Standard Chartered Bank warned this week that Botswana’s full year Gross Domestic Product (GDP) growth is under threat as the non mining sector could contract owing to the public sector strike.
The bank’s Regional Head of Research Africa, Razia Khan, supported BOCCIM that some small, medium-sized and micro enterprises (SMMEs) face closure if the stand-off that was still on at time of going to press on Friday continues.
“With much of the private sector dependent on government spending, delays in government orders as a result of the strike have had a wider impact. Private-sector firms are also downsizing and implementing cost-cutting measures,” the London based analyst said.
“An outright q/q contraction in non-mining GDP now looks plausible in Q2-2011, putting at risk our full-year GDP growth forecast of 4.9 percent ÔÇô despite an overall increase in government spending and a healthy rebound in diamond sales,” she added.
The financial services and retail sectors are expected to be the mostly hit with a number of banks seeing defaults in loan repayments and car repossessions.
Government has implemented a ‘no work, no pay’ policy, but the decision is having a toll on the economy since civil servants contribute a large share of worker purchasing power.
“Unions, unable to pay their members, want the ‘no work, no pay’ rule to be set aside, as it has directly affected striking workers’ spending, with reports of late payments of rents and utility bills and difficulties in servicing personal loans. Retail sales are down sharply,” revealed Khan.
The likely quarterly contraction in the GDP will dent the country’s economic recovery, which has been promising buoyed by positive diamond sales.
Although having not yet reaching their pre-crisis peaks, worldwide polished diamond sales increased 8 percent y/y in 2010 and were up 7 percent in the US, which is the largest market.
In India and China, sales increased 37 percent and 26 percent y/y, respectively.
In the first quarter of this year, the country’s diamond exports netted over US $ 1 billion (about P 7 billion), which is the highest figure ever achieved during January- March since records began in 2001.
Standard Chartered is not the only institution that has warmed on the ramifications from the enforcement of Section 41 (3) of the Trade and Dispute Act that gives the employer the power not to pay employees for undone job.
Chief Executive Officer of Stockbrokers Botswana, Geoffrey Bakwena, has said the move would lead to high default rates.
“If government was to enforce a ‘no work no pay’ principle, there would be a big problem because families that have been living on two salaries would most probably be left with one cheque, 30 percent of which going to servicing of loans and mortgages,” said Bakwena.
“The situation would be chaotic because they would be a rush on the banks as people withdraw everything before stop orders’ due dates,” he added.
By Friday, the union membership was defiant of their leadership that has proposed that the strike be called off to allow new strategies to be put in place.