Friday, January 22, 2021

“Khama’s economic policies are good for our times”

These days it’s hard to pick up a newspaper without encountering stern warnings about the budget deficit and potential economic collapse, which according to the BMD spokesperson, Sidney Pilane, is a result of President Ian Khama’s economic failures and so-called populist pet projects. The deficit threatens economic recovery, and totally threatens to wipe out the miraculous economic achievements of the past 40 years we’re told. These claims generally aren’t stated as opinions; instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts. According to Advocate Pilane, major developmental projects such as the Ipelegeng programme, ISPAAD, constituency league etc, are populist and wasteful projects by the President; and hence the deficit. This is totally not true and it only serves to expose Advocate Dlodlo’s ignorance which he always covers well with insults towards the President. If this man is as intelligent as he has convinced himself, why is it that even after the creation of his Movement (Anti-Khama movement), the only thing he can offer, in terms of policy, is a document of insults leveled at the President?

Let’s talk for a moment about budget reality which Pilane and his group has absolutely no idea about. Contrary to what you often hear from this group- whose hatred for Khama, according to some, is based on his failure (if you may call it that) to give them positions in Cabinet and Government- the large deficit the government is running right now isn’t the result of runaway spending growth based on pet projects. Instead, the deficit was caused by the ongoing economic crisis, and been met ÔÇö appropriately ÔÇö with temporary measures to stimulate growth and support employment. The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do.

President Khama is not to blame for the global economic crises. What he should be praised for instead, is the sterling effort he put in digging this Country out of the worst economic meltdown in 70 years. Not a single person has been laid off either in Government or Parastatals in spite of the major collapse in Government revenues by over 50% due to the crisis. This is a historic achievement by any standard in the world. Major Infrastructural projects, which will be the drive force behind economic recovery in the long run, have not been shelved; instead the projects have been accelerated. In fact majority of these projects, such as Morupule expansion, road networks, Tlokweng bridge, dams etc, should have been undertaken 20 years or so ago.

Job losses in the private sectors have been very minimal if not negligible, as a result of the decision by Ian Khama to aggressively address these economic challenges through a stimulus programme which support the private sector given that Government is the largest consumer any good and service in the economy. Thus for Pilane to publicly say that when (not if) they take over Government- I guess this is based on hallucinations about 25 BDP MPs who are about to defect to his party- they are going to make sure that all the suspended projects are implemented, is hilarious. Not only is this Man better than Speech Madimabe when it comes to insults, he equals General Idi Amin, when it comes to Economic policy. It is obvious that this man thinks that the Government should instruct the Bank of Botswana to print more money to Fund the shelved projects, otherwise where else would he get the funds to support all this expenditure. It’s one thing to be ignorant, but to be ignorant and pompous is sickness. The message from the ‘brainy’ Pilane on economy policy is, as expected, very incoherent.

True, there is a longer-term budget problem and once the economic crisis is past, the government will have to increase its revenue and control its costs. The Government is already doing that, through the 2% increase in VAT. The 2% additional VAT was far much better than allowing the economy to collapse due to lack of funds by Government, resulting in huge job losses across the economy; this 2% generates revenues to pay for government employees, parastatals, provision of health services, education service etc. Remember what is happening with Greece!!. But more importantly the Government is encouraging long term growth by ensuring that interest rates are kept at a minimum to stimulate investment. It is a fact that, since Ian Khama took over Government, Bank of Botswana has cut interests rates by close to 500 base points. We are operating in the most investment friendly environment in 40% years. This economy is no longer so obsessed with inflation targeting.

In short, there is no alternative to strong government expenditure and job creation program such as Infrastrutural development, Ipelegeng, ISPAAD etc. To term these programs Ian Khama’s pet projects, which will not transform the lives of the poor, does not only expose these BMD critics’ shallow understanding of economics and public policy, but more seriously, it exposes their sheer bigotry toward the rural economy and the poor. But this should not come as a surprise, remember this is a small group of people led by a young man who believes that democracy and civil liberties revolve around night life and alcohol. For BMD’s information, Ipelegeng is one of the biggest stimulus program geared towards the poor. This is based on an economic concept called “the multiplier effect”. If you spend P300m per year on Ipelegeng-given that government multiplier is generally estimated at 1.5 in the short run- you expect this P300m to generate at least P450m in GDP due to the trickle down effects resulting from expenditure of P300m by Ipelegeng labourers. In fact, the impact of the ipelegeng P300m will be bigger than if you were to give the same P300m (God forbid!!!) to someone who is likely to go spend it in a liquor store in Cape Town or an advocate who may take it back to his country South Africa!!. Ipelegeng provides one of the strongest linkages with the rest of the economy. The recipients spend their money in this economy and this contributes to economic growth. Yes there is room for improvement with Ipelegeng; and one improvement should be to increase the amount of money these labourers are paid, and also the shift towards more sustainable projects such as building of village dams, brick molding, building VDC houses etc to provide them with long term skills. The alternative to Ipelegeng in most upper middle class economies, would be unemployment benefits. To say that Ipelegeng aggravates poverty is utter nonsense. Furthermore it should be appreciated that Ipelegeng is part of other social safety nets that the Government has been running for years. Even the sale of Magapu and other rural agricultural produce to primary schools is a major economic boost to the informal sector and part of the net. How else do you support communal farmers if not through providing a market for their produce?

As for the constituency league, my question will be what are the cost implications of this on the economy compared to the social welfare benefits to all those who participate in these tournaments. I think people in the urban centres, especially politicians should stop being so elitist and obnoxious towards the rural areas. What is so wrong with spending P5m or whatever in helping provide social interaction and recreation in the villages, when we spend the same amount or more on per diem and entertainment allowances from Government coffers, here in Gaborone? And what is the alternative to this form of social interaction and recreation? In any case the alcohol levy is providing enough funds which can support this project and others such as Choir competitions etc.
ISPAAD has contributed significantly to the country’s cereal produce; since ISPAAD, the total domestic output has more than doubled, and the results have not only been with self sustenance, improvement in welfare and generation of income to the rural economy, ISPAAD has more than helped reduce the trade deficit that we have been running with South Africa for centuries. Reduction in trade deficit, has a positive impact on the local currency, inflation, competitiveness and hence the attraction of investment and diversification of our economy.

The Government needs to be careful not to succumb to deficit fetishism. In any case, the government’s debt is only one side of its balance sheet. No one would assess the state of a firm by looking only at what it owes. One needs to look at the assets too. If assets increase in tandem with liabilities, then the balance sheet remains in good shape. This should help answer even those so-called economic experts who are raising alarms about government spending, and in the process confusing the already confused people such as advocate Pilane.

Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. Faster growth and returns on public investment yield higher tax revenues in the future, and such a return is more than enough to offset temporary increases in the national debt ( in our case the National debt is very low, probably the lowest in Southern Africa). A social cost-benefit analysis (taking into account impacts other than on the budget) makes such expenditures, even more attractive. Thus if money is spent on infrastructure, education, and technology, which is the case with Ian Khama’s government, the long-run productivity of the economy is increased at the same time that jobs are created today, in the short run. Numerous studies have shown that such investments can yield high returns, far higher than the government’s cost of capital.

Investments in jobs can even help reduce the deficit in the long run, hence the decision to run a deficit with a small increase in VAT, to retain jobs. Unemployed workers lose their job skills. Thus the alternative to deficit spending by Government to get the economy out of the biggest meltdown in 70 years, would have been major retrenchments across the economy. That would have put us at risk of replicating a phenomenon observed in Europe in the 80s, called hysteresis: those with extended periods of unemployment never return to the labor force, or if they do, it is in a job with vastly lower wages and productivity. Thus what this government did was to manage this crisis well, to avoid driving households into an extended period of high unemployment. What economists call the “natural unemployment rate” would have been significantly increased. And if unemployment had increased, GDP and tax revenues for years to come would be lower than they are currently projected to be, with the result that the national debt will be higher.

Most economists agree that, forecasts of economic growth suggest that in the absence of continued government support, there is risk of continued stagnation ÔÇô of growth too weak to return unemployment to normal levels anytime soon. However, if these forecasts are wrong, and there is a more robust recovery, then, of course, expenditures can be cut back. But if these forecasts are right, then a premature “exit” from deficit spending risks pushing the economy back into recession. In fact already the 2010 IMF global report, indicate that the Botswana economy is on the way to a strong recovery with a 5% growth rate projected for this year. This, according to the report, is attributable to the efforts of President Khama and his Government to pull the economy out of a recession and his resistance to exit deficit spending prematurely. As the global economy returns to growth, governments should, of course, have plans on the drawing board to raise taxes and cut expenditures.

The BMD should move away from their obsession with President Khama and develop something of a policy document rather than insults; and may I suggest that they try to focus their attention on the following issues under the current recessionary period: 

(a) What kind of spending yields high returns in the economy?
(b) What kind of spending has the largest multipliers? A situation where we can increase spending that stimulates the economy a lot, decrease other spending, and still have a stronger economy. 
(c) Are there tax increases that will not hurt output and employment, or at least not much compared to VAT? Can Government increase the progressivity of the tax structure and close some corporate tax loopholes which can, for example, raise revenue and lower the deficit, as employment increases. 
(d) Are there other ways of stimulating the economy, e.g. by eliminating some of the problems in access to credit, or inducing banks and CEDA to lend more for job creation?

(e) How can we improve the lives of the rural poor and make Botswana more food self-sufficient?
(f) How can we make the economy more competitive? And how do we address challenges of anti-competitive behavior in the economy?

The BMD is wasting so much time luxuriating on the short term Anti-Khama media attention they currently enjoy. The reality is that, one thing the last general elections taught us in this country is that, campaigning on an anti-Khama platform is very repulsive to majority of Batswana. The anti-Khama vitriolic campaigns of the 2009 general elections led to the BDP gaining an additional 77,000 votes: winning all, but one, Gaborone constituencies, taking control of Gaborone City Council for the first time since 1979, winning almost all councils in the country. Khama is very popular in this country; call him populist and continue building your party on insults and vitriolic attacks, come 2014, Batswana are going to reject you. A party based on insults, and a misguided sense of self-importance, is stillborn. Ask COPE in South Africa!!! BMD should stop being so nostalgic about the BDP and Khama, and give us alternative policies to what the current government is doing. Going on GABZ FM every other morning, and talking about how they were expelled from the BDP and insulting Khama, is not helping their case with Batswana.

*Dr Tsheko is a Senior Economics Lecturer at the University of Botswana

RELATED STORIES

Read this week's paper