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Positive expectations for the economy under the new Presidency

BCL Mine's closure could have chipped as much as two percent from 2017 GDP
The first quarter of 2018 has been marked by an upturn in business confidence, at least anecdotally, associated with the ascendancy to the Presidency by His Excellency Mokgweetsi Masisi on April 1. Many in the private sector are anticipating the implementation of reforms that will improve the business climate and encourage investment and growth. ECONSULT researchers discuss some possible changes below

Notwithstanding improved confidence, economic growth data for 2017 show a slowdown in GDP growth to 2.4 percent for the year. This was largely expected, and reflects the impact of the closure of the BCL copper-nickel mine in October 2016.

To that extent, the slowdown is temporary, and we expect growth to recover to 4-5 percent in 2018. This will result from the BCL effect falling out of the GDP growth calculations during the year, an anticipated increase in diamond production, and the impact of fiscal expansion given the projected substantial growth in government spending in the 2018/19 financial year.

There are, however, some worrying signs in the economic data. Imports are reported to have fallen significantly, by 18.5%, in 2017. This would normally be indicative of an economy experiencing a major recession.

However, we are concerned that the import data are unreliable, as we have pointed out in previous reviews, and do not read too much into this (apart from the impact on the quality of the balance of payments statistics). Also worrying is the rise in arrears on bank lending, which has had an impact on bank  profitability. The highest level of arrears is on bank lending to parastatals (state-owned enterprises), which reflects the poor state of financial and general management in many parastatals.

One interesting aspect of the 2017 GDP data is the result that, for the first time in almost four decades, mining is no longer the largest sector of the economy, having been surpassed by the trade, hotels and restaurants sector. This is a direct result of the significant contraction of mining in 2017, but is also a sign of the diversification of the economy.

On a positive note, inflation dropped to 2.8 percent in March 2018. However, we suspect that this will be short-lived, especially given the rise in international oil prices to the highest level in four years. Upward pressure on fuel prices will be exacerbated by the need to increase the fuel levy in order to restore the National Petroleum Fund (NPF).

In his Inaugural Address, President Masisi highlighted his determination to address the problem of unemployment, particularly youth unemployment. This, is indeed an important economic challenge, and dealing with it is fundamental to improving household incomes and living standards, and reducing poverty and inequality.

There is no quick or easy answer to this, however; raising the rate of job creation sufficiently to reduce unemployment will be a long-term task.

Nevertheless, there are some changes that can, in principle, be made to get the process under way. Much could be achieved through the passage of an all-encompassing Business Environment Reform Act,

as was done in Mauritius back in 2006.

The crucial changes required in Botswana include reform of immigration regulations for foreign investors and workers, and visa regulations for tourists and other visitors; abolishing trade licences, except where there is a public health and safety justification; reducing the range of reserved economic activities (those that are closed to foreign investors); liberalising land and property ownership regulations; reform of zoning regulations to allow more mixed-use development; reducing the scope of environmental impact assessments (EIA) for developments in nonsensitive areas; legally establishing the “one government” principle (so that the public does not have to deal with multiple government departments on a single task); introducing legally binding time limits for the consideration of applications for permits or authorisations, failing which “silence is consent”; and introducing regulatory impact assessments, including a “bonfire” of existing regulations that are found to be unjustified, after review.

Such comprehensive “game-changing” reforms are necessary to achieve the Vision 2036 objective that Botswana will be a “destination of choice for investment”, by “open[ing]up our economy and our country to the global world and to international expertise and know-how, and make[ing] foreign investors feel welcome”. We are confident that private sector investment and job creation would respond well to such a reform package.

In pursuing the overriding objective of diversified, export-led growth, all policy initiatives should be viewed and assessed through the lens of whether they make Botswana more open and integrated into the regional and global economies, and whether they help the economy, and firms to become more (rather than less) competitive.

An example of how this should be applied relates to the proposed “tourism development levy”, a USD30 tax to be levied on all non-SADC visitors to Botswana. It is obvious that this makes Botswana less attractive to tourists, business visitors and potential investors, and hence, is in conflict with the objectives of competitiveness and openness.

Furthermore, it will establish a new, off-budget fund.

Recent developments with the NPF have shown how such funds are subject to abuse and corruption, and do not have adequate levels of transparency, oversight and accountability.

Hopefully, reason will prevail and the proposed levy will not see the light of day.

Overall, the first quarter of 2018 has seen a renewal of optimism in Botswana and more generally in Southern Africa.

Four SADC countries – Botswana, South Africa, Zimbabwe and Angola – have had new presidents in recent months, and all show promise in improving the business environment, reducing corruption and introducing more rational policies that will be supportive of investment, job creation and growth.

(Extracted from Econsult’s First Quarter 2018 Review)




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