Monday, July 6, 2020

ESP had no impact on growth of economy whatsoever

The verdict on whether the local economy is regressing or progressing is not yet out. 

It is to be determined by the stimulus programmes by government in an attempt to inject life back into the economy but the approach adopted seems follow a populist approach in contrast to one with real potential and impetus to creating conditions necessary for economic growth.     

The concept of populism contains as part of its ideology the premise that the political approach is primarily concerned with appeasing voters with little consideration to key factors that ignite sustainable growth. 

The spending trend in the local economy by government suggests that the country has aligned itself with this approach as indicated by an absence of a more pragmatic way that weighs in on the factors that influence growth. 

One might say that this populist mindset is indicated by the manner in which government continues to inject money into the economy with a seemingly lack of discipline in attaining real value for the funds spent. 

When the economy was imploding on the face of the low commodity prices the government launched the Economic Stimulus Programme (ESP). 

ESP was introduced to move the economy from its lethargic state to an increased productive activity that would cause spill-over effects into economy. The benefit of ESP has in some parts being outlined in media reports as pushing though the completion of government projects that had been stuck in backlog. 

Such projects included construction of internal roads, of teachers’ housing, of classrooms, upgrade of clinics and hospitals and maintenance of buildings to mention but a few. 

The significance of the projects cannot be understated but it appears that their spending has not resulted in multiplier effects as it would have been expected. The paucity of economic expansion from the targeted government spending means that the completion of the projects is limited to improved service delivery but with little impact on the growth of the economy. 

The total budget spent on ESP over the two past financial years, 2015/16 and 2016/17, is estimated at P3.8 billion. The spending was targeted mainly at construction, tourism and agricultural projects. 

Cash injection from ESP was planned over a three-year period which makes the current financial year of 2017/2018 the final spending tranche, of which at present the amount remains unspecified. 

It suggests therefore that post-2017 government will take stock of the programme and determine if its intended spurring of the economy has produced desired results. 

One of the objectives set against ESP was that by injecting cash into local businesses they would in turn create jobs. President Ian Khama hailed in his 2016 presentation of the State of the Nation Address (SONA) that since inception in 2015, the economic programme had created 18 867 jobs out of which 8 718 (47 percent) are held by young people. 

The stated figure was not mentioned in context of the initial targeted number of jobs the programme was to create and economic commentators argue whether such jobs would remain post the completion of projects.      

In the same month that the President gave an update of ESP another stimulus programme was introduced by government which is targeted at all 57 constituencies across the country each with a spending budget of P10 million. 

This puts the total budget at P570 million and unlike ESP it was not spread over an extended time period and will only focus on the current financial year. 

The constituency level programme is dubbed a development fund and is said to have been designed with the key objective of stimulating economic activity and hence improve the livelihoods of people in their living areas. 

Each constituency is expected to decide on which projects are most relevant to their development, and is therefore considered a bottom-up approach. It was announced that the programme will run parallel to ESP and the National Development Plan (NDP 11).  

Another particular observation to note is that although government spending is evident through the existing stimulus programmes, Bank of Botswana cited in its February monetary committee review, a lower increase in government spending. 

This means that government has a limited spending power which may prove to be difficult to extend into the economy in the future as it is currently doing. 

The review also observes a restricted economic output which defeats the impact of the stimulus programmes.  

“Projections indicate that domestic non-mining output will be below trend in the medium term, influenced mainly by the restrained growth in personal incomes, lower rate of increase in government expenditure, sluggish recovery of the mining sector as well as modest economic growth in major trading partners,” it says.

Economic commentators argue that real economic growth will come from bolstering confidence into business firms of which is not limited to short term cash booster but motivates them to make investment decisions that carry a long term approach. 

The real impact, according to their analysis, will come from sustained participation in the economy as opposed to relying on a limited spending power.      

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