Out with Khama and in with Masisi ÔÇô This is what happened on the 1st of April 2018, a day that marked an end of era as President Ian Khama paved way for his successor Mokgweetsi Masisi. As of this Sunday, Masisi became Botswana’s fifth democratic President.
The big question on everyone’s lips in Botswana’s business community is whether the retirement of Khama and accession of Masisi will pave way for better economic prospects for Botswana.
The business community has already made its economic projections which are generally positive with the country’s three biggest commercial banks, First National Bank Botswana, Barclays Bank Botswana and Standard Chartered Bank Botswana leading the chorus.
The three bank’s projections on economic prospects for 2018 and 2019 are likely guided and aligned to the central bank ÔÇô Bank of Botswana’s own forecast. In its Monetary Policy Statement released just under three months bank, the bank said it expects the domestic economy to grow by 5.3 percent during 2018
As Masisi take over, the First National Bank Botswana (FNBB) anticipates the domestic economy growth to reach 4 percent by 2019 ÔÇô with medium term of 4.1 percent. The bank says the rate is in line with the country’s long term historical average but has also incorporated the expected contribution of state owned Debswana Mining Company’s Cut 9 project.
Standard Chartered Bank Botswana (SCBB), which was the last of the top three lenders to release half/full year financials, says it is targeting the Cut 9 diamond mining project as a possible source of growth. The bank has set Botswana’s economic growth projections at 3.5 percent.
SCBB and FNBB’s counterpart, Barclays Bank Botswana (BBB) says it expects Botswana’s full year economic growth for 2017 to be significantly lower than the 4.3 percent realised in 2016.
While the three bank’s views on the short term economic prospects of Botswana are almost similar, what is more common amongst them is that they operate under economic conditions characterised by high loan impairments largely attributed to closure of mining companies and slow economic growth.
The last four years under Khama’s administration have been tough trading period for the banking industry sponsored to a larger extend by the fall out of mining companies such as state owned BCL and Tati Nickel Company.
While the incoming President has no direct control of the markets, he takes over at a time when the banking sector ÔÇô a big player in the economy is still cautious on lending and focusing mostly on recoveries and operational efficiencies.
At the same time, Masisi takes over at a time when the state of public finance and those of the state owned enterprises (SOEs) have deteriorated. At the last budget speech, given during Khama’s presidency in February 2018, the government of Botswana reported a budget deficit of P3.59 billion or 1.8 percent of GDP for the financial year 2018/2019.
In this response to this “transitional” budget speech, FNBB Market Strategist Moatlhodi says the domestic economy needs to undergo structural transformation from commodity-led to investment led. He adds that the focus has to shift from mining to other aspects such as industrialization within manufacturing sector; fast moving consumable food processing within agriculture; less filtration rates within the tourism and trade sector; real growth in investment and finance by making Botswana a regional finance hub in capital markets.
Moatlhodi says Botswana has a balanced economy. However he cautions that the country remains vulnerable to external shocks. The local economy is said to be balanced because it has high foreign exchange reserves which it is able to tap into when there’s a downturn; the debt-to-GDP levels also remain low and favourable for investment borrowing.
Here is what Masisi is also inheriting from Khama
UNEMPLOYMENT ÔÇô As recent as a month back, the country’s largest insurance group – Botswana Insurance Holdings Limited (BIHL) described joblessness as one of the key challenges that this country is facing.
BIHL Group Chief Executive Officer, Catherine Lesetedi-Letegele said various data sources indicate that the number of formally employed individuals seems to have stagnated at around 300 – 350 thousand over the past few years.
Letegele said the trend demonstrate that the economy is not able to generate new jobs, which then poses a challenge for mature businesses like BIHL.
BIHL as well as other insurance companies’ business is driven largely by the ability to attract discretionary income. The continued pressure on these incomes as such poses a challenge for future growth of not only their business but could spread to the rest of the economy.
While the failure to create sustainable jobs in the past decade by the Khama administration, – which Masisi was part of, is likely to be amongst the new president’s headaches, recent company retrenchments are likely to make things even worse. At the moment youth unemployment is estimated to be hovering over 30 percent.
Bogolo Kenewendo, a Special Elected Member of Parliament (SEMP) says the bulk of sustainable jobs can only come from the private sector. The public sector, she says is under pressure due to changing fiscal position which no longer allows the government to employ at the same pace as it did in the late 90s.
STAGNANT GDP ÔÇô The economic growth in the first three quarters of 2017, which was the last full year before Khama handed the button averaged one percent year on year. Barclays Bank of Botswana says it expect the full year growth to be significantly lower than the 4.3 percent realised in 2016. Based on the government forecasts, real GDP growth is estimated at 4.7 percent for 2017 and growth is estimated to recover further to 5.3 percent in 2018 owing to a favourable global growth outlook.
While delivering the last national budget speech under Khama, Finance and Economic development minister Kenneth Matambo stated that the domestic economic outlook remains positive, with growth rates of 4.7 percent and 5.3 percent expected in 2017 and 2018, respectively. The positive outlook for both the mining sector and non-mining sectors underpins these growth forecasts. Matambo said that the mining sector performance is expected to benefit from the recovery in the global economy, while that of non-mining sectors reflects the impact of government’s interventions in terms of policies and strategies to diversify the country’s sources of growth.
LANDLESS NATION ÔÇô While an estimated 30 percent plus of the country’s employable population is on the street job searching, Masisi is also inheriting atleast 870,096 Batswana who are waiting to be allocated a piece of land. This is close to half of the country based on the 2011 census which perked Botswana’s population at 2.2 million. Despite the outcry by Batswana regarding the need for land, and the admission previously by land minister Prince Maele that land as a factor of production and a commodity is central to the socio- economic development of the society and the economy, the allocation of it seems to have been slower than desired during the Khama-nomics years. To date, the rate of allocation at both tribal and state administration level remains slower than the snail pace, with no minimal prospect for improvement. At the same time, it was during Khama-nomics years that the property market in Botswana experienced a surge in prices due to the imbalance between property supplied by the market and existing demand. Throughout the years, supply treaded below the demand. Just like job creation, land allocation seems to have been one of songs that refused to sell during the Khama administration. It is up to Masisi to remix it or totally come up with a new single hit that would ensure that the rate of allocation at both tribal and state administration level is faster than the current snail pace.