Saturday, September 25, 2021

Khama’s economic challenge

Ian Khama ascended to Botswana’s presidency on April 1, 2008, taking over from Festus Mogae on account of the automatic succession constitutional provision. He inherited a growing and thriving economy, without signs of a looming global economic recession.

Stock market performance

The All Companies Index, comprising the Domestic Companies Index (DCI) and the Foreign Companies Index (FCI) at the Botswana Stock Exchange (BSE), stood at 8,129 points in March 2008. In the five year period of Khama’s rule (to December 2012) it has declined by 7.6 percent to 7,510 points.

The DCI closed the year 2012 at 7,510.25 points, an increase of 7.7 percent compared to a growth of 8.7 percent in 2011. This was the first time in the past five years that the DCI has registered a positive growth for two consecutive years signaling a possible index rebound to the effects of the financial crisis.

The appreciation in the DCI in 2012 is attributable to the growth in the index throughout the four quarters in 2012. The local bourse DCI increased by 6.7 percent from 2008 to 2012.

According to Dr Keith Jefferis, the decline of 7.6 percent in the local bourse in the five years has to be understood in the context of the All Stock Markets Index that also declined by seven percent in the period as a result of the global financial crisis. 

Dr Jefferis is quick to point out that Khama ascended to the presidency at a time when there was a global mess as emerging markets stock index also declined by five percent in the five year period under review.

The performance of the BSE is comparable with the rest in the world. When Khama took the baton, the financial crisis was unfolding and most of the stock markets in the world were being affected.

Dr Jefferis says although the BSE has not grown strongly, it stood out strongly during the financial crisis.

Real Gross Domestic Product (GDP) growth

In 2008 real GDP totalled P6.67 billion at 2006 prices and grew to P7.17 billion in 2011, representing an increase of 7.6 percent.

Dr Jefferis noted that the GDP went down in 2008 to 2009 because of the global financial crisis. It however recovered in the last quarter of 2010 signaling full two years of no growth. Growth however resumed in 2011.

As for 2012, Dr Jefferis predicts substantial growth although the figures have not yet been finalized. “We were hit by the global financial crisis like all other countries but the impact was short lived. Some countries have not yet recovered like the United Kingdom”, said Dr Jefferis.

In this regard, he thinks Botswana has not done badly although a lot still has to be done in terms of economic diversification in order to cushion the economy from external shocks affecting the diamond markets.

Real GDP per capita

Dr Jefferis says there is a problem because the numbers published by Statistics Botswana are wrong. However, according to his own calculation, real GDP per capita in 2008 was P34 693 at 2006 prices. It however grew to P35 226 in 2011, representing a small growth of 1.5 percent.
He said it is the same story with the GDP reckoning that the growth was minimal although it is forecast to be bigger in 2012.

“On average the real incomes have grown up slightly. We forecast 2012 to make a big difference. My guess is a four percent growth in 2012. Overall in the five year period (08/13) the real per capita would have grown between five and six percent”, said Dr Jefferis adding that the quality of life improved on average.

In conclusion, Dr Jefferis maintains that the growth is in line with other countries of the world and Botswana has not fared badly in that respect.

Inflation

In March 2008, year-on-year inflation stood at 9.9 percent and after that it went up to double digits before gradually climbing down. Simply put, Khama inherited high inflation when he ascended to the presidency.

However, by December 2012, inflation had dropped to 7.4 percent and according to Jefferis that is good news for the economy. He quickly posits that the central bank has been able to contain inflation by maintaining a stable bank rate at 9.5 percent for most part of the five year period under Khama’s five year term.

As for the cost of living, it went up in the period under review. In 2008 the Consumer Price Index (CPI) stood at 112.1 and had grown to 164.9 by December 2012. The price levels went up by 47 percent in the five year period. The effect is actually what happened to one’s disposal income in the period, that is, whether it dwindled in increased. If the salaries have not been increasing against the rising cost of living, then the standards of living were negatively impacted.

Dr Jefferis’s interpretation is that the statistics show that this has been a difficult period characterized by┬ástagnant civil service salaries. Although public service salaries have not been increasing, Dr Jefferis said it is not clear whether the same applied in the private sector as there is no available data on private sector salaries.

Diversification

There is probably good news here. The rate of economic diversification is not easy to measure according. In 2008 the share of value added by the non-mining private sector was 58 percent. In 2011 the share had grown to 67 percent indicating some positive strides in terms of economic diversification had been made. “The increase means the economy has become more diversified. The figures are satisfactory,” says Dr Jefferis.

“We need to diversify the economy and exports because we are an export led economy. We need new sources of export growth away from diamonds,” he emphasises, adding that whereas the diversification of the GDP is satisfactory, the diversification of exports is not.

This view is supported by the Minister of Finance and Development Planning Kenneth Matambo in his 2013 budget┬áas he says given uncertainties surrounding the mining sector, particularly the diamond industry, and the fact that there has been growth in the non-mining sector, “it is important that the potential of the non-mining sector be developed”.

Employment

This is one area where there is no new data. The 2009/10 Botswana Core Welfare Indicator (BCWI) survey released in December 2011 estimated an overall unemployment rate of 17.8 percent of the total labour force, which was up by 0.3 percent to the last reported 17.5 percent reported in the 2005/06 Labour Force Survey.

Dr Jefferis says the rate of employment over the five year period under review is quite low as formal sector employment stood at 308 648 in March 2008. It marginally grew to 335 648 by June 2011 indicating that only 8 000 jobs were created on average in a year.

“This number is relatively small compared to the number of people joining the labour force each year. What this country needs is up to 20 000 jobs per annum. The number of jobs created is in adequate,” says Dr Jefferis.

The employment problem is compounded by the fact that many graduates are not being absorbed by the job market.

The major challenge faced by the youth is that the job market is saturated making it impossible for them to be absorbed in the labour market.

“Thus, it is more important now than before, to redirect and re-orient employment policies and training programmes by ensuring that the existing employment and incomes policies are cohesive and supportive of the overall government goal of economic diversification and private sector growth, initiatives that will contribute to creation of more employment opportunities,” states the Ministry of Finance’s first quarter 2012 Economic Bulletin.

On the overall, despite the difficult global economic conditions, Botswana has not fared badly although there are a lot of challenges that still need to be surmounted.

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