the resources available that are exported as raw materials like soda ash. These could deliberately be converted into end products and seek markets at the continental free trade area, products like fertilizer, windscreen, glass, salt, etc. 

The President of the business community, Business Botswana, Gobusamang Keebine strongly advises that, the coal to gas project must be expedited so there’s self sufficiency and export potential as finished product. Keebine says in short, Public Private Partnerships (PPPs) and the processing of the country raw material, some of the productions can be undertaken immediately. “The country, not government must identify those areas with potential to turn around quick and these will be dependent on the global value chains of markets, brands and end sales, in short global demand. We need to attract entities/brands such as KOO to setup production plants here to manufacture tomato sauce, tomato purity amongst others; but for this to happen we must see farmers producing tons of tomatoes,” the Business Botswana President strongly advices. 

Botswana has for long been praising diversification, which has never been an easy road and this is the time to see farming at a commercial level being undertaken. 

Today Botswana’s need of mealie meal is 125tons per annually, but this landlocked country produce 10tons only; potatoes, the country produce 10 percent of it’s current requirements. Clearly this calls for a deliberate shift to up this production to meet the demand. 

In this regard, Keebine recommends that, land, irrigation, greenhouses, experts in farming must be brought into the country with a deliberate purpose of ensuring these targets are met. Government’s role being that all that’s needed to ramp up production is availed, being land, loan facility guarantees, agric experts and others. On the other hand private sector should be seen to undertake the process and clearly pay taxes, payback loans, ensure employment is ramped up. 

In his view these can be undertaken in the shortest time possible and negate the calamity facing the country. 

Keebine further urges the Government to stop seeing itself as business, “it must get out of trying to develop Lobatse Leather Park for example. Leave the beef industry to private sector and collect taxes, sharpen labour and employment laws to ensure Batswana fairly benefit from their labour.”

All expectations will be on Dr Matsheka to be the driver in making the economy look vibrant again, supported by other key portfolio Ministries.

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