Mmegi Online :: Ten years of Khamanomics: A review
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Tuesday 18 September 2018, 23:51 pm.
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Ten years of Khamanomics: A review

Mmegi Staff Writers, MBONGENI MGUNI & CHAKALISA DUBE look back at the performance of the economy and some of the highlights of the past decade, as President Ian Khama prepares to leave office this weekend
By Mbongeni Mguni Chakalisa Dube Fri 30 Mar 2018, 14:36 pm (GMT +2)
Mmegi Online :: Ten years of Khamanomics: A review








Many observers are agreed that President Ian Khama, for most of his presidency, preferred to “contract-out” expertise in any particular area of economic policy and be guided by those closest to the workings of the system.

The actions of fiscal and monetary authorities over the years have shown that Khama laid down an over-arching target or policy of social upliftment and then charged experts with achieving it.

This same approach saw him become one of the first known presidents to summon a select group of economists to the Office of the President for a frank discussion on solutions to the economy’s growth.

Khama would score another first by being the country’s first leader to face two recessions – one in 2009 and the other in 2015 – the latter leading to arguably his most significant economic initiative, the Economic Stimulus Programme (ESP) launched in February of the next year.

Khama’s economic policy will be remembered for buzzwords such as ESP, Ipelegeng, Economic Diversification Drive (EDD), backyard gardening, poverty alleviation, sustainable growth and others.

However, the outgoing President’s tenure will also be remembered for several high profile public project failures, the closure of the then 57-year-old BCL Mine, slow growth in jobs, particularly amongst the youth, rising inequality, crises in water and electricity as well as reported public sector corruption on a grand scale.

 

The numbers

Economic growth under Khama’s presidency averaged four percent, with a peak of 11.3% in 2013 and a low of 7.7% in 2009. Both extremes were influenced by the performance of the mining sector, particularly diamonds, reflecting the economy’s enduring sensitivity to the sector. Khama began his term with the economy at 6.2% and is exiting with a forecast of 4.7% for 2017.

In the decade since he took up the top seat, Khama saw budget balances swing from one extreme to the other, driven largely by the performance of the key mining sector and diamond exports in particular. Available data indicates that in his ten years, the budget balance peaked at a surplus of P7.2 billion 2013/14 driven by strong mining revenues and “unforeseen high diamonds sales,” in particular. The low, during that period was a P9.5 billion deficit in 2009/10 again influenced by the collapse of diamond mining as part of the global recession.

The budget numbers, however, belie public finance wastage, corruption and inefficiencies as exposed repeatedly by the Auditor General, various Parliamentary oversight committees, lawsuits and media exposes.

However, for citizens looking at Khama’s management of the economy for help, the numbers most important for them are those for jobs and inflation, the real bread and butter issues. Available figures show that between September 2008 and September 2017, the local economy added 25,242 formal sector jobs, with the biggest growth being in wholesale and retail trade. Over the same period, jobs in the mining sector shrank from 11,630 to 8,019, reflecting several large scale closures and sector-wide distress.

However, it is the growth of Khama’s social safety brainchild, Ipelegeng that has triggered fierce criticism of his jobs record. Statistics on the programme start from March 2009, showing that the programme employed 66,800 people, a number that has been kept steady over the years being measured at 67, 310 in September 2017. Critics say the seasonal, temporary employment has masked the depth of the jobs crisis, while obscuring the real unemployment rate, which government has been delighted to share has fallen from 26.2% in 2008 to 17.7% in 2016. Critically, analysts have said, the Ipelegeng programme interferes with a key question statisticians use to gauge unemployment which centres on whether respondents are looking for a job or have given up looking for a job.

In addition, even with the absence of official data around the informal sector, analysts have said the growth in formal jobs hides the fact that the informal sector is creating jobs faster than the formal, as the economy fails to absorb higher numbers of graduates. Students enrolled in tertiary institutions rose from 47,889 when Khama came into office to 60,583 in 2014/15, the last available official data, with many of those graduating and failing to find formal sector jobs.

Meanwhile, inflation has been undulating downwards throughout Khama’s presidency, starting at 12.6% in 2008 and dropping to 6.9% two years later, climbing to 7.5% in 2012, before reaching 4.4% in 2014, 2.8% in 2016 and 3.7% last year. However, analysts have noted with concern that the declining inflation rate is less a function of structural interventions in the economy, but rather weak consumer demand stemming from constrained growth in wages, a fact the Bank of Botswana also acknowledges.

 

The policies

Khama’s economic legacy, apart from steering the country through two recessions without losses of civil service jobs, will be marked by several main policy positions. The first and most enduring is the multi-billion pula ESP he launched in February 2016 and described as “meant to boost economic growth through increased government spending in identified sectors, diversify the economy and accelerate employment creation”.

The programme, in which a minimum of P5 billion has been spent thus far, is funded from drawdowns on the country’s reserves, and focussed on construction, manufacturing, tourism and agriculture. The programme has been the subject of intense debate, with its advocates arguing that it drives public

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works, diversification and jobs creation, while its critics say the works are frequently of sub-standard quality, the jobs transient and the diversification minimal.

The Auditor General has conducted an audit of the programme and its results are eagerly awaited, particularly after the Directorate on Corruption and Economic Crime hinted at criminal activity in some of the ESP projects.

Each president since Independence has tackled economic diversification with varying results and Khama was no different, launching the EDD in 2010. Experts agree that while exports are still driven by the minerals sector, some success has been achieved in diversifying GDP and government revenues. In fact, the non-mining sector has come to the party and in certain years, has supported the economy when mining has flagged.

As he leaves office, one policy initiative Khama will keep an eye on is the Special Economic Zones, which are only just sprouting. It is hoped that the seven zones identified will further economic diversification by becoming hubs for international diamond activities, specialised manufacturing, financial services, beef, leather, aviation and others.

 

The flashpoints

One of Khama’s biggest headaches was the Mother of All Strikes in 2011, which shut down the civil service for several weeks, cost the economy untold millions and ended with thousands unemployed. To this day, the country’s labour movement and Khama have frosty relations, as reflected in the annual reports the unionists make to International Labour Organisation.

Parastatal misgovernance and underperformance also continued under Khama, with many of these presiding over major public works’ disasters while burning a hole in the treasury through subventions. Parliamentary committees and the Auditor General have raised in the last decade about wastage, low accountability, inefficiency and corruption within state owned entities and projects, with billions of pula lost. At present, precious few parastatals are abiding by the statutory requirement to declare a return to government and in fact, many exist only through treasury support.

Khama’s administration also oversaw a policy move to merge parastatals, followed by the establishment of new parastatals, in line with both the streamlining of mandates and consolidation of structural gaps in governance.

A major flashpoint Khama’s economic record will be associated with is the October 2016 collapse of BCL Mine and the associated implosion of the Selebi-Phikwe economy.

In the single biggest mass evaporation of jobs in the country’s history, more than 4,300 workers found themselves on the streets after Cabinet, headed by Khama, decided to close the Mine and apply for liquidation. The closure of BCL Mine is a black spot on Khama’s record, particularly as he personally presided in key meetings that reached the decision and later faced accusations that he had not returned to Selebi-Phikwe to assuage fears. The efforts to revive the town, guided by the Selebi-Phikwe Revitalisation Strategy and the regional agency, SPEDU, are yet to reap rewards to the extent of filling the gap left by BCL Mine.

Elsewhere in the North, when Khama took over power when the Francistown economy was on a decline as a result of the global recession. The situation was compounded by the closure of Tati Nickel Mining Company in October 2016, which resulted in direct job losses of over 700 and the contraction of the city’s disposal income.

Analysts say Khama has failed to come up with a workable solution to the second city’s economic woes ity. Late in 2016, he hinted that Francistown and other areas such as Selebi -Phikwe would be placed under the Special Economic Zone initiative.

Meanwhile, many properties remain vacant in the city, which has caused a glut, with rentals falling by close to 40%. Francistown has also been hit by changes in Zimbabwean import laws that at one point meant a significant reduction in shoppers from that country. Where BCL and Tati were low points for Khama, the resolution of the water and electricity crises of recent years is a highlight of his term. Nationwide electricity blackouts starting from 2009, followed by a crippling water crisis in the South in 2015 and 2016, hurt Khama’s economic record and became cannon fodder for his political rivals.

However, Khama oversaw a countercyclical fiscal policy in which public spending on water and energy projects was prioritised, maintained and even increased, through and after the global recession, resulting in budget deficits for the first four years of his rule. Today, Botswana Power Corporation has not only stabilised supply, but is due to be weaned off public subsidies within four years, while the South is well watered by the reinforced pipeline to the north. A second pipeline to the mammoth Dikgatlhong Dam, which was built under Khama’s countercyclical policy, is due to reach Gaborone in two years.

 

The tail-end

Khama’s exit from power has been steeped in ignominy, as various corruption allegations shake public funds housing billions of pula in taxpayer funds.

Questions have been raised in Parliament about the extent to which senior members of Khama’s Cabinet are either instigators or beneficiaries of the alleged corruption, with Khama’s name also dragged into one of the legal cases.

While Botswana maintained her position as Africa’s least corrupt country on the various indices during Khama’s tenure, and the outgoing president himself has lectured continental leaders against corruption, he will be wary of the current scandals becoming his economic legacy.

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