Botswana has been urged to look at ways of diversifying its revenues streams as the current arrangements are risky and present future challenges for the economy that has been driven largely by diamonds for many years.
The call comes at a time when the minerals sector is no longer the largest source of fiscal revenues as it has been replaced by windfall from South African Customs Union (SACU).
A conference organised by the Botswana Institute of Development Policy Analysis (BIDPA), the country’s economic think tank in collaboration with University of Botswana’s Department of Economics and Friedrich-Ebert-Stiftung was told SACU revenue sharing ‘formula need drastic reform’.
A Senior Research Fellow at BIDPA, Professor Roman Grynberg, said there is need for reforms to allow for development component.
“The biggest risk to Botswana is SACU not diamonds as the Ministry of Minerals can project what will happen to diamonds,” Grynberg told the conference.
According to the budget speech of 2014, the projected total revenue and grants for 2014/15 amount to P50.18 billion. This comprised Customs and Excise at P15.97 billion or 31.8 percent; Non-Mineral Revenues (Income Tax and VAT) at P15.66 billion or 31.2 percent; and Mineral Revenue at P15.24 billion or 30.4 percent.
The proposed budget indicates that all the three major sources of revenues registered significant growth over the revised budget of 2013/14: Customs and Excise increased by 14.3 percent; Mineral Revenue by 13 percent; and Non-Mineral Revenue by 11.1 percent.
A further breakdown of the growth in Non-Mineral Revenue reveals that Income Tax and Value Added Tax are expected to grow by 6.7 percent and 19.5 percent, respectively, over the 2013/14 revised budget estimates.
The SACU revenue sharing model, which is being renegotiated, has changed three times.
Grynberg pointed out that all the SACU members (BLNS) are highly revenue dependent with Swaziland and Lesotho being 60-70 percent revenue dependent and customs union revenues accounting for 35 percent of Botswana’s total revenue in 2012/13, similar to Namibia.
“All the BLNS have developed a compensation mindset. SACU, rather than being about development is about revenue to compensate the country for the cost raising effect of SACU. (It) raises the question ‘why stay in an arrangement forever that you need to be compensated for?”
He suggested that the only way out is an eventual move to the destination principle with long adjustment.
“Swaziland and Lesotho are too dependent to adjust and they will need to negotiate fundamentally different political/economic arrangement.”
The other argument is that because it is based on share of intra-SACU imports, “we cannot expand SACU and we cannot deepen SADC from an FTA into a customs union. Mozambique cannot join”.
“Botswana and Namibia need to seek a ‘development agreement’ where SACU revenues are used to fund development projects. It needs a 15 year phase in. Collapse of SACU RSF could be worse than the ‘end of diamonds’,” he argued.
Botswana faces a decline in export sector as the service industry now accounts for 45 percent of the GDP, but makes only 6 percent of the exports.
Managing Director of Econsult Botswana, Dr Keith Jefferis, pointed out that minerals are no longer the largest source of fiscal revenues and there is less dependence, but he is surprised “domestic” revenues are still relatively low.
“I believe services have export potential which is not being exploited,” argued Jefferis.
Botswana’s non-diamond exports remain concentrated on five major commodities: copper-nickel matte, soda ash, meat, hides and skins, and textiles even two decades of policy initiatives seeking to boost export diversity.